AquaVenture Holdings Limited Announces Fourth Quarter and Full Year 2018 Earnings Results

Date : 02/27/2019 @ 11:00AM
Source : Business Wire
Stock : AquaVenture Holdings Limited (WAAS)
Quote : 19.59  0.0 (0.00%) @ 2:20PM
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AquaVenture Holdings Limited Announces Fourth Quarter and Full Year 2018 Earnings Results

AquaVenture (NYSE:WAAS)
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1 Year : From Oct 2018 to Oct 2019

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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 and full year ended December 31, 2018.

2018 Highlights

For the three months ended December 31, 2018:

  • Total revenues of $41.8 million reflected a 29.9% increase over the prior year period, comprised of 38.2% and 22.6% increases in the Seven Seas Water and Quench segments, respectively.
  • Net loss of $6.7 million, or ($0.25) per share, compared to net loss of $6.3 million, or ($0.24) per share, in the prior year period.
  • Adjusted EBITDA was $14.3 million, a 32.2% increase over the prior year period. Adjusted EBITDA Margin was 34.2%, an improvement of 60 basis points.
  • Adjusted EBITDA plus principal collected on the Peru construction contract increased 29.9% to $15.6 million from $12.0 million in the prior year period.
  • AquaVenture completed the strategic acquisitions of AUC on November 1, which is included in our Seven Seas Water segment, and Pure Health Solutions, Inc. (“PHSI”) on December 18, which is included in our Quench segment. In addition, Seven Seas Water entered into a 10-year water supply agreement with the Water Corporation of Anguilla, and Quench completed several smaller acquisitions during the quarter.
  • AquaVenture accessed $150 million of incremental borrowings to fund acquisitions and reduced its interest rate.

For the full year ended December 31, 2018:

  • Total revenues of $145.6 million reflected a 20.6% increase over the prior year, comprised of 26.1% and 14.6% increases in the Quench and Seven Seas Water segments, respectively.
  • Net loss of $20.7 million, or ($0.78) per share, compared to net loss of $24.9 million, or ($0.94) per share, in the prior year.
  • Adjusted EBITDA was $48.6 million, a 23.8% increase over the prior year. Adjusted EBITDA Margin was 33.3%, an improvement of 80 basis points.
  • Adjusted EBITDA plus principal collected on the Peru construction contract increased 22.2% to $53.5 million from $43.8 million in the prior year.

Tony Ibarguen, AquaVenture’s President and Chief Executive Officer announced: “AquaVenture delivered another year of strong financial results highlighted by our ability to drive growth both organically and through M&A. We completed 11 transactions in 2018, including five in the fourth quarter. This success has been across both our Seven Seas Water and Quench platforms, and the fourth quarter’s results include the acquisitions of AUC and PHSI, our two largest acquisitions since we became a publicly traded company. AUC expands our offerings in the Seven Seas Water segment in the attractive wastewater treatment and water reuse businesses, and PHSI broadens both our direct and indirect sales channels within our Quench segment. During the quarter we also amended our senior secured credit agreement by increasing our borrowing capacity and reducing our interest rate. These amendments helped fund our fourth quarter acquisitions and support our future growth initiatives. In summary, we are very happy with what we were able to accomplish in 2018 as we continue to expand our water-as-a-service solutions to more customers, in more locations, and with a broader array of product offerings. Going forward, our primary focus will continue to be on growing internally generated cash flow and investing in strong, organic expansion, coupled with continued strategic M&A execution in the water-as-a-service applications of desalination, wastewater treatment and point-of-use purification. Our team brings great passion to our purpose of performing for our shareholders by creating clean water solutions for customers around the world.”

Consolidated Financial Performance

For the fourth quarter of 2018, total revenues increased 29.9% to $41.8 million from $32.2 million in the 2017 period. Total gross margin of 54.0% was relatively flat compared to the prior year period.

Total selling, general and administrative expenses (“SG&A”) increased to $24.0 million in the fourth quarter of 2018 from $19.4 million in the same period of 2017.

Net loss for the fourth quarter of 2018 was $6.7 million, compared to a net loss of $6.3 million in the same period of 2017. Adjusted EBITDA was $14.3 million for the fourth quarter of 2018, a 32.2% increase over $10.8 million in the prior year period. Adjusted EBITDA Margin of 34.2% for the fourth quarter of 2018 increased 60 basis points from 33.6% in the same period of 2017. Adjusted EBITDA plus the principal collected on the Peru construction contract was $15.6 million in the fourth quarter of 2018, an increase of 29.9% over $12.0 million in the same period of 2017.

Net cash provided by operating activities for the quarter ended December 31, 2018 was $4.8 million compared to $4.4 million for the same period of 2017. Capital expenditures were $6.7 million for the fourth quarter of 2018, compared to $3.2 million in the same period of 2017.

As of December 31, 2018, cash and cash equivalents were $56.6 million and total debt was $319.7 million.

For the full year ended December 31, 2018, total revenue of $145.6 million increased 20.6% from $120.8 million in 2017. Gross margin of 53.2% was relatively flat compared to the prior year. Total SG&A increased to $83.6 million for the full year ended December 31, 2018, compared to $72.4 million in 2017. Net loss for the full year ended December 31, 2018 was $20.7 million, or ($0.78) per share, compared to a net loss of $24.9 million, or ($0.94) per share, in the prior year.

Adjusted EBITDA was $48.6 million for the full year ended December 31, 2018, a 23.8% increase over Adjusted EBITDA of $39.2 million in 2017. Adjusted EBITDA Margin increased 80 basis points to 33.3%, compared to 32.5% in the prior year. Adjusted EBITDA plus the principal collected on the Peru construction contract was $53.5 million for the full year ended December 31, 2018, an increase of 22.2% over 2017.

Net cash provided by operating activities for the full year ended December 31, 2018 was $26.9 million compared to $19.0 for the same period of 2017. In addition, capital expenditures were $19.6 million, compared to $14.4 million in the prior year period.

Fourth Quarter and Full Year 2018 Segment Results

Seven Seas Water

Seven Seas Water revenues for the three months ended December 31, 2018 increased $5.7 million, or 38.2%, compared to the same period of 2017, which were comprised of 35.5% inorganic growth and 2.7% organic growth. This increase was comprised of increases of $2.8 million in product sales and $2.3 million in rental revenue driven by the inclusion of the acquisition of the AUC operations completed in November 2018. In addition, bulk water revenue increased $0.7 million compared to the prior year period, driven by increased volumes in certain operations and higher water rates in others in the current quarter compared to the same period of 2017, and the commencement of our water contract in Anguilla.

Seven Seas Water gross margin for the three months ended December 31, 2018 decreased 50 basis points to 54.5%. The decrease was primarily related to the acquisition of the AUC operations in November 2018, which has an overall lower gross margin than the bulk water business, partially offset by an increase in the bulk water gross margin compared to the prior year period. Bulk water gross margin of 55.5% increased 400 basis points compared to the prior year period primarily due to lower depreciation expense in connection with a purchase price refund received on in-service equipment at our Trinidad operations and by higher revenues without a commensurate increase in costs at our BVI operations, partially offset by higher expenses for repairs and maintenance. Rental and product sales gross margin of 74.7% and 17.5%, respectively, for the year ended December 31, 2018 had no comparative period as both related to the acquisition of the AUC operations. Financing gross margin is 100% but causes a decrease to the total Seven Seas Water gross margin compared to the prior year period as a result of declining financing revenues due to the continued amortization of the long-term receivables.

Seven Seas Water SG&A expenses for the three months ended December 31, 2018 remained relatively flat compared to the same period of 2017. SG&A expenses of $7.8 million during the fourth quarter of 2018 included $0.7 million of higher amortization expense of definite-lived intangible assets and $0.5 million of higher compensation and benefits expense primarily due to the acquisition of the AUC business. These increases were offset by $1.2 million of lower share-based compensation expense resulting from the completion of the vesting of certain equity grants made in connection with our initial public offering in 2016.

Net income for our Seven Seas Water segment was $0.1 million for the three months ended December 31, 2018 compared to a net loss of $3.2 million in the same period of 2017. Adjusted EBITDA of $9.4 million for the fourth quarter of 2018 increased 33.7% over the prior year period. Adjusted EBITDA Margin decreased 150 basis points to 45.7% in the fourth quarter of 2018 from 47.2% in the same period of 2017. The decline in Adjusted EBITDA Margin was driven by higher expenses for repairs and maintenance during the quarter at several of our plants. Adjusted EBITDA plus principal collected on the Peru construction contract was $10.7 million in the fourth quarter of 2018, an increase of 30.1% over the prior year period.

For the full year ended December 31, 2018, Seven Seas Water revenues were $66.4 million, an increase of 14.6% over 2017. Gross margin increased 250 basis points to 55.7% from 53.2% in the prior year. Total SG&A expenses for the full year ended December 31, 2018 increased $1.7 million to $30.1 million from $28.4 million in 2017. Net loss for the full year ended December 31, 2018 was $3.5 million compared to a net loss of $10.5 million in 2017. Adjusted EBITDA was $31.7 million, an increase of 19.5% over the prior year. Adjusted EBITDA Margin increased 200 basis points to 47.7% from 45.7% in the prior year. Adjusted EBITDA plus principal collected on the Peru construction contract was $36.6 million, a 17.9% increase over 2017.

Quench

Quench revenues for the three months ended December 31, 2018 increased $3.9 million, or 22.6%, compared to the same period of 2017, which were comprised of 13.2% of inorganic growth and 9.4% of organic growth. Rental revenues increased $3.1 million, or 22.5%, compared to the prior year period, which reflected 17.3% of inorganic growth from acquisitions and 5.2% of organic growth due to additional units placed under new leases in excess of unit attrition. Product sales increased $0.8 million compared to the same period of 2017 due to an increase in indirect equipment sales to dealers, higher direct customer equipment sales and an increase in coffee sales.

Quench gross margin for the fourth quarter of 2018 increased 40 basis points to 53.6% from 53.2% for the same period of 2017. Rental gross margin for the fourth quarter of 2018 was 57.3%, an increase of 70 basis points over the prior year period, primarily due to continued leveraging of the platform with higher revenues achieved as additional units are placed under lease without a commensurate increase in costs. Product sales gross margin was 38.8% for the three months ended December 31, 2018 compared to 40.0% in the prior year period. The decrease was primarily due to the increase in lower-margin indirect equipment sales compared to the prior year period.

Quench SG&A for the three months ended December 31, 2018 of $14.6 million increased $4.2 million compared to the prior year period. The increase was driven by $2.3 million of higher acquisition-related costs including contingent consideration accounted for as post-combination earnout compensation, $0.9 million of restructuring expenses incurred in connection with the acquisition of PHSI in December 2018, $0.6 million of higher compensation and benefits expense primarily driven by increased headcount from the inclusion of staff added from certain acquisitions and additional resources to support growth strategy and $0.5 million of higher amortization expense primarily related to an increase in intangible assets from recent acquisitions. Partially offsetting this was a $0.6 million decrease in share-based compensation expense resulting from the completion of the vesting of certain equity grants made in connection with our initial public offering and a $0.3 million decrease in loss of disposal of assets.

Quench had a net loss of $4.2 million for the fourth quarter of 2018 compared to a net loss of $2.0 million in the prior year period. Adjusted EBITDA of $6.0 million for the fourth quarter of 2018 increased 23.2% over $4.8 million in the same period of 2017. Adjusted EBITDA Margin increased 20 basis points to 28.2% in the fourth quarter of 2018 from 28.0% in the prior year period.

For the full year ended December 31, 2018, Quench reported total revenue of $79.2 million, a 26.1% increase compared to $62.8 million in the prior year. Gross margin decreased 220 basis points to 51.2% from 53.4% in 2017. Total SG&A expenses for the full year ended December 31, 2018 increased $9.3 million to $48.7 million. Net loss for full year ended December 31, 2018 was $11.4 million, compared to a net loss of $10.2 million in 2017. Adjusted EBITDA was $20.4 million for the full year ended December 31, 2018, a 22.7% increase over $16.7 million in 2017. Adjusted EBITDA Margin decreased 70 basis points to 25.8% from 26.5% in the prior year.

Corporate and Other

Corporate and Other SG&A for the three months ended December 31, 2018 increased $0.3 million compared to the same period of 2017, primarily due to higher professional fees in connection with corporate activities including acquisitions and amendments to our senior secured credit agreement.

For the full year ended December 31, 2018, SG&A was $4.8 million compared to $4.6 million in the prior year period.

2019 Outlook

For the full year 2019 outlook, the Company expects to achieve the following results:

  • Revenues between $190 million and $197 million;
  • Adjusted EBITDA between $67 million and $72 million;
  • Principal collected on the Peru construction contract is projected to be $5.3 million; and
  • Adjusted EBITDA plus the principal collected on the Peru construction contract between $72 million and $77 million.

These ranges do not include estimates in connection with any pending or future acquisitions.

The above statements are based on current targets. 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 leading provider of filtered water systems and related services with over 140,000 units installed at institutional and commercial customer locations across the U.S. and Canada; 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, February 27, 2019 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 March 6, 2019 at 1-844-512-2921, or, for international callers, at 1-412-317-6671, conference ID #13686947. 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; 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 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)     December 31, December 31, 2018 2017 ASSETS Current Assets: Cash and cash equivalents $ 56,618 $ 118,090 Restricted cash — — Trade receivables, net of allowances of $1,034 and $1,045, respectively 21,437 19,593 Inventory 15,496 8,228 Current portion of long-term receivables 6,538 6,878 Prepaid expenses and other current assets   8,272     3,874   Total current assets 108,361 156,663 Property, plant and equipment, net 150,064 112,771 Construction in progress 15,427 10,437 Restricted cash 4,153 4,269 Long-term receivables 40,574 43,796 Other assets 6,251 4,307 Deferred tax asset 4,191 38 Intangible assets, net 205,443 122,169 Goodwill   190,999     99,495   Total assets $ 725,463   $ 553,945   LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 8,235 $ 3,508 Accrued liabilities 25,116 12,837 Current portion of long-term debt 6,494 6,483 Deferred revenue   3,890     2,454   Total current liabilities 43,735 25,282 Long-term debt 313,215 167,772 Deferred tax liability 18,465 5,266 Other long-term liabilities   13,450     11,429   Total liabilities   388,865     209,749   Commitments and contingencies Shareholders' Equity

Ordinary shares, no par value, 250,000 shares authorized; 26,780 and 26,482shares issued and outstanding at December 31, 2018 and December 31, 2017,respectively

— — Additional paid-in capital 582,127 568,593 Accumulated other comprehensive income (421 ) (17 ) Accumulated deficit   (245,108 )   (224,380 ) Total shareholders' equity   336,598     344,196   Total liabilities and shareholders' equity $ 725,463   $ 553,945       AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)       Year Ended December 31, 2018 2017 2016   Revenues: Bulk water $ 57,262 $ 53,436 $ 50,893 Rental 64,216 52,997 48,699 Product sales 20,105 9,796 10,267 Financing   4,025     4,534     1,713   Total revenues 145,608 120,763 111,572 Cost of revenues: Bulk water 26,516 27,145 25,525 Rental 28,025 23,484 21,437 Product sales   13,565     5,779     5,869   Total cost of revenues 68,106 56,408 52,831 Gross profit 77,502 64,355 58,741 Selling, general and administrative expenses   83,645     72,421     70,876   Loss from operations (6,143 ) (8,066 ) (12,135 ) Other expense: Gain on bargain purchase, net of deferred taxes — — 1,429 Interest expense, net (15,046 ) (11,537 ) (11,147 ) Other income (expense), net   (850 )   (1,850 )   1,299   Loss before income tax expense (22,039 ) (21,453 ) (20,554 ) Income tax expense (benefit)   (1,311 )   3,411     365   Net loss (20,728 ) (24,894 ) (20,919 ) Other comprehensive income: Foreign currency translation adjustment   (404 )   (17 )   —   Comprehensive loss $ (21,132 ) $ (24,911 ) $ (20,919 )   Loss per share – basic and diluted(1) $ (0.78 ) $ (0.94 ) $ (0.28 )   Weighted-average shares outstanding – basic and diluted(1) 26,583 26,426 25,784   (1)   Represents loss per share and weighted-average shares outstanding for the period following the corporate reorganization and initial public offering. There were no ordinary shares outstanding prior to October 6, 2016 and, therefore, no loss per share information has been presented for any period prior to that date.     AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)       Year Ended December 31, 2018 2017 2016 Cash flows from operating activities: Net loss $ (20,728 ) $ (24,894 ) $ (20,919 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 34,533 29,648 27,548 Share-based compensation expense 11,188 12,120 4,015 Provision for bad debts 1,035 605 1,044 Deferred income tax provision (3,287 ) 1,488 165 Inventory adjustment 308 89 (23 ) Loss (gain) on extinguishment of debt — 1,389 (1,610 ) Gain on bargain purchase, net of deferred taxes — — (1,429 ) Loss on disposal of assets 1,563 1,468 1,246 Amortization of debt financing fees 963 878 816 Accretion of debt — 60 333 Other 23 49 (53 ) Change in operating assets and liabilities: Trade receivables 2 (4,301 ) (681 ) Inventory (2,162 ) (1,219 ) (450 ) Prepaid expenses and other current assets (1,135 ) (710 ) 270 Long-term receivable 5,661 6,309 1,614 Other assets (4,124 ) (3,462 ) (2,283 ) Current liabilities 2,579 (1,011 ) 1,130 Long-term liabilities   463     460     778   Net cash provided by operating activities   26,882     18,966     11,511   Cash flows from investing activities: Capital expenditures (19,626 ) (14,445 ) (17,256 ) Proceeds from sale of fixed assets 680 — — Net cash paid for acquisition of assets or business (198,473 ) (9,921 ) (45,875 ) Proceeds from disposal of business 2,879 — — Other   —     22     3   Net cash used in investing activities   (214,540 )   (24,344 )   (63,128 ) Cash flows from financing activities: Proceeds from long-term debt 150,000 150,000 23,675 Payments of long-term debt (6,528 ) (118,205 ) (17,517 ) Payment of debt financing fees (70 ) (3,677 ) (340 ) Payments related to debt extinguishment — (433 ) — Payments of secured borrowings (17,500 ) — — Payments of acquisition contingent consideration (112 ) — (864 ) Proceeds from exercise of stock options 442 73 2 Shares withheld to cover minimum tax withholdings on equity awards (422 ) (455 ) — Proceeds from the issuance of Employee Stock Purchase Plan shares 285 204 — Issuance costs from issuance of ordinary shares in IPO   —     (1,169 )   123,030   Net cash provided by financing activities   126,095     26,338     127,986   Effect of exchange rates on cash, cash equivalents and restricted cash   (25 )   4     —   Change in cash, cash equivalents and restricted cash (61,588 ) 20,964 76,369 Cash, cash equivalents and restricted cash at beginning of period   122,359     101,395     25,026   Cash, cash equivalents and restricted cash at end of period $ 60,771   $ 122,359   $ 101,395       AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - SEGMENT DATA (IN THOUSANDS)         Three Months Ended December 31, 2018 Seven Seas Corporate Water Quench & Other Total Revenues: Bulk water $ 14,580 $ — $ — $ 14,580 Rental 2,318 16,857 — 19,175 Product sales 2,817 4,267 — 7,093 Financing   977     —     —     977   Total revenues 20,692 21,133 — 41,825 Gross profit: Bulk water 8,085 — — 8,085 Rental 1,731 9,659 — 11,390 Product sales 493 1,659 — 2,152 Financing   977     —     —     977   Total gross profit 11,286 11,318 — 22,604 Selling, general and administrative expenses   7,782     14,569     1,605     23,956   Income (loss) from operations 3,504 (3,251 ) (1,605 ) (1,352 ) Other expense, net   (3,420 )   (1,011 )   (945 )   (5,376 ) Income (loss) before income tax expense 84 (4,262 ) (2,550 ) (6,728 ) Income tax expense (benefit)   17     (16 )   —     1   Net income (loss) $ 67   $ (4,246 ) $ (2,550 ) $ (6,729 )     Three Months Ended December 31, 2017 Seven Seas     Corporate   Water Quench & Other Total Revenues: Bulk water $ 13,885 $ — $ — $ 13,885 Rental — 13,759 — 13,759 Product sales — 3,478 — 3,478 Financing   1,083     —     —     1,083   Total revenues 14,968 17,237 — 32,205 Gross profit: Bulk water 7,155 — — 7,155 Rental — 7,783 — 7,783 Product sales — 1,391 — 1,391 Financing   1,083     —     —     1,083   Total gross profit 8,238 9,174 — 17,412 Selling, general and administrative expenses   7,663     10,412     1,306     19,381   Income (loss) from operations 575 (1,238 ) (1,306 ) (1,969 ) Other (expense) income, net   (2,805 )   (772 )   221     (3,356 ) Loss before income tax expense (2,230 ) (2,010 ) (1,085 ) (5,325 ) Income tax expense (benefit)   1,016     (26 )   —     990   Net loss $ (3,246 ) $ (1,984 ) $ (1,085 ) $ (6,315 )     AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - SEGMENT DATA (IN THOUSANDS)   Full Year Ended December 31, 2018 Seven Seas     Corporate   Water Quench & Other Total Revenues: Bulk water $ 57,262 $ — $ — $ 57,262 Rental 2,318 61,898 — 64,216 Product sales 2,817 17,288 — 20,105 Financing   4,025     —     —     4,025   Total revenues 66,422 79,186 — 145,608 Gross profit: Bulk water 30,746 — — 30,746 Rental 1,731 34,460 — 36,191 Product sales 493 6,047 — 6,540 Financing   4,025     —     —     4,025   Total gross profit 36,995 40,507 — 77,502 Selling, general and administrative expenses   30,143     48,670     4,832     83,645   Income (loss) from operations 6,852 (8,163 ) (4,832 ) (6,143 ) Other expense, net   (11,549 )   (3,374 )   (973 )   (15,896 ) Loss before income tax expense (4,697 ) (11,537 ) (5,805 ) (22,039 ) Income tax benefit   (1,210 )   (101 )   —     (1,311 ) Net loss $ (3,487 ) $ (11,436 ) $ (5,805 ) $ (20,728 )     Full Year Ended December 31, 2017 Seven Seas     Corporate   Water Quench & Other Total Revenues: Bulk water $ 53,436 $ — $ — $ 53,436 Rental — 52,997 — 52,997 Product sales — 9,796 — 9,796 Financing   4,534     —     —     4,534   Total revenues 57,970 62,793 — 120,763 Gross profit: Bulk water 26,291 — — 26,291 Rental — 29,513 — 29,513 Product sales — 4,017 — 4,017 Financing   4,534     —     —     4,534   Total gross profit 30,825 33,530 — 64,355 Selling, general and administrative expenses   28,431     39,400     4,590     72,421   Income (loss) from operations 2,394 (5,870 ) (4,590 ) (8,066 ) Other (expense) income, net   (9,673 )   (4,167 )   453     (13,387 ) Loss before income tax expense (7,279 ) (10,037 ) (4,137 ) (21,453 ) Income tax expense   3,246     195     —     3,441   Net loss $ (10,525 ) $ (10,232 ) $ (4,137 ) $ (24,894 )  

AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIESUNAUDITED 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, including professional fees, purchase consideration recorded as compensation expense for acquired employees, and other expenses related to acquisitions; goodwill impairment charges; changes in deferred revenue related to our bulk water business; ERP system implementation charges for a 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.

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 December 31, 2018 Seven Seas Corporate Water Quench & Other Total (in thousands) Net income (loss) $ 67 $ (4,246 ) $ (2,550 ) $ (6,729 ) Depreciation and amortization 4,558 5,214 — 9,772 Interest expense, net 3,226 876 944 5,046 Income tax expense (benefit) 17 (16 ) — 1 Share-based compensation expense 735 280 171 1,186 (Gain) loss on disposal of assets (255 ) 312 — 57 Acquisition-related expenses 1,144 2,336 356 3,836 Changes in deferred revenue related to our bulk water business (45 ) — — (45 ) ERP implementation charges for a SAAS solution — 252 — 252 Restructuring expense   —     943     —     943   Adjusted EBITDA $ 9,447   $ 5,951   $ (1,079 ) $ 14,319     Adjusted EBITDA Margin 45.7 % 28.2 % — % 34.2

%

    Three Months Ended December 31, 2017 Seven Seas Corporate Water Quench & Other Total (in thousands) Net loss $ (3,246 ) $ (1,984 ) $ (1,085 ) $ (6,315 ) Depreciation and amortization 3,590 4,282 — 7,872 Interest expense (income), net 2,682 773 (221 ) 3,234 Income tax expense (benefit) 1,016 (26 ) — 990 Share-based compensation expense 1,966 863 239 3,068 Loss on disposal of assets 3 581 — 584 Acquisition-related expenses 965 10 — 975 Changes in deferred revenue related to our bulk water business 92 — — 92 ERP implementation charges for a SAAS solution   —     332     —     332   Adjusted EBITDA $ 7,068   $ 4,831   $ (1,067 ) $ 10,832     Adjusted EBITDA Margin 47.2 % 28.0 % — % 33.6 %  

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

  Full Year Ended December 31, 2018 Seven Seas Corporate Water Quench & Other Total (in thousands) Net loss $ (3,487) $ (11,436) $ (5,805) $ (20,728) Depreciation and amortization 15,469 19,064 — 34,533 Interest expense, net 10,846 3,229 971 15,046 Income tax benefit (1,210) (101) — (1,311) Share-based compensation expense 7,172 3,168 848 11,188 (Gain) loss on disposal of assets (15) 1,578 — 1,563 Acquisition-related expenses 2,549 2,708 451 5,708 Changes in deferred revenue related to our bulk water business 335 — — 335 ERP implementation charges for a SAAS solution — 1,278 — 1,278 Restructuring expenses   —   943   —   943 Adjusted EBITDA $ 31,659 $ 20,431 $ (3,535) $ 48,555   Adjusted EBITDA Margin 47.7 % 25.8 % — % 33.3 %     Full Year Ended December 31, 2017 Seven Seas Corporate Water Quench & Other Total (in thousands) Net loss $ (10,525 ) $ (10,232 ) $ (4,137 ) $ (24,894 ) Depreciation and amortization 14,306 15,342 — 29,648 Interest expense (income), net 8,391 3,599 (453 ) 11,537 Income tax expense 3,246 195 — 3,441 Share-based compensation expense 8,050 3,391 679 12,120 (Gain) loss on disposal of assets (19 ) 1,487 — 1,468 Acquisition-related expenses 1,766 149 — 1,915 Changes in deferred revenue related to our bulk water business 460 — — 460 ERP implementation charges for a SAAS solution — 2,152 — 2,152 Loss on debt extinguishment   820     569     —     1,389   Adjusted EBITDA $ 26,495   $ 16,652   $ (3,911 ) $ 39,236     Adjusted EBITDA Margin 45.7 % 26.5 % — % 32.5 %  

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 December 31, 2018 Seven Seas     Corporate Water Quench & Other Total (in thousands) Principal collected on the Peru construction contract $ 1,263 $ — $ — $ 1,263           Three Months Ended December 31, 2017 Seven Seas Corporate Water Quench & Other Total (in thousands) Principal collected on the Peru construction contract $ 1,164 $ — $ — $ 1,164     Full Year Ended December 31, 2018 Seven Seas     Corporate   Water Quench & Other Total (in thousands) Principal collected on the Peru construction contract $ 4,900 $ — $ — $ 4,900           Full Year Ended December 31, 2017 Seven Seas Corporate Water Quench & Other Total (in thousands) Principal collected on the Peru construction contract $ 4,514 $ — $ — $ 4,514  

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 December 31, 2018 Seven Seas     Corporate   Water Quench & Other Total (in thousands)

Adjusted EBITDA plus principal collected on the Peru constructioncontract

$ 10,710 $ 5,951 $ (1,079 ) $ 15,582           Three Months Ended December 31, 2017 Seven Seas Corporate Water Quench & Other Total (in thousands)

Adjusted EBITDA plus principal collected on the Peru constructioncontract

$ 8,232 $ 4,831 $ (1,067 ) $ 11,996     Full Year Ended December 31, 2018 Seven Seas     Corporate   Water Quench & Other Total (in thousands)

Adjusted EBITDA plus principal collected on the Peru constructioncontract

$ 36,559 $ 20,431 $ (3,535 ) $ 53,455           Full Year Ended December 31, 2017 Seven Seas Corporate Water Quench & Other Total (in thousands)

Adjusted EBITDA plus principal collected on the Peru constructioncontract

$ 31,009 $ 16,652 $ (3,911 ) $ 43,750  

Press Releaseinvestors@aquaventure.comInvestors Hotline: 855-278-WAAS (9227)

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