Good day and welcome to the Consolidated Water Company’s Third Quarter 2016 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. The information that will be provided in this conference call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Including but not limited to the statements regarding the Company’s future revenues, future plans, objectives, expectations, events, assumptions, and estimates. Forward-looking statements can be identified by the use of the word or phrases well, will likely result, are expected to, will continue, estimate, project, potential, belief, plan, anticipate, expect, intend, or similar expressions and variations of such words. Statements that are not historical facts are based on the Company’s current expectations, beliefs, assumptions, estimates, forecasts, and projections for its business and the industry and markets related to its business. Any forward-looking statements made during this conference call are not guarantees of future performance and involves certain risks, uncertainties, and assumptions which are difficult to predict. Actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Important factors which may affect these actual outcomes and results include without limitation, tourism and weather conditions in the areas the Company serves, the economies of the U.S. and other countries in which the Company conducts businesses, the Company’s relationships with the government it serves, regulatory matters including resolution of the negotiations for the renewal of the Company’s retail license on Grand Cayman. The Company’s ability to successfully enter new markets including Mexico, Asia and the United States and other factors including those Risk Factors set forth under Part one item 1a Risk Factors in the Company’s Annual Report on Form 10-K. Any forward-looking statements made during this conference call speak as of today’s date. The Company expressly disclaims any obligation or undertaking to update or revise any forward-looking statements made during this conference call to reflect any change in its expectations with regard there to or any change in events. Conditions or circumstances on which any forward looking statement is based except as it may be required by law. I would now like to turn the conference over to Rick McTaggart, President and CEO. Please go ahead.

Thank you Zelda. Good morning ladies and gentlemen. David Sasnett our CFO is also with me on the call this morning. We reported a net loss of approximately 1.9 million this past quarter compared to a net profit of approximately 1.8 million in the third quarter of 2015. This past quarter's net loss was due to approximately 4.6 million in non-cash impairment losses recorded for our Bali, Indonesia Aerex businesses and our investment in Ocean Conversion BVI. David will discuss the basis of these impairment losses shortly. Consolidated gross profit which reflects the performance of our core businesses increased by approximately 280,000 or 5% on lower consolidated revenues. This increase in gross profit is primarily attributed to lower energy cost and higher operating efficiencies in our bulk and services segment which was slightly offset by a decline in gross profit of our retail segment on lower retail revenues. General and administrative charges increased by approximately 1 million this past quarter compared to the third quarter of 2015. This increase in general and administrative expenses resulted primarily from the addition of Aerex expenses and our consolidated accounts after our February 2016 acquisition of a 51% interest in Aerex. And also resulted from slightly higher project development expense incurred by our Mexican subsidiary for legal and professional fees arising from the negotiation of the public private partnership agreement with the State of Baja California, Mexico. Now I’m going to let David talk a bit about the impairment losses for this quarter.

Thanks Rick. As we disclosed there were three impairment losses we recorded in the three months ended September 30th. First of these I’d like to discuss is Aerex. When we purchased our 51% in Aerex in February of this year, the $7.8 million price we paid and the valuation of the assets we acquired and the liabilities we assumed as a result of the acquisition was based upon Aerex’s results for 2014 and 2015 and our projections for the future of this business for 2016 and thereafter. Aerex is very profitable in 2014 and 2015 and we expected this pattern to continue. A few months after we closed the Aerex acquisition, the volume of this orders from a few of the key customers declined significantly. During the current quarter we determined that Aerex’s volume of business with these customers for the remainder of 2016 and also into 2017 and therefore the cash flows and profits we would derive from Aerex will be significantly less than the amounts we have projected for these periods we decided to purchase our 51% interest in the company. Aerex has been informed by these customers that this decrease in their purchases from Aerex is due to what they believe to be a cyclical lull in the areas of their businesses that utilize Aerex products. We believe Aerex’s relationships with these customers are excellent and that the customers are more than satisfied with the quality pricing and other elements of Aerex’s products as well as with Aerex’s customer service. So we anticipate that Aerex’s sales with these customers will eventually return to levels more consistent with Aerex’s past sales with them. However because we’ve experienced an adverse variants in the actual results for Aerex in 2016 from the projected results we used in the valuing Aerex…

Thanks David. Now I would like to just run through our various segment performance and then talk about our Mexico project. Retail water sales in terms of dollars decreased by 6.5% this past quarter due to lower volume sales, lower energy charges to our customers, and a 4.4% reduction of our base retail water rates in Grand Cayman. The volume of water sold by our Cayman water retail operations actually increased by 2% during the quarter. Gross profit of our retail segment decreased by approximately 200,000 or 6.4% this past quarter compared to the third quarter of 2015 on lower revenues. Retail water sales by volume are up by 8% in Grand Cayman for the first nine months of 2016, compared with the first nine months of 2015. And recent comments and the local press by Cayman Islands government officials indicate that the upcoming tourist season in the Cayman Islands is expected to be the busiest on record based on bookings and additional room stock from a new 260 room Kimptom Seafire Resort which opens later this month in Grand Cayman. In October 2016, this past October after a 21 day public consultation period during which we provided meaningful input to the draft legislation, the government of Cayman Islands passed a law which created a new utilities regulation and competition office or URCO for short. URCO is an independent and accountable regulatory body with the charge of protecting rights of the consumers, encouraging affordable utility services, and promoting competition and that’s straight from the Bill. This new utility regulator has the ability to supervise, monitor, and regulate multiple utilities and undertakings and markets and right now the regulators set up to regulate electricity, fuel, and telecoms. Well water utilities are not presently included in the scope of URCOs regulatory functions…

[Operator Instructions]. Our first question comes from Gerry Sweeney with ROTH Capital. Please go ahead.

Good morning David and Rick, thanks for taking my call. So, just taking a look at the Grand Cayman, the water authority and the URCO regulatory development on that front, can you explain a little bit more what’s going on, it sounds like any type of resolution it’s been pushed out into next year and it stays with water authority Cayman for the near-term and maybe moves over to URCO. Is anything changing in terms of your negotiations, does URCO have a different vision. Sounds like there is some government work going on internally, we are just trying to figure out this has been a protracted negotiation, the sense that it is going to come to fruition towards the end of this year, feels like it is being pushed out a little bit more just looking for some type of clarity if you could provide any?

So, our understanding is that the government wants us to sign the new license with the Water Authority and conclude that negotiation before we move under URCO as the regulator. I think that what’s happened at the very end of these well sort of -– near the end of these license negotiations is very positive. I think that some of the issues that we’ve been grappling with the Water Authority have been better defined with these governments policy decisions through the URCO legislation. I think that will all be helpful to conclude the negotiations maybe more speedily than you would think Gerry. As I mentioned the new legislation is still being drafted for the water sector and we have been invited to provide comments on that legislation. So we feel like the two process is going alongside each other will be helpful to finally resolve a license for us in Grand Cayman.

I think Gerry you mentioned earlier in your question earlier on we don’t see a resolution on this matter by the end of this year. It’s only going to extend out to 2017. Before the URCO legislation was raised we hope we could wrap things up this year but now its look like it will move into 2017.

Yes, that was my sense so got it. And then switching over to Aerex obviously a disappointment but I suspect you won’t mention your customers, who they are but what end markets are these customers in and can you give any clarity on that so we can take a look at what’s going on a little bit more clearly?

Well, it's very specialized water treatment equipment and I’ll just mention that we had a good steady stream of orders in 2014 and 2015. And as David mentioned, the stream of orders was interrupted by issues on our customer's customer side. So, we -- it’s difficult to have clear visibility of when they might -- these orders might resume and the quantity of materials that will be ordered in the future. And the customer relationship that we have remains very good, excellent, and it’s not anything on Aerex's side that can be controlled. It’s just a matter of the workflow to our customer's customer. I don’t know if that answers your question there Gerry.

Just want to go back, but I mean the customer's customer service is like Pharma, is it municipal water. I mean is it something -- is it just customer specific, is it industry specific or do you just don’t have that granularity yet?

Well, yes I mean we prefer not to mention any more specifics other than its very specialized water treatment equipment.

Yes, we don’t want to identify the customer, obviously.

But that’s fine got it. Mexico I think one of the biggest I guess box checks there are checks on the box for the APP agreement was I would imagine debt negotiations, just curious as to how they look and what you’re seeing on that front if you can give any sort of clarity on that front?

The primary objective is to get the State to finalize the financial guarantees for the project. This is a State level project so they have been working with the banks and with our financial advisors to do that. The idea is that there is a trust mechanism setup to which each receives tax revenues from the State as well as revenues from the utility that would be buying the water from us. So, that’s a very sort of time consuming process. It has to go through the State Congress. We obviously have calendar objectives in mind for that and everybody is working well together to achieve that objective. Once that is set in place then the next step is really to start negotiating the financing agreements with the banks because they want to get comfortable with the security structure before moving that forward.

Got it, that makes sense. Okay, I’ll jump back in line. Thank you very much guys.

The next question comes from Hasan Doza with Water Asset Management. Please go ahead.

Good morning gentlemen. I have two questions just on Aerex one, would you be able to quantify order of magnitude what sort of the revenue decline the business is experiencing relative to the annual 19 million run rate which was disclosed in your 8-K post your acquisitions. I am just trying to understand if we look at the 19 million revenue run rate what is the revenue run rate that the business is experiencing in 2016 given the issues you just highlighted?

Well Hasan if you look at the 10-Q we disclosed that information, just check the Aerex footnote.

How much is it, I will do so but since in the interest if you have the information what is that?

I don’t have it in front of me if you will give a moment I’ll go and look for it and come back on a call in a minute. Going forward we don’t project Hasan, so we are not going to disclose what we projected going forward. The projections that we used in determining that we need to write down the goodwill.

That’s not necessary all I was asking is just a...

Just give me one second. I’ll give you the information on the sales volume for the first for the period from the acquisition date of February 11 through September 30, in just one second.

Okay.

We will take the next question please.

I do have a second question, so my second question is in relation to your BVI facility, the Bar Bay plant, how much lower are the water rates negotiated in the new agreement for the facility?

I mean that’s again we don’t want to sort of telegraph that right now. We’ve submitted a proposal to the government. It is a lower water rate. Obviously it has impacted our projection of future cash flows so, as soon as we get some indication from the government of how we want to proceed then we can make all that information available.

But in terms of order of magnitude, is it like a CPI type late production, like in 2% to 3%, is it like 5%, is it 5% to 10%. Just trying to understand the order of magnitude of the downward provision?

Well, it was substantial enough to require us to book an $875,000 impairment charge this quarter on the investment.

I mean I can give you sort of an idea, sort of in the range of 20% to 25% reduction.

Okay, which would be a corresponding decline in the revenue from that facility and I believe that facility was generating about 4 million of revenues annually so, that is kind of the order of magnitude you would say the impact to revenues from the Bar Bay facility?

Now, let's describe it as 20% to 25%. So, if we are going to increase or decrease the rate of that amount and obviously --

Revenue should be impacted pretty much in that order of magnitude as well correct?

Yes.

Okay, and pardon, sorry to be a pest but do you have that figure for the Aerex?

Yeah, Aerex so, just we brought Aerex we saw 3.3 million.

That is the number from your February closing date up until 9/30?

That is correct. You know Aerex has all the customers and what is happening in the interim is Aerex is pursuing incremental business from its other customers and also new customers. So the company is not standing still. But the bottom line is that revenues have declined, so we have had to adjust the estimated evaluation of the company. So, we are very pleased with the quality of the people we have at Aerex, it's management and they will compensate for this. It will take some time to adapt, so it is just going to take a little time to do…

Could you repeat that figure one more time please?

3.3 million Hasan.

Okay, so 3.3 million was generated in terms of revenues over the approximately seven month period in which you owned the business, correct?

That is correct.

Okay, and that's…

But as I will say Hasan that you can't be careful to extrapolating forward. This decline in revenue has caught Aerex a bit by surprise but they will adapt and adjust pursuing the business. But just be careful in projections. I am not telling how to project going forward, but as always historical results are not necessarily indicative of what is going to happen in the future.

Okay, thank you, appreciate your times gentlemen this morning.

Your next question comes from Michael Gaugler with Janney Montgomery Scott. Please go ahead.

Hey gentlemen.

Hey Mike.

Most of my questions have been answered, I have one remaining now, on the Mexico plant and the development of that project. Obviously we are seeing the Peso decline here materially last couple of days and I am wondering if that has any type of material benefit you can capture in terms of project cost or project profitability given where you are in the process right now?

Yeah, I mean there is, if it goes it goes both ways Mike. I mean we have some Peso denominated construction cost, which obviously become cheaper in dollar terms. But we are financing this project in Pesos. There is some non-Peso construction cost that we will incur as well so that goes the other way. It is difficult, we are sort of nine months away or eight months away from what we hope will be financial close to quantify that rate now. There are provisions in the contract with the government that we can claim for significant cost increases which will then be factored into the tariff. So, if we do see a significant erosion in the value of the Peso before we close next year, we do have the opportunity to try to get that back through rate adjustments. Well, it is very difficult to project certainly just on the basis of the last couple of days what really might end up.

Okay, thank you guys, appreciate it.

Sure Mike.

[Operator Instructions]. Our next question comes from Anthony Dullo [ph] a private investor. Please go ahead.

Good morning gentlemen. My question has to do with your accounts receivable. You had a significant increase in accounts receivable, 5.5 million with relatively flat sales and that is my first question? My second question has to do with your intangibles and goodwill. You have an increase in intangibles and goodwill roughly $11 million and I am questioning that particular figure considering the write downs that we have been taking, is that realistic and thank you?

Okay, I will discuss the accounts receivable issue first. The increase in the accounts receivable from year-end is attributable to the accounts receivable balances of all Bahamians of city area. And for people who followed our company for an extended period of time they will know that this is a pattern in our receivables that has existed for several years. The Bahamian government becomes delinquent in their receivable balances, these things accumulate, and then they end up paying us off directly [ph] for a short period of time. We don’t provide any provision for non-collectible amounts on these receivables because the Bahamian government consistently has paid them 100% and we have no questions about their collectability.

And then I will just mention the delays are typically caused maybe here when they run their new budget through the government so there is always some delay in July in collecting payments. So that is reflected in this last quarter.

The question on intangibles is, we increased intangibles substantially because of the acquisition of Aerex. And under the accounting rules, even though we only bought 51%, we have to show the full value of the intangibles which if we bought 100% of Aerex in the quarter with 49% interest as reduction in our stockholders equity. So the true amount that we had announced 51% of the increase that we have recorded in the balance sheet. We had to record a 1.75 million run off this period but the net effect of our P&L was 51% of that because we recorded 1.75 million in our income statement if you look at the bottom though it will have a net loss attributable to non-controlling interest and that amount was pretty substantial and reflects the 49% of the write off. We have to evaluate the collectability of our intangibles consistently. We are comfortable with the balances that we have on the balance sheet after these write offs. Unless things deteriorate or change in the future we don’t expect in the future but you never know. But based upon what we know today, we are comfortable with the balances.

Thank you very much.

Sure.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. McTaggart for any closing remarks.

I would just like to thank everybody for joining us for this extended call and I look forward to speaking with investors and interested parties in March when we release our full year results for 2016. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.