Consolidated Water Co. Ltd. [CWCO] Filings

10-Q 1 cwco-20240630x10q.htm 10-Q

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 0-25248

CONSOLIDATED WATER CO. LTD.

(Exact name of registrant as specified in its charter)

CAYMAN ISLANDS		98-0619652
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

Regatta Office Park
Windward Three, 4th Floor, West Bay Road
P.O. Box 1114
Grand Cayman KY1-1102
Cayman Islands		N/A
(Address of principal executive offices)		(Zip Code)

(345) 945-4277

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

As of August 9, 2024, 15,834,459 shares of the registrant’s common stock, with US$0.60 par value, were outstanding.

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TABLE OF CONTENTS


	Description	Page
PART I	FINANCIAL INFORMATION	4
Item 1	Financial Statements	4

	Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023	4

	Condensed Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023	5

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2024 and 2023	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4	Controls and Procedures	37

PART II	OTHER INFORMATION	38
Item 1A	Risk Factors	38
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 5	Other Information	40
Item 6	Exhibits	40

SIGNATURES		41

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Note Regarding Currency and Exchange Rates

Unless otherwise indicated, all references to “$” or “US$” are to United States dollars.

The exchange rate for conversion of Cayman Island dollars (CI$) into US$, as determined by the Cayman Islands Monetary Authority, has been fixed since April 1974 at US$1.20 per CI$1.00.

The exchange rate for conversion of Bahamas dollars (B$) into US$, as determined by the Central Bank of The Bahamas, has been fixed since 1973 at US$1.00 per B$1.00.

The official currency of the British Virgin Islands is the US$.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS


		June 30,		December 31,
		2024		2023
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	96,670,206	$	42,621,898
Accounts receivable, net		39,664,848		38,226,891
Inventory		4,561,374		6,044,642
Prepaid expenses and other current assets		2,945,174		4,056,370
Contract assets		5,413,780		21,553,057
Current assets of discontinued operations		1,503,473		211,517
Total current assets		150,758,855		112,714,375
Property, plant and equipment, net		54,368,951		55,882,521
Construction in progress		1,245,998		495,471
Inventory, noncurrent		4,999,102		5,045,771
Investment in OC-BVI		1,311,271		1,412,158
Goodwill		12,861,404		12,861,404
Intangible assets, net		3,025,000		3,353,185
Operating lease right-of-use assets		3,532,430		2,135,446
Other assets		3,058,949		3,407,973
Long-term assets of discontinued operations		—		21,129,288
Total assets	$	235,161,960	$	218,437,592

LIABILITIES AND EQUITY
Current liabilities
Accounts payable, accrued expenses and other current liabilities	$	8,100,744	$	11,604,369
Accrued compensation		2,759,353		3,160,030
Dividends payable		1,559,669		1,572,655
Current maturities of operating leases		618,705		456,865
Current portion of long-term debt		170,867		192,034
Contract liabilities		5,710,398		6,237,011
Deferred revenue		217,618		317,017
Current liabilities of discontinued operations		393,237		364,665
Total current liabilities		19,530,591		23,904,646
Long-term debt, noncurrent		115,033		191,190
Deferred tax liabilities		383,075		530,780
Noncurrent operating leases		2,949,303		1,827,302
Other liabilities		153,000		153,000
Deferred revenue		29,459		—
Total liabilities		23,160,461		26,606,918
Commitments and contingencies
Equity
Consolidated Water Co. Ltd. stockholders' equity
Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares; issued and outstanding 49,057 and 44,297 shares, respectively		29,434		26,578
Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding 15,829,572 and 15,771,545 shares, respectively		9,497,743		9,462,927
Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued		—		—
Additional paid-in capital		92,723,287		92,188,887
Retained earnings		104,455,633		85,148,820
Total Consolidated Water Co. Ltd. stockholders' equity		206,706,097		186,827,212
Non-controlling interests		5,295,402		5,003,462
Total equity		212,001,499		191,830,674
Total liabilities and equity	$	235,161,960	$	218,437,592

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue	$	32,479,158	$	44,237,263	$	72,168,548	$	77,106,253
Cost of revenue		20,858,944		28,773,714		46,670,311		51,083,622
Gross profit		11,620,214		15,463,549		25,498,237		26,022,631
General and administrative expenses		6,606,294		5,984,915		13,170,323		12,021,577
Gain (loss) on asset dispositions and impairments, net		(3,130)		1,000		(3,130)		6,916
Income from operations		5,010,790		9,479,634		12,324,784		14,007,970

Other income (expense):
Interest income		380,854		86,137		714,996		199,781
Interest expense		(33,438)		(36,247)		(66,939)		(74,091)
Profit-sharing income from OC-BVI		12,150		12,150		32,400		26,325
Equity in the earnings of OC-BVI		36,647		35,272		93,963		70,830
Other		22,213		31,819		62,190		63,345
Other income, net		418,426		129,131		836,610		286,190
Income before income taxes		5,429,216		9,608,765		13,161,394		14,294,160
Provision for income taxes		1,063,933		1,940,067		1,685,629		2,389,552
Net income from continuing operations		4,365,283		7,668,698		11,475,765		11,904,608
Income from continuing operations attributable to non-controlling interests		122,872		137,226		291,940		300,347
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders		4,242,411		7,531,472		11,183,825		11,604,261
Net income (loss) from discontinued operations		11,607,846		(207,701)		11,140,780		(466,864)
Net income attributable to Consolidated Water Co. Ltd. stockholders	$	15,850,257	$	7,323,771	$	22,324,605	$	11,137,397

Basic earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.27	$	0.48	$	0.71	$	0.74
Discontinued operations		0.73		(0.01)		0.70		(0.03)
Basic earnings per share	$	1.00	$	0.47	$	1.41	$	0.71

Diluted earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.26	$	0.47	$	0.70	$	0.73
Discontinued operations		0.73		(0.01)		0.70		(0.03)
Diluted earnings per share	$	0.99	$	0.46	$	1.40	$	0.70

Dividends declared per common and redeemable preferred shares	$	0.095	$	0.085	$	0.19	$	0.17

Weighted average number of common shares used in the determination of:
Basic earnings per share		15,829,120		15,736,041		15,829,024		15,729,852
Diluted earnings per share		15,983,671		15,907,440		15,984,154		15,899,923

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)


	Redeemable						Additional				Non-		Total
	preferred stock			Common stock			paid-in		Retained		controlling		stockholders’
	Shares	Dollars		Shares	Dollars		capital		earnings		interests		equity
Balance as of December 31, 2023	44,297	$	26,578	15,771,545	$	9,462,927	$	92,188,887	$	85,148,820	$	5,003,462	$	191,830,674
Issue of share capital	—		—	57,384		34,430		(34,430)		—		—		—
Buyback of preferred stock	(272)		(163)	—		—		(2,727)		—		—		(2,890)
Net income	—		—	—		—		—		6,474,348		169,068		6,643,416
Dividends declared	—		—	—		—		—		(1,510,082)		—		(1,510,082)
Stock-based compensation	—		—	—		—		279,875		—		—		279,875
Balance as of March 31, 2024	44,025	$	26,415	15,828,929	$	9,497,357	$	92,431,605	$	90,113,086	$	5,172,530	$	197,240,993
Issue of share capital	5,904		3,542	—		—		(3,542)		—		—		—
Conversion of preferred stock	(643)		(386)	643		386		—		—		—		—
Buyback of preferred stock	(229)		(137)	—		—		(2,144)		—		—		(2,281)
Net income	—		—	—		—		—		15,850,257		122,872		15,973,129
Dividends declared	—		—	—		—		—		(1,507,710)		—		(1,507,710)
Stock-based compensation	—		—	—		—		297,368		—		—		297,368
Balance as of June 30, 2024	49,057	$	29,434	15,829,572	$	9,497,743	$	92,723,287	$	104,455,633	$	5,295,402	$	212,001,499

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	Redeemable						Additional				Non-		Total
	preferred stock			Common stock			paid-in		Retained		controlling		stockholders’
	Shares	Dollars		Shares	Dollars		capital		earnings		interests		equity
Balance as of December 31, 2022	34,383	$	20,630	15,322,875	$	9,193,725	$	89,205,159	$	61,247,699	$	8,096,976	$	167,764,189
Issue of share capital	—		—	44,783		26,870		(26,870)		—		—		—
Net income	—		—	—		—		—		3,813,626		163,121		3,976,747
Purchase of remaining non-controlling interest in PERC	—		—	368,383		221,030		1,006,248		—		(3,667,305)		(2,440,027)
Dividends declared	—		—	—		—		—		(1,342,015)		—		(1,342,015)
Stock-based compensation	—		—	—		—		463,893		—		—		463,893
Balance as of March 31, 2023	34,383	$	20,630	15,736,041	$	9,441,625	$	90,648,430	$	63,719,310	$	4,592,792	$	168,422,787
Issue of share capital	13,309		7,985	—		—		(7,985)		—		—		—
Buyback of preferred stock	(203)		(122)	—		—		(1,708)		—		—		(1,830)
Net income	—		—	—		—		—		7,323,771		137,226		7,460,997
Exercise of options	599		360	—		—		6,891		—		—		7,251
Dividends declared	—		—	—		—		—		(1,340,972)		—		(1,340,972)
Stock-based compensation	—		—	—		—		461,695		—		—		461,695
Balance as of June 30, 2023	48,088	$	28,853	15,736,041	$	9,441,625	$	91,107,323	$	69,702,109	$	4,730,018	$	175,009,928

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities
Net income attributable to Consolidated Water Co. Ltd. stockholders	$	22,324,605	$	11,137,397
Income from continuing operations attributable to non-controlling interests		291,940		300,347
Net income		22,616,545		11,437,744
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of land and project documentation		(12,134,766)		—
Foreign currency transaction adjustment - discontinued operations		2,794		(2,161)
Loss from discontinued operations		991,192		469,025
Depreciation and amortization		3,342,337		3,269,859
Deferred income tax benefit		(147,705)		(75,298)
Provision for credit losses		234,632		—
Compensation expense relating to stock and stock option grants		577,243		925,588
Loss (gain) on asset dispositions and impairments, net		3,130		(6,916)
Profit-sharing and equity in earnings of OC-BVI		(126,363)		(97,155)
Distribution of earnings from OC-BVI		227,250		303,000

Change in:
Accounts receivable		(1,672,589)		(3,259,462)
Contract assets		16,139,277		(5,279,048)
Inventory		1,154,663		(4,290,778)
Prepaid expenses and other assets		1,192,867		(2,890,187)
Accounts payable, accrued expenses and other current liabilities		(3,904,303)		849,507
Contract liabilities		(526,613)		4,124,569
Operating lease liabilities		(2,602)		(2,602)
Deferred revenue		(69,940)		93,845
Net cash provided by operating activities - continuing operations		27,897,049		5,569,530
Net cash used in operating activities - discontinued operations		(991,158)		(595,980)
Net cash provided by operating activities		26,905,891		4,973,550

Cash flows from investing activities
Additions to property, plant and equipment and construction in progress		(1,725,153)		(3,110,041)
Proceeds from asset dispositions		3,000		21,410
Proceeds from Mexican settlement agreement		31,959,685		—
Purchase of remaining non-controlling interest in PERC		—		(2,440,027)
Net cash provided by investing activities - continuing operations		30,237,532		(5,528,658)
Net cash provided by investing activities - discontinued operations		1,301,979		—
Net cash provided by investing activities		31,539,511		(5,528,658)

Cash flows from financing activities
Dividends paid to common shareholders		(3,022,388)		(2,640,792)
Dividends paid to preferred shareholders		(8,390)		(5,845)
Buyback of redeemable preferred stock		(5,171)		(1,830)
Proceeds received from exercise of stock options		—		7,251
Principal repayments on long-term debt		(97,324)		(54,708)
Net cash used in financing activities		(3,133,273)		(2,695,924)
Net increase (decrease) in cash and cash equivalents		55,312,129		(3,251,032)
Cash and cash equivalents at beginning of period		42,621,898		50,711,751
Cash and cash equivalents at beginning of period - discontinued operations		91,283		442,252
Less: cash and cash equivalents at end of period - discontinued operations		(1,355,104)		(211,272)
Cash and cash equivalents at end of period	$	96,670,206	$	47,691,699

Non-cash transactions:
Issuance of 5,904 and 13,309, respectively, shares of redeemable preferred stock for services rendered	$	148,485	$	287,922
Issuance of 57,384 and 44,873, respectively, shares of common stock for services rendered	$	730,524	$	621,811
Conversion (on a one-to-one basis) of 643 shares of redeemable preferred stock to common stock	$	386	$	—
Dividends declared but not paid	$	1,508,470	$	1,341,651
Issuance of 0 and 368,383, respectively, shares of common stock for the purchase of non-controlling interest in PERC	$	—	$	5,359,973
Transfers from inventory to property, plant and equipment and construction in progress	$	375,274	$	139,471
Transfers from construction in progress to property, plant and equipment	$	648,585	$	188,871
Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,604,702	$	249,145
Transfers from prepaid expenses to property, plant and equipment	$	67,136	$	91,123
Transfers from prepaid expenses to inventory	$	—	$	419,420

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CONSOLIDATED WATER CO. LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Principal activity

Consolidated Water Co. Ltd. and its subsidiaries (collectively, the “Company”) supply potable water, treat wastewater and water for reuse, and provide water-related products and services to customers in the Cayman Islands, The Bahamas, the United States and the British Virgin Islands. The Company produces potable water from seawater using reverse osmosis technology and sells this water to a variety of customers, including public utilities, commercial and tourist properties, residential properties and government facilities. The Company designs, constructs and sells water production and water treatment infrastructure and manages water infrastructure for commercial and governmental customers. The Company also manufactures a wide range of specialized and custom water industry related products and provides design, engineering, operating and other services applicable to commercial, municipal and industrial water production, supply and treatment.

2. Accounting policies

Basis of consolidation: The accompanying condensed consolidated financial statements include the accounts of the Company’s (i) wholly-owned subsidiaries, Aerex Industries, Inc. (“Aerex”), Aquilex, Inc. (“Aquilex”), Cayman Water Company Limited (“Cayman Water”), Consolidated Water Cooperatief, U.A. (“CW-Cooperatief”), Consolidated Water U.S. Holdings, Inc. (“CW-Holdings”), DesalCo Limited (“DesalCo”), Kalaeloa Desalco LLC (“Kalaeloa Desalco”), Ocean Conversion (Cayman) Limited (“OC-Cayman”), PERC Water Corporation ("PERC") and Ramey Environmental Compliance, Inc. (“REC”); and (ii) majority-owned subsidiaries Consolidated Water (Bahamas) Ltd. (“CW-Bahamas”), N.S.C. Agua, S.A. de C.V. (“NSC”), and Aguas de Rosarito S.A.P.I. de C.V. (“AdR”). The Company’s investment in its affiliate Ocean Conversion (BVI) Ltd. (“OC-BVI”) is accounted for using the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.

In 2019 and 2020, CW-Holdings acquired 61% of PERC. In January 2023, CW-Holdings purchased the remaining 39% ownership interest in PERC for $2.4 million in cash, and 368,383 shares of the Company’s common stock having a value of approximately $5.36 million based upon the opening trading price of the Company’s common stock on The Nasdaq Global Market on the date of the transaction.

In September 2021, Kalaeloa Desalco was formed to pursue a project in Oahu, Hawaii. On June 2, 2023, Kalaeloa Desalco signed a definitive agreement with the Honolulu Board of Water Supply to design, construct, operate and maintain a 1.7 million gallons per day seawater reverse osmosis desalination plant in Oahu, Hawaii.

Effective October 1, 2023, the Company purchased, through its wholly-owned subsidiary PERC, a 100% ownership interest in REC, a Colorado company that operates and maintains water and wastewater treatment facilities and provides technical services to clients throughout the Rocky Mountain and Eastern Plains Regions of Colorado. PERC acquired REC for approximately $4.1 million and recorded goodwill and intangible assets from this acquisition of $2,436,391 and $1,108,390 respectively.

The accompanying interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) that, in the opinion of management, are necessary to fairly present the Company’s consolidated financial position, results of operations and cash flows as of and for the periods presented. The consolidated results of operations for these interim periods are not necessarily indicative of the operating results for future periods, including the fiscal year ending December 31, 2024.

These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted in these condensed consolidated financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. These

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condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Foreign currency: The Company’s reporting currency is the United States dollar (“US$”). The functional currency of the Company and its foreign operating subsidiaries (other than NSC, AdR, and CW-Cooperatief) is the currency for each respective country. The functional currency for NSC, AdR, and CW-Cooperatief is the US$. NSC and AdR conduct business in US$ and Mexican pesos and CW-Cooperatief conducts business in US$ and euros. The exchange rates for the Cayman Islands dollar and the Bahamian dollar are fixed to the US$. The exchange rates for conversion of Mexican pesos and euros into US$ vary based upon market conditions.

Net foreign currency gains arising from transactions and re-measurements were $16,602 and $24,397 for the three months ended June 30, 2024 and 2023, respectively, and $40,799 and $50,176 for the six months ended June 30, 2024 and 2023, and are included in “Other income (expense) - Other” in the accompanying condensed consolidated statements of income.

Cash and cash equivalents: Cash and cash equivalents consist of demand deposits at banks and certificates of deposit at banks with original maturities of three months or less. Cash and cash equivalents as of June 30, 2024 and December 31, 2023 include approximately $5.2 million and $5.1 million, respectively, of certificates of deposits with original maturities of three months or less.

Certain transfers from the Company’s Bahamas bank accounts to Company bank accounts in other countries require the approval of the Central Bank of The Bahamas. The equivalent United States dollar cash balances held in The Bahamas as of June 30, 2024 and December 31, 2023 were approximately $9.4 million and $3.0 million, respectively.

Goodwill and intangible assets: Goodwill represents the excess cost of an acquired business over the fair value of the assets and liabilities of the acquired business as of the date of acquisition. Goodwill and intangible assets recorded as a result of a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or upon the identification of a triggering event. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment. The Company evaluates the possible impairment of goodwill annually as part of its reporting process for the fourth quarter of each fiscal year. Management identifies the Company’s reporting units for goodwill impairment testing purposes, which consist of Cayman Water, the bulk segment (which is comprised of CW-Bahamas and OC-Cayman), PERC, REC, and the manufacturing segment (i.e., Aerex), and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company determines the fair value of each reporting unit and compares these fair values to the carrying amounts of the reporting units. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.

For the year ended December 31, 2023, the Company elected to assess qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment testing that was conducted in prior years for its reporting units. The Company assessed the relevant events and circumstances to evaluate whether it is more likely than not that the fair values of such reporting units were less than their carrying values. The events and circumstances assessed for each reporting unit included macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, and other relevant events. Based upon this qualitative assessment, the Company determined that it is more likely than not that the fair values of its reporting units exceeded their carrying values as of December 31, 2023.

Income taxes: The Company accounts for the income taxes arising from the operations of its United States subsidiaries under the asset and liability method. Deferred tax assets and liabilities, if any, are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent any deferred tax asset may not be realized.

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The Company is not presently subject to income taxes in the other countries in which it operates.

Revenue recognition: Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The following table presents the Company’s revenue disaggregated by revenue source.


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Retail revenue	$	8,181,884	$	7,573,329	$	16,806,822	$	15,344,424
Bulk revenue		8,447,958		8,482,495		16,790,052		17,486,868
Services revenue		11,922,469		24,093,963		29,340,080		36,815,664
Manufacturing revenue		3,926,847		4,087,476		9,231,594		7,459,297
Total revenue	$	32,479,158	$	44,237,263	$	72,168,548	$	77,106,253

Services revenue consists of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Construction revenue	$	3,324,610	$	19,827,827	$	12,528,274	$	28,521,342
Operations and maintenance revenue		7,068,922		4,044,015		14,168,275		7,729,821
Design and consulting revenue		1,528,937		222,121		2,643,531		564,501
Total services revenue	$	11,922,469	$	24,093,963	$	29,340,080	$	36,815,664

Retail revenue

The Company produces and supplies water to end-users, including residential, commercial and governmental customers in the Cayman Islands under an exclusive retail license issued to Cayman Water by the Cayman Islands government to provide water in two of the three most populated areas on Grand Cayman. Customers are billed on a monthly basis based on metered consumption and bills are typically collected within 30 to 45 days after the billing date. Receivables not collected within 45 days subject the customer to disconnection from water service.

The Company recognizes revenue from retail water sales at the time water is supplied to the customer’s premises. The amount of water supplied is determined and invoiced based upon water meter readings performed at the end of each month. All retail water contracts are month-to-month contracts. The Company has elected the “right to invoice” practical expedient for revenue recognition on its retail water sale contracts and recognizes revenue in the amount to which the Company has a right to invoice, recognizing this revenue from the transfer of goods or services to customers at a point in time.

Bulk revenue

The Company produces and supplies water to government-owned utilities in the Cayman Islands and The Bahamas.

OC-Cayman provides bulk water to the Water Authority-Cayman (“WAC”), a government-owned utility and regulatory agency, under two agreements. The WAC in turn distributes such water to properties in Grand Cayman outside of Cayman Water’s retail license area.

The Company sells bulk water in The Bahamas through its majority-owned subsidiary, CW-Bahamas, under two agreements with the Water and Sewerage Corporation of The Bahamas (“WSC”), which distributes such water through its own pipeline system to residential, commercial and tourist properties on the island of New Providence.

The Company has elected the “right to invoice” practical expedient for revenue recognition on its bulk water sale contracts and recognizes revenue in the amount to which the Company has a right to invoice, recognizing this revenue from the transfer of goods or services to customers at a point in time.

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Services and Manufacturing revenue

The Company designs, constructs, sells, operates and maintains, and provides consulting services related to water, wastewater and water reuse infrastructure through PERC. All of PERC's customers are companies or governmental entities located in the United States. Effective October 2023, PERC acquired REC, a company that provides operations and maintenance and consulting services to companies and governmental entities located in the state of Colorado.

The Company also provides design, engineering, management, procurement and construction services for desalination infrastructure through DesalCo, which serves customers in the Cayman Islands, The Bahamas and the British Virgin Islands.

The Company, through Aerex, is a custom and specialty manufacturer of systems and products applicable to commercial, municipal and industrial water production and treatment. Substantially all of Aerex’s customers are U.S. companies.

The Company generates construction, operations and maintenance, design and consulting revenue from PERC and DesalCo and generates manufacturing revenue from Aerex. The Company also generates operations and maintenance and consulting revenue from REC.

The Company recognizes revenue for its construction and custom/specialized manufacturing contracts over time under the input method using costs incurred (which represents work performed) to date relative to the total estimated costs at completion to measure progress toward satisfying a contract’s performance obligations as such measure best reflects the transfer of control of the promised good to the customer. Contract costs include labor, materials, subcontractor costs and other expenses. The Company follows this method since it can make reasonably dependable estimates of the revenue and costs applicable to the various stages of a contract. Under this input method, the Company records revenue and recognizes profit or loss as work on the contract progresses. The Company estimates total costs to be incurred and profit to be earned on each long-term, fixed price contract prior to commencement of work on the contract and updates these estimates as work on the contract progresses. The cumulative amount of revenue recorded on a contract at a specified point in time is that percentage of total estimated revenue that incurred costs to date comprise of estimated total contract costs. Due to the extended time it may take to complete many of the Company’s contracts and the scope and nature of the work required to be performed on those contracts, the estimations of total revenue and costs at completion are complicated and subject to many variables and, accordingly, are subject to changes. When adjustments in estimated total contract revenue or estimated total contract costs are required, any changes from prior estimates are recognized in the current period for the inception-to-date effect of such changes. The Company recognizes the full amount of any estimated loss on a contract at the time the estimates indicate such a loss. Any contract assets are classified as current assets. Contract liabilities on uncompleted contracts, if any, are classified as current liabilities.

The Company has elected the “right to invoice” practical expedient for revenue recognition on its operations and maintenance, design and consulting contracts and recognizes revenue in the amount to which the Company has a right to invoice, recognizing this revenue from the transfer of goods or services to customers at a point in time.

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For the three months ended June 30, 2024 and 2023, the Company recognized $3,988,174 and $19,839,950, respectively, of its services revenue from the transfer of goods or services to customers over time. The remaining services revenue of $7,934,295 and $4,254,013, respectively, was recognized from the transfer of goods or services to customers at a point in time. For the six months ended June 30, 2024 and 2023, the Company recognized $13,385,268 and $28,428,534, respectively, of its services revenue from the transfer of goods or services to customers over time. The remaining services revenue of $15,954,812 and $8,387,130, respectively, was recognized from the transfer of goods or services to customers at a point in time. For the three and six months ended June 30, 2024 and 2023, the Company recognized all of its manufacturing revenue from the transfer of goods or services to customers over time.

Revenue recognized and amounts billed on contracts in progress are summarized as follows:


	June 30,		December 31,
	2024		2023
Revenue recognized to date on contracts in progress	$	125,716,611	$	108,952,682
Amounts billed to date on contracts in progress		(129,687,174)		(101,724,459)
Retainage		3,673,945		8,087,823
Net contract asset /(liability)	$	(296,618)	$	15,316,046

The above net balances are reflected in the accompanying condensed consolidated balance sheets as follows:


	June 30,		December 31,
	2024		2023
Contract assets	$	5,413,780	$	21,553,057
Contract liabilities		(5,710,398)		(6,237,011)
Net contract asset /(liability)	$	(296,618)	$	15,316,046

As of June 30, 2024, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $145.4 million in aggregate transaction price for contracts with an original expected length of greater than one year. The Company expects to earn revenue as it satisfies its performance obligations under those contracts in the amount of approximately $11.3 million during the remainder of the year ending December 31, 2024 and approximately $134.1 million thereafter. In addition, the Company recognized revenue of approximately $5.0 million in the six months ended June 30, 2024, that was included in the contract liability balance as of December 31, 2023.

Practical Expedients and Exemptions

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.

Comparative amounts: Certain amounts presented in the financial statements previously issued for 2023 have been reclassified to conform to the current period’s presentation.

3. Segment information

The Company has four reportable segments: retail, bulk, services and manufacturing. The retail segment operates the water utility for the Seven Mile Beach and West Bay areas of Grand Cayman pursuant to an exclusive license granted by the Cayman Islands government. The bulk segment supplies potable water to government utilities in Grand Cayman and The Bahamas under long-term contracts. The services segment designs, constructs and sells water infrastructure and provides management and operating services to third parties. The manufacturing segment manufactures and services a wide range of custom and specialized water-related products applicable to commercial, municipal and industrial water production, supply and treatment. Consistent with prior periods, the Company records all non-direct general and administrative expenses in its retail segment and does not allocate any of these non-direct expenses to its other three business segments.

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The accounting policies of the segments are consistent with those described in Note 2. The Company evaluates each segment’s performance based upon its income (or loss) from operations. All intercompany transactions are eliminated for segment presentation purposes.

The Company’s segments are strategic business units that are managed separately because each segment sells different products and/or services, serves customers with distinctly different needs and generates different gross profit margins.


	Three Months Ended June 30, 2024
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	8,181,884	$	8,447,958	$	11,922,469	$	3,926,847	$	32,479,158
Cost of revenue		3,670,133		6,097,460		8,458,537		2,632,814		20,858,944
Gross profit		4,511,751		2,350,498		3,463,932		1,294,033		11,620,214
General and administrative expenses		4,378,816		363,268		1,196,624		667,586		6,606,294
Gain (loss) on asset dispositions and impairments, net		(6,130)		—		3,000		—		(3,130)
Income from operations	$	126,805	$	1,987,230	$	2,270,308	$	626,447