Water-as-a-Service. September 2017

Transcription

1 Water-as-a-Service September 2017 TM

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 expected margins and the impacts thereon from various customer contracts; its strategic focus; its ability to improve plant performance and profitability; the impacts on operating results of the timing, size and accounting treatment of acquisitions, customer contract amendments (including those that result in changes to water rates), and variations in the volume of water purchased by our customers; our ability to achieve, and the timing of achieving, synergies from our acquisitions; the ability to implement interest rate hedging opportunities; and future expansion opportunities, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. 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 forward-looking 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 AquaVenture Management Team Doug Brown, Founder, Chairman & CEO of AquaVenture Former CEO of Ionics Former CEO of Advent International 20 years of experience in water company management B.S. in Chemical Engineering, MIT and MBA, Harvard Business School Anthony Ibarguen, President of AquaVenture Former interim CEO of Insight Enterprises Former CEO of Alliance Consulting Group Former President of Tech Data Leadership experience from investor-backed startups to Fortune 500 B.A. in Marketing, Boston College and MBA, Harvard Business School Lee Muller, CFO of AquaVenture Former Executive VP and CFO of ContourGlobal Former investment banker at Goldman Sachs, specializing in international project financing and corporate finance Responsible for negotiating several Euromoney Project Finance Deals of the Year at ContourGlobal B.S. in Accounting, Boston University and MBA, University of Chicago 3

4 Investment Highlights Water-as-a-Service The supply of drinking and process water to municipal, industrial and commercial customers under long-term contracts using company-owned facilities and equipment Differentiated, highmargin Water-as-a- Service (WAAS) business model 1 $ Recurring and contracted revenue Experienced management team with a demonstrated track record of driving growth 4

5 One WAAS Business, Two Platforms Seven Seas Water (SSW) (~49% of Revenue (1) ) Bulk Clean Water Supply Platform Quench (~51% of Revenue (1) ) Point-of-Use (POU) Water Filtration Platform Provides desalination, wastewater treatment and water reuse services Currently operates 10 plants under long-term agreements Primary water supplier to the U.S. Virgin Islands, the British Virgin Islands and Dutch St. Maarten Significant plant operations in Trinidad and Curacao Began operations in Peru in October 2016 through Bayovar acquisition Strategic inventory of quick-deploy units for emergency situations One of the largest providers of POU filtered water and related services in the U.S. Serving ~40,000 customers with more than 96,000 company-owned units in over 250 metropolitan statistical areas (MSAs) across North America (2) Customers include more than half of the Fortune 500 New contracts are typically 3 years and auto-renewing Implied average rental period is over 11 years ~8% annual unit attrition rate as of June 30, 2017 Water Coolers Ice and Sparkling Water Machines Coffee Machines Quench 750 Quench 810 Quench 525 Quench 980 Quench 152 Quench 160 Quench 735 Quench 975 (1) Based on first half 2017 revenue (2) 2010 U.S. Census. 5

6 Water Demand Outpacing Supply = Desalination Opportunity From 1950 to 2000, water use increased more than twice as fast as population and that trend will accelerate through 2050 Development and increased wealth drives substantially more water use per capita As the world gets wealthier, it becomes thirstier Non-agricultural water demand is growing by 26 billion cubic meters per year Water tables are rapidly declining and reserve depletion is accelerating, creating growing opportunity for desalination, which is an increasingly economical solution due to improved technology Global medium-scale (2-13 MGD) desalination market is ~$6 Billion and about 29% of total capacity (1) Population up 138% Water use up 327% Global Contracted Desalination Capacity (2) 7.0 1,000 ~11 billion GPD ~24 billion GPD Population (billions) Non-Agricultural Water Use (km3/yr) Note: MGD = Million gallons per day (1) Source: Beyond scarcity: Power, poverty and the global water crisis, Human Development Report (HDR), United Nations Development Programme, 2006 (2) Global Water Intelligence (GWI) Desalination Markets 2016 report. 6

7 On-Demand Filtration Benefits = POU Growth Americans are now drinking more bottled water than soda (1) Increasing awareness of issues related to bottles creates an opportunity for POU Environmental impact of plastic bottles, 80% of which become litter and take over 1,000 years to bio-degrade (2) Potential health impact of chemicals in plastic bottles (2) POU eliminates hassles of storing and lifting 42 pound 5 gallon jugs, and typically saves money Average 5 gallon bottled cooler customer spends $70.56 per month versus average POU unit rent of $35.15 (3) U.S. water cooler market generated $4.2 billion of revenues in 2015 and had more than 5.8 million units installed (3) Bottled water coolers make up 76.5% (4.4 million units) and Point of Use (POU) coolers 23.5% (1.4 million units) (3) POU is a disruptive technology to bottled water coolers and is taking market share 40.0% U.S. Point of Use (POU) Market Share (3) 30.7% 23.5% 20.0% 16.4% 0.0% E Point-of-Use Market % (1) Beverage Marketing as reported by Fortune Magazine (2) ValleyWater.org and SunTimes (3) 2015 Zenith USA POU and Bottled Coolers Report 7

8 Our Water-as-a-Service Value Proposition For Customers For AquaVenture and Shareholders Outsourcing of a Non-core Activity to Water Experts Contracted, Recurring Revenue Limited Upfront Capital Investment Attractive Unit Economics, High Margins and Strong Cash Flow Higher Reliability and Better Quality Attractive Return on Capital Deployed More Predictable Lifecycle Cost Strong Customer Retention Healthy, Hassle-free and Environmentally Sustainable Significant Opportunity to Expand and Extend Customer Lifetime Value 8

9 Attractive Unit Economics Bulk Water Bulk Clean Water Platform Initial Plant Investment (1) Year 1 Plant Revenue Year 1 Plant Unit Cash Flow (2) Illustrative Plant Assumptions ~$50mm ~$12mm ~$9mm Initial contract period of 15 years Function of capacity and commercial terms Contracts include inflation protection and customers typically pay for electricity directly Indicative Cash Flow Profile For An Illustrative Plant Plant Unit Cash Flow (2, 3, 4) Cumulative Plant Unit Cash Flow (2, 3, 4) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Unit economics for acquired or future company-built plants may vary significantly from this illustrative example. Examples are not forward-looking statements nor a target for future investments. (1) Initial plant investment is defined as the initial cash outflow related to plant capital expenditures and/or long-term contract costs; actual initial plant investments may vary. (2) Plant unit cash flow after initial plant investment (year 0) is net income before depreciation and amortization, net interest expense; income tax expense (benefit) and intercompany allocations. (3) The illustrative model assumes an annual increase for inflation of 2% to both revenues and operating expenditures. (4) The cash flow profile for an illustrative plant is based on a plant that is built, owned and operated by us; the cash flow profile for an acquired plant may differ. 9

10 Attractive Unit Economics POU POU Water Treatment Platform Illustrative POU System Assumptions Initial POU Investment (1) Annual Revenue Annual POU Unit Cash Flow (2) ~$900 ~$600 ~$400 Typical initial contract period of 3 years Function of POU unit type and commercial terms Indicative Cash Flow Profile For An Illustrative POU Installation Annual unit attrition rate of 8% implies an average rental period of more than 11 years resulting in the generation of long-term cash flows POU Unit Cash Flow (2, 3, 4) Cumulative POU Unit Cash Flow (2, 3, 4) Replacement capex Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Unit economics for a POU installation may vary significantly from this illustrative example. Illustrative examples are not forward-looking statements nor a target for future investments. (1) Initial POU investment is the initial cash outflow related to POU unit capital expenditures, POU installation costs, sales commissions and lead generation costs; actual initial POU investments may vary. (2) POU unit cash flow after initial POU investment (year 0) is defined as net income before depreciation and amortization, net interest expense, income tax expense (benefit), gain or loss on disposal of assets and general overhead expenditures. (3) The POU rental contract term is typically three years and includes an automatic renewal provision. The illustrative example assumes an implied average rental period of more than 11 years based on an annual unit attrition rate of 8%. (4) The illustrative example assumes: (i) higher POU unit cash flow in year 1 due to lower field service costs and (ii) lower POU unit cash flow in year 8 due to additional POU unit capital expenditure and related POU installation costs for the replacement of the POU unit upon reaching its estimated useful life of 7 years. The actual timing of a replacement may differ. 10

11 Strong History of Improving Adjusted EBITDA Margins (1) Expanding margins due to economies of scale and operating leverage 31.5% 27.2% 23.1% 2H' Note: Chart begins in 2H14 to reflect AVH margin performance since its acquisition of Quench in June 2014; half year figures represent sum of respective quarters Results do not reflect $1.4m of cash collected on the design and construction contract acquired in our Peru acquisition (1) Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue. 11

12 Extending and Expanding Customer Relationships Illustrative Revenue Illustrative Revenue Bulk Clean Water Platform Point-of-Use Water Filtration Platform Contract Amendment 2 Contract extension Significant capacity expansion Additional water rate reduction New Products and Services Ice machine and sparkling water cooler rentals Coffee Additional Water Cooler Rentals Upgrades/new locations Original Contract Contract Amendment 1 Contract extension Capacity expansion Water rate reduction for customer Original Unit Rental Typically 3 years Contract Renewal Typically automatically renews Implied average rental period is >11 years Time Time Note: Illustrative lifecycles are not to scale. 12

13 Our Business Expansion Opportunities Expanding National POU Sales Capability Experienced sales teams in many major metropolitan areas National account and industry vertical sales teams focus on large corporates and specialized end markets Online marketing capabilities drive cost-effective customer acquisition Significant sector consolidation opportunities Hundreds of smaller independent providers and selected larger regional competitors serving a majority of the POU market (1) Global Bulk Water Expansion Latin America Committed to providing water treatment solutions for potable, ultrapure and reused wastewater in Mexico, Chile, Colombia and Peru North America Pursuing brackish and seawater RO solutions to supplement potable and industrial water supplies in Texas and other U.S. states Middle East Presently focused on projects in the Middle East with certain desalination project support services already provided in Saudi Arabia Caribbean Identified opportunities in Curacao, Trinidad, and throughout the Caribbean Quench sales locations SSW expansion opportunities Note: Map information as of 6/30/2016. (1) Zenith International Ltd (USA Bottled Water Coolers and Point of Use Report 2015, published February 2016); management estimates. 13

14 Proactive Deal Sourcing Successfully executed 17 acquisitions since 2008 (1) We proactively identify and approach assets or companies which we believe are attractive targets In our experience, companies which own and operate a single SWRO plant are receptive to our approach because: A lack of SWRO operating expertise typically leads to subpar operating performance and an unreliable water supply It provides them an opportunity to raise cash by selling a non-core activity Recent experience in proactive sourcing: Paraquita Bay, British Virgin Islands Aguas de Bayovar, Peru Both negotiated acquisitions, no competitive bidders In the POU market, there are hundreds of independent local and regional operators (2). We target strategic acquisitions that enable us to grow into new territories or increase customer density in existing territories Recent experience in proactive sourcing: Quench Canada Pure Water Innovations Macke Water Systems Atlas Watersystems (1) Includes Quench acquisitions prior to its June 2014 acquisition by AquaVenture Holdings. (2) Zenith International Ltd (USA Bottled Water Coolers and Point of Use Report 2015, published February 2016). Note: Accurately predicting if or when a specific acquisition will occur is challenging, if not impossible. The timing, size and accounting treatment of an acquisition will impact our quarterly and annual operating results. 14

15 AquaVenture First Half 2017 Performance First Half 2017 Highlights Completed $150M debt financing on August 4, 2017 ~$100M used to retire existing debt Non-amortizing loan extends maturity and defers amortization Accommodates growth objectives Acquisition of Pure Water Innovations in Raleigh and Quench Canada in Toronto $2.8M aggregate purchase price Adds 1,000 customers and 2,400 units to rental base Executed amendments to the BVI Water Purchase Agreement and BVI Loan Agreement on August 4, 2017 Annual Financial Performance ($ in mm) +60% CAGR $27.8 $67.1 $100.3 $114.1 $ % CAGR $18.8 $27.3 $ Revenue Adjusted EBITDA 60 Revenue ($ in millions) $25.0 Adjusted EBITDA (1) ($ in millions) $25.0 Adjusted EBITDA plus cash collected on the design and construction contract (2) ($ in millions) 50 $20.0 $ $55.4 $58.9 $15.0 $10.0 $5.0 $17.3 $17.9 $15.0 $10.0 $5.0 $17.3 $ H'2016 1H'2017 $- 1H'2016 1H'2017 $- 1H'2016 1H'2017 Adj. EBITDA Margin % 31.3% 30.4% (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 cash collected on the design and construction contract we acquired in our Peru acquisition. 15

16 Select Balance Sheet Items Balance Sheet As of June 30, 2017: As of December 31, 2016: Cash and Cash Equivalents $82.9M $95.3M Total Debt $130.6M $143.7M Working Capital $85.0M $75.9M Total Assets $519.5M $536.7M 16

17 Select Cash Flow Items Cash Flow Highlights Six months ended June 30, 2017: Six months ended June 30, 2016: Net Cash from Operating Activities $10.6M $10.9M Principal Collected on Note Receivable (1) $2.2M $ Capital Expenditures and Long-Term Contract Expenditures $7.7M $11.6M (1) Included in net cash in investing activities and not in net cash from operations. 17

18 Attractive Investor Value Proposition Water-as-a-Service The supply of drinking and process water to municipal, industrial and commercial customers under long-term contracts using company-owned facilities and equipment 1 Long-term, contracted and recurring revenue 2 Strong unit economics, margins and cash flow 3 Rapid payback period and attractive rates of return on investment 4 Strong customer retention with opportunity to increase customer lifetime value 5 Highly fragmented market with significant opportunity to grow 18

19 Appendix

20 Non-GAAP Financial Data ($ in thousands) Six months ended June 30, 2017 Six months ended June 30, 2016 Seven Seas Corporate Seven Seas Corporate Water Quench and Other Total Water Quench and Other Total Net income (loss) $ (5,061) $ (5,224) $ (1,368) $ (11,653) $ (2,152) $ (5,073) $ (989) $ (8,214) Depreciation and amortization 8,493 7,204-15,697 8,088 6,673-14,761 Interest expense (income), net 2,100 2,036 (617) 3,519 3,391 2,038-5,429 Income tax expense 1, ,799 1, ,358 Share-based compensation expense 4,036 1, , ,067 Loss on disposal of assets Acquisition-related expenses Initial public offering costs Changes in deferred revenue related to our bulk water business ERP implementation charges for a SAAS solution - 1,447-1, Adjusted EBITDA $ 11,752 $ 7,943 $ (1,784) $ 17,911 $ 12,417 $ 5,543 $ (622) $ 17,338 Adjusted EBITDA Margin 40.5% 26.6% % 30.4% 45.9% 19.6% % 31.3% 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, goodwill impairment charges, changes in deferred revenue related to our bulk water business, enterprise resource planning ( ERP ) system implementation charges for a software-as-a-service ( SAAS ) solution, initial public offering costs, gains (losses) on extinguishment of debt, one-time IPO triggered compensation, gains on bargain purchases and certain adjustments recorded in connection with purchase accounting for acquisitions. 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. 20

21 Key Metrics ($ in thousands) Cash collected on design and construction contract Six months ended June 30, 2017 Six months ended June 30, 2016 Seven Seas Corporate Seven Seas Corporate Water Quench and Other Total Water Quench and Other Total $ 4,053 $ - $ - $ 4,053 $ - $ - $ - $ - Adjusted EBITDA plus cash collected on design and construction contract Six months ended June 30, 2017 Six months ended June 30, 2016 Seven Seas Corporate Seven Seas Corporate Water Quench and Other Total Water Quench and Other Total $ 15,805 $ 7,943 $ (1,784) $ 21,964 $ 12,417 $ 5,543 $ (622) $ 17,338 Cash collected on design and 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 note 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 cash we collect from the design and construction contract acquired in our Peru Acquisition. Cash collected on the design and construction contract, which includes both principal and interest, 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 cash collected on the design and construction contract is presented above. 21

22 Desalination Overview Global clean water shortage is driving desalination demand Global water demand estimated to exceed supply by ~40% by 2030 (1) Solutions include increasing the available supply of clean water (e.g. desalination and wastewater reuse), using existing supplies more efficiently or demand-side management Improved technology makes desalination an economical solution Seawater Reverse Osmosis (SWRO) technology more efficient than thermal desalination Membrane and pump technologies have improved Energy recovery advancements reduce electrical consumption SWRO Process Pretreatment: feedwater screened and filtered to remove suspended materials Reverse Osmosis: water pumped through membranes at high pressure; water passes through the membrane, dissolved materials and organics do not Post-treatment: depending on end user specifications, water is re-mineralized and treated with chemicals Historical and Projected Desalination Capacity (2) ( , billions of gallons / day) Cumulative Capacity 6% CAGR Cumulative Capacity Distribution of Earth s Water (3) Oceans: 97.5% of the Earth s Water Supply (1) Charting Our Water Future report Water Resources Group. (2) Q GWI desalination markets forecast; contracted desalination capacity. (3) United States Intelligence Community Assessment: Global Water Security. (4) United Nations Environment Programme. 22 Half of the world s population lives within ~40 miles of the sea (4)

23 Sustainability Overview Seven Seas Water (SSW) Seven Seas Water provides pure, potable water supply solutions in countries where fresh, safe, clean water supplies are limited thereby ensuring the health and safety of many populations. Seven Seas Water utilizes its own capital and leverages its expertise in overall water management and operations to deliver reliable and affordable pure water supplies in an energy efficient way. In addition to population growth driving increased demand for potable water, the demand for industrial water is also rapidly increasing. Seven Seas Water provides alternative water supply solutions to the Industrial sector helping to minimize the depletion of fresh water resources available for human consumption. The company utilizes state of the art technology and proven highly efficient process designs to optimize its water treatment systems, which we believe results in the lowest possible energy consumption and carbon foot print. Further, Seven Seas Water has a successful track-record of replacing thermal desalination plants, which use energy inefficient distillation technology, into reverse osmosis facilities which are far more energy efficient. Quench Quench's mission is to deliver the best water filtration systems for businesses in a sustainable, environmentally friendly, and cost-efficient way. Commitment to clean, eco-friendly and bottle-free water solutions. We estimate that, in 2016 alone, Quench bottleless or point-of-use (POU) water coolers kept more than 22 million 5-gallon plastic jugs from entering the waste stream. According to the Environmental Capital Group, the bottled water cooler (BWC) business consumes 140 million kilowatt hours of electricity, wastes 2.7 billion gallons of water, burns close to 6 million gallons of fuel, and dumps more than 35,000 tons of waste into landfills each year. Quench's POU water cooler systems save energy and water, reduce dependence on petroleum, and help reduce the emission of greenhouse gases. No plastic bottles. No water deliveries. No wasted energy. No landfill waste. Seven Seas Water also utilizes the best available wastewater treatment technologies that allow for water reuse for industrial and agricultural purposes. 23