CWCO — Q2 2026 Financial Report Analysis

Consolidated Water runs desalination plants (facilities that turn seawater into drinking water) and water-treatment businesses across the Cayman Islands, The Bahamas, the British Virgin Islands and the US. In the second quarter of 2026 (April–June), revenue slipped 2.1% to $32.9 million and net income attributable to shareholders fell 22.8% to $3.9 million, or $0.24 per diluted share versus $0.32. The water-selling businesses held up or improved; the drop came from the two project-driven segments — US operations-and-maintenance contracts that expired and a halving of orders at the Aerex manufacturing unit. The bigger news sits outside the numbers: after nine years of negotiation, Cayman regulators granted a new 25-year retail water license that starts August 1, 2026, at rates the company estimates would have cut revenue and operating income by about $1.9 million in 2025.

At a glance

• Operating income down 29% to $3.7 million. Manufacturing and services together earned $0.9 million from operations, against $2.9 million a year ago; retail and bulk water combined rose to $6.9 million from $6.0 million.
• Gross margin of 33.4%, down from 38.2%. Gross margin is the share of revenue left after the direct cost of producing the water or service. Higher-margin O&M work ran off and was replaced partly by lower-margin construction.
• $132.6 million in cash, effectively no debt. Interest expense for the quarter was $479. Half-year operating cash flow of $18.6 million was 2.3 times net income.

The numbers

Operating margin is the share of revenue left after running the business, before interest and tax.

Segment by segment

The company reports four operating segments plus corporate overhead. Their income from operations tells the story of the quarter:

• Retail revenue was flat even though the volume of water sold fell about 2%. The filing credits a higher rate charged to, and more water sold to, one major non-potable (not-for-drinking) water customer. Gross margin held at 56%. Over the half year, retail revenue fell 4.5% because volumes dropped 6.3%: Grand Cayman had much more rain in 2026 than in an unusually dry 2025.
• Bulk revenue rose 20.1%, mostly from a higher pass-through energy charge at CW-Bahamas — a fee that rises with electricity costs and largely passes them on to the customer — plus the first revenue from two new plants on Cat Island in The Bahamas. Because the energy surcharge mainly recovers costs, the revenue gain overstates the profit gain, but operating income still rose 34% to $2.87 million, helped by maintenance costs about $302,000 lower than a year ago.
• Services revenue was flat, but the mix flipped. Construction revenue nearly doubled to $5.34 million (projects in Colorado and California), while O&M (operations and maintenance — running other people's water plants under multi-year contracts) fell to $6.04 million from $8.26 million after PERC's contracts with two customers expired in the first quarter. Those two contracts brought in about $1.9 million in 2025. Gross margin in the segment halved to 16% from 30%. Segment G&A (general and administrative overhead) fell by about $519,000, including about $322,000 from a smaller headcount, which softened but did not offset the margin loss.
• Manufacturing revenue fell 48.6% on a lower dollar value of purchase orders. Management says it expects full-year 2026 manufacturing revenue to come in below 2025.
• Corporate overhead rose 9.1% to $4.01 million, which the filing attributes to small increases across various expense categories.

What the headline numbers hide

• The tax rate fell, which cushioned earnings. The provision for income taxes was 6.0% of pre-tax income versus 13.0% a year ago. Pre-tax income fell 26.7%, while net income from continuing operations attributable to shareholders fell a smaller 22.0%. The filing does not explain the lower rate in MD&A, so treat it as something that may not repeat.
• Cash conversion is strong, partly because customers paid down old bills. For the half year, operating cash flow was $18.6 million against net income of $8.0 million. About $4.2 million of that came from lower accounts receivable (money customers owe), and depreciation, a non-cash expense, added $3.5 million. Even without the receivables drop, cash generation exceeded earnings. Operating cash flow was $20.5 million in the first half of 2025, so it is lower year on year.
• The Bahamas receivable is the long-running risk. CW-Bahamas is owed $18.8 million by the Bahamas Water & Sewerage Corporation, down from $20.7 million at year-end; 64% of it is overdue, compared with 71% in December. The company has not set aside a material allowance for bad debt, citing a history of eventual full payment and Moody's April 2026 upgrade of The Bahamas to Ba3. If collections stall, the filing warns it might have to stop recognising revenue on those contracts.
• No adjusted figures and few one-offs. The company reports only GAAP results. The one non-recurring line is a $105,574 loss from the discontinued Mexico desalination project, which costs about a cent per share. Net loss from discontinued operations was $82,556 a year ago.
• No buybacks inflating EPS. Financing outflows of $4.6 million for the half year were almost all dividends. The dividend stayed at $0.14 per quarter.

The new Cayman license

Retail water in Grand Cayman made up 26% of revenue but 44% of gross profit this quarter, so the terms of its license matter more than any other single item. Cayman Water had run on the terms of a 1990 license whose last formal extension expired in January 2018, and rates had not risen since then. On June 18, 2026, the regulator (OfReg) granted a new license running 25 years from August 1, 2026. It sets new base rates (for example CI$16.23 per 1,000 gallons for a household's first 3,000 gallons a month, with CI$1.00 fixed at US$1.20), a separate energy charge that passes through electricity costs subject to an efficiency test, and annual rate-cap adjustments each July 1.

The company's own pro forma estimate: had the new rates applied to past volumes, revenue and operating income would have been about $2.1 million lower in 2024, $1.9 million lower in 2025, and $1.1 million lower in the first half of 2026. Against first-half 2026 operating income of $7.2 million, that $1.1 million is roughly 15%. In exchange, the company gets 25 years of certainty and a formula for raising rates with inflation, which it had not had since 2018.

Takeaway: The quarter's 23% profit drop came from project businesses (expired O&M contracts and fewer Aerex orders), not from the core water plants, which grew. The more lasting change is the new Cayman license: it settles nine years of uncertainty, and the company estimates the new rates would have cost about $1 million of operating income per half year.

What to watch

Three things will decide the next few quarters. First, the third quarter (July–September) includes two months under the new Cayman rates, so it will be the first real test of the company's pro forma estimate. Second, the Hawaii project: Kalaeloa Desalco's contract with the Honolulu Board of Water Supply to build a 1.7 million-gallon-per-day desalination plant (construction price around $148 million, about 80% of it adjustable for inflation) has been held up by permitting delays. A Limited Notice to Proceed in July 2026 released about $6 million to buy long-lead equipment, but full construction revenue depends on further permits and change orders, which the filing says are not assured. Third, the services segment has to replace the expired O&M contracts with new ones, and management already expects manufacturing to shrink for the full year. With $132.6 million of cash and no meaningful debt, the company can absorb a weaker year; the question is how soon Hawaii construction starts to fill the gap that manufacturing and the new Cayman rates leave.

Source: Consolidated Water Co. Ltd. Form 10-Q for the quarter ended June 30, 2026, filed with the SEC on August 10, 2026.