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 September 30, 2024

OR

☐   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 November 11, 2024, 15,834,897 shares of the registrant’s common stock, with US$0.60 par value, were outstanding.

TABLE OF CONTENTS

	Description	Page
PART I	FINANCIAL INFORMATION	4
Item 1	Financial Statements	4
	Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023	4
	Condensed Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023	5
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 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	25
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	40
Item 5	Other Information	40
Item 6	Exhibits	40
SIGNATURES		41

2

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$.

3

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

		September 30,		December 31,
		2024		2023
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	104,869,627	$	42,621,898
Accounts receivable, net		37,199,621		38,226,891
Inventory		3,928,851		6,044,642
Prepaid expenses and other current assets		5,675,517		4,056,370
Contract assets		1,958,361		21,553,057
Current assets of discontinued operations		314,847		211,517
Total current assets		153,946,824		112,714,375
Property, plant and equipment, net		53,203,218		55,882,521
Construction in progress		2,799,135		495,471
Inventory, noncurrent		5,180,540		5,045,771
Investment in OC-BVI		1,384,891		1,412,158
Goodwill		12,861,404		12,861,404
Intangible assets, net		2,860,907		3,353,185
Operating lease right-of-use assets		3,328,936		2,135,446
Other assets		2,801,873		3,407,973
Long-term assets of discontinued operations		—		21,129,288
Total assets	$	238,367,728	$	218,437,592
LIABILITIES AND EQUITY
Current liabilities
Accounts payable, accrued expenses and other current liabilities	$	7,108,726	$	11,604,369
Accrued compensation		3,747,516		3,160,030
Dividends payable		1,803,926		1,572,655
Current maturities of operating leases		633,971		456,865
Current portion of long-term debt		151,276		192,034
Contract liabilities		6,018,720		6,237,011
Deferred revenue		170,551		317,017
Current liabilities of discontinued operations		451,839		364,665
Total current liabilities		20,086,525		23,904,646
Long-term debt, noncurrent		91,561		191,190
Deferred tax liabilities		227,253		530,780
Noncurrent operating leases		2,784,742		1,827,302
Other liabilities		153,000		153,000
Deferred revenue		38,424		—
Total liabilities		23,381,505		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 44,650 and 44,297 shares, respectively		26,790		26,578
Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding 15,834,459 and 15,771,545 shares, respectively		9,500,675		9,462,927
Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued		—		—
Additional paid-in capital		93,074,517		92,188,887
Retained earnings		107,164,155		85,148,820
Total Consolidated Water Co. Ltd. stockholders' equity		209,766,137		186,827,212
Non-controlling interests		5,220,086		5,003,462
Total equity		214,986,223		191,830,674
Total liabilities and equity	$	238,367,728	$	218,437,592

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

4

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenue	$	33,390,557	$	49,854,075	$	105,559,105	$	126,960,328
Cost of revenue		21,755,899		33,239,647		68,426,210		84,323,269
Gross profit		11,634,658		16,614,428		37,132,895		42,637,059
General and administrative expenses		6,955,969		5,872,490		20,126,292		17,894,067
Gain on asset dispositions and impairments, net		201,582		—		198,452		6,916
Income from operations		4,880,271		10,741,938		17,205,055		24,749,908
Other income (expense):
Interest income		626,801		196,567		1,341,797		396,348
Interest expense		(32,801)		(34,020)		(99,740)		(108,111)
Profit-sharing income from OC-BVI		20,250		12,150		52,650		38,475
Equity in the earnings of OC-BVI		53,370		37,182		147,333		108,012
Other		56,420		24,187		118,610		87,532
Other income, net		724,040		236,066		1,560,650		522,256
Income before income taxes		5,604,311		10,978,004		18,765,705		25,272,164
Provision for income taxes		490,209		1,976,453		2,175,838		4,366,005
Net income from continuing operations		5,114,102		9,001,551		16,589,867		20,906,159
Income from continuing operations attributable to non-controlling interests		156,784		163,428		448,724		463,775
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders		4,957,318		8,838,123		16,141,143		20,442,384
Net income (loss) from discontinued operations		(502,854)		(232,994)		10,637,926		(699,858)
Net income attributable to Consolidated Water Co. Ltd. stockholders	$	4,454,464	$	8,605,129	$	26,779,069	$	19,742,526
Basic earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.31	$	0.56	$	1.02	$	1.30
Discontinued operations		(0.03)		(0.01)		0.67		(0.05)
Basic earnings per share	$	0.28	$	0.55	$	1.69	$	1.25
Diluted earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.31	$	0.55	$	1.01	$	1.28
Discontinued operations		(0.03)		(0.01)		0.67		(0.04)
Diluted earnings per share	$	0.28	$	0.54	$	1.68	$	1.24
Dividends declared per common and redeemable preferred shares	$	0.11	$	0.095	$	0.30	$	0.265
Weighted average number of common shares used in the determination of:
Basic earnings per share		15,833,715		15,742,854		15,830,599		15,734,234
Diluted earnings per share		15,989,601		15,928,604		15,986,019		15,909,725

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

5

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
Conversion of preferred stock	(4,887)		(2,932)	4,887		2,932		—		—		—		—
Buyback of preferred stock	(563)		(338)	—		—		(5,306)		—		—		(5,644)
Net income	—		—	—		—		—		4,454,464		156,784		4,611,248
Exercise of options	1,043		626	—		—		23,127		—		—		23,753
Dividends declared	—		—	—		—		—		(1,745,942)		(232,100)		(1,978,042)
Stock-based compensation	—		—	—		—		333,409		—		—		333,409
Balance as of September 30, 2024	44,650	$	26,790	15,834,459	$	9,500,675	$	93,074,517	$	107,164,155	$	5,220,086	$	214,986,223

6

	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
Conversion of preferred stock	(7,936)		(4,762)	7,936		4,762		—		—		—		—
Net income	—		—	—		—		—		8,605,129		163,428		8,768,557
Exercise of options	5,057		3,034	2,575		1,544		87,935		—		—		92,513
Dividends declared	—		—	—		—		—		(1,499,538)		—		(1,499,538)
Stock-based compensation	—		—	—		—		521,505		—		—		521,505
Balance as of September 30, 2023	45,209	$	27,125	15,746,552	$	9,447,931	$	91,716,763	$	76,807,700	$	4,893,446	$	182,892,965

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

7

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities
Net income attributable to Consolidated Water Co. Ltd. stockholders	$	26,779,069	$	19,742,526
Income from continuing operations attributable to non-controlling interests		448,724		463,775
Net income		27,227,793		20,206,301
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		60,915		(966)
Loss from discontinued operations		1,435,925		700,824
Depreciation and amortization		5,020,410		4,862,781
Deferred income tax benefit		(303,527)		(94,021)
Provision for credit losses		390,108		9,215
Compensation expense relating to stock and stock option grants		910,652		1,447,093
Gain on asset dispositions and impairments, net		(198,452)		(6,916)
Profit-sharing and equity in earnings of OC-BVI		(199,983)		(146,487)
Distribution of earnings from OC-BVI		227,250		303,000
Change in:
Accounts receivable		637,162		(11,080,886)
Contract assets		19,594,696		(6,059,018)
Inventory		1,529,545		(2,671,769)
Prepaid expenses and other assets		(1,269,737)		(1,978,213)
Accounts payable, accrued expenses and other current liabilities		(3,908,157)		2,957,670
Contract liabilities		(218,291)		724,828
Operating lease liabilities		(3,905)		(3,905)
Deferred revenue		(108,042)		75,733
Net cash provided by operating activities - continuing operations		38,689,596		9,245,264
Net cash used in operating activities - discontinued operations		(1,432,041)		(849,639)
Net cash provided by operating activities		37,257,555		8,395,625
Cash flows from investing activities
Additions to property, plant and equipment and construction in progress		(3,747,250)		(4,123,770)
Proceeds from asset dispositions		446,337		21,410
Proceeds from Mexican settlement agreement		33,261,664		—
Purchase of remaining non-controlling interest in PERC		—		(2,440,027)
Net cash provided by (used in) investing activities		29,960,751		(6,542,387)
Cash flows from financing activities
Dividends paid to common shareholders		(4,519,412)		(3,977,676)
Dividends paid to preferred shareholders		(13,051)		(9,933)
Dividends paid to non-controlling interests		(232,100)		—
Buyback of redeemable preferred stock		(10,815)		(1,830)
Proceeds received from exercise of stock options		23,753		99,764
Principal repayments on long-term debt		(140,387)		(82,347)
Net cash used in financing activities		(4,892,012)		(3,972,022)
Net increase (decrease) in cash and cash equivalents		62,326,294		(2,118,784)
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		(169,848)		(189,613)
Cash and cash equivalents at end of period	$	104,869,627	$	48,845,606
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 44,783, respectively, shares of common stock for services rendered	$	730,524	$	621,811
Conversion (on a one-to-one basis) of 5,530 and 7,936, respectively, shares of redeemable preferred stock to common stock	$	3,318	$	4,762
Dividends declared but not paid	$	1,746,702	$	1,500,218
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	$	451,477	$	224,952
Transfers from construction in progress to property, plant and equipment	$	875,580	$	525,673
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	$	255,379
Transfers from prepaid expenses to inventory	$	—	$	238,032

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

8

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

9

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 $24,807 and $22,077 for the three months ended September 30, 2024 and 2023, respectively, and $65,606 and $72,253 for the nine months ended September 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 September 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 September 30, 2024 and December 31, 2023 were approximately $11.4 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 September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Retail revenue	$	7,585,992	$	7,216,574	$	24,392,814	$	22,560,998
Bulk revenue		8,767,168		8,488,615		25,557,220		25,975,483
Services revenue		12,677,837		29,427,664		42,017,917		66,243,328
Manufacturing revenue		4,359,560		4,721,222		13,591,154		12,180,519
Total revenue	$	33,390,557	$	49,854,075	$	105,559,105	$	126,960,328

Services revenue consists of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Construction revenue	$	3,637,038	$	24,204,446	$	16,165,312	$	52,563,822
Operations and maintenance revenue		7,492,121		5,021,081		21,660,396		12,750,902
Design and consulting revenue		1,548,678		202,137		4,192,209		928,604
Total services revenue	$	12,677,837	$	29,427,664	$	42,017,917	$	66,243,328

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 three 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.

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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.

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 comprised 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 September 30, 2024 and 2023, the Company recognized $4,246,506 and $24,219,737, respectively, of its services revenue from the transfer of goods or services to customers over time. The remaining services revenue of $8,431,331 and $5,207,927, respectively, was recognized from the transfer of goods or services to customers at a point in time. For the nine months ended September 30, 2024 and 2023, the Company recognized $17,631,774 and $52,648,271, respectively, of its services revenue from the transfer of goods or services to customers over time. The remaining services revenue of $24,386,143 and $13,595,057, respectively, was recognized from the transfer of goods or services to customers at a point in time. For the three and nine months ended September 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: