AquaVenture Holdings Limited Announces Third Quarter 2017 Earnings Results

Corporate Debt Financing.  On August 4, 2017, AquaVenture entered into a $150.0 million senior secured credit agreement that provides a four-year, non-amortizing term loan that bears interest at LIBOR plus 6.00%. Total loan proceeds were approximately $147 million, net of debt financing costs and origination fees, of which the Company used approximately $100 million to repay in full the outstanding amounts due on the existing indebtedness of our Trinidad, USVI, Curacao and Quench subsidiaries. The remaining proceeds will be used for acquisitions, project development opportunities and working capital needs.

BVI Matters.  On August 4, 2017, the Company and the Government of the British Virgin Islands ("BVI") amended the Paraquita Bay water purchase agreement ("WPA") to reduce the water rate, modify contractual formulas applied to calculate increases in the water rate and revise the original WPA payment profile, effective January 1, 2017. The Company also amended its BVI loan agreement, which provided for an approximately one-year extension of the amortization schedule of the current loan and reduced the current spread applied to the LIBOR base by 50 basis points. 

Consolidated Financial Performance

For the third quarter of 2017, total revenues increased 3.6% to $29.9 million from $28.9 million in the 2016 period.  Total gross margin decreased 190 basis points to 48.6% for the third quarter of 2017 from 50.5% in the prior year period.

Total selling, general and administrative expenses ("SG&A") increased to $17.7 million in the third quarter of 2017 from $15.1 million in the prior year period. The $2.6 million increase was primarily due to an increase in share-based compensation resulting from equity grants made in connection with our initial public offering ("IPO") during the fourth quarter of 2016 (the "IPO Grant").

Net loss for the third quarter of 2017 was $7.6 million, compared to a net loss of $4.7 million in the prior year period.  Adjusted EBITDA was $9.7 million for the third quarter of 2017, which remained flat compared to the prior year period. Adjusted EBITDA Margin of 32.5% for the third quarter of 2017 decreased 120 basis points from 33.7% in the prior year period. Adjusted EBITDA plus the cash collected on the design and construction contract was $11.7 million in the third quarter of 2017 compared to $9.7 million in the prior year period, an increase of 20.6%. 

Net cash provided by operating activities for the quarter ended September 30, 2017 was $1.2 million compared to $1.0 million for the comparable period of 2016. Capital expenditures and long-term contract expenditures were $4.2 million for the quarter ended September 30, 2017 compared to $4.9 million in the prior year period. 

As of September 30, 2017, cash and cash equivalents were $118.1 million and total debt was $175.0 million.

For the nine months ended September 30, 2017, total revenues increased 5.4% to $88.8 million from $84.3 million in the prior year period and gross margin declined 220 basis points to 47.0% from 49.2% in the prior year period. Total SG&A increased to $51.0 million for the nine months ended September 30, 2017 from $43.3 million in the prior year period. The $7.7 million increase in SG&A was primarily due to an increase in share-based compensation resulting from the IPO Grant. Net loss for the nine months ended September 30, 2017 was $19.2 million compared to $12.9 million in the prior year period. Diluted loss per share for the nine months ended September 30, 2017 was $(0.73).  There were no ordinary shares outstanding prior to October 6, 2016. Therefore, no diluted loss per share information is available for the nine months ended September 30, 2016.

Adjusted EBITDA was $27.6 million for the nine months ended September 30, 2017, a 2.0% increase over Adjusted EBITDA of $27.1 million in the prior year period. Adjusted EBITDA Margin declined 100 basis points to 31.1%, compared to 32.1% in the prior year period. Adjusted EBITDA plus the cash collected on the design and construction contract was $33.7 million for the nine months ended September 30, 2017 compared to $27.1 million in the prior year period, an increase of 24.5%.

Net cash provided by operating activities for the nine months ended September 30, 2017 of $11.9 million was flat compared to the 2016 period. Capital expenditures and long-term contract expenditures were $11.9 million for the nine months ended September 30, 2017 compared to $16.6 million in the prior year period. 

Third Quarter 2017 Segment Results

Seven Seas Water

Seven Seas Water revenues of $14.2 million for the third quarter of 2017 increased 2.4% from $13.9 million in the prior year period. The increase was mainly due to the inclusion of incremental revenues of $1.1 million from our Peru operations acquired in October 2016. These increases were partially offset by $0.6 million of lower revenues related to Hurricanes Irma and Maria. In addition to the hurricane impacts, revenues from our BVI plant decreased $0.4 million primarily due to rate adjustments in connection with the August 4, 2017 contract amendment.  

Seven Seas Water gross margin of 44.4% for the third quarter of 2017 remained relatively flat compared to 44.6% in the prior year period. The gross margin of 44.4% included a decline resulting from the BVI contract amendment and an offsetting increase from better-than-expected performance in Peru during the current quarter. 

Seven Seas Water SG&A for the third quarter of 2017 increased $1.6 million, or 33.2%, to $6.6 million from $5.0 million in the prior year period. The increase was mainly due to a $1.8 million increase in share-based compensation resulting from the IPO Grant and $0.3 million higher acquisition-related expenses in the current quarter, partially offset by a $0.3 million decrease in compensation and benefits primarily due to elevated discretionary compensation expense in the same period of 2016.   

Net loss for our Seven Seas Water segment was $2.9 million for the three months ended September 30, 2017 as compared to a net loss of $1.9 million in the prior year period. Adjusted EBITDA of $6.9 million for the third quarter of 2017 increased 10.4% over Adjusted EBITDA of $6.2 million in the prior year period. Adjusted EBITDA Margin increased 360 basis points to 48.5% in the third quarter of 2017 from 44.9% in the prior year period. Adjusted EBITDA plus cash collected on the design and construction contract was $8.9 million in the third quarter of 2017 compared to $6.2 million in the prior year period, an increase of 42.9%. 

For the nine months ended September 30, 2017, Seven Seas Water revenues were $43.2 million, an increase of 5.6% over the prior year period revenues of $41.0 million. Gross margin for the nine months ended September 30, 2017 decreased 380 basis points to 40.1% from 43.9% in the prior year period. Total SG&A expenses for the nine months ended September 30, 2017 increased $4.7 million to $18.7 million from $14.0 million in the prior year period. Net loss for the nine months ended September 30, 2017 was $7.9 million, compared to a net loss of $4.1 million in the prior year period. Adjusted EBITDA of $18.6 million for the nine months ended September 30, 2017 remained relatively flat compared to the prior year period. Adjusted EBITDA Margin decreased 240 basis points to 43.1% from 45.5% in the prior year period. Adjusted EBITDA plus cash collected on the design and construction contract was $24.7 million for the nine months ended September 30, 2017 compared to $18.7 million in the prior year period, an increase of 32.5%.

Quench

Quench revenues of $15.7 million for the third quarter of 2017 increased 4.7% from $15.0 million in the prior year period. Rental revenues increased $1.0 million, or 8.3%, compared to the prior year period, which was comprised of 6.2% organic growth due to additional units placed under new leases in excess of unit attrition, and 2.2% (or $0.3 million) from acquisitions. The increase in rental revenue was partially offset by a decrease in other revenues of $0.3 million, or 12.5%, due to a $0.8 million reduction in direct customer equipment sales, primarily related to a single large customer, offset in part by $0.4 million of Wellsys dealer equipment sale revenue and a $0.1 million increase in coffee sales.

Quench gross margin for the third quarter of 2017 decreased 350 basis points to 52.4% compared to 55.9% for the same period of 2016. The decrease was primarily due to (i) increased costs for service personnel and rental depreciation related to growth in the rental installed base and (ii) a decline in other gross margin related to decreases in higher-margin direct customer equipment sales and growth of lower-margin businesses, including coffee and Wellsys dealer equipment sales.

Quench SG&A for the third quarter of 2017 increased $0.2 million, or 2.4%, to $9.8 million from $9.6 million in the prior year period.  The increase was mainly due to a $0.7 million increase in share-based compensation resulting from the IPO Grant and a $0.4 million increase in amortization expense of deferred lease costs related to the increase in the units placed on lease, partially offset by a $0.8 million decrease in expenses related to the implementation of a new software-as-a-service enterprise resource planning ("ERP") system and a $0.3 million decrease in depreciation expense related to the acceleration of depreciation in the prior year on an existing ERP system.

Quench reported a net loss of $3.0 million for the third quarter of 2017 compared to a net loss of $2.3 million in the prior year period. Adjusted EBITDA of $3.9 million for the third quarter of 2017 remained relatively flat compared to the prior year period. Adjusted EBITDA Margin decreased 220 basis points to 24.7% in third quarter of 2017 from 26.9% in the prior year period.

For the nine months ended September 30, 2017, Quench reported total revenues of $45.6 million, a $2.3 million, or 5.2%, increase compared to the prior year period revenues of $43.3 million. Gross margin for the nine months ended September 30, 2017 decreased 70 basis points to 53.5% from 54.2% in the prior year period. Total SG&A expenses for the nine months ended September 30, 2017 increased $1.3 million to $29.0 million, compared to $27.7 million in the prior year period. Net loss for the nine months ended September 30, 2017 was $8.2 million, compared to a net loss of $7.3 million in the prior year period. Adjusted EBITDA was $11.8 million for the nine months ended September 30, 2017, a 23.6% increase from Adjusted EBITDA of $9.6 million for the nine months ended September 30, 2016. Adjusted EBITDA Margin also increased 380 basis points to 25.9% for the nine months ended September 30, 2016 from 22.1% in the prior year period. 

Corporate and Other

Corporate and Other SG&A for the third quarter of 2017 increased $0.8 million to $1.3 million from $0.5 million in the prior year period. The increase was mainly due to a $0.5 million increase in insurance and professional fees, including elevated legal, audit and consulting and advisory costs, since becoming a public company in October of 2016 and in connection with Sarbanes Oxley Act implementation efforts and the adoption of the new revenue and lease accounting guidance. In addition, share-based compensation increased $0.2 million from incremental equity awards granted to certain members of our board of directors in late 2016 and early 2017.

For the nine months ended September 30, 2017, Corporate and Other SG&A increased to $3.3 million from $1.5 million in the prior year period. The increase was mainly due to a $1.2 million increase in insurance and professional fees, including elevated legal, audit and consulting and advisory costs, since becoming a public company in October of 2016 and in connection with Sarbanes Oxley Act implementation efforts and the adoption of the new revenue and lease accounting guidance. In addition, share-based compensation increased $0.4 million from incremental equity awards granted to certain members of our board of directors in late 2016 and early 2017.

2017 Outlook

For the full year 2017 outlook, the Company has incorporated the impacts of both the hurricanes on the Seven Seas Water operations and the addition of the Wellsys acquisition at Quench. After factoring in these impacts, the Company is not changing its previously provided financial results and still expects the following:  

• Revenues expected between $119 and $122 million;
• Adjusted EBITDA expected between $34 and $37 million;
• Cash collected on the design and construction contract acquired in our Peru acquisition continues to be projected at $8.1 million annually (approximately $2 million per quarter); and
• Adjusted EBITDA plus the cash collected on the design and construction contract acquired in our Peru acquisition expected between $42 and $45 million.

The above statements are based on current expectations and supersede previously provided guidance. These statements are forward-looking, and actual results may differ materially. We do 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.

About AquaVenture

AquaVenture is a multinational provider of WAAS™ solutions that provide customers a reliable and cost-effective source of clean drinking and process water primarily under long-term contracts that minimize capital investment by the customer. AquaVenture is composed of two operating platforms: Quench, a U.S.-based provider of Point-of-Use, or POU, filtered water systems and related services to approximately 40,000 institutional and commercial customers; and Seven Seas Water, a multinational provider of desalination and wastewater treatment solutions, providing approximately 8 billion gallons of potable, high purity industrial grade and ultra-pure water per year to governmental, municipal, industrial and hospitality customers.

Conference Call and Webcast Information

AquaVenture will host an investor conference call on Thursday, November 9 at 8:00 a.m. EDT. Prior to the conference call, AquaVenture will post an investor presentation on the Investor Relations section of the Company's website, www.aquaventure.com. Interested parties are invited to listen to the conference call by dialing 1-877-407-0789, or, for international callers, 1-201-689-8562 and ask for the AquaVenture conference call. Replays of the entire call will be available through November 16, 2017 at 1-844-512-2921, or, for international callers, at 1-412-317-6671, conference ID #13672421. A webcast of the conference call will also be available through the Investor Relations section of the Company's website, www.aquaventure.com. A copy of this press release is also available on the Company's website.

Safe Harbor Statement

This release contains forward-looking statements that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and of Section 21E of the Securities Exchange Act of 1934. The forward-looking statements in this release do not constitute guarantees of future performance. Investors are cautioned that statements in this press release regarding management's future expectations, beliefs, intentions, goals, strategies, plans or prospects, including, without limitation, statements relating to AquaVenture's strategic focus; its forecast of full-year 2017 financial results; expectations regarding future business development and acquisition activities; its anticipated impacts and incremental costs related to recent hurricanes; its expectations regarding performance, growth, cash flows and margins from recently completed acquisitions; its expected margins and the impacts thereon from various customer contracts; and the impacts on operating results of the timing, size 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 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 press release as of this date and assumes no obligations to update the information included in this press release or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

investors@aquaventure.com
Investors Hotline: 855-278-WAAS (9227)  

AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
		September 30,			December 31,
		2017			2016
ASSETS
Current Assets:
Cash and cash equivalents		$	118,070		$	95,334
Restricted cash			166			166
Trade receivables, net of allowances of $951 and $1,166, respectively			17,761			15,473
Inventory			8,710			6,246
Prepaid expenses and other current assets			8,612			6,401
Total current assets			153,319			123,620
Property, plant and equipment, net			113,908			116,092
Construction in progress			10,602			9,398
Long-term contract costs			82,061			87,512
Restricted cash			4,147			5,895
Other assets			41,114			44,311
Deferred tax asset			376			515
Intangible assets, net			53,919			51,330
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