Hello and welcome to the Consolidated Water Company Limited Third Quarter 2015 Investor Conference Call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. An Operator will give instructions on how to ask your questions at that time. Please note this conference call may include statements that may constitute forward-looking statements usually containing the words believe, estimate, project, intend, expect or similar expressions. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to continued acceptance of the company's products and services in the marketplace, changes in its relationship with the governments of the jurisdictions in which it operates, the ability to successfully secure contracts for water projects in other countries, the ability to develop and operate such projects profitably, and other risks detailed in the company's periodic report filings with the Securities and Exchange Commission. By making these forward-looking statements, the company undertakes no obligation to update these statements for revisions or changes after the date of this conference call. [Operator Instructions]. Please also note, this conference is being recorded. Now I would now like to turn the conference over to Mr. Rick McTaggart, President and CEO. Please go ahead.

Thank you, Kate. Good morning, ladies and gentlemen. David Sasnett, our CFO is joining me on the call this morning from our Florida offices. Income from operations increased from $1.7 million in the third quarter of 2014 to $2.1 million this past quarter due to a reduction in general and administrative expenses related to our development project in Mexico. However, our net income declined slightly this past quarter from approximately $1.9 million last year to $1.8 million in this past quarter due to a $225,000 impairment charge against our investment in our BVI affiliate as well as higher currency exchange losses in our Bali, Indonesia operations. As mentioned in our Form 10-Q we expect to continue to incur non-cash impairment charges of our equity investment in our BVI affiliate until such time as business circumstances there improve. Total revenues declined from $17 million in the third quarter of 2014 to $14.6 million this past quarter, due to a reduction of energy-related charges that we passed through to our customers, as well as reduced sales volumes to our bulk water customers in the Bahamas and the Cayman Islands. Similar to the second quarter of this year, revenues in our retail and bulk segments were lower due to significantly lower prices for energy that we purchased from electrical utilities and fuel suppliers. These lower energy prices also resulted in comparable reductions and our operating cost. Therefore the revenue decline was not in itself directly linked to our slightly lower consolidated earnings. Now I will discuss the reasons for the reduced bulk sale volumes later in the call. Retail water segment revenues decreased slightly from $5.9 million in the third quarter of last year to approximately $5.8 million this past quarter. While the volume of water we sold to our retail segment customers…

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Gerry Sweeney of ROTH Capital. Please go ahead.

Well. Could you -- could we circle back a little bit on the gross profit on the bulk side, I think specifically I'm not sure if I got it all from the Bahamas. You said the Bahamas I think had a gross profit on the bulk side was $2.3 million for 2015 versus $2.8 million for 2014, and there was a component of volumes, fuel cost/electricity, but it also sounded like O&M impacted that as well about $340,000, was that the number?

It was $340,000.

I'm sorry. What was that?

I'd also say, Gerry, the number is $409,000 for the nine months it's a little lesser there from the three months. The main impact of the revenue decrease is the revenue decrease; it's not so much be any other expenses -- revenue expenses, excuse me.

Okay. What I'm trying to get at is how much of it was volume because I know there is a take-or-pay there and I was -- I just [indiscernible] they were sort of bumping along the lower levels of their take-or-pay. So I was a little surprised, I'm curious as to how much of that volume was the impact on that front?

Think about 20% of the decline in gross profit was volume related, the rest was an increase in maintenance cost.

Yes. Based on my thought process for the call, I thought they were at the lowest they can go in terms of volume. Obviously I wasn't correct but how much are they there at those levels now, are we going to see continued bumps or where does that stop. And, can it -- will it accelerate at some point in terms of may be increased volumes?

Yes, I mean 20% of the drop is only $100,000, Gerry. So I mean I think we're pretty much at the bottom level on the demand in the Bahamas. In the Cayman Islands, I mean, I think probably we're putting the Bahamas and the Cayman Islands together involved. That drop in volume, I think was probably mostly attributable to the Cayman Islands business. The drop in volume, gross profit related there the gross profit drop related to volume I think I'm trying to say.

Let me add something, Gerry. When you look at our bulk business because I saw minimum take-or-pay amounts there, the gross profit is really consistent from period-to-period. When we have large increases of sales above the minimum take-or-pay amount, the incremental margins is not a lot to us. So there is not a lot of downside for our margin in case that we have things like repairs and maintenance expense that will cause a blip in the gross profit percentage, that business is fairly stable. So and you're right, there is a flow on how much in a way of revenues we recognize but there are minimum take-or-pay agreements for these contracts. So it's fair to say that we have a range of profitability for bulk segment that is despite the huge amount of incremental sales, we don't get a huge amount of additional profits. But at the same time if demand dries up and they still buy the minimum under the take-or-pay clause of the contract.

Got it. And then this quarter in particular, that the gross profit percentage looks like it was impacted, a good chunk of it about $200 million that that larger O&M expenses this quarter over last? Is that fair?

Yes, also I just can share, just like what Rick said, there is a portion of it relates to energy, a portion of it relates to volume, and a portion of it relates to repairs and maintenance expense.

Yes, got that. And energy

Yes.

Then one quick question I’ll jump back in queue, you mentioned Water Authority Cayman negotiations refinanced you’re very encouraged, what -- if you can answer this, what makes you to be encouraged? Is this the tone of variables and the pricing or to the RCAM model, just curious if you can give any details on that?

Well I mean it's just, I don’t have too much of detail but there is actually an exchange going on by dealers and the Water Authority is actually in the process of rewriting their legislation to incorporate RCAM. So I think we both are working together for this to reach a mutually acceptable solution for all of this, and that’s really the most positive aspect of the negotiations.

So you’re talking fruitful talks and then in conjunction with this Water Authority Cayman also rewriting the rules an RCAM, so you can have a little bit of input into those rules to make it beneficial or mutually beneficial?

Yes, I mean I think that’s right, I mean we want to make, I don’t know if we do but the Water Authority wants to make I guess the rules and the rate law for the water utility business here in the Islands consistent. So we’re both working together to achieve that. So I think it’s probably fair to say that they feel like what’s good for them is good for us and vice versa. So it’s a different tone to the negotiation.

The next question comes from Charles Lansberg of Financial Technology. Please go ahead.

[Indiscernible] paper but that was released last Monday its date line Carlsbad, California talks about the desalination project there that’s coming on board sometime this probably before the end of the year. Now is that a model that we are -- CWCO are going to be doing down in the Baja or is it a little bit different as far as technology and everything else? And also does the Baja having a chance of providing water to Southern California in light of this 50 million gallons a day desalinization plant?

Well Charles, first of all, the technology between our plant and Carlsbad I think would be similar. Carlsbad is using reverse osmosis technology to desalinate the water, they’re taking water from the power plant, [indiscernible] intakes, those things are similar. We are responding to a tender, we will shortly be responding to a tender for a plant to sell water into Mexico in two phases, so 50 million gallons per day in the first phase and another 50 million gallons per day in the second phase that would come I think approximately four to five years after first phase starts. So we don’t -- and we noted this when we in our recent disclosure, it’s unlikely we'll be selling directly into Southern California but we believe that the Mexican government has a strong interest in doing that perhaps in the second phase, and there are discussions going on between Mexican officials and U.S. water officials to explore those sorts of ideas. We initially believe that we could sell directly into Otay Water District for example and that is becoming less likely as we progress through the projects. So hope that answers your question. It is like we think that water will be going into Southern California from our plant, but it won’t be directly from us, it’s unlikely that will happen.

And a quick portion of this release it goes on to say that U.S. foray in to Tampa Bay is widely considered a flop. I live down here in Sarasota, Florida, so they weren’t too happy about this disinvestment but do you think that going forward -- we will of course the first thing is for the Mexican government and then maybe a chance to do California, you said maybe Southwest United States, that is a second phase at least five years past the completion of the Mexican plant, it's a timetable that you would think feasible?

That’s what they have said in the tender notice, that’s the phasing that the Mexican government was like to see. So any discussions going forward to supply water either through water exchanges into the United States or direct supply would likely be between the Mexican government and the U.S. officials. So we were there to facilitate anything. Of course if we are successful and win the tender for the project we think that eventually some water from the plant will get into the U.S.

The next question is from Blake Todd of Two Oaks Investment Management. Please go ahead.

Good morning gentlemen.

Good morning.

Just a couple of real quick questions. Is the pipeline part of the tender?

There is a pipeline that is part of the tender and also the expansion of some water storage tanks through the Mexican utility.

And when will we learn who the financial partners are on the tender, will that be when the tender is actually submitted in March?

Just to explain I mean we have MOUs with the group, the two groups we have the financial investor group and we also have the EPC contractor MOU and things don’t really happen until we are successful in obtaining the contract for the project. So that’s why these investors are concerned at this point Consolidated Water through NSC continues to own essentially 100% of this project. So we just don’t think it’s in the interest of the project to disclose any specific details of partners who are EPC partner, we have definitive agreements with them.

If you might want to clarify on the pipeline there, we have discussed building a pipeline from the plant to the U.S. border, could you clarify the type of pipeline you’re talking about in the tender?

Yes, the pipeline that is in the tender is in two phases so initially a 15-kilometer pipeline to deliver water into the Tijuana municipal water system and then there is another 15 kilometer extension which would be in the second phase which will take the pipeline up to the main water treatment facility for Tijuana which is at Florida. So that's how we broken it up, there is no pipeline from the plant directly to the border at this point, I think that certainly the Mexican government is in early stages of discussing that sort of delivery into United States with their U.S. counterparties, so that doesn’t seem to be included in the tender right now.

Okay. And then I know that Value Line made a wonderful guess as to what your equity participation would be in the project, but should we wait until the tenders actually accepted and you guys have gotten it before we know how much of an appetite you have for an equity participation?

Yes, I mean I can’t comment on their estimates but I mean we have said repeatedly that we'll end up with the minority interest with the SPV that ultimately owns the plant if we're successful in the tender process. So what that minority interest is going to be exactly has not been determined.

The next question is from John Bair of Ascend Wealth Advisors. Please go ahead.

Good morning. It was my understanding that you at one-time had a memorandum of understanding I think it was with Otay to take up to 40 million gallons of water, and in your comments this morning you are saying that that is kind of in the back burner. Can you kind of shed some light on that what happened to change that?

Well the MOU is still in place, it’s up for renewal I think this month. What we did was just qualify or we think will actually happen in the future which is we don’t believe and will be involved in selling directly to Otay. The Mexican government, in the discussions we’ve had with them leading up to the tender where they evaluated our proposal from March and there were number of questions, meetings that we had with them to clarify things, the Mexicans have indicated that it would be difficult for us to actually contract with a U.S. entity and deliver water into the U.S. They haven't expressed an interest in doing it themselves which either way it works for me. I mean if they want to buy additional capacity from the Rosarito plant to delivered into the U.S. then that is a deal that they can make more easily through the federal government levels with the U.S. So while we’re not completely ruling it out, and as I said the MOU is still in effect, we don’t think it’s likely that we will be contracting directly with Otay at this point.

Is there perhaps a change or opinion perhaps that the demand or the need for water that Rosarito would be able to produce would ultimately be used pretty much in Mexico then or is that a fair statement there or?

Well certainly the initial phase of what if the tenders are asking for do the 100% Mexican water. The second phase is few years later and again our studies show that Mexico will need to water at that point. So we will just have to see how the discussions with the Americans play out, I mean it’s quite a bit different with water rights and things like that between the two countries are very much different. So I think investors need to appreciate that all water in Mexico is owned by the federal government and they will have to negotiate with the Americans to facilitate any transfers into the U.S.

[Operator Instructions]. There are no additional -- I’m sorry, we have a question from Wil Wutherich of Wutherich & Company. Please go ahead.

Hi guys. So just to understand more about the ownership situation of NSC, reading through the Q I guess there's litigation and I wanted to understand what the ultimate implications would be for the Mexican property?

Well, Wil, as we have said in the Q, we think that the litigation is totally without merit, and we are vigorously defending our position there, we described some of the things, well all of the things that litigation has included and some of those are reversing transactions back in 2013 where we actually acquired 100% essentially of the NSC company. So we don’t believe that any of that is going to hold up and we only recently made aware the litigation, we think that it was just timed conveniently for the plaintiffs to coincide with these recent developments in the tender process and things like that. So we don’t think it is going to go anywhere at this point and we’re just working to resolve that as quickly as possible.

What was it --

I just like to --

Sorry, go on.

I was just trying to add all these transactions were conducted in accordance with Mexican law and we feel that the lawsuit is baseless without; we'll defend it vigorously. I don’t know exactly the motives behind the people who initiated the lawsuit but we feel very confident that we have done things in accordance with Mexican law and, therefore, this litigation in America.

Okay. Thank you.

The next question is a follow-up from Blake Todd of Two Oaks Investment Management. Please go ahead.

Different subject, guys. I know that the gross revenues were impacted significantly by the energy adjustments, is that a pass-through expense without getting into the leads where you don’t really make a profit on that energy expense and, therefore, we really shouldn’t worry that much about it as far as the earnings of the company is concerned?

Exactly correct.

We do like the margin on the energy but it’s smaller than I think we made from the other components from that sales. So it should have a PG and that type of margins.

Super, thanks.

There are no additional questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. McTaggart for closing remarks.

Thanks, Kate. I just wanted to again thank everybody for joining today and I look forward to speaking with you again in March when we disclose our full year 2015 earnings. Have a good holidays, bye-bye.

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