Third Quarter 2019 Earnings Call November 6, 2019 Safe Harbor - - PowerPoint PPT Presentation

Third Quarter 2019 Earnings Call

November 6, 2019

Safe Harbor Statement

2

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 2019 financial results; our ability to produce positive operating cash flows; expectations regarding future business development and acquisition activities; its expectations regarding performance, growth, cash flows and margins from recently completed and pending acquisitions; its ability to capitalize on vertical integration opportunities; 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 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.

$12.7 $20.4 $34.2 $55.6 $13.9 $21.7 $37.9 $59.5

$- $20.0 $40.0 $60.0 $80.0 $100.0

3Q'2018 3Q'2019 YTD 2018 YTD 2019

Third Quarter 2019 Financial Highlights

S Revenues grew 43.8% over Q3 2018, comprised of 10.5% organic growth and 33.3% inorganic

growth

− Includes revenue growth of 44.7% in Quench and 42.5% in Seven Seas Water S Net loss of $3.9M compared to $2.7M in Q3 2018 S Adjusted EBITDA increase of 60.5% over Q3 2018 S Adjusted EBITDA Margin expansion of 400 bps

3

Adjusted EBITDA(1) and Adjusted EBITDA plus principal collected on the Peru construction contract(2)

($ in millions)

• Adj. EBITDA Margin %

Revenues

($ in millions)

34.4%

$36.8 $52.9 $103.8 $150.9

50 100 150

3Q'2018 3Q'2019 YTD 2018 YTD 2019

(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.

33.0% 38.4% 36.8%

Operational Update

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Quench Continues Execution of M&A Strategy

S Quench completed two acquisitions on October 1 – Mirex

AquaPure Solutions (Houston, TX) and Flowline Canada (Edmonton, Canada)

S Four acquisitions completed year-to-date, collectively adding

~7,600 rental units

− Acquisitions were immediately integrated upon closing − Total installed asset base now exceeds 155,000 units

2019 Acquisitions

SSW Contract Updates

S SSW extended its agreement in The Bahamas by 9 years − In addition to continuing to deliver potable water and wastewater treatment services, SSW is

performing equipment upgrade services for its customer

S Completed volume expansion for Limetree Bay Terminal customer as of November 1st

Q3 2019 Financial Highlights

S Revenues of $22.2M S Gross margin of 51.5% S Net income of $0.6M S Adjusted EBITDA of $11.9M and Adjusted EBITDA Margin of 53.4%(1) S Adjusted EBITDA plus principal on the Peru construction contract of $13.2M(2)

Seven Seas Water Financial Overview

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(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.

$7.7 $11.9 $22.2 $34.4 $8.9 $13.2 $25.8 $38.3

$- $20.0 $40.0 $60.0

3Q'2018 3Q'2019 YTD 2018 YTD 2019

Adjusted EBITDA(1) and Adjusted EBITDA plus principal collected on the Peru construction contract(2)

($ in millions)

• Adj. EBITDA Margin %

Revenues

($ in millions)

49.2%

$15.6 $22.2 $45.7 $65.2

10 20 30 40 50 60

3Q'2018 3Q'2019 YTD 2018 YTD 2019

48.6% 53.4% 52.7%

Quench Financial Overview

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Q3 2019 Financial Highlights

S Revenues of $30.7M S Gross margin of 48.9% S Net Loss of $2.0M S Adjusted EBITDA of $9.4M and Adjusted EBITDA Margin of 30.6%

(1) See appendix for the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure.

$5.7 $9.4 $14.5 $24.2

$- $10.0 $20.0 $30.0 $40.0

3Q'2018 3Q'2019 YTD 2018 YTD 2019

Adjusted EBITDA(1)

($ in millions)

• Adj. EBITDA Margin %

Revenues

($ in millions)

27.0%

$21.2 $30.7 $58.1 $85.7

20 40 60 80

3Q'2018 3Q'2019 YTD 2018 YTD 2019

24.9% 30.6% 28.2%

Select Balance Sheet and Cash Flow Items

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(1) Total Net Debt, a non-GAAP financial measure, is defined as total debt less cash, cash equivalents and restricted cash as reported on

the Consolidated Balance Sheets.

S Capital expenditures are largely composed of growth-related activities (POU unit placements, AUC growth,

Limetree) that will result in the generation of additional revenues and Adjusted EBITDA in future years

S Completed follow-on offering of ~4.7 million ordinary shares in July, raising ~$75M of net proceeds

Select Balance Sheet Items Select Cash Flow Statement Items

(in thousands) Cash and cash equivalents $ 109,520 $ 56,618 Restricted cash 4,268 4,153 Total cash, cash equivalents and restricted cash $ 113,788 $ 60,771 Corporate credit agreement $ 300,000 $ 300,000 BVI loan 16,278 20,468 Vehicle financing 3,127 1,842 Total face value of debt 319,405 322,310 Less: unamortized debt discounts and deferred financing fees (1,829) (2,601) Total debt $ 317,576 $ 319,709 Total Net Debt(1) $ 203,788 $ 258,938

September 30, December 31, 2019 2018

(in thousands) Cash flow (used in) provided by operating activities $ 20,211 $ 22,048 Capital expenditures $ (28,639) $ (12,930)

Nine Months Ended September 30, September 30, 2019 2018

2019 Outlook

8 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.

S Due to the strong financial performance reported through Q3 2019 year-to-date and the

anticipated impact of the completed 2019 Quench acquisitions, the Company is increasing its previously provided guidance ranges.

S For the full-year 2019 outlook, the Company is currently targeting:

FY 2019 Outlook Previous FY 2019 Outlook

Revenue $197M - $201M $192M - $197M Adjusted EBITDA $72M - $75M $69M - $72M Principal Collected on the Peru Construction Contract $5.3M $5.3M Adjusted EBITDA plus Principal Collected

• n the Peru Construction Contract

$77M - $80M $74M - $77M

S Outlook does not include any pending or future acquisitions

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Appendix: Supplemental Information and Reconciliations

Income Statement

AquaVenture Holdings Limited and Subsidiaries Unaudited Condensed Consolidated Statements of Operations (In Thousands)

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Revenues: Bulk water $ 14,992 $ 14,626 $ 44,916 $ 42,682 Rental 24,286 16,261 68,660 45,041 Product sales 12,769 4,952 34,511 13,012 Financing 900 985 2,809 3,048 Total revenues 52,947 36,824 150,896 103,783 Cost of revenues: Bulk water 6,958 6,771 20,481 20,021 Rental 11,245 7,130 30,898 20,240 Product sales 8,271 3,256 22,157 8,624 Total cost of revenues 26,474 17,157 73,536 48,885 Gross profit 26,473 19,667 77,360 54,898 Selling, general and administrative expenses 23,518 20,826 69,256 59,689 Income (loss) from operations 2,955 (1,159) 8,104 (4,791) Other expense: Interest expense, net (6,214) (3,396) (19,282) (10,000) Other expense, net (233) (228) (381) (520) Loss before income tax expense (3,492) (4,783) (11,559) (15,311) Income tax benefit (expense) 445 (2,051) 1,517 (1,312) Net loss (3,937) (2,732) (13,076) (13,999) Other comprehensive income: Foreign currency translation adjustment (67) 106 169 (84) Comprehensive loss $ (4,004) $ (2,626) $ (12,907) $ (14,083) Loss per share – basic and diluted $ (0.13) $ (0.10) $ (0.46) $ (0.53) Weighted-average shares outstanding – basic and diluted 31,201 26,590 28,354 26,544

September 30, 2019 2018 2019 2018 Three Months Ended Nine Months Ended September 30, September 30, September 30,

Non-GAAP Financial Data

11 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; enterprise resource planning (“ERP”) system implementation charges for a software-as-a-service (“SAAS”) solution; and charges incurred in connection with restructuring activities. 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.

(In Thousands)

Net income (loss) $ 644 $ (1,993) $ (2,588) $ (3,937) $ 373 $ (2,315) $ (790) $ (2,732) Depreciation and amortization 6,319 8,599

• 14,918

3,672 5,038

• 8,710

Interest expense, net 3,151 1,593 1,470 6,214 2,817 805 (226) 3,396 Income tax expense (benefit) 490 (46) 1 445 (2,193) 142

• (2,051)

Share-based compensation expense 681 466 176 1,323 2,174 988 191 3,353 Loss on disposal of assets 217 585

• 802

8 560

• 568

Acquisition-related expenses 134 92 29 255 699 196 95 990 Changes in deferred revenue related to our bulk water business 249

• 249

134

• 134

ERP implementation charges for a SAAS solution

• 89
• 89
• 315
• 315

Adjusted EBITDA $ 11,885 $ 9,385 $ (912) $ 20,358 $ 7,684 $ 5,729 $ (730) $ 12,683 Adjusted EBITDA Margin 53.4 % 30.6 % — % 38.4 % 49.2 % 27.0 % — % 34.4 %

Water Quench & Other Total Water Quench Three Months Ended September 30, 2019 Three Months Ended September 30, 2018 Seven Seas Corporate Seven Seas Corporate & Other Total (In Thousands)

Net income (loss) $ 2,172 $ (6,843) $ (8,405) $ (13,076) $ (3,554) $ (7,190) $ (3,255) $ (13,999) Depreciation and amortization 17,917 21,537

• 39,454

10,911 13,850

• 24,761

Interest expense, net 9,773 4,745 4,764 19,282 7,620 2,353 27 10,000 Income tax (benefit) expense 1,424 92 1 1,517 (1,227) (85)

• (1,312)

Share-based compensation expense 1,947 1,281 381 3,609 6,437 2,888 677 10,002 Loss on disposal of assets 198 1,356

• 1,554

240 1,266

• 1,506

Acquisition-related expenses 583 1,223 284 2,090 1,405 372 95 1,872 Changes in deferred revenue related to our bulk water business 354

• 354

380

• 380

ERP implementation charges for a SAAS solution

• 646
• 646
• 1,026
• 1,026

Restructuring expenses

• 130
• 130
• Adjusted EBITDA

$ 34,368 $ 24,167 $ (2,975) $ 55,560 $ 22,212 $ 14,480 $ (2,456) $ 34,236 Adjusted EBITDA Margin 52.7 % 28.2 % — % 36.8 % 48.6 % 24.9 % — % 33 %

Seven Seas Corporate Seven Seas Corporate Water Quench & Other Total Water Quench Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018 & Other Total

Key Metrics

12 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 2024. 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.

Principal collected on Peru construction contract $ 1,344 $

• $
• $

1,344 $ 1,237 $

• $
• $

1,237 Principal collected on Peru construction contract $ 3,949 $

• $
• $

3,949 $ 3,637 $

• $
• $

3,637 Adjusted EBITDA plus principal collected on Peru construction contract $ 13,229 $ 9,385 $ (912) $ 21,702 $ 8,921 $ 5,729 $ (730) $ 13,920 Adjusted EBITDA plus principal collected on Peru construction contract $ 38,317 $ 24,167 $ (2,975) $ 59,509 $ 25,849 $ 14,480 $ (2,456) $ 37,873

Three Months Ended September 30, 2019 Three Months Ended September 30, 2018 Seven Seas Corporate Seven Seas Corporate Water Quench & Other Total Water Quench

(in thousands) (in thousands)

& Other Total

(in thousands) (in thousands)

Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018 Corporate Seven Seas Corporate Water Quench & Other Total Water Quench & Other Total

(in thousands) (in thousands)

Seven Seas Corporate Seven Seas Corporate Water Quench & Other Total Water Quench & Other & Other Nine Months Ended September 30, 2018 Seven Seas Corporate

(in thousands) (in thousands)

Nine Months Ended September 30, 2019 Seven Seas Corporate Water Quench & Other Total Water Quench Total Three Months Ended September 30, 2019 Three Months Ended September 30, 2018 Seven Seas Total