Third Quarter 2018 Earnings Call. November 7, 2018

Transcription

1 Third Quarter 2018 Earnings Call November 7, 2018

2 Safe Harbor Statement Statements in this presentation regarding management s future expectations, beliefs, intentions, goals, strategies, plans or prospects, include, without limitation, statements relating to AquaVenture s strategic focus; its forecast of full-year 2018 financial results; expectations regarding future business development and acquisition activities; its expectations regarding performance, growth, cash flows and margins from recently completed and pending acquisitions; and the impacts on operating results of the timing, size, integration and accounting treatment of acquisitions, constitute forward-looking statements. Forward-looking statements can be identified by terminology such as anticipate, believe, could, could increase the likelihood, estimate, expect, intend, is planned, may, should, will, will enable, would be expected, look forward, may provide, would or similar terms, variations of such terms or the negative of those terms. Such forwardlooking statements involve known and unknown risks, uncertainties and other factors including those risks, uncertainties and factors detailed in AquaVenture s filings with the Securities and Exchange Commission. As a result of such risks, uncertainties and factors, AquaVenture s actual results may differ materially from any future results, performance or achievements discussed in or implied by the forward-looking statements contained herein. AquaVenture is providing the information in this presentation as of this date and assumes no obligations to update the information included in this presentation or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 2

3 Third Quarter Financial Highlights Strong Financial Performance Continues in Q Revenues grew 23.7% over Q Comprised of 14.2% inorganic growth from acquisitions and 9.5% organic growth Growth in both segments including 35.2% in Quench and 10.8% in Seven Seas Water Adjusted EBITDA increase of 26.6% over Q Adjusted EBITDA Margin expansion of 80 bps over Q Revenues $ % $ % $88.6 $103.8 $40.0 $30.0 $20.0 $10.0 $- Adjusted EBITDA (1) % $10.0 $12.7 $ % $34.2 $40.0 $30.0 $20.0 $10.0 $- Adjusted EBITDA plus principal collected on the Peru construction contract (2) $ % $ % $31.8 $ % Adj. EBITDA Margin % 34.4% 32.1% 33.0% (1) See appendix for the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure. (2) See appendix for a description of the principal collected on the Peru construction contract. 3

4 Operational Highlights and Recent Developments AquaVenture s Entrance Into U.S. Wastewater Treatment and Water Reuse Market Acquired AUC on November 1, 2018, a provider of wastewater treatment and water reuse equipment and related services Purchase price of ~$130 million, including $128 million cash and 121,956 AVH ordinary shares, subject to adjustment as provided in the purchase agreement Acquisition funded with existing cash and proceeds from the expansion of the Corporate Credit Agreement SSW Operational Update and Expansion into Anguilla SSW entered into an agreement with the Water Corporation of Anguilla to provide water under a 10-year contract Average Monthly Production Volumes of Hurricane-Impacted Islands (million gallons) Initial capacity of 500,000 gallons per day, increasing to 750,000 gallons per day within the next few months One year after the hurricanes, production volumes year-todate 2018 have been consistent with pre-hurricane 2017 Q Q Q Q levels Pre-hurricane level (average Jan-Aug 2017) 4

5 Operational Highlights and Recent Developments (continued) Quench s Successful Track-Record of M&A Execution Completed 7 acquisitions to date in 2018; 10 since IPO 2018 Acquisitions have collectively added ~27,000 rental units to Quench s installed asset base Acquired Alpine Water during Q3 2018, one of the largest independent POU water filtration dealers in the U.S. Acquired Quality Water Services in October 2018, increasing customer density in top-12 U.S. Metro market of Seattle Q Q Q Q Other Recent Developments In October, Quench completed the sale of its Atlas High Purity Solutions unit, a non-core business, for an aggregate sale price of ~$3 million 5

6 Seven Seas Water Financial Overview Q Financial Highlights Revenues of $15.6M Gross margin of 56.6% Net income of $0.4M - including $3.1M non-cash income tax benefit Adjusted EBITDA of $7.7M and Adjusted EBITDA Margin of 49.2% (1) Adjusted EBITDA plus principal on the Peru construction contract of $8.9M (2) Revenue % $14.1 $ % $43.0 $45.7 $25.0 $20.0 $15.0 $10.0 $5.0 $- Adjusted EBITDA (1) + 6.7% $7.2 $ % $19.4 $22.2 Adjusted EBITDA plus principal collected on the Peru construction contract (2) % $25.0 $20.0 $15.0 $10.0 $5.0 $ % $8.3 $8.9 $22.8 $ % Adj. EBITDA Margin % 49.2% 45.2% 48.6% (1) See appendix for the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure. (2) See appendix for a description of the principal collected on the Peru construction contract. 6

7 Quench Financial Overview Q Financial Highlights Revenues of $21.2M Rental revenue growth of 21.1% Other revenue increase of $2.7M driven by Wellsys acquisition Gross margin of 51.0% Net Loss of $2.3M Adjusted EBITDA of $5.7M was 47.7% higher than Q (1) $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $- Revenue $15.7 $ % $45.6 $15.0 Adjusted EBITDA (1) $10.0 $ % % $5.0 $- $3.9 $ % $11.8 $ % Adj. EBITDA Margin % 27.0% 25.9% 24.9% (1) See appendix for the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure. 7

8 Select Balance Sheet and Cash Flow Items Select Balance Sheet Items (in USD thousands) September 30, December 31, Cash and cash equivalents $ 93,617 $ 118,090 Corporate credit agreement 150, ,000 BVI loan 21,830 26,090 Vehicle financing 1,925 1,491 Total face value of debt 173, ,581 Less: unamortized debt discounts and deferred financing fees (2,636) (3,326) Total debt $ 171,119 $ 174,255 Total Net Debt (1) $ 77,502 $ 56,165 Select Cash Flow Statement Items (in USD thousands) Three Months Ended September 30, September 30, Nine Months Ended September 30, September 30, Cash flow provided by operating activities $ 8,277 $ 2,192 $ 22,048 $ 14,572 Capital expenditures (5,715) (4,057) (12,930) (11,245) Principal collected on the Peru construction contract classified to cash provided by operating activities for all periods presented Capital expenditures include both growth and maintenance components (1) Total Net Debt, a non-gaap financial measure, is defined as total debt less cash and cash equivalents as reported on the Consolidated Balance Sheets. 8

9 2018 Outlook Company increased previously provided full-year 2018 outlook to incorporate the anticipated results of acquisitions completed to date, including the recently announced acquisition of AUC Company is current targeting the following results: FY 2018 Outlook Revenue $141M - $144M Adjusted EBITDA $46M - $48M Principal Collected on the Peru Construction Contract Adjusted EBITDA plus Principal Collected on the Peru Construction Contract $4.9M $51M - $53M Outlook does not include the purchase of a majority interest in the desalination plant in Ghana due to the pending conditions precedent The above statements are based on current targets. These statements are forward-looking and actual results may differ materially. AquaVenture does not provide GAAP financial measures on a forward-looking basis because we are unable to predict with reasonable certainty the ultimate outcome of unusual gains and losses, acquisition-related expenses and purchase accounting fair value adjustments, among other factors, without unreasonable effort. These items are uncertain, depend on various factors, and could be material to our results computed in accordance with GAAP. 9

10 Appendix: Supplemental Information and Reconciliations 10

11 Income Statement AquaVenture Holdings Limited and Subsidiaries Unaudited Condensed Consolidated Statements of Operations (In Thousands) Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, Revenues: Bulk water $ 14,626 $ 12,972 $ 42,682 $ 39,551 Rental 16,261 13,428 45,041 39,238 Financing 985 1,118 3,048 3,451 Other 4,952 2,259 13,012 6,318 Total revenues 36,824 29, ,783 88,558 Cost of revenues: Bulk water 6,771 5,975 20,021 20,415 Rental 7,130 6,083 20,240 17,508 Other 3,256 1,385 8,624 3,692 Total cost of revenues 17,157 13,443 48,885 41,615 Gross profit 19,667 16,334 54,898 46,943 Selling, general and administrative expenses 20,826 18,430 59,689 53,040 Loss from operations (1,159) (2,096) (4,791) (6,097) Other expense: Interest expense, net (3,396) (2,942) (10,000) (8,303) Other expense, net (228) (1,453) (520) (1,728) Loss before income tax expense (4,783) (6,491) (15,311) (16,128) Income tax expense (2,051) 797 (1,312) 2,451 Net loss (2,732) (7,288) (13,999) (18,579) Other comprehensive income: Foreign currency translation adjustment 106 (13) (84) (13) Comprehensive loss $ (2,626) $ (7,301) $ (14,083) $ (18,592) Loss per share basic and diluted $ (0.10) $ (0.28) $ (0.53) $ (0.70) Weighted-average shares outstanding basic and diluted 26,590 26,441 26,544 26,414 11

12 Non-GAAP Financial Data Net income (loss) $ 373 $ (2,315) $ (790) $ (2,732) $ (2,580) $ (3,024) $ (1,684) $ (7,288) Depreciation and amortization 3,672 5,038-8,710 3,589 3,856-7,445 Interest expense (income), net 2, (226) 3,396 1, ,942 Income tax expense (benefit) (2,193) (2,051) Share-based compensation expense 2, ,353 2, ,142 Loss on disposal of assets (22) Acquisition-related expenses Changes in deferred revenue related to our bulk water business ERP implementation charges for a SAAS solution Loss on extinguishment of debt ,389 Adjusted EBITDA $ 7,684 $ 5,729 $ (730) $ 12,683 $ 7,199 $ 3,878 $ (1,060) $ 10,017 Adjusted EBITDA Margin 49.2 % 27.0 % % 34.4 % 51.1 % 24.7 % % 33.6 % Adjusted EBITDA, a non-gaap financial measure, is defined as earnings (loss) before net interest expense, income taxes, depreciation and amortization as well as adjusting for the following items: share-based compensation expense; gain or loss on disposal of assets; acquisition-related expenses, including professional fees, purchase consideration recorded as compensation expense for acquired employees, and other expenses related to acquisitions; changes in deferred revenue related to our bulk water business; and enterprise resource planning ( ERP ) system implementation charges for a software-as-a-service ( SAAS ) solution. Adjusted EBITDA should not be considered a measure of financial performance under GAAP. Management believes that the use of Adjusted EBITDA, which is used by management as a key metric to assess performance, provides consistency and comparability with our past financial performance, and facilitates period-to-period comparisons of operations. Management believes that it is useful to exclude certain charges, such as depreciation and amortization, and non-core operational charges, from Adjusted EBITDA because (1) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (2) such expenses can vary significantly between periods as a result of the timing of acquisitions or restructurings. Adjusted EBITDA Margin, a non-gaap financial measure, is defined as Adjusted EBITDA as a percentage of revenue. Three Months Ended September 30, 2018 Three Months Ended September 30, 2017 Seven Seas Water Quench Corporate & Other Total Seven Seas Water Quench Corporate & Other 12 Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017 Seven Seas Corporate Seven Seas Corporate Water Quench & Other Total Water Quench & Other Net loss $ (3,554) $ (7,190) $ (3,255) $ (13,999) $ (7,279) $ (8,248) $ (3,052) $ (18,579) Depreciation and amortization 10,911 13,850-24,761 10,716 11,060-21,776 Interest expense (income), net 7,620 2, ,000 5,709 2,826 (232) 8,303 Income tax expense (benefit) (1,227) (85) - (1,312) 2, ,451 Share-based compensation expense 6,437 2, ,002 6,084 2, ,052 Loss on disposal of assets 240 1,266-1,506 (22) Acquisition-related expenses 1, , Changes in deferred revenue related to our bulk water business ERP implementation charges for a SAAS solution - 1,026-1,026-1,820-1,820 Loss on extinguishment of debt ,389 Adjusted EBITDA $ 22,212 $ 14,480 $ (2,456) $ 34,236 $ 19,427 $ 11,821 $ (2,844) $ 28,404 Adjusted EBITDA Margin 48.6 % 24.9 % % 33.0 % 45.2 % 25.9 % % 32.1 % Total Total

13 Key Metrics Three Months Ended September 30, 2018 Three Months Ended September 30, 2017 Seven Seas Corporate Seven Seas Corporate Water Quench & Other Total Water Quench & Other Total Principal collected on Peru construction contract $ 1,237 $ - $ - $ 1,237 $ 1,140 $ - $ - $ 1,140 Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017 Seven Seas Corporate Seven Seas Corporate Water Quench & Other Total Water Quench & Other Total Principal collected on Peru construction contract $ 3,637 $ - $ - $ 3,637 $ 3,350 $ - $ - $ 3,350 Adjusted EBITDA plus principal collected on Peru construction contract Three Months Ended September 30, 2018 Three Months Ended September 30, 2017 Seven Seas Corporate Seven Seas Corporate Water Quench & Other Total Water Quench & Other Total $ 8,921 $ 5,729 $ (730) $ 13,920 $ 8,339 $ 3,878 $ (1,060) $ 11,157 Adjusted EBITDA plus principal collected on Peru construction contract Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017 Seven Seas Corporate Seven Seas Corporate Water Quench & Other Total Water Quench & Other Total $ 25,849 $ 14,480 $ (2,456) $ 37,873 $ 22,777 $ 11,821 $ (2,844) $ 31,754 Cash collected on Peru construction contract. In our Peru Acquisition, we acquired the rights to a design and construction contract that includes monthly installment payments for the construction of the related desalination plant and related infrastructure, which continue until These payments are guaranteed by a major shareholder of our customer and accounted for as a long-term receivable as a result of the structure of the contractual arrangement, which differs from existing contracts in our Seven Seas Water business. We understand that many in the investment community present the combination of our Adjusted EBITDA and the principal we collect from the Peru construction contract acquired in our Peru Acquisition, which was not accounted for as revenue in the consolidated financial statements. We also use this combination in evaluating our performance (including in measuring performance for a portion of the compensation of our executive officers). In this regard, and for the sake of convenience, the combination of our Adjusted EBITDA and the principal collected on the Peru construction contract is presented above. 13