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AquaVenture Holdings Limited Announces Second Quarter 2018 Earnings Results

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AquaVenture Holdings Limited Announces Second Quarter 2018 Earnings Results

PR Newswire

TAMPA, Fla., Aug. 8, 2018 /PRNewswire/ -- AquaVenture Holdings Limited (NYSE:WAAS) ("AquaVenture" or the "Company"), a leader in Water-as-a-ServiceTM ("WAASTM") solutions, today reported financial results for the quarter ended June 30, 2018.

Highlights

  • Total revenues for the three months ended June 30, 2018 were $34.4 million compared to $29.8 million in the same period of 2017, reflecting a 15.4% increase. On a segment basis, revenues for Quench and Seven Seas Water increased 26.5% and 4.1%, respectively, over the prior year period.
  • Net loss for the three months ended June 30, 2018 was $4.9 million, or ($0.19) per share, compared to net loss of $5.3 million, or ($0.20) per share, in the same period of 2017.
  • Adjusted EBITDA for the three months ended June 30, 2018 was $11.2 million, a 17.0% increase over the same period of 2017. Adjusted EBITDA Margin was 32.6%, an improvement of 40 basis points over 32.2% in the prior year period.
  • Adjusted EBITDA plus principal collected on the Peru construction contract for the three months ended June 30, 2018 increased 16.1% to $12.4 million from $10.7 million in the same period of 2017.
  • Quench completed two acquisitions during the three months ended June 30, 2018, acquiring substantially all of the point-of-use water filtration assets of Aqua Coolers in April and Avalon Water in June. In addition, Quench acquired the point-of-use water filtration assets of Alpine Water Systems on August 6, 2018. These asset acquisitions collectively added over 19,000 rental units to Quench's installed asset base.

"I am pleased to report another strong operational quarter for AquaVenture, which reflected improving performance in both business segments. For the second quarter, we delivered year-over-year consolidated revenue growth of 15.4% and Adjusted EBITDA growth of 17.0%," said Doug Brown, AquaVenture's Chairman and Chief Executive Officer. "These results were driven by both organic increases from strong underlying business operations and inorganic additions from completed acquisitions. We successfully closed two acquisitions during the quarter, and another acquisition in early August, bringing Quench's total installed asset base to over 125,000 units.  On the M&A front, our team is actively working through multiple deal opportunities, in addition to diligently working to close the previously announced acquisitions. We remain committed to driving growth in both businesses to bring clean, potable water to more people throughout the world."

Recent Developments

Quench Acquisitions.  On April 2, 2018, Quench acquired substantially all the assets of JMS Group, Inc., d/b/a Aqua Coolers, a point-of-use water filtration company based in Chicago, Illinois.  On June 4, 2018, Quench acquired substantially all the assets of La Ferla Group LLC, d/b/a Avalon Water, a point-of-use water filtration company based in Atlanta, Georgia.  These acquisitions increased our customer density in top markets, and Avalon Water marks the first acquisition of a Wellsys dealer since the acquisition of Wellsys in September 2017.

In addition, on August 6, 2018, Quench acquired substantially all the assets of Alpine Water Systems, LLC, based in Las Vegas, Nevada.  Alpine is a leading provider of filtered water coolers with over 20 years of experience serving large national customers, and has operations in eleven major metropolitan areas across the United States.  This transaction expanded Quench's presence into two new markets and increased customer density in existing markets.   

These acquisitions collectively added over 5,000 customers and 19,000 units to Quench's installed asset base at an aggregate purchase price of approximately $23 million.

Consolidated Financial Performance

For the second quarter of 2018, total revenues increased 15.4% to $34.4 million from $29.8 million in the 2017 period.  Total gross margin increased 60 basis points to 52.9% for the second quarter of 2018 from 52.3% in the same period of 2017.

Total selling, general and administrative expenses ("SG&A") increased to $19.3 million in the second quarter of 2018 from $17.4 million in the same period of 2017.

Net loss for the second quarter of 2018 was $4.9 million, compared to a net loss of $5.3 million in the same period of 2017.  Adjusted EBITDA was $11.2 million for the second quarter of 2018, a 17.0% increase over $9.6 million in the prior year period. Adjusted EBITDA Margin of 32.6% for the second quarter of 2018 increased 40 basis points from 32.2% in the same period of 2017. Adjusted EBITDA plus the principal collected on the Peru construction contract was $12.4 million in the second quarter of 2018, an increase of 16.1% over $10.7 million in the same period of 2017.

Net cash provided by operating activities for the quarter ended June 30, 2018 was $8.7 million compared to $6.2 million for the same period of 2017. Capital expenditures were $4.4 million for the second quarter of 2018, compared to $4.0 million in the same period of 2017. 

As of June 30, 2018, cash and cash equivalents were $107.4 million and total debt was $171.7 million.

For the six months ended June 30, 2018, total revenue increased 13.9% to $67.0 million from $58.8 million in the same period of 2017. Gross margin was 52.6% compared to 52.1% in the prior year period, an increase of 50 basis points.  Total SG&A increased to $38.9 million for the first half of 2018, compared to $34.6 million in the first half of 2017.  Net loss for the six months ended June 30, 2018 was $11.3 million, or ($0.42) per share, compared to a net loss of $11.3 million, or ($0.43) per share, in the prior year period. 

Adjusted EBITDA was $21.6 million for the six months ended June 30, 2018, a 17.2% increase over Adjusted EBITDA of $18.4 million in the same period of 2017.  Adjusted EBITDA Margin increased 90 basis points to 32.2%, compared to 31.3% in the prior year period. Adjusted EBITDA plus the principal collected on the Peru construction contract was $24.0 million for the six months ended June 30, 2018, an increase of 16.3% over the same period of 2017.

Net cash provided by operating activities for the six months ended June 30, 2018 was $13.8 million compared to $12.4 for the same period of 2017.  Capital expenditures were $7.2 million for the first half of 2018, flat with the prior year period.

Second Quarter 2018 Segment Results

Seven Seas Water

Seven Seas Water revenues of $15.4 million for the second quarter of 2018 increased 4.1% from $14.8 million in the same period of 2017. This organic increase was mainly driven by our USVI operations, which had $0.4 million higher revenue primarily due to increases in production volumes in the current quarter compared to the same period of 2017.  In addition, our BVI operations had $0.2 million higher revenues primarily due to increases in the water rate compared to the prior year period.

Seven Seas Water gross margin of 56.1% for the second quarter of 2018 increased 620 basis points from 49.9% in the same period of 2017. The increase was primarily due to lower costs at our Peru operations, which incurred elevated repairs and maintenance expense during the 2017 period in connection with planned post-acquisition integration activities and adverse weather conditions.  In addition, gross margin benefited from higher revenues without a commensurate increase in costs in both our USVI and BVI operations.

Seven Seas Water SG&A for the second quarter of 2018 increased $0.5 million to $7.1 million compared to the prior year period. The increase was mainly due to $0.3 million higher share-based compensation expense due to new equity awards granted in the first quarter of 2018 and a $0.1 million increase in acquisition-related expenses.  

Net loss for our Seven Seas Water segment was $1.6 million for the three months ended June 30, 2018 compared to a net loss of $1.9 million in the same period of 2017. Adjusted EBITDA of $7.3 million for the second quarter of 2018 increased 15.2% over $6.4 million in the prior year period. Adjusted EBITDA Margin increased 460 basis points to 47.7% in the second quarter of 2018 from 43.1% in the same period of 2017. Adjusted EBITDA plus principal collected on the Peru construction contract was $8.5 million in the second quarter of 2018, an increase of 14.2% over $7.5 million in the prior year period. 

For the six months ended June 30, 2018, Seven Seas Water revenues were $30.1 million, an increase of 4.2% over revenues of $28.9 million in the same period of 2017.  Gross margin increased 590 basis points to 56.0% from 50.1% in the prior year period. Total SG&A expenses for the six months ended June 30, 2018 increased $1.2 million to $14.7 million from $13.5 million in the same period of 2017.  Net loss for the first half of 2018 was $3.9 million compared to a net loss of $4.7 million for the first half of 2017. Adjusted EBITDA was $14.5 million for the six months ended June 30, 2018, an increase of 18.8% over $12.2 million in the same period of 2017. Adjusted EBITDA Margin increased 590 basis points to 48.2% from 42.3% in the prior year period. Adjusted EBITDA plus principal collected on the Peru construction contract was $16.9 million, a 17.2% increase over $14.4 million in the same period of 2017.

Quench                                                              

Quench revenues of $19.1 million for the second quarter of 2018 increased 26.5% from $15.1 million in the same period of 2017.  Rental revenues increased $1.8 million, or 14.0%, compared to the prior year period, including 6.4% organic growth from additional units placed under new leases in excess of unit attrition. Other revenues increased $2.2 million compared to the same period of 2017, driven by the inclusion of dealer equipment sales resulting from our September 2017 Wellsys acquisition, partially offset by a decline in direct customer equipment sales.

Quench gross margin for the second quarter of 2018 decreased 440 basis points to 50.2% from 54.6% for the same period of 2017, primarily due to the inclusion of lower-margin equipment revenue from our Wellsys business that was acquired in September 2017, which is recorded in other revenues.

Quench SG&A for the second quarter of 2018 increased $1.4 million to $11.2 million compared to the same period of 2017.  The increase was primarily due to $0.6 million higher amortization expense primarily related to intangible assets from recent acquisitions and $0.4 million in higher compensation and benefits expense driven by increased headcount, primarily from the inclusion of staff added from certain acquisitions and additional resources to support our inorganic growth strategy.

Quench had a net loss of $2.3 million for the second quarter of 2018 compared to a net loss of $2.6 million in the prior year period. Adjusted EBITDA of $4.7 million for the second quarter of 2018 increased 12.9% over $4.1 million in the same period of 2017. Adjusted EBITDA Margin decreased 290 basis points to 24.4% in the second quarter of 2018 from 27.3% in the prior year period.

For the six months ended June 30, 2018, Quench reported total revenue of $36.8 million, a 23.3% increase compared to the prior year period revenue of $29.9 million. Gross margin decreased 420 basis points to 49.8% compared to 54.0% in the same period of 2017. Total SG&A expenses for the six months ended June 30, 2018 increased $2.7 million to $21.9 million.  Net loss for the first half of 2018 was $4.9 million, compared to a net loss of $5.2 million in the first half of 2017. Adjusted EBITDA was $8.8 million for the six months ended June 30, 2018, a 10.2% increase over $7.9 million in the same period of 2017.  Adjusted EBITDA Margin decreased 280 basis points to 23.8% compared to 26.6% in the prior year period.

Corporate and Other

Corporate and Other SG&A for the second quarter of 2018 decreased to $1.0 million from $1.1 million in the same period of 2017.  For the six months ended June 30, 2018, SG&A was $2.2 million compared to $2.0 million in the prior year period. 

2018 Outlook

For the full year 2018 outlook, the Company reaffirms that it expects to achieve the following financing results, which includes the results of the acquisitions completed since the beginning of 2018:

  • Revenues between $131 million and $136 million;
  • Adjusted EBITDA between $42 million and $47 million;
  • Principal collected on the Peru construction contract is projected to be $4.9 million; and
  • Adjusted EBITDA plus the principal collected on the Peru construction contract between $47 million and $52 million.

The impact of the binding agreement with Abengoa Water to purchase a majority interest in a desalination plant in Accra, Ghana has not been included in the 2018 outlook due to the pending conditions precedent.

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 WAASTM 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 more than 45,000 institutional and commercial customers; and Seven Seas Water, a multinational provider of desalination and wastewater treatment solutions, providing more than 8.5 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 Wednesday, August 8, 2018 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 August 15, 2018 at 1-844-512-2921, or, for international callers, at 1-412-317-6671, conference ID #13681394. 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 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 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.

 

AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)





June 30, 


December 31, 




2018


2017


ASSETS








Current Assets:








Cash and cash equivalents


$

107,402


$

118,090


Restricted cash



2,000




Trade receivables, net of allowances of $705 and $1,045, respectively



16,483



19,593


Inventory



10,177



8,228


Current portion of long-term receivables



6,127



6,878


Prepaid expenses and other current assets



3,906



3,874


Total current assets



146,095



156,663


Property, plant and equipment, net



112,568



112,771


Construction in progress



9,722



10,437


Restricted cash



3,635



4,269


Long-term receivables



41,440



43,796


Other assets



4,843



4,307


Deferred tax asset



407



38


Intangible assets, net



125,168



122,169


Goodwill



101,666



99,495


Total assets


$

545,544


$

553,945


LIABILITIES AND SHAREHOLDERS' EQUITY








Current Liabilities:








Accounts payable


$

4,588


$

3,508


Accrued liabilities



10,150



12,837


Current portion of long-term debt



6,246



6,483


Deferred revenue



2,687



2,454


Total current liabilities



23,671



25,282


Long-term debt



165,466



167,772


Deferred tax liability



5,334



5,266


Other long-term liabilities



11,670



11,429


Total liabilities



206,141



209,749


Commitments and contingencies








Shareholders' Equity








Ordinary shares, no par value, 250,000 shares authorized; 26,580 and 26,482
shares issued and outstanding at June 30, 2018 and December 31, 2017,
respectively






Additional paid-in capital



575,257



568,593


Accumulated other comprehensive income



(207)



(17)


Accumulated deficit



(235,647)



(224,380)


Total shareholders' equity



339,403



344,196


Total liabilities and shareholders' equity


$

545,544


$

553,945



 

 

AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)





Three Months Ended June 30, 


Six Months Ended June 30, 




2018


2017


2018


2017


Revenues:














Bulk water


$

14,360


$

13,614


$

28,056


$

26,579


Rental



14,821



13,006



28,780



25,810


Financing



1,015



1,150



2,063



2,333


Other



4,249



2,070



8,060



4,059


Total revenues



34,445



29,840



66,959



58,781


Cost of revenues:














Bulk water



6,743



7,394



13,250



14,440


Rental



6,654



5,671



13,110



11,425


Other



2,842



1,171



5,368



2,307


Total cost of revenues



16,239



14,236



31,728



28,172


Gross profit



18,206



15,604



35,231



30,609


Selling, general and administrative expenses



19,289



17,424



38,863



34,610


Loss from operations



(1,083)



(1,820)



(3,632)



(4,001)


Other expense:














Interest expense, net



(3,354)



(2,613)



(6,604)



(5,361)


Other expense, net



(152)



(93)



(292)



(275)


Loss before income tax expense



(4,589)



(4,526)



(10,528)



(9,637)


Income tax expense



332



764



739



1,654


Net loss



(4,921)



(5,290)



(11,267)



(11,291)


Other comprehensive income:














Foreign currency translation adjustment



(107)





(190)




Comprehensive loss


$

(5,028)


$

(5,290)


$

(11,457)


$

(11,291)
















Loss per share – basic and diluted


$

(0.19)


$

(0.20)


$

(0.42)


$

(0.43)
















Weighted-average shares outstanding – basic and diluted



26,550



26,415



26,521



26,401


 

 

AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)





Six Months Ended June 30, 




2018


2017


Cash flows from operating activities:








Net loss


$

(11,267)


$

(11,291)


Adjustments to reconcile net loss to net cash provided by operating activities:








Depreciation and amortization



16,051



14,331


Share-based compensation expense



6,649



5,910


Provision for bad debts



473



217


Deferred income tax provision



(300)



1,449


Inventory adjustment



106



109


Loss on disposal of assets



938



642


Amortization of debt financing fees



475



415


Other



25



75


Change in operating assets and liabilities:








Trade receivables



2,964



970


Inventory



(1,878)



(384)


Prepaid expenses and other current assets



77



(1,864)


Long-term receivable



3,108



3,076


Other assets



(1,671)



(1,298)


Current liabilities



(2,195)



(213)


Long-term liabilities



216



236


Net cash provided by operating activities



13,771



12,380


Cash flows from investing activities:








Capital expenditures



(7,215)



(7,188)


Net cash paid for acquisition of assets or business



(12,457)



(2,143)


Other



16




Net cash used in investing activities



(19,656)



(9,331)


Cash flows from financing activities:








Payments of long-term debt



(3,369)



(13,901)


Payment of debt financing fees



(71)




Proceeds from exercise of stock options



86



36


Shares withheld to cover minimum tax withholdings on equity awards



(203)



(251)


Proceeds from the issuance of Employee Stock Purchase Plan shares



132




Issuance costs from issuance of ordinary shares in IPO





(1,167)


Net cash used in financing activities



(3,425)



(15,283)


Effect of exchange rates on cash, cash equivalents and restricted cash



(12)




Change in cash, cash equivalents and restricted cash



(9,322)



(12,234)


Cash, cash equivalents and restricted cash at beginning of period



122,359



101,395


Cash, cash equivalents and restricted cash at end of period


$

113,037


$

89,161


 

 

AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - SEGMENT DATA

(IN THOUSANDS)





Three Months Ended June 30, 2018


Three Months Ended June 30, 2017




Seven Seas





Corporate





Seven Seas





Corporate







Water


Quench


& Other


Total


Water


Quench


    & Other    


    Total    


Revenues:


























Bulk water


$

14,360


$


$


$

14,360


$

13,614


$


$


$

13,614


Rental





14,821





14,821





13,006





13,006


Financing



1,015







1,015



1,150







1,150


Other





4,249





4,249





2,070





2,070


Total revenues



15,375



19,070





34,445



14,764



15,076





29,840


Gross profit:


























Bulk water



7,617







7,617



6,220







6,220


Rental





8,167





8,167





7,335





7,335


Financing



1,015







1,015



1,150







1,150


Other





1,407





1,407





899





899


Total gross profit



8,632



9,574





18,206



7,370



8,234





15,604


Selling, general and
administrative expenses



7,142



11,188



959



19,289



6,613



9,749



1,062



17,424


Income (loss) from
operations



1,490



(1,614)



(959)



(1,083)



757



(1,515)



(1,062)



(1,820)


Other (expense) income,
net



(2,591)



(792)



(123)



(3,506)



(2,026)



(1,003)



323



(2,706)


Loss before income tax
expense



(1,101)



(2,406)



(1,082)



(4,589)



(1,269)



(2,518)



(739)



(4,526)


Income tax expense
(benefit)



472



(140)





332



675



89





764


Net loss


$

(1,573)


$

(2,266)


$

(1,082)


$

(4,921)


$

(1,944)


$

(2,607)


$

(739)


$

(5,290)


 

 

AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - SEGMENT DATA

(IN THOUSANDS)





Six Months Ended June 30, 2018


Six Months Ended June 30, 2017




Seven Seas





Corporate





Seven Seas





Corporate







Water


Quench


& Other


Total


Water


Quench


& Other


Total


Revenues:


























Bulk water


$

28,056


$


$


$

28,056


$

26,579


$


$


$

26,579


Rental





28,780





28,780





25,810





25,810


Financing



2,063







2,063



2,333







2,333


Other





8,060





8,060





4,059





4,059


Total revenues



30,119



36,840





66,959



28,912



29,869





58,781


Gross profit:


























Bulk water



14,806







14,806



12,139







12,139


Rental





15,670





15,670





14,385





14,385


Financing



2,063







2,063



2,333







2,333


Other





2,692





2,692





1,752





1,752


Total gross profit



16,869



18,362





35,231



14,472



16,137





30,609


Selling, general and
administrative expenses



14,745



21,907



2,211



38,863



13,465



19,160



1,985



34,610


Income (loss) from
operations



2,124



(3,545)



(2,211)



(3,632)



1,007



(3,023)



(1,985)



(4,001)


Other (expense) income,
net



(5,085)



(1,557)



(254)



(6,896)



(4,217)



(2,036)



617



(5,636)


Loss before income tax
expense



(2,961)



(5,102)



(2,465)



(10,528)



(3,210)



(5,059)



(1,368)



(9,637)


Income tax expense
(benefit)



966



(227)





739



1,489



165





1,654


Net loss


$

(3,927)


$

(4,875)


$

(2,465)


$

(11,267)


$

(4,699)


$

(5,224)


$

(1,368)


$

(11,291)



 

AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES
UNAUDITED KEY METRICS
(IN THOUSANDS)

Management uses key metrics for internal reporting and forecasting purposes, when publicly providing its business outlook, to evaluate the Company's performance and to evaluate and compensate the Company's executives.  The Company has provided these metrics because it understands that some investors and financial analysts find this information helpful in analyzing the Company's financial results and comparing the Company's financial performance to that of its peer companies and competitors.

NON-GAAP FINANCIAL MEASURES

Among the key metrics are non-GAAP financial measures.  The Company has provided non-GAAP financial measures in addition to GAAP financial results because it believes that these non-GAAP financial measures provide useful information to certain investors and financial analysts for comparisons across accounting periods not influenced by certain non-cash items that are not used by management when evaluating the Company's historical and prospective financial performance.

Adjusted EBITDA

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, ERP system implementation charges for a SaaS solution 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.

Adjusted EBITDA Margin

Adjusted EBITDA Margin, a non-GAAP financial measure, is defined as Adjusted EBITDA as a percentage of revenue.

A reconciliation of our GAAP net loss to Adjusted EBITDA, for the periods presented is shown below:

















Three Months Ended June 30, 2018




Seven Seas





  Corporate







Water


Quench


& Other


Total




(in thousands)


Net loss


$

(1,573)


$

(2,266)


$

(1,082)


$

(4,921)


Depreciation and amortization



3,675



4,516





8,191


Interest expense, net



2,441



790



123



3,354


Income tax expense (benefit)



472



(140)





332


Share-based compensation expense



2,179



980



207



3,366


Loss on disposal of assets



3



382





385


Acquisition-related expenses



191



22





213


Changes in deferred revenue related to our bulk water business



(55)







(55)


ERP implementation charges for a SAAS solution





370





370


Adjusted EBITDA


$

7,333


$

4,654


$

(752)


$

11,235
















Adjusted EBITDA Margin



47.7

%


24.4

%


%


32.6

%

 

 

















Three Months Ended June 30, 2017




Seven Seas





  Corporate







Water


Quench


& Other


Total




(in thousands)


Net loss


$

(1,944)


$

(2,607)


$

(739)


$

(5,290)


Depreciation and amortization



3,533



3,669





7,202


Interest expense (income), net



1,933



1,003



(323)



2,613


Income tax expense



675



89





764


Share-based compensation expense



2,036



843



177



3,056


Loss on disposal of assets





374





374


Acquisition-related expenses



63







63


Changes in deferred revenue related to our bulk water business



71







71


ERP implementation charges for a SAAS solution





751





751


Adjusted EBITDA


$

6,367


$

4,122


$

(885)


$

9,604
















Adjusted EBITDA Margin



43.1

%


27.3

%


%


32.2

%

 

A reconciliation of our GAAP net loss to Adjusted EBITDA, for the periods presented is shown below:

















Six Months Ended June 30, 2018




Seven Seas





  Corporate







Water


Quench


& Other


Total




(in thousands)


Net loss


$

(3,927)


$

(4,875)


$

(2,465)


$

(11,267)


Depreciation and amortization



7,239



8,812





16,051


Interest expense, net



4,803



1,548



253



6,604


Income tax expense (benefit)



966



(227)





739


Share-based compensation expense



4,263



1,900



486



6,649


Loss on disposal of assets



232



706





938


Acquisition-related expenses



706



176





882


Changes in deferred revenue related to our bulk water business



246







246


ERP implementation charges for a SAAS solution





711





711


Adjusted EBITDA


$

14,528


$

8,751


$

(1,726)


$

21,553
















Adjusted EBITDA Margin



48.2

%


23.8

%


%


32.2

%

 

 



Six Months Ended June 30, 2017




Seven Seas





  Corporate







Water


Quench


& Other


Total




(in thousands)


Net loss


$

(4,699)


$

(5,224)


$

(1,368)


$

(11,291)


Depreciation and amortization



7,127



7,204





14,331


Interest expense (income), net



3,942



2,036



(617)



5,361


Income tax expense



1,489



165





1,654


Share-based compensation expense



4,036



1,673



201



5,910


Loss on disposal of assets





642





642


Acquisition-related expenses



63







63


Changes in deferred revenue related to our bulk water business



270







270


ERP implementation charges for a SAAS solution





1,447





1,447


Adjusted EBITDA


$

12,228


$

7,943


$

(1,784)


$

18,387
















Adjusted EBITDA Margin



42.3

%


26.6

%


%


31.3

%

 

KEY METRICS

Principal collected on the Peru construction contract

As part of our Peru acquisition, we acquired the rights to a design and construction contract for the construction of a desalination plant and related infrastructure. Pursuant to the contract, we are entitled to receive monthly installment payments that continue until 2024 and are guaranteed by a major shareholder of the customer.  Due to the manner in which this contractual arrangement is structured, these payments are accounted for as a long-term receivable.  Prior to the adoption of the new revenue recognition standard on January 1, 2018, the principal and interest portions of these payments were not recognized as revenue in our consolidated financial statements and therefore were not included in Adjusted EBITDA or in determining Adjusted EBITDA Margin.  As a result of the adoption of the new revenue recognition standard, all financial information presented herein has been restated, including recording the interest portion of these payments as revenue and, thus, including them in Adjusted EBITDA and in determining Adjusted EBITDA Margin.  The principal collected on the Peru construction contract remains the only portion of these monthly payments that is not recognized as revenue in our consolidated financial statements, and therefore is not included in Adjusted EBITDA or in the determination Adjusted EBITDA Margin.



Three Months Ended June 30, 2018




Seven Seas





Corporate







Water


Quench


& Other


Total




(in thousands)


Principal collected on the Peru construction contract


$

1,212


$


$


$

1,212
















 



Three Months Ended June 30, 2017




Seven Seas





Corporate







Water


Quench


& Other


Total




(in thousands)


Principal collected on the Peru construction contract


$

1,116


$


$


$

1,116


 



Six Months Ended June 30, 2018




Seven Seas





Corporate







Water


Quench


& Other


Total




(in thousands)


Principal collected on the Peru construction contract


$

2,400


$


$


$

2,400
















 




Six Months Ended June 30, 2017




Seven Seas





Corporate







Water


Quench


& Other


Total




(in thousands)


Principal collected on the Peru construction contract


$

2,210


$


$


$

2,210


 

Adjusted EBITDA plus Principal collected on the Peru construction contract

We understand that many in the investment community combine our Adjusted EBITDA and the principal we collect from the design and construction contract for purposes of reviewing and analyzing our financial results.  Our management and board of directors also use this combination in evaluating our performance (including in measuring performance for a portion of the compensation of our executive officers) because they believe it is helpful in better understanding the cash generated from our Seven Seas Water business.  In this regard, and for the sake of clarity and convenience, the combination of our Adjusted EBITDA and the principal collected on the Peru construction contract is presented.



Three Months Ended June 30, 2018




  Seven Seas  





  Corporate  







Water


Quench


& Other


Total




(in thousands)


Adjusted EBITDA plus principal collected on the Peru construction
contract


$

8,545


$

4,654


$

(752)


$

12,447
















 



Three Months Ended June 30, 2017




  Seven Seas  





  Corporate  







Water


Quench


& Other


Total




(in thousands)


Adjusted EBITDA plus principal collected on the Peru construction
contract


$

7,483


$

4,122


$

(885)


$

10,720


 



Six Months Ended June 30, 2018




  Seven Seas  





  Corporate  







Water


Quench


& Other


Total




(in thousands)


Adjusted EBITDA plus principal collected on the Peru construction
contract


$

16,928


$

8,751


$

(1,726)


$

23,953
















 



Six Months Ended June 30, 2017




  Seven Seas  





  Corporate  







Water


Quench


& Other


Total




(in thousands)


Adjusted EBITDA plus principal collected on the Peru construction
contract


$

14,438


$

7,943


$

(1,784)


$

20,597


 

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

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SOURCE AquaVenture Holdings Limited

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