CWCO Q1 2026 Earnings Transcript

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DATE

Monday, May 18, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Frederick W. McTaggart
• Chief Financial Officer — David W. Sasnett

TAKEAWAYS

• Total Revenue -- $30 million, a decrease of 11% driven by lower manufacturing and retail segment sales.
• Manufacturing Segment Revenue -- $1.4 million, declining by $4.4 million or 76% due to fewer and delayed purchase orders.
• Retail Segment Revenue -- Down $834 thousand, resulting from a 10.2% drop in Grand Cayman water volume sold amid unusually high rainfall.
• Bulk Segment Revenue -- Increased by $133 thousand, primarily from the new Cat Island plant in The Bahamas.
• Service Segment Revenue -- Rose by $1.2 million, led by a 15% increase in O&M contract revenue, including contribution from a new Southern California municipal client.
• O&M Contracts Revenue -- $8.9 million, up 15%, partially attributed to a new three-year California contract with $4.5 million total value.
• Gross Profit -- $10.9 million, representing 36% of revenue, down from $12.3 million and 37% in the prior year due to retail and manufacturing declines.
• Net Income (Continuing Operations) -- $3.8 million, or $0.24 per diluted share, versus $4.9 million, or $0.31 per share, previously.
• Net Income (Including Discontinued Ops) -- $3.8 million, or $0.23 per diluted share, compared to $4.8 million, or $0.30 per share, last year.
• Accounts Receivable (CW Bahamas) -- Rose to $23.9 million from $20.7 million since year-end, with timing for reduction uncertain despite ongoing discussions with the government.
• Liquidity & Balance Sheet -- Cash and equivalents totaled $120.3 million; working capital reached $144.3 million, both up year over year; no significant outstanding debt reported.
• Dividends Paid -- Approximately $2.3 million paid in April; future payments contingent on board declarations.
• Manufacturing Revenue Outlook -- Expected full-year 2026 manufacturing revenue will be below last year's record, with projected improvement later in the year based on backlog.
• Regulatory Update -- New concession for Cayman water utility license received in February maintains operations pending a new agreement with OffReg, with negotiations ongoing.
• Tourism & Retail Volume Outlook -- Q1 tourism arrivals up 11.1%; new hotel rooms and airline routes expected to support higher future water sales, especially given lower April rainfall.
• Bulk Segment Expansion -- Incremental revenue from the first of two new Cat Island (Bahamas) plants; second plant's commissioning expected in the current quarter.
• Services Project Pipeline -- Over $13 million in revenue from Colorado and Northern California water projects is expected to be realized mainly in 2026.
• Hawaii Project Status -- Construction service segment revenue remains below 2023 record as project start is delayed by permitting; progress on a key permit has been made, with cash flows deferred to later periods.
• Acquisitions -- The company is actively seeking acquisitions to expand PERC’s design-build business model in Florida.

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RISKS

• Manufacturing segment revenue for 2026 is explicitly expected to remain below last year's record level, with significant shortfall already evident in Q1.
• Accounts receivable from CW Bahamas have increased to $23.9 million, with management stating uncertainty on "if or when" the balance will be reduced.
• Permitting delays on the Hawaii desalination project have deferred both revenue recognition and associated cash flows, with no firm construction start date available.

SUMMARY

The call reported lower top- and bottom-line results, with consolidated revenue down 11% led by a sharp decline in manufacturing and wetter weather that reduced retail water sales. Management highlighted amid these declines, bulk and services segments delivered revenue growth, with service gains driven by new O&M contracts and a major new municipal client in California. Executives expect contributions from recent tourism records, additional hotel capacity, and a new airline route to favorably impact retail sales in upcoming periods. Multiple major construction projects, including over $13 million in contracted Colorado and California work, are progressing and forecast to bolster service revenue in 2026. The Hawaii desalination project remains delayed by the pace of permitting, deferring a significant portion of the construction segment’s revenue and earnings growth into future periods.

• CW Bahamas receivables are rising, with management unable to provide timing for reduction despite ongoing government engagement.
• Manufacturing segment is experiencing a multi-quarter contraction from record 2025 levels, with leadership citing a strong medium-term municipal project pipeline but visibility limited by long lead times and intra-year variability.
• The company maintains a highly liquid balance sheet with no significant debt and signals continued dividend capacity, pending board approval of future payments.
• Acquisition activity targets leveraging PERC’s design-build model to expand U.S. presence, especially in Florida.

INDUSTRY GLOSSARY

• O&M: Operations and maintenance contracts involving the ongoing management and technical upkeep of water treatment or supply facilities.
• CDR: Customized Design Report from PERC, providing tailored planning and lifecycle assessment for water infrastructure projects.
• OffReg: Utility regulator in the Cayman Islands responsible for water sector oversight and licensing.

Full Conference Call Transcript

Frederick W. McTaggart: 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 26 projects compared to last year. We had received a large purchase order in late 24 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 2 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 contracted with us in November. Under a 3-year contract, it is 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 would like to turn the call over to our CFO, David W. Sasnett, who will take us through the financial details for the quarter.

David W. Sasnett: 1, 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 thousand in our retail segment revenue. These decreases were partially offset by increases of $133 thousand in the bulk segment and $1.2 million in the service 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 2020 rainfall was well below historical norms for the island.

The slight increase in our bulk revenue was primarily due to new revenue from CW Bahamas new island, Cat Island plant. The increase in services segment revenue primarily due to revenue generated under O&M contracts that totaled $8.9 million for the 2026, an increase of 15% from the 2025. A portion of the increase in O&M revenue is attributable to the new 3-year contract mentioned previously by Rick for a California municipality obtained by PERC in November. In addition, about $500 thousand of the revenue increase was due to additional construction work and maintenance services completed in 2026 for an O&M contract that expired at March 2026. Our construction revenue remained relatively consistent at $2.1 million for the 2026.

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 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 2025 this 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 2025. 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 2026 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 2025. And including discontinued operations, net income attributable to Consolidated Water shareholders for the 2026 was $3.8 million or $0.23 per diluted share, compared to net income of $4.8 million or $0.30 per diluted share in the 2025. Turning to our balance sheet. During the quarter, CWB's 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 continues to express their intention to significantly reduce CW Bahamas delinquent accounts receivable balances. However, we are unable to determine if or when such reduction will occur. Our cash and cash equivalents totaled $120.3 million as of 03/31/2026. 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. An $8.1 million increase of 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 of such dividends are declared by our board. And we continue to evaluate how to best utilize our ample cash balance to increase shareholder value. This concludes our financial summary for the quarter, I will turn the call back over to Rick.

Frederick W. McTaggart: 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 2025. March 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. Interesting to also note that Cayman Airways is scheduled to inaugurate a new seasonal non stop service between Grand Cayman and Austin, Texas, on May 24. that is aimed at capturing summer travel demand. The opening of 2 major hotels in Grand Cayman, including the Grand Hyatt last week, and the 1 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, we received a new concession from the government that authorizes and maintains the terms of our 1.99 thousand license until a new license from OffReg is negotiated and enacted. Negotiations between Cayman Water and Off Reg for this new license have been more active than in previous quarters but remain ongoing.

So looking at bulk, we are 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 1 of 2 new desalination plants on Cat Island, The Bahamas, which supply potable water to the Water and Sewerage 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 and 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 the, 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.

Perkwater's customized Design Report or CDR delivers comprehensive project specific plans for water infrastructure incorporating life cycle costs, 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 have received very positive feedback on our outstanding CDRs as well as continued positive feedback from the developer market in general. We are 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 are 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 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 operation stable recurring revenue from our Caribbean bulk water business, and growth opportunities in our US 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 would like to open the call up for questions.

Operator: Thank you. We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the case. If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily. Assemble our roster. Our first question comes from Gerard Sweeney from Roth Capital. Please go ahead.

Gerard Sweeney: Good morning, Rick and David. Thanks for taking my call.

Frederick W. McTaggart: Hey, Jerry.

David W. Sasnett: Good morning.

Gerard Sweeney: On the Hawaii desalination plant, as much as you can discuss, know, delays, I am assuming, is 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 is anything else we should be aware of that may be slowing things down.

Frederick W. McTaggart: I would not say there is any friction. it is just taken a painfully long time to get through this process with 1 particular permit. And there is other-- that permit is a prerequisite for a number of other important permits. We do not see any like, problems other than the delay. I mean, they have not come back to us and said that we have to make changes to the project or anything like that at this point.

Gerard Sweeney: So Got it.

Frederick W. McTaggart: I mean, that is all I got for you, Jerry. I mean, it is just taken a long time. To get through this 1 agency.

Gerard Sweeney: Yeah. And I apologize. I did not mean to friction with anybody. it is just generally the permitting problem.

Frederick W. McTaggart: They are permitting process sometimes is just slow in general.

Gerard Sweeney: So I apologize for my use of words there. On the manufacturing side, you know, you expanded the facility You talked a little bit about a, you know, 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 they can grow into and grow this business?

Frederick W. McTaggart: Or will it be a little bit capacity constrained? Because of the Hawaii opportunity. Well, you know, I mean, it is 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 do not I mean, they take up some room, but not the amount of room on the manufacturing floor that these municipal projects take when we are assembling large ROC goods and that sort of thing.

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

Gerard Sweeney: No. It does. I you know, I just was a back way of just sort of asking, you know, can you continue to grow that business and etcetera. And think the answer is yes, and I think there is just some little bit of variability in some of these purchase orders that may impact the revenue. Is that also fair?

Frederick W. McTaggart: Oh, absolutely. Yeah. I mean, these municipal projects, you know, they are much more they take it is a much longer lead time, I guess, to get those projects into to manufacture and then start recognizing revenues. You know, we get they tend to be you know, larger purchase orders. So when we get them, you know, those and we start building, the contractor is ready for us to deliver the equipment and that sort of thing. Over maybe a 2 or 3 year project window. Then, you are gonna see those revenues hit. But it is it is a longer-lead-time business, I think, but there is there is a lot of opportunities, as I mentioned, on the call, Jerry.

I mean, Florida is really doing very well now in the market, you know, the market's very good for us. So you know, you should investors should be satisfied over the medium term on how the manufacturing business performs. Got it. that is very helpful.

Gerard Sweeney: And then just 1 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 you know, a little bit more higher rainfall. I am just trying to gauge what is sort of baseline Yeah.

Frederick W. McTaggart: I think this year is closer to representative. Yeah.

David W. Sasnett: I think last year was incredibly dry. It was, like, a 30 year sort of drought there.

Gerard Sweeney: So More rain this year.

David W. Sasnett: He cannot really predict No.

Gerard Sweeney: I just want to make sure it swing. The other way too. Right? Got it.

Frederick W. McTaggart: And then I mean, you talked about just the overnight stays 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 is not the hotels. it is the old condominium projects that were built in the seventies and the eighties. Even in the early nineties.

I mean, they are they were all 3 stories, and now they have a 10 story limit there. So they are all being redeveloped I mean, even some of the ones that are quite nice, I mean, they are just they are redeveloping and knocking them down and then building these 10 story buildings there and utilizing that space more efficiently. So there is ongoing projects all the time. 1 of our directors is in that industry and, you know, is it indications are that it is gonna continue. So I got it.

Gerard Sweeney: that is helpful. Alright. I will jump back in the queue. I appreciate it. Thanks, Rick and David.

Frederick W. McTaggart: Yep.

Operator: Thank you. Again, if you have a question, please press star then 1. It appears we have no further questions at this time. I would like to turn the callback over to Rick McTaggart. For any further comments or closing remarks. Over to you, sir.

Frederick W. McTaggart: Thank you, Danish. I would 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.

Operator: Thank you. Before we conclude today's call, I would like to provide the company's safe harbor statement that include cautions regarding forward-looking statements made during today's call. The information that we have provided in this conference call includes forward looking statement within the meaning of the Private Securities Litigation Reform Act of 2 thousand including, but not limited to statement regarding the company's future revenue. Future plans, objectives, expectations, and events, assumptions, and estimates. Forward looking statement can be identified by the use of words or phrases usually containing the word believes, estimates, projects, intent, expect, should, will, or similar expressions.

Statements that are not historical facts are based on the company's current expectations, beliefs, assumptions, estimates, forecast, and projections for its business the industry and market related to the business. Any forward looking statement made during the conference call are not guarantees of future performance and involve 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 statement Factors that would cause or contribute to such differences include, but are not limited to, tourism and weather condition and the areas we serve. The economic political, and social condition of each country in which we conduct or plan to conduct business.

Our relationship with the government entities and other customer we serve. Regulatory matters, including the resolution of the negotiations, for the renewal of our retail license on Grand Cayman. Our ability to successfully enter new markets, and various other risk as detailed in the company's periodic report filings with the Securities and Exchange Commission. For more information about risk and uncertainties associated with the company's business, please refer to the management discussion and Analysis of Financial Condition and Results. Of operation and risk factors section of the company's SEC filings, including, but not limited to, an annual report on Form 10-K and quarterly reports on Form 10-Q.

Any forward looking statement made during the conference call, speak only as of today's date. The company expressly disclaim any obligation or undertaking to update or revise any forward looking statement made during the conference call to reflect any changes in any expectation with regard thereto. Or any changes in any events, conditions, or circumstances of which any forward looking statement is based, except as required by law. Would like to remind everyone that this call will be available for replay starting later this evening. Please refer to yesterday's earning release for dial in. Replay instruction 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.

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