Consolidated Water Co. Ltd. Stock

Good morning. Thank you for joining us today to discuss Consolidated Water Company's Second Quarter of 2026 Operating and Financial Results.

Hosting the call today is the Chief Executive Officer of Consolidated Water, Rick McTaggart; and the company's Chief Accounting Officer, Doug Vizzini. [Operator Instructions]. 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 CEO, Rick McTaggart. Sir, please go ahead.

Thanks, Nick. 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 was 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 to our -- by our Bahamas company. Results also benefited from two new Cat Island desalination plants, which are supplying potable water to the Water and Sewage Corporation of the Bahamas. Cost reductions, lower 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 3 years. Our Services segment construction revenue increased driven by two previously announced water treatment projects 1 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 ordered to date, demonstrating the strength and breadth of our manufacturing capabilities.

Now before getting into recent developments and our outlook for the rest of the year 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 is recovering from the flu. In his place, I will turn the call over to our Chief Accounting Officer, Doug Vizzini, 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 the 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 year quarter, primarily due to higher energy pass-through charges by CW Bahamas driven by higher energy costs. Bulk revenue also benefited to a lesser extent from revenue earned from CW Bahama's new plants on Cat Island in the Bahamas. Services revenue was $11.6 million, increasing 1% versus the prior year 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 year 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 year 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. CW Bahamas 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 CW Bahama's 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 a new license from OfReg 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, stay over tourism and number 2, rainfall.

The Cayman Islands continued its strong tourism momentum in Q2. Stay over 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. The local newspapers reported that if current trends continue, 2026 could set a new annual stay-over 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.

We were pleased with the performance of our Caribbean-based bulk businesses which remain a stable source of long-term recurring revenue. During the quarter, bulk results benefited from our two new desalination plants on Cat Island and the Bahamas, as supply potable water to the Water and Sewage Corporation of the Bahamas. The first facility was commissioned in December last year and the second in April this year. So the quarter reflected contributions from both plants.

Turning to manufacturing. We still expect full year, as Doug mentioned earlier, full year 2026 results to fall below last year's record level but current backlog and recent order activity that we mentioned earlier, gives us confidence that manufacturing revenue can improve in future quarters. In particular, the orders we have received and the active municipal market in Florida support a strong outlook for 2027. This outlook is supported in part by the a $10.1 million purchase orders we received last month for a municipal water treatment project in Florida with delivery currently scheduled for November of 2027.

We continue to see an active market for our products and services, particularly with municipal projects in Florida. The key driver is the growing need for membrane-based treatment systems as utilities look to alternative water sources, including brackish groundwater to meet long-term supply needs and drinking water requirements. Our extensive experience manufacturing large-scale membrane-based water treatment systems, combined with our Fort Pierce, Florida manufacturing location positions us well to capitalize on growth opportunities in the Florida market which we believe will benefit 2026 and 2027 performance.

As mentioned earlier, our construction revenue increased $2.5 million due to work on two previously announced projects, construction projects, both of which are scheduled to be substantially completed this year. The Colorado drinking water plant expansion has been a good entry point for us in that market with the current O&M customer and helps position us for additional design-build opportunities in the future. Although new O&M and design-build opportunities in California are not as active as they were over the last 2 to 3 years.

We continue to pursue some very attractive opportunities some of which are larger than previous projects we have done in California. As I mentioned on past earnings conference calls, our customized design report or CDR program remains an important business development tool for identifying and advancing potential design build and O&M opportunities. Through the CDR process, we prepare comprehensive project-specific plans that incorporate life cycle cost, schedule and performance metrics helping prospective clients evaluate project scope, cost, schedule and water quality certainty before committing to construction.

In Arizona, we have several CDRs outstanding with residential developers and are broadening our CDR sales effort to include industrial clients. So based on recent developments I mentioned at the beginning of the call, we remain cautiously optimistic that construction of the Hawaii project will begin before the end of this year. The limited notice to proceed with the procurement of long-lead equipment should help reduce potential scheduling pressure and allow the project to move forward more efficiently once the required permits are in place.

The recent uptick in communications and information exchanges with key regulatory authorities in Hawaii supports our cautious optimism. Looking ahead, we feel very good about where we are today. Our Grand Cayman retail operations, recurring Caribbean bulk water revenue and expanding opportunities across U.S. manufacturing design build and O&M markets gives us multiple ways to grow with strong demand for reliable water infrastructure and a healthy balance sheet we believe we are well positioned to continue creating value for our shareholders.

To support this growth, we also strengthened our leadership team with the appointment of Sachin Chawla as our Senior Vice President of Business Development. Sachin brings meaningful experience across water infrastructure and treatment markets and we believe he can help us identify and advance additional opportunities in desalination, water reuse, industrial water and other areas where our technical and operating expertise is highly relevant.

Our strong balance sheet gives us the flexibility to move decisively on desalination and water infrastructure opportunities across all of our markets while also evaluating strategic acquisitions and partnerships that could accelerate growth. So now with that, Nick, I'd like to open the call up for questions.

[Operator Instructions]. The first question will come from Gerry Sweeney with ROTH Capital.

I know you touched upon it in your prepared remarks around the Hawaii Desal Project. But my understanding, I believe it's just one permit, the archeological permit that is maybe the last gate to getting the project going. And you did mention increased talks, I think, with regulatory agencies. But I was curious if you could just give any more detail, if possible, is that the last permit? Is that the gating factor? And any additional information on maybe when that permit can be received?

Yes. Sure, Gerry. Just to clarify, it's not the last permit. That's sort of a in sort of permit and it prevents us at the moment from applying for other important permits because you have to have that archeological permit in place. So we're discussing ways to proceed with the applications with -- on some of the other permits we need with the blessing of the archeological regulator. So, yes, I mean, it's definitely not the last one we need, but it is -- we have to have that as a prerequisite for some other permits.

I got you. And the other permits are sort of -- for lack of a better term standard construction permits that are normal in any of these type of projects. Is that fair to say?

Yes. Some of them are other ones are with the, I think, the drinking water regulator there in Hawaii. So I mean, we're looking at ways similar to the limited notice to proceed. We're looking at ways to speed up the process without suffering further delays because of this linchpin permit delay.

Switching gears to manufacturing. Obviously, a nice win for the Florida membrane project. Just curious as to opportunities maybe even outside of Florida, how the market is developing and potential opportunities?

Yes. I mean we're definitely looking at the West Coast because we have PERC out there and they get involved in some projects that require the types of piping and equipment that Aerex manufacturers. So we're looking at other states as well that have the sorts of membrane treatment systems like Texas that may need equipment that Aerex Manufacturers. So -- but I think the main point is that Florida is really busy right now. I don't think -- I mean I don't know. I mean I think there's a lot of work there. So it's not vital that we look elsewhere for work. I mean we try to get it when we can, but the state is very busy, and we have excellent relationships with the consulting engineers and the people that are driving these projects.

Got it. Makes sense. And then finally, maybe just on the O&M front. Obviously, that's a nice recurring type revenue. Curious as the market opportunity on that front. I think you got a little bit more competitive in the past year to but any commentary would be appreciated.

Sorry, just the first couple of lines that you say, what was the basis of the question?

The O&M market. How it's developing? Yes.

Yes, there's some big O&M opportunities in California. There's not like a lot of them, but there's certainly some things that are coming up that are a lot of interest to us. As I mentioned in the remarks, much larger than what we currently do there. So it will be a bit of a challenge to land these jobs. I mean, you have a lot of competition out there now. There's companies that were not involved in O&M that are now engineering companies that are in our market. So we'll do our best. We think that we have a better value proposition being a smaller company and less overheads. It's just a matter of getting qualified for some of these larger projects, which we think we can do.

[Operator Instructions]. Showing no further questions, this will conclude our question-and-answer session. I'd like to now turn the call back over to Mr. McTaggart. Sir, please go ahead.

Thanks, Nick. I'd just like to again thank everybody for joining us today. And I look forward to, again in November when we release our Q3 results. Take care.

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 statements that may constitute forward-looking statements usually containing the words believe, estimate, project, intend, expect, should, will or other similar expressions.

These forward-looking statements include, but are not limited to, statements regarding the anticipated construction schedule and completion of the Kalaeloa desalination facility, the effect of permitting delays on that schedule the companies and the Honolulu Board of Water supply's efforts to mitigate those delays the company's ability to perform its design, build, operate and maintain obligations with respect to the Kalaeloa facility, including the anticipated 20-year operating term and then the exercise of the related extension options and the company's ability to design, fabricate and deliver the Florida purchase orders on the anticipated schedule including by November 2027.

These forward-looking 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. For more information about risks and uncertainties associated with the company's business, please refer to the management 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 ir.cwco.com docs.

Except as otherwise required by law, the company undertakes no obligation to update or revise any publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 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.

Good morning. Thank you for joining us today to discuss Consolidated Water Company's First Quarter of 2026 Operating and Financial Results. Hosting the call today is the Chief Executive Officer of Consolidated Water, Rick McTaggart; and the company's Chief Financial Officer, David Sasnett. Following the remarks, we will open the call to your questions.

Before we conclude today's call, I will provide some important cautions regarding the forward-looking statements made by management during the call. I would like to remind everyone that today's call is being recorded, and it will be made available for telecom replay. Please see the instruction 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.

Thanks, Danish, and good morning, everyone. In Q1, consolidated revenue declined due to revenue declines in our manufacturing and retail segments. Manufacturing revenue was lower due to the timing of receipt of new purchase orders for 2026 projects compared to last year. We had received a large purchase order in late 2024, which had favorably impacted our first quarter revenue last year.

Retail revenue was impacted by much wetter weather conditions this past quarter, which reduced the water volume we sold in Grand Cayman by 10.2%. This decrease was partially offset by what turned out to be record-breaking tourism in the Cayman Islands during the quarter. However, revenue in our bulk and service segments continued to grow this past quarter, which partially offset the decline in our other two operating segments. Gross profit and operating income in our bulk and services segments also increased, underscoring the stable recurring nature of our Caribbean-based bulk water business and the momentum in our O&M services.

Our services segment revenue increase was mainly due to a 15% increase in revenue from O&M contracts. The O&M revenue increase was partially due to revenue from a new municipal client in Southern California, which is contracted with us in November last year under a 3-year contract that's expected to generate approximately $4.5 million in revenue over the next 3 years.

Now before getting into more 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 the quarter.

Our 2026 revenue totaled $30 million. This is down 11% from the first quarter of last year. This revenue decrease was due to declines of $4.4 million in our manufacturing segment revenue and $834,000 in our retail segment revenue. These decreases were partially offset by increases of $333,000 in the bulk segment and $1.2 million in the services segment.

Our retail revenue decreased due to a 10.2% decrease in the volume of water sold. The decrease for the Q1 of this year resulted from significantly greater rainfall on Grand Cayman during the quarter, as Q1 2025 rainfall was well below historical norms for the island. The slight increase in our bulk revenue was primarily due to new revenue from CW-Bahama's new island -- Cat Island plant. The increase in services revenue was primarily due to revenue generated under O&M contracts that totaled $8.9 million for the first quarter of 2026, an increase of 15% from the first quarter of '25. A portion of the increase in O&M revenue was attributable to the new 3-year contract mentioned previously by Rick for a California municipality obtained by PERC in November of last year.

In addition, about $500,000 of the O&M revenue increase was due to additional construction work and maintenance services, completed in 2026 for an O&M contract that expired at the end of March 2026. Our construction revenue remained relatively consistent at $2.1 million for the first quarter of '26.

Our manufacturing segment revenue decreased by $4.4 million or 76% to $1.4 million. As Rick mentioned, the decrease was due to a decrease in the total dollar volume of new purchase orders and to a lesser extent, the timing of the receipt and commencement of work on new purchase orders. We feel it's important to mention that based on our current projections, we believe that manufacturing revenue for the full 2026 fiscal year will be less than the manufacturing revenue generated for the 2025 fiscal year, which really was a record amount of revenue for our manufacturing segment.

Gross profit for 2026, was $10.9 million or 36% of total revenue as compared to $12.3 million or 37% of total revenue in the first quarter of 2025. The decrease was due to the declines in retail revenue and manufacturing revenue, mentioned previously. Net income from continuing operations attributable to Consolidated Water shareholders for the first quarter of '26, was $3.8 million or $0.24 per diluted share. These numbers compare to net income of $4.9 million or $0.31 per diluted share in the first quarter of 2025. And including discontinued operations, net income attributable to Consolidated Water shareholders for the first quarter of 2026 was $3.8 million or $0.23 per diluted share as compared to net income of $4.8 million or $0.30 per diluted share in the first quarter of '25.

Turning to our balance sheet. During the quarter, CW-Bahamas accounts receivable balances increased to $23.9 million as of March 31, 2026, as compared to $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 CW-Bahamas delinquent accounts receivable balances. However, we're unable to determine if or when such reduction will occur.

Our cash and cash equivalents totaled $126.3 million as of March 31, 2026. Our working capital grew to $144.3 million, and stockholders' equity has now reached $223.6 million. These amounts represent an $18.5 million increase in cash and an $8.1 million increase in working capital from the year-ago quarter. Our balance sheet continues to have no significant outstanding debt. Our projected liquidity requirements for the balance of 2026 include capital expenditures for existing operations of approximately $8.6 million, we paid approximately $2.3 million in dividends in April 2026. Our liquidity requirements may also include future quarterly dividends if such dividends are declared by our Board, and we continue to evaluate how to best utilize our ample cash balance to increase shareholder value.

So this concludes our financial summary for the quarter, and I'll turn the call back over to Rick.

Thanks, David. As I mentioned in my opening remarks, demand for our water in the Cayman Islands is affected by variations in the level of tourism and rainfall, the greater rainfall in Grand Cayman during the quarter, was partially offset by record-breaking tourism driven by strong air arrivals. In Q1, stay-over visitor arrivals in the Cayman Islands grew by 11.1% compared to the first quarter of 2025. March of 2026 marked the single best month for visitation in the island's history. No official stay-over numbers for April have been reported yet, but the Ministry of Tourism stated in late April that the run of record-breaking news is set to continue, specifically predicting that April will be a really great month for stay-over numbers.

It's interesting to also note that Cayman Airways is scheduled to inaugurate a new seasonal nonstop service between Grand Cayman and Austin, Texas on May 24, that's aimed at capturing summer travel demand. The opening of two major hotels in Grand Cayman, including the Grand Hyatt Last week and the ONE GT at the end of this month, adds new room inventory in anticipation of greater stay-over visitors.

We normally sell more water during the first half of the year when the number of tourists is greater and the weather is drier, indications so far are that tourism and business activity continue to grow in April and rainfall levels were lower in April this year than in 2025, which should support our retail water sales volumes in the second quarter.

Regarding our Cayman water utility license. In February last year, we received a new concession from the government that authorizes and maintains the terms of our 1990 license until the new license from OfReg is negotiated and enacted. Negotiations between Cayman Water and OfReg for this new license have been more active than in previous quarters, but remain ongoing.

So looking at bulk, we're also pleased that our Caribbean-based bulk business continued to generate long-term stable recurring revenue during the quarter. Our bulk segment revenue increase reflects contributions from one of two new desalination plants on Cat Island, The Bahamas, which supply potable water to the Water and Sewage Corporation of The Bahamas. The second plant is expected to be commissioned this quarter.

In our manufacturing business, while manufacturing segment revenue decreased compared to Q1 last year. We expect, based on current backlog that our manufacturing revenue for the rest of the year will improve. However, we also expect that manufacturing revenue for the full year will not be as high as we had last year in 2025, which David mentioned earlier, was a record year. Some of our production capacity in manufacturing this year will be used to manufacture seawater reverse osmosis units and piping for our Hawaii project. Accounting rules require that this Hawaii-related manufacturing revenue is eliminated in consolidation, although it will eventually be recognized through our services segment as the Hawaii project advances, and that has an impact on our outlook for the rest of the year, obviously.

For the remainder of this year and beyond, we are seeing a very active market for our manufacturing segment products and services, particularly for municipal water projects in Florida, which tend to have a longer lead time. A new market driver for our manufacturing business is a continued evolution of Florida water supply regulations and policies that are pushing utilities toward alternative sources including deeper, more brackish groundwater as more projects shift to these new sources, utilities often need membrane-based treatments such as reverse osmosis rather than traditional lime softening to reliably meet drinking water requirements. And this supports demand for our membrane-based water treatment products in our manufacturing segment.

We believe that our extensive experience manufacturing large-scale membrane-based water treatment systems as well as our location in Fort Pierce, Florida position us well to continue growing that part of the business in the Florida market. We believe all these factors will positively impact 2026 and 2027 revenues.

As we previously announced last year, we were awarded through PERC 2 water treatment plant construction projects, including a $3.9 million drinking water plant expansion in Colorado and an $11.7 million wastewater recycling plant in Northern California. Both projects are progressing well, and the remaining revenue of more than $13 million attributable to these projects is expected to be realized primarily this year in 2026. The drinking water plant expansion in Colorado is a good start and helps us to pursue other design and/or build opportunities in Colorado. We recently bid a smaller project with the same Colorado customer for work on their wastewater plant, and we are awaiting the results of this bidding process.

In California, although the number of new O&M opportunities is less than in the previous 2 years, there are a few interesting O&M as well as design-build opportunities that PERC Water is following, and we have a pipeline of potential projects for which we are in the process of submitting our qualifications and experience. PERC Water's Customized Design Report or CDR, delivers comprehensive project-specific plans for water infrastructure, incorporating life cycle cost, schedule and performance metrics. These reports ensure cost, schedule and water quality certainty utilizing PERC Water's trademark CDR approach to minimize risk and optimize plant performance for clients.

In Arizona, PERC continues to use the 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. We've received very positive feedback on outstanding CDRs as well as continued positive feedback from the developer market in general. We're optimistic that these will lead to new projects.

In Hawaii, our construction service segment revenue is anticipated to remain below the record achieved in 2023 until the initiation of the construction of the 1.7 million gallon per day desalination plant in Kalaeloa, Hawaii for the Honolulu Board of Water Supply. We continue to focus on the permitting process and respond to regulatory inquiries and coordinate with the Honolulu Board of Water Supply to mitigate schedule impacts. Although we're still unable to provide a firm construction start date for the project, we made some progress to obtain a key permit for the project and are encouraged by recent meetings with the responsible governmental authority.

The deferral of construction activities has shifted anticipated revenue recognition and associated cash flows related to this Hawaii project into future periods. We continue to anticipate that construction of the project will commence later this year, and we see the construction phase of this major project substantially adding to our revenue and earnings growth in later reporting periods.

So looking ahead, we remain excited about CWCO's future for many reasons. At the macro level, growing water scarcity continues to build interest in advanced treatment and reuse and desalination solutions to utilize impaired water sources such as wastewater and brackish groundwater. As water supply challenges increase, there is a rising demand for our specialized capabilities. We expect our diversified business to continue to deliver strong year-over-year results to shareholders, supported by our Grand Cayman retail operations, stable recurring revenue from our Caribbean bulk water business, and growth opportunities in our U.S. manufacturing and design-build and O&M businesses.

With global demand for clean water rising, our strong balance sheet positions us to act quickly on desalination and water infrastructure opportunities in the Caribbean and North America as well as potential strategic acquisitions or partnerships. In particular, we are actively looking at acquisitions to help us replicate PERC's very successful design-build business in the Florida market.

As we move forward in 2026 and beyond, we anticipate that all of these factors will continue to support our long-term growth enhance future profitability and further strengthen shareholder value.

Now with that, Danish, I'd like to open the call up for questions.

[Operator Instructions] Our first question comes from Gerry Sweeney from ROTH Capital.

On the Hawaii desalinization plant, as much as you can discuss, delays, I'm assuming it's around some of the permitting that you discussed previously. I just wanted to see if that is still the case, and this is just general friction that occurs in some of these permitting processes or if there's anything else we should be aware of that may be slowing things down?

So I wouldn't say there's any friction. It's just taken a painfully long time to get through this process with one particular permit. And there's other -- that permit is a prerequisite for a number of other important permits. We don't see any like problems other than the delay. I mean they haven't come back to us and said that we have to make changes to the project or anything like that at this point. So I mean that's all I got for you, Gerry. I mean it's just taken a long time to get through this one agency.

Yes. And I apologize. I didn't mean the friction with anybody. It's just generally the permitting process sometimes is just slow in general. So I apologize for my use of words there.

On the manufacturing side, you expanded the facility. You talked a little bit about a burgeoning or growing opportunity in Florida. How should we look at that as an opportunity and maybe going forward? And with some of the Hawaii plant being manufactured there? Is there more capacity that you can grow into and grow this business? Or will it be a little bit capacity constrained because of the Hawaii opportunity?

Well, I mean, we try to plan out when we build these units. Just to give you a little background, we needed the expansion because of the -- we diversified our business over the last few years, away from manufacturing these repetitive number of products for the nuclear industry, which don't -- I mean they take up some room, but not the amount of room on the manufacturing floor that these municipal projects take when we're assembling large [ RO sys ] and that sort of thing.

So we think that we have sufficient capacity to certainly grow beyond the revenues that we achieved last year. And the Hawaii project is -- I mean that's just part of the deal, I mean we have to program that in. And unfortunately, we can't recognize those revenues in the manufacturing segment, but they will be recognized on the Hawaii project eventually. So does that answer your question?

No, it does. I just -- it was a back way of just sort of asking, can you continue to grow that business and et cetera. And I think the answer is yes. And I think there's just some little bit of variability in some of these purchase orders that may impact the revenue. Is that also fair?

Well. Absolutely, yes. I mean, these are the municipal projects, they're much more -- it's a much longer lead time, I guess, to get those projects into manufacture and then start recognizing revenues. We get -- they tend to be larger purchase orders, so when we get them and we start building the contractors are ready for us to deliver the equipment and that sort of thing over maybe a 2- or 3-year project window, then you're going to see those revenues hit. But it's a longer lead type business, I think, but there's a lot of opportunities, as I mentioned on the call, Gerry, I mean Florida is really doing very well now in the market. The market is very good for us. So you should -- investors should be satisfied over the medium term on how the manufacturing business performs.

Got it. That's very helpful. And then just one more question on the retail side. Was this year more representative in terms of rainfall and last year was low rainfall or last year was low rainfall and this year was maybe a little bit more higher rainfall. I'm just trying to gauge what is sort of baseline?

Yes. I think this year is closer to representative, yes. I think last year was incredibly dry. It was like a 30-year sort of drought there. So there is more rain this year. You can't really predict...

No. I just want to make sure it didn't swing the other way, too, right? Got it. And then, I mean, you talked about just the overnight days are quite -- are going up. And I think in the past, you talked about maybe there were -- my words not yours, maybe tearing down some like 4-story hotels and putting up much larger ones. Is that development still going on? I mean, I know you just mentioned the opening of a new hotel last week. But just in general, is there still opportunity to maybe expand some of the hotel stock by going up?

It's not the hotels. It's the old condominium projects that were built in the '70s and the '80s and even in the early '90s, I mean they were all 3 stories, and now they have a 10-story limit there. So they're all being redeveloped. I mean, even some of the ones that are quite nice. I mean they're just -- they're redeveloping and knocking them down and then building these 10-story buildings there and utilizing that space more efficiently. So there's ongoing projects all the time. And one of our directors is in that industry? And is it indications are that it's going to continue.

[Operator Instructions] It appears we have no further question at this time. I would like to turn the call back over to Rick McTaggart for any further comments or closing remarks. Over to you, sir.

Thank you, Danish. I'd just like to thank everybody for joining us today, and I look forward to speaking with you all in August again when we release our Q2 results. Take care, everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Ladies and gentlemen, please wait. We need to read some disclaimer.

I would like to remind everyone today's call was being recorded. Before we conclude today's call, I will provide some important caution regarding the forward-looking statements made by management during the call. I would like to remind everyone that today's call is being recorded and will be made available for telecom replay. Please see the instruction in yesterday's press release that has been posted to the Investor Relations section of the company's website. Thank you.

Ladies and gentlemen, 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 the 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 plan object.

Any forward-looking statements made during the conference call are not guarantee of future performance and involve certain risks and 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 included political and social conditions of each country in which we -- political and social conditions of each country in which we conduct or plan to conduct business, our relationship with the government entities and other customers we serve, regulatory matters, including resolution of the negotiation of 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 periodical export filing with the Securities and Exchange Commission.

For more information about risks and uncertainties associated with the company business, please refer to the management discussion and analysis of financial condition or results of operations and Risk Factors section of the company's section filing, including, but not limited to, annual report of the Form 10-K and quarterly report of Form 10-Q. Any forward-looking statements made during the conference call speak of today's date. The company expressly disclaims any obligation or undertaking to update or revise any forward-looking statements made during the conference call to reflect any changes it is in expectation with regard to or any changes in this event, 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 instruction available via the company website at cwco.com. Thank you for attending today's presentation.

This concludes our conference call. You may now disconnect.

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.

Good morning. Thank you for joining us today to discuss Consolidated Water Company's third quarter 2025 operating and financial results. Hosting the 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. Thank you for joining us today to discuss our financial and operating results for our third quarter of 2025.

In the third quarter, our diversified water business model, which encompasses regulated utility operations, design and construction services, O&M services, and manufacturing continued to deliver strong performance. This steady progress led to a notable increase in overall revenue and earnings per share from our continuing operations compared to the same period last year.

Retail water sales in the exclusive utility service area on Grand Cayman were higher than the previous year because of ongoing strength of the economy in the Cayman Islands and drier weather conditions on Grand Cayman. We experienced greater demand for water, resulting in a meaningful uptick in both sales and volumes sold. Although our Caribbean-based bulk segment revenue saw a modest decline this past quarter, primarily due to lower fuel-related charges that we pass through to customers, we achieved higher profitability in this segment. This improvement was driven by our consistent commitment to operational excellence, which allowed us to further reduce costs and enhance efficiency.

Our services segment also saw healthy growth resulting from 2 construction projects that were underway this year, as well as steady gains from our recurring O&M contracts. These positive trends were partially offset by a decrease in consulting revenue, which was expected following the completion of a major plant commissioning and start-up project in California last year.

During the quarter, our manufacturing segment maintained its positive momentum. We saw further revenue growth and an improvement in gross margin, reflecting the production this past quarter of higher-margin specialized products for nuclear power and municipal water customers, as well as our continued focus on maximizing both production efficiency and capacity. The completion of our new 17,500 square foot manufacturing facility expansion this past quarter is expected to further enhance efficiency and throughput in that business. As previously reported, we hold NQA-1 certifications from 2 major nuclear industry companies and see renewed interest in U.S. nuclear power solutions. These specialized manufacturing qualifications position us for continued growth.

Design of the 1.7 million gallon per day seawater desalination plant for the Honolulu Board of Water Supply in Kalaoa, Hawaii, is now 100% complete, and we are focused on obtaining the remaining permits needed to allow our client to issue a notice to proceed with construction of the project. We continue to anticipate that construction of this project will commence early next year. We see this major project substantially adding to our revenue and earnings growth in 2026 and 2027.

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 David, who will take us through the financial details for the quarter.

Thank you, Rick, and good morning, everyone. Thanks for joining us today. Our revenue for the quarter totaled $35.1 million, which was up 5% from the $33.4 million we posted in the third quarter of 2024. This increase was due to revenue increases for the retail services and manufacturing segments.

Our retail revenue increased $184,000 due to a 6% increase in the volume of water sold. Revenue increase was tempered somewhat by lower energy prices, which decreased the pass-through component of our rates that we charge at Cayman Water.

Our bulk segment decreased $373,000 to $8.4 million due to a decline in energy prices, similar to the situation with Cayman Water. This decreased our rates in the Bahamas operations. But as Rick said earlier, we managed to improve profitability in our bulk segment despite the decline in revenue.

Services segment revenue increased by $1.6 million, primarily due to plant construction revenue increasing from $4.3 million in the third quarter of last year to $6.4 million in the third quarter of this year. Services segment revenue generated under our O&M contracts totaled $7.7 million in the third quarter of 2025, a slight increase from the amount we posted for the third quarter of 2024.

Manufacturing segment revenue increased by $305,000 or 7% to $4.7 million, as compared to $4.4 million in the third quarter of 2024, and this was as a result of increased production activity. Gross profit for 2025 was $12.9 million or 37% of total revenue, as compared to $11.6 million or 35% of total revenue in the third quarter of 2024. This increase was due to increases in retail services and manufacturing revenue, which enhanced our gross profit percentage.

Net income from continuing operations attributable to Consolidated Water stockholders for the third quarter of 2025 was $5.6 million or $0.34 per diluted share, and this compares to net income of $5 million or $0.31 per diluted share for the third quarter of last year. Including our discontinued operations, net income attributable to Consolidated Water stockholders for the third quarter of 2025 was $5.5 million or $0.34 per diluted share, as compared to net income of $4.5 million or $0.28 per diluted share in the third quarter of 2024.

Now turning to our financial condition and balance sheet. During the quarter, Consolidated Water Bahamas received significant payments on its delinquent accounts receivable from the Water & Sewage Corporation, which resulted in a decrease of $12.5 million in its accounts receivable balances over the course of this quarter to $16.8 million as of September 30, 2025. This also represents an overall $5.7 million decrease in accounts receivables from the prior year-end for TW Bahamas.

Our cash and cash equivalents totaled $123.6 million as of September 30, 2025. Our working capital was $141.7 million, and our stockholders' equity was $220.4 million. And as we pointed out on previous calls, our company presently has no significant outstanding debt.

Our cash and cash equivalents totaled -- excuse me, our projected liquidity requirements for the balance of 2025 include capital expenditures for existing operations of approximately $4.5 million, and this includes approximately $1.3 million for our project in the Bahamas, and $266,000 for new equipment for Aerex manufacturing facility.

We paid approximately $2.3 million in dividends in October, and our liquidity requirements may also include future quarterly dividends as such dividends are declared by our Board. We continue to evaluate how to use our ample cash balances to increase shareholder value.

This completes our financial summary for the quarter, and I'll turn the call back over to Rick.

Thanks, David. As I mentioned earlier, our services segment saw healthy growth in Q3, resulting from the 2 construction projects that were underway this year. In addition, we were awarded 2 additional water treatment plant construction projects this past quarter, a drinking water plant expansion in Colorado, and a wastewater recycling plant in California. The revenue attributable to these new projects is expected to be realized primarily in 2026, and the combined value of these projects totals approximately $15.6 million.

The first project was secured by REC, our Colorado subsidiary, reflecting its entrance into the design build market by winning its first construction contract in Lochbuie, Colorado. This $3.9 million drinking water plant expansion is a very good start and helps us to pursue larger design build opportunities in Colorado.

As announced earlier this month, our PERC Water subsidiary secured the other contract valued at $11.7 million to construct a wastewater recycling plant for a 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. We expect revenue from this project to be recognized primarily in 2026. PERC is currently pursuing several design build opportunities in Arizona. We have seen an uptick in requests for customized design reports or CDRs. And in response, we are actively preparing these CDRs for several developers. As was the case with the Liberty Utilities project a couple of years ago in Arizona, we believe that some or all of these CDRs will ultimately lead to a design build contract for these important wastewater treatment facilities, but it does take time.

Turning to our manufacturing business. Our new 17,500 square foot manufacturing facility expansion this past quarter will enable more throughput and allow us to manage multiple projects simultaneously. This facility expansion couldn't be timelier as we are seeing much increased bidding activity for municipal water projects in Florida.

Florida has undergone significant population growth since the COVID pandemic and with more than 1.5 million new residents moving to the state. Furthermore, the state water regulator is requiring water utilities to tap into much deeper and more saline, lower Floridan aquifers for new water supply projects instead of the shallower and fresher aquifers, which have historically been used and damaged by overabstraction and saline water intrusion. This population growth and the regulatory changes have strained freshwater resources and increased water treatment costs. Various municipal agencies in the fastest-growing areas of the state are just now catching up and bidding projects to increase drinking water supply using nanofiltration and low-pressure RO systems, which are required to treat the more saline aquifer water. We believe that our extensive experience manufacturing large-scale nanofiltration and RO systems, as well as our location in Fort Pierce, Florida, position us well to continue growing that part of our business in the Florida market.

So looking again at the Hawaii project, we and our clients are focused on obtaining the remaining permits needed to allow our client to issue a notice to proceed with construction of the project. This past quarter, our client received the permit to construct the 2 concentrate disposal wells for the project, which is one more big step towards commencement of construction. In addition, our client's application for a permit from the state government division responsible for the preservation of archeological and historical artifacts is currently under final review. Once we have this linchpin permit in hand, we'll be able to move forward with applications for several additional administrative permits, which are required before we can commence construction of the project. We continue to anticipate that full construction of the project will commence early next year.

So as you saw, we had some new directors joined the Board in October. As part of our ongoing initiatives to strengthen our corporate governance and overall expertise related to our business, we recently announced the appointment of 3 new independent directors: Kim Adamson, Dr. Maria Elena Giner, and Geronimo Gutierrez Fernandez, and these were effective at the beginning of October.

These new directors collectively bring extraordinary technical, operational, regulatory, governance and financial expertise to the Board, spanning public utility management, large-scale infrastructure delivery, international water governance and international finance. Kim brings nearly 30 years of executive level water industry experience, including as General Manager of Public Water Utilities, various water-related Board positions, and senior leadership positions at Brown & Caldwell, Kiewit Infrastructure Group and Algonquin Power & Utilities Corporation. Maria Elena has over 35 years of executive leadership experience in large-scale water infrastructure, capital planning and asset management, environmental policy and regulatory strategy. She is a former U.S. Commissioner of the International Boundary and Water Commission, where she managed multiple international water infrastructure facilities and administered a capital program of over $1 billion. Geronimo's 20-year career in senior government positions includes serving as Mexico's ambassador to the United States in 2017 and 2018, during which time he was extensively involved in the negotiations for the United States, Mexico, and Canada trade agreement. He brings to Consolidated Water deep expertise in infrastructure development and financing, was the former Managing Director of the North American Development Bank and his current position as Managing Partner of BEEL Infrastructure, a financial advisory and asset management firm in Mexico City. We look forward to their contributions and guidance as they enhance our Board's capabilities, assist with our execution of our strategies and help us continue Consolidated Water's upward trajectory.

As we wrap up the year and look ahead, our strong balance sheet and ample liquidity enable us to fund growth initiatives, both organic growth and potential acquisition opportunities. We believe continuing to build our diversified business across 4 segments is the best way to deliver long-term superior returns to our shareholders. We are very optimistic about our continued growth for a variety of reasons, which include continued growth in Grand Cayman, our ongoing construction projects in the U.S., and the increased project opportunities we are seeing for our manufacturing business in Florida. We believe our recent activities and successes and the current trends in our market represent strong catalysts for continued growth, increasing profitability and further strengthening of shareholder value.

Now with that, I'd like to open the call to your questions.

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

I want to start with Hawaii. It sounds like the architectural permit is coming through soon. And then separately, there's a couple of admin permits after that. I don't want to use the -- well, I'm going to use the word perfunctory, but those admin permits sort of just a perfunctory addition to what's going on and there's easily come through? Or is there anything we should be thinking about on that front?

Well, the archeological permit, I think, is the one that is really important to get because we have to have that. And there's a lot of -- I guess there's a lot more discretion with that division than these other permits that will follow. The other permits are mainly building-related permits. So I wouldn't say they're perfunctory, but I mean, they're definitely more administrative in nature than what we've been working on over the past year.

Administrative is probably a better word. And then assuming these come through, I would assume maybe 1 quarter, 1.5 quarters to ramp up the full sort of construction cadence and then proceeds through '26, '27, then sort of a wind down over a quarter or two. Is that sort of a correct cadence for the build-out?

Well, I mean, if you want a more accurate sort of look at it, I mean, look at our progress payment schedule that's in the contract that we filed. I mean, generally, the middle of the project is where we're spending the most money. There will be a ramp-up period, clearing the site and all that sort of stuff -- ordering materials. But I mean, it's a typical construction project. There's nothing unique about it.

I wasn't sure if there'd be a little bit of start and stop. Arizona, the CDR increase, is this a function of just activity picking up in the state? Or are you doing some more, I don't know, customer outreach positioning, et cetera?

I think it's just a function of how sort of well entrenched our salespeople are in Arizona. I mean, there's just a lot -- there's always something going on with developers there around Phoenix, and our sales and marketing team really has a good understanding of these projects.

So developers -- I mean, they're looking to do things that are quickest and cheapest way. So the CDR product that we offer gives them quite a bit of certainty on the cost, and we guarantee the schedule if they decide to hire us to build the project. So I think it's a good fit for those guys. That's why you see so much activity among the developers.

I want to point out that we bought REC, they had no design build capabilities nor were they pursuing any. So we really had to sort of build the design -- I use the word 'build' twice. We had to build the design build business in Colorado. And I think what you're seeing now with the Lochbuie project, some of the other things we're pursuing is finally the establishment of our sales activities relative to design build work in Colorado. We just couldn't walk in there and flip the switch on the design build work, but now we have a lot of momentum. And I think our salespeople established credibility, our company has established credibility in the Colorado build market. And so now they're pursuing these other projects. And I think we'll win our share of them.

So I mean, the REC, you have a project that -- you have some reference or project references, and that could help on the expansion into Colorado as well?

Exactly.

One more question, then I'll jump back in queue. I don' want to dial in there. Manufacturing obviously added 17,500 feet. How much opportunity does that open up? Obviously, it's more space, more -- you can build more, et cetera. But you also mentioned it allows you to do multiple projects at one time. So I'm not sure if it's -- it unlocks two things. One, more space for more projects, but also improves just overall flow of work through the facility, even generating additional growth opportunities or capacity opportunities.

I mean it's really -- it's all the same thing. I mean, it significantly improves the flow of work because you're not actually cutting steel and welding and bending steel and stuff in the same area that you're trying to assemble big pieces of equipment. So the new space is more of an assembly area. So the old shop will be available for exclusive use of fabricating the actual products, piping and plate and that sort of thing. So it's a huge improvement, I think, to the workflow of the facility and allows us to build much bigger units and that sort of thing, because it provides that extra space just for assembly work.

Then on the margin front, obviously, the nuclear work is higher end. How should we think of margins with even some of the municipal work coming through and the expansion in the facility? Can we see a step-up in margins from the flow-through work, more municipal work and just -- kind of preemptive thinking.

Gerry, I think we posted 3 points of gross profit this quarter. If we can get every quarter, it would be at -- I'm not expanding that, is what I'm saying. The bottom line is we believe regardless of the percentage involved with the gross profit, we believe that with the expansion, our overall gross profit dollars will improve, our revenue will improve for our manufacturing facility. The margins may fluctuate up and down depending on the product mix, and we talked about that in our [ Q ]. But obviously, the capital investment that we made in the expansion, we believe is totally justified by potential increased revenue and gross profit dollars that expansion will help us generate.

[Operator instructions]

Well, I guess there's no more questions. Anybody else?

In this case, this concludes our question-and-answer session. I'd like to now turn the call back over to Mr. McTaggart.

Thanks, Chloe. I'd just like to thank everybody again for joining and being shareholders and interested investors, and look forward to speaking with you again in March of next year. Take care.

Thank you. Before we conclude today's call, I would like to provide the company's safe harbor statement that includes caution 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 area 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 section 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 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 now 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, and you may now disconnect.