Consolidated Water Co. Ltd. Q2 FY2026 earnings call

Grand Cayman Retail Regulatory Update

• Completed multi-year negotiations with the OfReg regulator and secured a new 25-year retail water utility license, effective August 1, 2026
• The new license preserves the company's exclusive right to produce and distribute potable water in its licensed area, providing long-term regulatory and earnings certainty for this core business
• Average customer water rates will decrease by approximately 6.5% under the new license, with an annual inflation-based adjustment mechanism retained
• Grand Cayman tourism, a key driver of retail water demand, grew 11.3% YoY in H1 2026 to 288,000 stayover arrivals, 2.8% above 2019 pre-pandemic levels; 2026 is on track to set a new annual tourism record

Bulk Business Operations

• Two new desalination plants on Cat Island, Bahamas are now fully operational, with the second plant commissioned in April 2026, contributing full incremental revenue in Q2 2026
• Bulk operations remain a stable source of long-term recurring revenue for the company

Services Segment Projects

• Two active construction projects (a $3.9 million drinking water plant expansion in Colorado and an $11.7 million wastewater recycling plant in California) are on track for substantial completion by the end of 2026; the Colorado project has established the company's entry into the market and positioned it for future design-build opportunities
• A new 3-year Southern California municipal O&M contract, expected to generate $4.5 million in total revenue, has partially offset lost revenue from expired Q1 2026 contracts
• The Hawaii Kalaeloa 1.7 million gallon per day seawater desalination project received a limited notice to proceed in July 2026, authorizing $6 million in long-lead material and equipment procurement; increased regulatory communication supports expected construction start by the end of 2026
• The company's Customized Design Report (CDR) program remains a key business development tool; the company is expanding CDR outreach to industrial clients in Arizona after earlier outreach to residential developers

Manufacturing Updates

• Subsequent to quarter-end, the company received $10.1 million in municipal water treatment equipment purchase orders for a Florida project, the largest municipal membrane equipment order and largest horizontal cartridge filter order in the company's history
• Growing demand for membrane-based treatment systems to utilize alternative water sources has created an active municipal project market in Florida, where the company's local manufacturing position gives it a competitive advantage

Organizational and Strategic Updates

• Strengthened the leadership team with the appointment of Sachin Chawla as Senior Vice President of Business Development to expand opportunities in high-demand water infrastructure segments
• The company holds a strong net cash balance sheet with no significant debt, providing flexibility to pursue organic growth opportunities, strategic acquisitions, and partnerships to accelerate growth

Consolidated Water reported total Q2 2026 revenue of $32.9 million, a 2% decrease year-over-year (YoY).

• Retail Segment: Q2 revenue was $8.7 million, which remained relatively consistent YoY. A 2% volume decrease from wetter weather was fully offset by a base rate increase for a major non-potable water customer after the expiration of their concessionary agreement. The segment contributes approximately 26.4% of total consolidated revenue.
• Bulk Segment: Q2 revenue was $9.9 million, a 20% increase YoY. Gross profit for the segment increased 27% YoY, driven by higher energy pass-through charges to the Bahamas Water and Sewage Corporation and incremental revenue from two new Cat Island desalination plants. The segment contributes approximately 30.1% of total consolidated revenue.
• Services Segment: Q2 revenue was $11.6 million, a 1% increase YoY. Higher construction revenue (up $2.5 million YoY from two active water treatment projects) was partially offset by lower O&M revenue following the expiration of two contracts in Q1 2026. The lower-margin construction revenue mix offset overall corporate G&A cost reductions for the segment. The segment contributes approximately 35.3% of total consolidated revenue.
• Manufacturing Segment: Q2 revenue was $2.7 million, a 49% decrease YoY caused by a decline in new purchase order volume. The segment contributes approximately 8.2% of total consolidated revenue.

• Full year 2026 manufacturing revenue is expected to be lower than 2025's record level, but recent order activity and current backlog support expectations of manufacturing revenue improvement in future quarters
• The $10.1 million Florida manufacturing order is scheduled for delivery in November 2027, and supports a strong revenue outlook for manufacturing in 2027
• Construction on the Hawaii Kalaeloa desalination project is still expected to begin before the end of 2026
• Current tourism trends point to a positive retail demand outlook for the balance of 2026; a greater than 70% probability of below-average rainfall in the 2026 wet season could provide an additional boost to retail water demand if realized

• CW Bahamas holds $18.8 million in accounts receivable from the Bahamas government, the majority of which is delinquent. While Bahamian officials have stated an intention to reduce delinquent balances, the timing of any reduction remains uncertain
• Permitting delays for the Hawaii Kalaeloa desalination project have already slowed progress, with a prerequisite archaeological permit still pending, creating uncertainty around the projected end-of-2026 construction start date
• The O&M market has become more competitive, with new engineering company entrants increasing competition for large contracts, creating challenges for winning new projects
• Manufacturing new order volume remains depressed in 2026, leading to expected full-year revenue below 2025 levels
• Retail water demand is exposed to unpredictable rainfall volatility; above-average rainfall reduces sales volume, as seen in Q2 2026
• All forward-looking statements around project timelines, revenue growth, and permit approvals are inherently uncertain, and actual results may differ materially from projections per the company's safe harbor disclosure

Q: Is the archaeological permit the last remaining permit for the Hawaii desalination project, and is it the main gating factor for construction? Can management share any update on when it may be approved? / A: The archaeological permit is not the last required permit, but it is a prerequisite for applying for several other key permits. Management is currently working with regulators to find a path to start other permit applications while resolving the archaeological permit delay, and is pursuing strategies to avoid further project delays.

Q: Beyond the recent large Florida manufacturing order, how is the manufacturing market developing outside of Florida? / A: Florida is currently the company's most active market for membrane equipment, and the company holds strong existing relationships with project engineers and consultants in the state. While the company is pursuing opportunities in other markets including Texas and the U.S. West Coast, expanding beyond Florida is not a critical near-term priority given the high level of current project activity in Florida.

Q: How is the O&M market developing, and what is the competitive landscape for new O&M contracts? / A: There are several large, attractive O&M opportunities upcoming in California that are significantly larger than the company's typical existing projects in the state. The market has become more competitive, with new engineering company entrants that did not previously pursue O&M work. The company believes its smaller size and lower overhead give it a stronger value proposition, and is working to meet qualification requirements for these large projects.