10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 001-37903

AquaVenture Holdings Limited

(Exact name of registrant as specified in its charter)

British Virgin Islands	98-1312953
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)
c/o Conyers Corporate Services (B.V.I.) Limited Commerce House, Wickhams Cay 1
P.O. Box 3140 Road Town British Virgin Islands VG11110	(813) 855‑8636 (Registrant’s telephone
(Address of principal executive office)	number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer      ☐	Accelerated filer	☐
Non-accelerated filer        ☒ (Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company   ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The total number of ordinary shares outstanding as of May 9, 2017 was 26,408,528.

AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED MARCH 31, 2017

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements.	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	38
Item 4.	Controls and Procedures.	39
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings.	40
Item 1A.	Risk Factors.	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	40
Item 3.	Defaults upon Senior Securities.	40
Item 4.	Mine Safety Disclosures.	40
Item 5.	Other Information.	40
Item 6.	Exhibits.	40

2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Unless otherwise specified, references in this report to the “Company”, “AquaVenture”, “we”, “us” and “our” refer to both AquaVenture Holdings LLC and its subsidiaries prior to our corporate reorganization effected immediately prior to our initial public offering and AquaVenture Holdings Limited and its subsidiaries following our corporate reorganization.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.   Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us up to, and including, the date of this document. We expressly disclaim any obligation to update any such forward-looking statements to reflect events or circumstances that arise after the date hereof. Such forward-looking statements are subject to risks, uncertainties and other important factors which could cause our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” set forth under Part I, Item 1A of the 2016 Annual Report on Form 10-K, as updated by our subsequent filings with the SEC. You should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with the SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

3

PART I—FINANCIAL INFORMATION

Item 1.Financial Statements.

AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

	March 31,		December 31,
	2017		2016
ASSETS
Current Assets:
Cash and cash equivalents	$	89,918	$	95,334
Restricted cash		166		166
Trade receivables, net of allowances of $981 and $1,166, respectively		11,939		15,473
Inventory		5,572		6,246
Prepaid expenses and other current assets		7,836		6,401
Total current assets		115,431		123,620
Property, plant and equipment, net		114,456		116,092
Construction in progress		9,759		9,398
Long-term contract costs		85,745		87,512
Restricted cash		6,003		5,895
Other assets		43,254		44,311
Deferred tax asset		353		515
Intangible assets, net		50,091		51,330
Goodwill		98,023		98,023
Total assets	$	523,115	$	536,696
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	3,123	$	3,880
Accrued liabilities		9,859		13,075
Current portion of long-term debt		35,187		27,963
Deferred revenue		2,452		2,820
Total current liabilities		50,621		47,738
Long-term debt		101,782		115,753
Deferred tax liability		3,466		2,874
Other long-term liabilities		3,013		2,825
Total liabilities		158,882		169,190
Commitments and contingencies (see Note 7)
Shareholders' Equity
Ordinary shares, no par value, 250,000 shares authorized; 26,388 shares issued and outstanding at March 31, 2017 and December 31, 2016		—		—
Additional paid-in capital		560,995		558,141
Accumulated deficit		(196,762)		(190,635)
Total shareholders' equity		364,233		367,506
Total liabilities and shareholders' equity	$	523,115	$	536,696

See accompanying notes to the unaudited condensed consolidated financial statements.

4

AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS)

	Three months ended
	March 31,		March 31,
	2017		2016
Revenues:
Bulk water	$	14,215	$	13,491
Rental		12,804		11,706
Other		1,989		1,932
Total revenues		29,008		27,129
Cost of revenues:
Bulk water		8,824		7,663
Rental		5,754		5,464
Other		1,136		1,039
Total cost of revenues		15,714		14,166
Gross profit		13,294		12,963
Selling, general and administrative expenses		16,488		13,697
Loss from operations		(3,194)		(734)
Other expense:
Interest expense, net		(1,815)		(2,580)
Other expense, net		(182)		(46)
Loss before income tax expense		(5,191)		(3,360)
Income tax expense		935		628
Net loss	$	(6,126)	$	(3,988)
Loss per share – basic and diluted(1)	$	(0.23)
Weighted-average shares outstanding – basic and diluted(1)		26,386

(1) Represents loss per share and weighted-average shares outstanding for the period following the Corporate Reorganization and IPO. 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.

See accompanying notes to the unaudited condensed consolidated financial statements.

5

AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

	Three Months Ended March 31,
	2017		2016
Cash flows from operating activities:
Net loss	$	(6,126)	$	(3,988)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		7,807		7,264
Adjustment to asset retirement obligation		12		10
Share-based compensation expense		2,854		683
Provision for bad debts		30		311
Deferred income tax provision		754		497
Inventory adjustment		60		56
Loss on disposal of assets		268		192
Amortization of debt financing fees		209		184
Adjustment to acquisition contingent consideration		—		21
Accretion of debt		26		91
Other		—		(6)
Change in operating assets and liabilities:
Trade receivables		3,503		2,286
Inventory		551		195
Prepaid expenses and other current assets		(1,323)		(725)
Other assets		(602)		(438)
Current liabilities		(2,926)		(1,468)
Long-term liabilities		203		285
Net cash provided by operating activities		5,300		5,450
Cash flows from investing activities:
Capital expenditures		(3,153)		(5,447)
Long-term contract expenditures		(252)		(799)
Net cash paid for businesses acquired		(186)		(100)
Principal collected on note receivable		1,094		—
Net cash used in investing activities		(2,497)		(6,346)
Cash flows from financing activities:
Proceeds from long-term debt		—		15,000
Payments of long-term debt		(6,944)		(3,821)
Payment of debt financing fees		—		(98)
Proceeds from exercise of stock options		2		—
Shares withheld to cover minimum tax withholdings on equity awards		(2)		—
Issuance costs from issuance of ordinary shares in IPO		(1,167)		—
Net cash (used in) provided by financing activities		(8,111)		11,081
Change in cash, cash equivalents and restricted cash		(5,308)		10,185
Cash, cash equivalents and restricted cash at beginning of period		101,395		25,026
Cash, cash equivalents and restricted cash at end of period	$	96,087	$	35,211

See accompanying notes to the unaudited condensed consolidated financial statements.

6

AQUAVENTURE HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

1. Description of the Business

AquaVenture Holdings Limited is a British Virgin Islands (“BVI”) company, which was formed on June 17, 2016 for the purpose of completing an initial public offering (“IPO”) as the SEC registrant and carrying on the business of AquaVenture Holdings LLC and its subsidiaries. AquaVenture Holdings Limited and its subsidiaries (collectively, “AquaVenture” or the “Company”) provides its customers Water‑as‑a‑Service (“WAAS”) solutions through two operating platforms: Seven Seas Water and Quench. Both operations are critical to AquaVenture, which is headquartered in the British Virgin Islands.

Seven Seas Water offers WAAS solutions by providing outsourced desalination and wastewater treatment services for governmental, municipal, industrial and hospitality customers. These solutions utilize reverse osmosis and other purification technologies to produce potable and high purity industrial process water in high volumes for customers operating in regions with limited access to potable water. Through this outsourced service model, Seven Seas Water assumes responsibility for designing, financing, constructing, operating and maintaining the water treatment facilities. In exchange, Seven Seas Water enters into long‑term agreements to sell to customers agreed‑upon quantities of water that meet specified water quality standards. Seven Seas Water currently operates primarily throughout the Caribbean region and South America and is pursuing new opportunities in North America, South America and other select markets. Seven Seas Water is supported by an operations center in Tampa, Florida, which provides business development, engineering, field service support, procurement and administrative functions.

Quench offers WAAS solutions by providing bottleless filtered water coolers and other products that use filtered water as an input, such as ice machines, sparkling water dispensers and coffee brewers, to customers across the United States. Quench’s point‑of‑use systems purify a customer’s existing water supply. Quench offers solutions to a broad mix of industries, including government, education, medical, manufacturing, retail, and hospitality. Quench installs and maintains its filtered water systems typically under multi‑year contracts that renew automatically. Quench is supported by an operations center in King of Prussia, Pennsylvania, which provides marketing and business development, field service and supply chain support, customer care and administrative functions.  

Corporate Reorganization

Prior to the completion of the IPO on October 12, 2016, the Company and AquaVenture Holdings LLC completed a series of reorganization transactions which are described below:

· On July 1, 2016, AquaVenture Holdings LLC contributed all of the stock of its wholly-owned subsidiary, AquaVenture Holdings Curaçao N.V., to AquaVenture Holdings Limited in exchange for 1,000,000 ordinary shares of the Company.

· On October 4, 2016, AquaVenture Holdings LLC contributed to AquaVenture Holdings Limited: (i) the stock of Quench USA, Inc. and Seven Seas Water Corporation and (ii) all cash and other remaining assets and liabilities (other than the shares of AquaVenture Holdings Limited it held). Subsequently, AquaVenture Holdings LLC merged with a newly formed subsidiary of AquaVenture Holdings Limited, resulting in each Class A Preferred share, Class B share, Class Q share, Common share, and Management Incentive Plan (“MIP”) share being converted into ordinary shares of AquaVenture Holdings Limited pursuant to the terms of AquaVenture Holdings LLC’s limited liability company agreement. Quench USA Holdings LLC, a member of AquaVenture Holdings LLC, then merged with a separate newly formed subsidiary of AquaVenture Holdings Limited, resulting in the distribution of shares of AquaVenture Holdings Limited to its members pursuant to the terms of Quench USA Holdings LLC’s limited liability company agreement.

The reorganization transactions are considered transactions between entities under common control. As a result, the financial statements for periods prior to the IPO and the reorganization transactions are the financial statements of AquaVenture Holdings LLC as the predecessor to the Company for accounting and reporting purposes. Unless otherwise specified, the “Company” refers to the operations of both AquaVenture Holdings Limited and AquaVenture Holdings LLC throughout the remainder of these notes.

7

Initial Public Offering

On October 5, 2016, the Company’s IPO was declared effective and on October 12, 2016, the Company completed the IPO of 7,475,000 ordinary shares at a public offering price of $18.00 per share. The Company received net proceeds of $118.8 million, after deducting underwriting discounts and commissions and offering expenses.

2. Summary of Significant Accounting Policies

Unless otherwise noted below, there have been no material changes to the accounting policies presented in Note 2—“Summary of Significant Accounting Policies” of the notes to the audited consolidated financial statements, included in Item 8. Financial Statements and Supplementary Data of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, certain information and footnotes normally required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation of the Company’s unaudited condensed consolidated balance sheet as of March 31, 2017, the unaudited condensed consolidated statements of operations for the three months ended March 31, 2017 and 2016 and the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2017 and 2016. The unaudited condensed consolidated balance sheet as of December 31, 2016 was derived from the audited consolidated balance sheet as of December 31, 2016, as presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

The unaudited condensed consolidated financial statements include the accounts of AquaVenture Holdings Limited and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include: accounting for goodwill and identifiable intangible assets and any related impairment; property, plant and equipment and any related impairment; long‑term contract costs and any related impairment; share‑based compensation; allowance for doubtful accounts; obligations for asset retirement; and deferred income taxes. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

Adoption of New Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”), issued authoritative guidance that simplifies the accounting related to share-based payment award transaction including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance is effective for annual reporting periods beginning on or after December 15, 2016, including interim periods within those annual periods. The Company has adopted this guidance on January 1, 2017. Beginning January 1, 2017, on a prospective basis, excess tax benefits or deficiencies are reflected in the consolidated statements of operations as a component of the provision for income taxes. Additionally, the consolidated statement of cash flows now present excess tax benefits as an operating activity on a prospective basis and employee taxes paid by the Company when shares are

8

withheld as a financing activity on a retrospective basis. Lastly, on a modified retrospective basis, the Company has elected to account for forfeitures as they occur. When compared to the Company’s policy for forfeitures prior to the adoption of the pronouncement, the election had no impact. There was no impact to the consolidated unaudited loss from operations, net loss, or unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2016 or consolidated net assets and accumulated deficit as of December 31, 2016.

In November 2016, the FASB issued authoritative guidance that requires inclusion of cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The Company has adopted this guidance on January 1, 2017. The Company now presents the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows and no longer presents transfers between cash and cash equivalents and restricted cash and restricted cash investments in the statement of cash flows. Cash, cash equivalents and restricted cash stated in the consolidated unaudited statement of cash flows represents the addition of cash and cash equivalents, restricted cash classified as current and restricted cash classified as non-current line items in the unaudited condensed consolidated balance sheet. The adoption was on a retrospective basis and the unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2016 has been adjusted to reflect the adoption. The adoption does not have any impact on the unaudited condensed consolidated balance sheet or statement of operations.

In August 2016, the FASB issued authoritative guidance that addresses various classification issues related to the statement of cash flows. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The Company has adopted this guidance on January 1, 2017 on a retrospective basis. The adoption did not have any impact on the unaudited condensed consolidated financial statements.

New Accounting Pronouncements

In January 2017, the FASB issued authoritative guidance that updates and clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The Company is currently evaluating the potential impact of the accounting and disclosure requirements on the consolidated financial statements. The Company has not yet decided whether to early adopt during 2017, but will comply upon adoption.

In October 2016, the FASB issued authoritative guidance, that requires the recognition of income tax consequences of intercompany asset transfers other than inventory at the transaction date. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The Company is currently evaluating the potential impact of the accounting and disclosure requirements on the consolidated financial statements. The Company expects to finalize its assessment during 2017.

In May 2014, the FASB issued authoritative guidance regarding revenue from contracts with customers that specifies that revenue should be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration which the company expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning on or after December 15, 2017 and interim periods within those annual periods and will require enhanced disclosures. While the Company is currently developing its approach for its assessment to determine the potential impact of the accounting and disclosure requirements on the consolidated financial statements, it expects to finalize its assessment and provide a qualitative and quantitative impact during 2017. The Company expects to adopt the guidance on a retrospective basis on January 1, 2018. In conjunction with this adoption, the Company will also adopt the authoritative guidance issued in March 2017 regarding the determination of the customer in a service concession arrangement. 

In February 2016, the FASB issued authoritative guidance regarding leases that requires lessees to recognize a lease liability and right‑of‑use asset for operating leases, with the exception of short‑term leases. In addition, lessor accounting was modified to align, where necessary, with lessee accounting modifications and the authoritative guidance regarding revenue from contracts with customers. This guidance will be effective for annual reporting periods beginning

9

on or after December 15, 2018, including interim periods within those annual periods, and early adoption is permitted. While the Company is currently developing its approach for its assessment to determine the potential impact of the accounting and disclosure requirements on the consolidated financial statements, it expects to finalize its assessment and provide a qualitative and quantitative impact during 2017. The Company expects to early adopt the guidance on a retrospective basis effective January 1, 2018 in conjunction with the guidance regarding revenue from contracts with customers.

3. Business Combinations

Aguas De Bayovar S.A.C.

On October 31, 2016, AquaVenture Holdings Peru S.A.C. ("AVH Peru"), a Peruvian company and an indirect

wholly-owned subsidiary of AquaVenture Holdings Limited, acquired 100% of the outstanding shares of Aguas de Bayovar S.A.C. (‘‘ADB’’) and all of the rights and obligations under a design and construction contract for a desalination plant and related infrastructure located in Peru for an aggregate purchase price of $46.5 million in cash,

including a final working capital adjustment of $186 thousand (the “Peru Acquisition”) which was paid in February

2017. The desalination plant and related infrastructure, which was completed in 2010, has a design capacity of 2.7

million gallons per day, and ADB operates and maintains the desalination plant and related infrastructure constructed

under the design and construction agreement to produce water for a contracted fee on a take-or-pay basis for a phosphate

mining company pursuant to an operating and maintenance contract, which expires in 2037. The rights to the design

and construction contract are accounted for as a note receivable that requires monthly installment payments from the

customer for the construction of the desalination plant and related infrastructure, which continue until 2024.

The operations of ADB are included in the Seven Seas Water reportable segment for the periods after the date of acquisition.

The Seven Seas Water business completed the Peru Acquisition to expand its installed base of seawater reverse

osmosis desalination facilities used to provide WAAS, its presence in South America and the industries served.

Pro Forma Financial Information

The following unaudited pro forma financial information (in thousands) for the Company gives effect to the acquisition of ADB, which occurred on October 31, 2016, as if it had occurred on January 1, 2016. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisitions occurred on the date indicated, or that may result in the future.

	Three months ended
	March 31,
	2017		2016
Revenues	$	29,008	$	28,008
Net loss	$	(6,126)	$	(2,810)

4. Fair Value Measurements

At March 31, 2017 and December 31, 2016, the Company had the following assets and liabilities measured at fair value on a recurring basis in the unaudited condensed consolidated balance sheets:

· U.S. Treasury securities are measured on a recurring basis and are recorded at fair value based on quoted market value in an active market, which is considered a Level 1 input.

· Money market funds are measured on a recurring basis and are recorded at fair value based on each fund’s quoted market value per share in an active market, which is considered a Level 1 input.

There were no transfers into or out of Level 1, 2 or 3 assets during the three months ended March 31, 2017. Transfers between levels are deemed to have occurred if the lowest level of input were to change.

10

The Company’s fair value measurements as of March 31, 2017 and December 31, 2016 were as follows (in thousands):

			Quoted Prices in		Significant
			Active Markets		Other		Significant
	Asset/		for Identical		Observable		Unobservable
Assets/Liabilities Measured at Fair Value	(Liability)		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
As of March 31, 2017
Recurring basis:
Money market funds	$	31,655	$	31,655	$	—	$	—
U.S. Treasury securities	$	29,307	$	29,307	$	—	$	—
As of December 31, 2016
Recurring basis:
Money market funds	$	29,523	$	29,523	$	—	$	—
U.S. Treasury securities	$	24,777	$	24,777	$	—	$	—

5. Share‑Based Compensation

AquaVenture Equity Awards

As described in Note 1—“Description of the Business”, the Company completed a reorganization on October 4, 2016, which resulted in the conversion, pursuant to the terms of AquaVenture Holdings LLC’s limited liability agreement, of all outstanding equity awards of AquaVenture Holdings LLC to equity awards of AquaVenture Holdings Limited, with the underlying security being ordinary shares of AquaVenture Holdings Limited. The conversion retained the same economics of each of the outstanding equity awards. All other terms, including vesting, remained unchanged.

The Quench USA Holdings LLC 2014 Equity Incentive Plan and Quench USA, Inc. 2008 Stock Plan (collectively, the “Quench Equity Plans”) were assumed by AquaVenture Holdings Limited on October 4, 2016. All outstanding awards of the Quench Equity Plans were converted to equity awards of AquaVenture Holdings Limited, with the underlying security being ordinary shares of the AquaVenture Holdings Limited. Consistent with the effects of the conversion on the AquaVenture Holding LLC equity awards, economics for each outstanding award were retained and all terms, including vesting, remained unchanged.

Issuances of securities under the AquaVenture Holdings LLC Amended and Restated Equity Incentive Plan and the Quench Equity Plans ceased at the time of the effectiveness of the IPO on October 5, 2016. As a result, no securities remain available for issuance under these plans.

On September 22, 2016, the Company approved and adopted the AquaVenture Holdings Limited 2016 Share Option and Incentive Plan (the “2016 Plan”), which allows for the issuance of incentive share options, non-qualified share options, share appreciation rights, restricted share units, restricted share awards, unrestricted share awards, cash-based awards, performance share awards and dividend equivalent rights to officers, employees, managers, directors and other key persons, including consultants to the Company. The aggregate number of ordinary shares initially available for issuance, subject to adjustment upon a change in capitalization, under the 2016 Plan was 5.0 million shares. The shares available for issuance will increase annually by 4% of the number of ordinary shares issued and outstanding on the immediately preceding December 31. As of January 1, 2017, the number of ordinary shares available for issuance under the 2016 Plan is 6.1 million shares.

During the three months ended March 31, 2017, the Company granted options to purchase 39 thousand ordinary shares to eligible recipients with an exercise price of $16.49 per share. The options to purchase ordinary shares have a time-based vesting schedule of four years with 25% on the first anniversary and the remaining 75% vesting quarterly over the remaining three years. In addition, the Company also granted 18 thousand restricted share units. The restricted share units have a time-based vesting schedule of four years with 25% on the first anniversary and the remaining 75% vesting quarterly over the remaining three years. There was no significant exercises or forfeiture activity during the three months ended March 31, 2017. During the three months ended March 31, 2016, the Company did not make any grants and there were no exercises or significant forfeiture activity.

11

Share‑Based Compensation Expense

               Total share‑based compensation expense recognized related to all equity awards during the three months ended March 31, 2017 and 2016 was $2.9 million and $0.7 million, respectively. There was no related tax benefit for the three months ended March 31, 2017 and 2016 as a full deferred tax asset valuation allowance was recorded in the United States for domestic operations.

6. Loss per Share

Basic earnings (loss) per share is computed by dividing net earnings (loss) attributable to ordinary shareholders for the period by the weighted-average number of ordinary shares outstanding during the same period. Basic weighted-average shares outstanding excludes unvested shares of restricted share awards. Diluted earnings (loss) per share is computed by dividing net earnings (loss) attributable to ordinary shareholders for the period by the weighted-average number of ordinary shares outstanding adjusted to give effect to potentially dilutive securities using the treasury stock method, except where the effect of including the effect of such securities would be anti-dilutive.

There were no ordinary shares outstanding prior to October 6, 2016, therefore no loss per share information has been presented for any period prior to that date. The following table provides information for calculating net loss applicable to ordinary shareholders (in thousands, except per share amounts):

	Three months ended
	March 31, 2017
Numerator:
Net loss	$	(6,126)
Denominator:
Weighted-average ordinary shares outstanding - basic and diluted		26,386
Loss per share - basic and diluted	$	(0.23)

Given that the Company had a net loss for the period ended March 31, 2017, the calculation of diluted loss per share is computed using basic weighted average ordinary shares outstanding.

Approximately 3.9 million weighted-average outstanding share awards were excluded from the calculation of diluted earnings per share because their effect was antidilutive.

7. Commitments and Contingencies

Asset Retirement Obligations

Asset retirement obligation (“ARO”) liabilities, which arise from contractual requirements to perform certain asset retirement activities and is generally recorded when the asset is constructed, is based on the Company’s engineering estimates of future costs to dismantle and remove equipment from a customer’s plant site and to restore the site to a specified condition at the conclusion of a contract. As appropriate, the Company revises certain of its liabilities based on changes in the projected costs for future removal and shipping activities. These revisions, along with accretion expense, are included in cost of revenues in the unaudited condensed consolidated statement of operations.

During the three months ended March 31, 2017 and 2016, the Company recorded accretion expense of $12 thousand and $10 thousand, respectively. No valuation adjustments were recorded during the three months ended March 31, 2017 and 2016.

At March 31, 2017 and December 31, 2016, the current portion of the ARO liabilities was $26 thousand and $0, respectively, and was recorded in accrued liabilities in the unaudited condensed consolidated balance sheets. At March 31, 2017 and December 31, 2016, the long‑term portion of the ARO liabilities was $1.0 million $1.1 million, respectively, and was recorded in other long‑term liabilities in the unaudited condensed consolidated balance sheets.

12

Litigation, Claims and Administrative Matters

               The Company, may, from time to time, be a party to legal proceedings, claims, and administrative matters that arise in the normal course of business. The Company has made accruals with respect to certain of these matters, where appropriate, that are reflected in the unaudited condensed consolidated financial statements but are not, individually or in the aggregate, considered material. For other matters for which an accrual has not been made, the Company has not yet determined that a loss is probable or the amount of loss cannot be reasonably estimated. While the ultimate outcome of the matters cannot be determined, the Company currently does not expect that these proceedings and claims, individually or in the aggregate, will have a material effect on the unaudited condensed consolidated financial position, results of operations, or cash flows. The outcome of any litigation is inherently uncertain, however, and if decided adversely to the Company, or if the Company determines that settlement of particular litigation is appropriate, the Company may be subject to liability that could have a material adverse effect on the unaudited condensed consolidated financial position, results of operations, or cash flows. The Company maintains liability insurance in such amounts and with such coverage and deductibles as management believes is reasonable. The principal liability risks that the Company insures against are customer lawsuits caused by damage or nonperformance, workers’ compensation, personal injury, bodily injury, property damage, directors’ and officers’ liability, cybersecurity and cyber incidents, errors and omissions, employment practices liability and fidelity losses. There can be no assurance that the Company’s liability insurance will cover all events or that the limits of coverage will be sufficient to fully cover all liabilities. As of March 31, 2017, the Company has determined there are no matters for which a material loss is reasonably possible or the Company has either determined that the range of loss is not reasonably estimable or that any reasonably estimable range of loss is not material to the unaudited condensed consolidated financial statements.

8. Cash Flow Information

Supplemental cash flow information is as follows (in thousands):

	Three Months Ended
	March 31,
	2017		2016
Cash paid during the period:
Income taxes, net	$	427	$	54
Interest, net	$	2,582	$	2,315
Non-Cash Transaction Information:
Non-cash capital expenditures	$	168	$	1,007
Unpaid offering costs	$	—	$	881
Unpaid debt financing costs	$	—	$	11

The components of total ending cash for the periods presented in the unaudited condensed consolidated statement of cash flows are as follows (in thousands):

	Three Months Ended
	March 31,
	2017		2016
Cash and cash equivalents	$	89,918	$	27,987
Restricted cash, current		166		930
Restricted cash, non-current		6,003		6,294
	$	96,087	$	35,211

9. Segment Reporting

The Company has two operating and reportable segments, Seven Seas Water and Quench. This determination is supported by, among other factors, the existence of individuals responsible for the operations of each segment and who also report directly to the Company’s chief operating decision maker (“CODM”), the nature of the segment’s operations and information presented to the Company’s CODM.

Seven Seas Water provides outsourced desalination solutions and wastewater treatment for governmental, municipal, industrial and hospitality customers internationally under long‑term contracts. Quench provides bottleless

13

filtered water coolers and other products that use filtered water as an input, such as ice machines, sparkling water dispensers and coffee brewers, to customers throughout the United States typically under multi‑year contracts. Revenues reported under the Seven Seas Water reportable segment primarily represent bulk water sales and service, including revenues generated from service concession arrangements, whereas revenues reported under the Quench reportable segment primarily represent rental of filtered water and related systems.

Prior to January 1, 2017, the Company included the majority of certain general and administrative costs, primarily professional service and other expenses to support the activities of the registrant holding company, within the Seven Seas reportable segment. Beginning January 1, 2017, the Company began separating “Corporate and Other” for the CODM and for segment reporting purposes. The Corporate and Other administration function is not treated as a segment but includes certain general and administrative costs that are not allocated to either of the reportable segments. These costs include, but are not limited to, professional service and other expenses to support the activities of the registrant holding company. Corporate and Other does not include any labor allocations from the Seven Seas Water and Quench segments. The Company believes this presentation more accurately portrays the results of the core operations of each of the operating and reportable segments to the CODM. As a result of this change, the Company has restated prior periods for segment reporting purposes.

As part of the segment reconciliation below, intercompany interest expense and the associated intercompany interest income are included but are eliminated in consolidation.

The following table provides information by reportable segment and a reconciliation to the consolidated results for the three months ended March 31, 2017 (in thousands):

	Three months ended March 31, 2017
	Seven Seas				Corporate
	Water		Quench		& Other		Total
Revenues:
Bulk water	$	14,215	$	—	$	—	$	14,215
Rental		—		12,804		—		12,804
Other		—		1,989		—		1,989
Total revenues		14,215		14,793		—		29,008
Gross profit:
Bulk water		5,391		—		—		5,391
Rental		—		7,050		—		7,050
Other		—		853		—		853
Total gross profit		5,391		7,903		—		13,294
Selling, general and administrative expenses		6,154		9,411		923		16,488
Loss from operations		(763)		(1,508)		(923)		(3,194)
Other (expense) income, net		(1,258)		(1,033)		294		(1,997)
Loss before income tax expense		(2,021)		(2,541)		(629)		(5,191)
Income tax expense		859		76		—		935
Net loss	$	(2,880)	$	(2,617)	$	(629)	$	(6,126)
Other information:
Depreciation and amortization expense	$	4,272	$	3,535	$	—	$	7,807
Interest expense (income), net	$	1,076	$	1,033	$	(294)	$	1,815
Expenditures for long-lived assets	$	841	$	2,564	$	—	$	3,405
Amortization of deferred financing fees	$	138	$	71	$	—	$	209

14

The following table provides information by reportable segment and a reconciliation to the consolidated results for the three months ended March 31, 2016 (in thousands):

	Three months ended March 31, 2016
	Seven Seas				Corporate
	Water		Quench		& Other		Total
Revenues:
Bulk water	$	13,491	$	—	$	—	$	13,491
Rental		—		11,706		—		11,706
Other		—		1,932		—		1,932
Total revenues		13,491		13,638		—		27,129
Gross profit:
Bulk water		5,828		—		—		5,828
Rental		—		6,242		—		6,242
Other		—		893		—		893
Total gross profit		5,828		7,135		—		12,963
Selling, general and administrative expenses		4,342		9,011		344		13,697
Income (loss) from operations		1,486		(1,876)		(344)		(734)
Other (expense) income, net		(1,607)		(1,024)		5		(2,626)
Loss before income tax expense		(121)		(2,900)		(339)		(3,360)
Income tax expense		628		—		—		628
Net loss	$	(749)	$	(2,900)	$	(339)	$	(3,988)
Other information:
Depreciation and amortization expense	$	4,012	$	3,252	$	—	$	7,264
Interest expense, net	$	1,556	$	1,024	$	—	$	2,580
Expenditures for long-lived assets	$	3,320	$	2,926	$	—	$	6,246
Amortization of deferred financing fees	$	151	$	33	$	—	$	184

As of March 31, 2017, total assets for the Seven Seas Water and Quench reportable segments were $268.0 million and $191.8 million, respectively. As of December 31, 2016, total assets for the Seven Seas Water and Quench reportable segments were $274.2 million and $193.4 million, respectively.

As of March 31, 2017 and December 31, 2016, total assets for Corporate and Other were $63.4 million and $69.0 million, respectively.

10. Significant Concentrations, Risks and Uncertainties

The Company is exposed to interest rate risk resulting from its variable rate loans outstanding that adjust with movements in LIBOR or the lending bank’s prime lending rate.

For the three months ended March 31, 2017, a significant portion of the Company’s revenues are derived from territories and countries in the Caribbean region. Demand for water in the Caribbean region is impacted by, among other things, levels of rainfall and the tourism industry. High levels of rainfall and a downturn in the level of tourism and demand for real estate could adversely impact the future performance of the Company.

At March 31, 2017, a significant portion of the Company’s property, plant and equipment is located in the Caribbean region. The Caribbean islands are situated in a geography where tropical storms and hurricanes occur with regularity, especially during certain times of the year. The Company designs its plant facilities to withstand such conditions; however, a major storm could result in plant damage or periods of reduced consumption or unavailability of electricity or source seawater needed to produce water. It is the Company’s policy to maintain adequate levels of property and casualty insurance; however, the Company only insures certain plants for wind.

The operation of desalination plants requires significant amounts of electricity which typically is provided by the local utility of the jurisdiction in which the plant is located. A shortage of electricity supply caused by force majeure or material increases in electricity costs could adversely impact the Company’s operating results. To mitigate the risk of electricity cost increases, the Company has generally contracted with major customers for those cost increases to be borne by the customers and has invested in energy efficient technology. Management believes that rising energy costs and availability of its supply of electricity would not have a material adverse effect on its future performance.

15

Item 2. Management’s Discussion and Analysis of Financial Condition and Operating Results.

Overview

We are a multinational provider of Water as a Service (“WAAS”), solutions that provide our customers with a reliable and cost effective source of clean drinking and process water primarily under long term contracts that minimize capital investment by the customer. We believe our WAAS business model offers a differentiated value proposition that generates long term customer relationships, recurring revenue, predictable cash flow and attractive rates of return. We generate revenue from our operations in the United States, the Caribbean and South America and are pursuing expansion opportunities in North America, the Caribbean, South America and other select markets.

We deliver our WAAS solutions through two operating platforms: Seven Seas Water and Quench. Seven Seas Water is 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. Quench, which we acquired in June 2014, is a U.S.‑based provider of Point‑of‑Use (“POU”) filtered water systems and related services to approximately 40,000 institutional and commercial customers, including more than half of the Fortune 500.

Our Seven Seas Water platform generates recurring revenue through long‑term contracts for the delivery of treated bulk water, generally based on the amount of water we deliver. The significant majority of our Seven Seas Water revenue is derived from our operations in six different locations as of March 31, 2017:

· The U.S. Virgin Islands (“USVI”): Seven Seas Water provides all of the municipal potable water needs for the islands of St. Croix, St. Thomas and St. John through its two seawater desalination plants, one on St. Croix and one on St. Thomas, having a combined capacity of approximately 7.0 million GPD. We also provide ultrapure water for use in power generation units by further processing a portion of the potable water we produce for certain of our customers.

· St. Maarten: Seven Seas Water is the primary supplier of municipal potable water needs for St. Maarten through its three seawater desalination plants, having a combined capacity of approximately 5.8 million GPD.

· Curaçao: Seven Seas Water provides industrial grade water through a  seawater and brackish water desalination facility having a capacity of approximately 4.9 million GPD.

· Trinidad: Seven Seas Water provides potable water to southern Trinidad through its seawater desalination plant having a capacity of approximately 6.7 million GPD.

· The British Virgin Islands (“BVI”): Seven Seas Water is the primary supplier of Tortola’s potable water needs through its seawater desalination plant having a capacity of approximately 2.8 million GPD, which we began operating after we acquired the capital stock of Biwater (BVI) Holdings Limited on June 11, 2015.

· Peru: Seven Seas Water provides seawater and desalinated process water to a phosphate mine through a pipeline and seawater reverse osmosis facility having a capacity of approximately 2.7 million GPD, which we began operating after we completed the acquisition of all the outstanding shares of Aguas de Bayovar S.A.C. (“ADB”), and all the rights and obligations under a design and construction contract for a desalination plant and related infrastructure located in Peru (the “Peru Acquisition”) on October 31, 2016.

Seven Seas Water offers solutions that utilize reverse osmosis and other purification technologies to convert seawater or brackish water into potable, high purity industrial grade and ultra‑pure water in large volumes for customers operating in regions with limited access to usable water. Our WAAS solutions allow our customers to outsource the management of the entire lifecycle of a desalination plant. We are supported by an operations center in Tampa, Florida, which provides business development, engineering, field service support, procurement, accounting, finance and other administrative functions.

16

Our Quench platform generates recurring revenue from the rental and servicing of POU water filtration systems and related equipment, such as ice and sparkling water machines, and from the contracted maintenance of customer‑owned equipment. Quench also generates revenue from the sale of coffee and consumables. Our annual unit attrition rate at March 31, 2017 was approximately 8%, implying an average rental period of more than 11 years. We define “annual unit attrition rate” as a ratio, the numerator of which is the total number of removals of company-owned and billed rental units during the trailing 12-month period, and the denominator of which is the average number of company-owned and billed rental units during the same 12-month period. We receive recurring fees for the units we rent or service throughout the life of our customer relationship. We also receive non‑recurring revenue from some customers for certain services, such as installation, relocation or removal of equipment, as well as from the resale of equipment. We achieve an attractive return on our rental assets due to strong customer retention. We provide our systems and services to a broad mix of industries, including government, education, medical, manufacturing, retail, and hospitality, among others. We operate across the United States and are supported by a primary operations center in King of Prussia, Pennsylvania,  which provides marketing and business development, field service and supply chain support, customer care and administrative functions.

For the three months ended March 31, 2017, our consolidated revenues were $29.0 million, which represents an increase of 6.9% over the comparable periods in 2016. The increases in consolidated revenues for the three months ended March 31, 2017 were composed of increases in our Seven Seas Water segment of 5.4% and increases in our Quench segment of 8.5% over the comparable periods in 2016. The increase in revenue for our Seven Seas Water segment during the three months ended March 31, 2017 over the comparable period in 2016 was primarily due to the inclusion of revenues from our Peru Acquisition in October 2016. The increase in revenue for our Quench segment during the three months ended March 31, 2017 over the comparable period in 2016 was primarily due to additional units placed under new leases in excess of unit attrition and an increase in the sale of coffee and consumables.

Operating Segments

We have two reportable segments that align with our operating platforms, Seven Seas Water and Quench. The segment determination is supported by, among other factors, the existence of individuals responsible for the operations of each segment and who also report directly to our chief operating decision maker (“CODM”), the nature of the segment’s operations and information presented to our CODM. For the three months ended March 31, 2017, revenues for the Seven Seas Water and Quench segments represented approximately 49% and 51%, respectively, of our consolidated revenues.

Prior to January 1, 2017, we included the majority of certain general and administrative costs, primarily professional service and other expenses to support the activities of the registrant holding company, within the Seven Seas reportable segment. Beginning January 1, 2017, we began separating “Corporate and Other” for the CODM and for segment reporting purposes. The Corporate and Other administration function is not treated as a segment but includes certain general and administrative costs that are not allocated to either of the reportable segments. These costs include, but are not limited to, professional service and other expenses to support the activities of the registrant holding company. Corporate and Other does not include any labor allocations from the Seven Seas Water and Quench segments. We believe this presentation more accurately portrays the results of the core operations of each of the operating and reportable segments to the CODM. As a result of this change, we have restated prior periods for segment reporting purposes. 

As part of the segment reconciliation, intercompany interest expense and the associated intercompany interest income are included but are eliminated in consolidation.

Key Factors Affecting Our Performance and Comparability of Results

A number of key factors have affected and will continue to affect our performance and the comparison of our operating results, including matters discussed below and those items described in the section entitled “Risk Factors.”

Seven Seas Water

The financial performance of our Seven Seas Water business has been, and will continue to be, significantly affected by our ability to identify and secure new projects for desalination, wastewater treatment and water reuse

17

services with new and existing governmental, municipal, industrial, and hospitality customers. Performance of an existing plant site is generally consistent over time. Our performance and the comparability of results over time, however, are largely driven by the timing of events such as securing new plant projects, plant expansions, acquisitions of existing plants, and the extension, termination or expiration of water supply agreements. The timing of many of these events is unpredictable. New plant projects, plant expansions and plant acquisitions, when they do occur, require significant levels of cash and company resources before and after the commencement of revenue and their impact on our results of operations can be significant.

The table below summarizes recent significant events that affect performance and comparability of financial results for the three months ended March 31, 2017 and 2016 as well as future periods:

			Capacity
			(Million	Commencement
Plant Name	Location	Event	GPD)	Date
Point Blanche	St. Maarten	Plant expansion - Phase 2	1.0	March 2016
Point Fortin	Trinidad	Plant expansion	1.2	July 2016
Aguas de Bayovar	Peru	Plant acquisition	2.7	October 2016

Time and Expense Associated with New Business Development

The period of time required to develop an opportunity and secure an award can be lengthy, historically taking multiple years during which significant amounts of business development expense may be incurred. Our business development organization seeks to identify new project opportunities for both competitive bid situations and through unsolicited negotiated arrangements. Governmental water customers generally require a competitive bid for new plant development. We believe our build, own and operate model provides a significant distinction from many of our competitors in a bid or other selection process. Participation in a formal bid process and in negotiated arrangements can require significant costs, the timing of which can impact the comparability of our financial results. While our proposed pricing factors in such costs, there is no assurance that we will secure the contract and ultimately recover our costs.

The period from contract award to the commissioning of a new plant (and commencement of revenues) can also vary greatly due to, among other things, the size and complexity of the plant, the customer water specification, the suitability of the plant site and our ability to use existing infrastructure, the lead times for any required custom made or made to order equipment, and the ability to obtain required permits and licenses. In the case of a newly constructed plant, there is typically a ramp‑up period during which the plant operates below normal capacity.

To increase opportunities for new business with shortened sales cycles, we have, since 2008, pursued and achieved significant additional business and established long‑term customer relationships as a result of our rapid deployment capabilities, which allow us to respond to short‑term emergency water shortages in our target markets, often without a competitive bid requirement. Our current business in the USVI and Curaçao is attributable in large part to earlier deployments of our mobile containerized units to address emergency shortages. We continue to maintain this capability through our investment in containerized and modular water plants that include components having long procurement lead times.

To optimize our returns, we seek to finance a portion of the investment, including projects and acquisitions, through debt. The timing, extent and terms of such debt financing and the ensuing increase to interest expense can vary from project to project.

Existing Customer Relationships

We expect to continue to grow our business with existing customers by expanding and extending the contractual term for existing plants to meet expected increasing customer demand, each of which will impact our performance and comparability of results. As the volume of water produced at an existing plant increases, we typically experience increased sales volume and a lower cost for each incremental gallon produced, and our customers benefit from an increased and reliable supply of water. Similarly, contract extensions and renewals provide economic benefits for both the customer and us. By the time of an extension or renewal we have typically recovered meaningful portions of

18

our capital investment and only incremental capital investment may be required. These factors provide a competitive advantage in a contract extension (or renewal) process and may enable us to reduce unit prices, sustain profitability and achieve an improved and continuing return on our invested capital.

Historically, additional plant expansions and contract extensions have followed our initial installations. For example, in Curaçao, at the customer’s request, we expanded plant production capacity in 2012 and again in 2013, in both cases also extending the contract term. In 2014, we assumed responsibility for retrofitting and operating customer‑owned equipment, and we now provide approximately 80% of the water used at this customer’s facility. We have also had capacity expansions in the USVI and St. Maarten and have had contract extensions at each of our first four major plants. In addition, on September 3, 2015, we amended our water sale agreement with a customer in Trinidad to expand the existing desalination plant capacity by approximately 21% and extend the term of the contract by 50 months.

Plant Acquisitions

Revenue and expenses will increase upon an acquisition of an existing plant from a third party, which could be a new customer, an existing customer, a third‑party project developer or a facility owner. The time, cost and capital required to complete a plant acquisition are significant. Initially an acquired plant may experience periods of downtime or reduced production levels as well as additional capital investment while we bring the plant up to our engineering and operating standards. We have completed seven acquisitions of existing plant operations since inception. In October 2016, we completed the Peru Acquisition for an aggregate purchase price of $46.5 million. Results after the date of acquisition are included in the results of operations for the Seven Seas Water segment. Acquisitions are a part of our Seven Seas Water growth strategy and accordingly our ability to grow could be impacted by our effectiveness in completing and integrating our acquisitions.

Entry into New Markets

Our future performance will be affected by our investment and success in securing business in new markets. While continuing to penetrate the Caribbean market, we have also expanded our business development efforts to pursue a global business footprint in North America, South America and other select markets. As we continue to pursue entry into new markets, we may incur increasing expenses for business development that may be sustained for long periods of time before realizing the benefit of incremental revenues. In addition, our entry into some new markets may be better served through partnering arrangements such as joint ventures, which may result in a minority position. Such an arrangement may be economically attractive even though, in some circumstances, we may not be able to consolidate the operating results of a partnering arrangement with our own operating results.

Our future performance will also be affected by our efforts and ability to secure new or expanded business from new outsourcing applications such as highly specialized water for industrial companies, municipal and industrial wastewater treatment and reuse, and processing of produced water generated from oil and gas exploration. We may incur additional costs to develop industry specific knowledge about such opportunities.

Changes to Sales Volume, Costs of Sales and Operating Expenses

Our profitability is affected by changes in the volume of water delivered above any minimum required customer purchases and our ability to control plant production costs and operating expenses.

Due to the capital intensive nature of our business and the relatively high level of fixed costs such as depreciation and long‑term contract amortization, our Seven Seas Water model is characterized by high levels of operating leverage. As a result, significant swings in production volume will favorably or unfavorably impact profitability more significantly than business models with less operating leverage. We have mitigated the downside risk of declines in plant production through the inclusion of minimum customer purchase requirements in six of our eight water supply contracts with our major customers except where we have contractual rights to be the exclusive water supplier or where our customer must purchase all the water we produce and we must provide volume at a specified percentage of installed capacity. We design our plants to meet or exceed contractual supply requirements but our failure to meet minimum supply requirements could result in penalties that may adversely affect our financial performance.

Electrical costs are a major expense in connection with the operation of a water treatment plant. Our major customers either, directly or through related parties, provide the electricity needed to run the plant without cost to us or

19

reimburse us for this cost on a pass‑through basis. In general, our contracts require us to maintain electrical usage at or below a specified level of kilowatt hours for each gallon of water produced. Thus our cost risk is principally with respect to our ability to use electrical power efficiently. We have made investments in plant equipment and configuration to maintain required levels of electrical efficiency.

Personnel costs are another major cost element for plant operations. Our contracts provide for price adjustments for inflation. Profitability, however, could be adversely affected by significant increase in market prices for labor, social taxes and benefits or changes in operations requiring additional personnel. Because we assume responsibility to run plants over long periods of time, we use plant designs, equipment and equipment maintenance programs that seek to minimize future repairs and optimize long‑term cost performance. We may however, from time to time experience equipment failures outside of warranty coverage which could result in significant costs to repair.

Our operations center in Tampa, Florida and our organization in Santiago, Chile incur significant selling, general and administrative (“SG&A”) expenses that are intended to support our plans for future growth. Certain of these expenses, in particular those related to business development, are largely discretionary and not correlated specifically to short‑term changes in revenue. Direct engineering cost, including allocated overhead, for personnel at our operations center are capitalized as a project cost based on hours incurred on active plant construction projects which can change from period to period. The timing of new hires, the utilization of engineering personnel and the spending in these areas may affect the comparability of our results.

Contractually Scheduled and Negotiated Changes to Terms and Conditions

Our Seven Seas Water business is conducted in accordance with the terms of long‑term water supply contracts that, among other things, may provide for minimum customer purchases, guaranteed supply volumes and specified levels of pricing based on the volume of water purchased during the billing period. These contractual features are key determinants of plant revenue and plant profitability. Certain of our contracts provide for contractually scheduled price changes. In addition, most of our contracts include provisions to increase prices in accordance with a specified inflation index such as the consumer price index. From time to time, we also negotiate pricing changes with our customers as part of an arrangement to extend or renew a contract, expand plant capacity or increase minimum volumes pursuant to a take‑or‑pay agreement or a combination thereof.

Revenues and operating income can be expected to decrease, potentially by a significant amount, upon a decrease in contracted services or contract renegotiation, termination or expiration. We seek to mitigate the risk of such events by establishing a track record for reliability and leveraging the cost advantages of being the incumbent provider.

Customer Demand and Certain Other External Factors

We design plant capacity to exceed the minimum purchase requirements contained in our contracts to meet anticipated customer needs and maintain sufficient excess capacity. Our customer’s water demand and our ability to meet that demand can vary among quarters and annual periods for a variety of reasons over which we have little control, including:

· the timing and length of shutdowns of customer facilities due to factors such as equipment failures, power outages, regular scheduled maintenance and severe weather which can adversely affect customer demand;

· seasonal fluctuations or downturns in the general economy, which can be expected to adversely affect demand from customer for whom tourism is a significant economic driver, including our municipal or resort customers;

· economic cycles which may affect the industrial customers we serve, especially those in the energy and mining sectors where volatility in commodity prices or consolidation of capacity could adversely affect customer demand;

· excessive periods of rain or drought which can impact primary demand;

20

· various environmental factors and natural or man‑made conditions which can impact the quality of source water, such as bacteria levels or contaminants in source water, and can require additional pretreatment thus adding cost and reducing the level of production throughput; and

· technological advances especially in new filtration technologies, reverse osmosis membranes, energy recovery equipment and energy efficient plant designs may affect future operating performance and the cost competitiveness of our services in the market.

Quench

Attracting New Customers

Our performance will be affected by our ability to continue to attract new customers. We believe that the U.S. commercial water cooler market is underpenetrated by POU water filtration, which per a 2016 study by Zenith International, represented only 11.1% by revenue of a $4.2 billion per year market in 2015. We intend to continue to invest in selling and marketing efforts to attract new customers for our filtered water systems, both within our existing geographic territories and in targeted additional territories. Our ability to attract new customers may vary from period to period for several reasons, including the effectiveness of our selling and marketing efforts, our ability to hire and retain salespeople, competitive dynamics, variability in our sales cycle (particularly related to opportunities to serve larger enterprises), the timing of the roll‑out of large‑enterprise orders and general economic conditions.

Customer Relationships

We believe that our existing customers continue to provide significant opportunities for us to offer additional products and services. These opportunities include the rental of additional or upgraded water coolers, as well as the rental of equipment from our newer product lines enabled by POU water filtration, such as ice machines, sparkling water coolers and coffee brewers. We also expect to invest to grow the sales of consumables associated with our systems, such as coffee and related products.

Typically, we rent our systems to customers on multi‑year, automatically‑renewing contracts, and we anticipate extending our relationships with existing customers beyond the initial contract term. Some customers terminate their agreements during the agreement term, typically due to financial constraints, and others cancel at the end of the term. Our annual unit attrition rate at March 31, 2017 was approximately 8%, implying an average rental period of more than 11 years. Our ability to retain our existing customer relationships will affect our performance and is affected by a number of factors, including the effectiveness of our retention efforts, the quality of our products and service, our pricing, competitive dynamics in the industry, product availability, and the health of the economy.

Strategic Acquisitions

The POU water filtration industry is highly fragmented, with a large number of local competitors and several larger regional operators. Quench has completed eleven acquisitions since 2008, three of which occurred after our acquisition of Quench in 2014. We expect to continue to pursue select acquisitions to increase our scale, customer density and geographic service area. Our ability to complete acquisitions is a function of many factors, including competition, purchase price and our short‑term business priorities. Accordingly, it is impossible to predict whether any current or future discussions will lead to the successful completion of any acquisitions. Since acquisitions are a part of our growth strategy, the inability to complete, integrate and profitably operate acquisitions may adversely affect our operating results.

Changes to Cost of Sales and Operating Expenses

Profitability of our Quench platform will be affected by our ability to control our costs of sales and operating expenses.

A majority of Quench rental agreements are priced at fixed rates for periods of up to five years. As a result, our gross margins are exposed to potential cost of sales increases that cannot be immediately offset by price adjustments. The volume, mix and pricing of equipment and consumables purchased for immediate resale (as opposed to rental) can

21

impact the consistency and comparability of our results. The timing, number and compensation of new service hires and associated vehicles, as well as the use of outside service providers, may affect our gross margins.

Quench incurs selling, general and administrative costs to support a national sales force, a widely dispersed installed base of customers, and a high volume of recurring business transactions. A portion of such costs is composed of new customer acquisition costs, such as lead generation expenses and sales commissions, which are expensed upfront and recovered over the periods following the execution of a customer contract and any subsequent renewal. A portion of new customer acquisitions costs, including internal salaries and benefits, directly related to the negotiation and execution of leases, considered lease origination costs, are capitalized as deferred lease costs. Deferred lease costs are amortized on a straight‑line basis over the average lease term. Selling, general and administrative costs also include certain costs to complete business acquisitions, which precede the realization of revenues generated by the acquired new business, and discretionary investments in infrastructure to support our plans for Quench’s future long‑term growth. The timing of these expenditures and their impact relative to the revenues generated can affect our performance and comparability of results.

Corporate and Other

Changes to Operating Expenses

We expect to incur increased legal, accounting and other expenses as we pursue our expansion strategy and as a public company, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934 (the “Exchange Act”), and the listing requirements of the New York Stock Exchange. We anticipate that such operating costs as a percentage of revenue will moderate over the long term if and as our revenues increase or as a result of certain other corporate activities or projects.

Presentation of Financial Information

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In the preparation of these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or operating results would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss below.

Adoption of New Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that simplifies the accounting related to share-based payment award transaction including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance is effective for annual reporting periods beginning on or after December 15, 2016, including interim periods within those annual periods. We have adopted this guidance on January 1, 2017. Beginning January 1, 2017, on a prospective basis, excess tax benefits or deficiencies are reflected in the consolidated statements of operations as a component of the provision for income taxes. Additionally, the consolidated statement of cash flows now present excess tax benefits as an operating activity on a prospective basis and employee taxes paid by us when shares are withheld as a financing activity on a retrospective basis. Lastly, on a modified retrospective basis, we have elected to account for forfeitures as they occur. When compared to the our policy for forfeitures prior to the adoption of the pronouncement, the election had no impact. There was no impact to the consolidated unaudited loss from operations, net loss, or unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2016 or consolidated net assets and accumulated deficit as of December 31, 2016.

In November 2016, the FASB issued authoritative guidance that requires inclusion of cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. We have adopted this guidance on January 1, 2017.

22

We now present the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows and no longer present transfers between cash and cash equivalents and restricted cash and restricted cash investments in the statement of cash flows. Cash, cash equivalents and restricted cash stated in the unaudited condensed consolidated statement of cash flows represents the addition of cash and cash equivalents, restricted cash classified as current and restricted cash classified as non-current line items in the unaudited condensed consolidated balance sheet. The adoption was on a retrospective basis and the unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2016 has been adjusted to reflect the adoption. The adoption does not have any impact on our unaudited condensed consolidated balance sheet or statement of operations.

In August 2016, the FASB issued authoritative guidance that addresses various classification issues related to the statement of cash flows. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. We have adopted this guidance on January 1, 2017 on a retrospective basis. The adoption did not have any impact on our consolidated unaudited financial statements.

New Accounting Pronouncements

In January 2017, the FASB issued authoritative guidance that updates and clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. We are currently evaluating the potential impact of the accounting and disclosure requirements on our consolidated financial statements. We have not yet decided whether to early adopt during 2017, but will comply upon adoption.

In October 2016, the FASB issued authoritative guidance, that requires the recognition of income tax consequences of intercompany asset transfers other than inventory at the transaction date. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. We are currently evaluating the potential impact of the accounting and disclosure requirements on our consolidated financial statements. We expect to finalize our assessment during 2017.

In May 2014, the FASB issued authoritative guidance regarding revenue from contracts with customers that specifies that revenue should be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration which the company expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning on or after December 15, 2017 and interim periods within those annual periods and will require enhanced disclosures. While we are currently developing our approach for our assessment to determine the potential impact of the accounting and disclosure requirements on our consolidated financial statements, we expect to finalize our assessment and provide a qualitative and quantitative impact during 2017. We expect to adopt the guidance on a retrospective basis on January 1, 2018. In conjunction with this adoption, we will also adopt the authoritative guidance issued in March 2017 regarding the determination of the customer in a service concession arrangement. 

In February 2016, the FASB issued authoritative guidance regarding leases that requires lessees to recognize a lease liability and right‑of‑use asset for operating leases, with the exception of short‑term leases. In addition, lessor accounting was modified to align, where necessary, with lessee accounting modifications and the authoritative guidance regarding revenue from contracts with customers. This guidance will be effective for annual reporting periods beginning on or after December 15, 2018, including interim periods within those annual periods, and early adoption is permitted. While we are currently developing our approach for our assessment to determine the potential impact of the accounting and disclosure requirements on our consolidated financial statements, we expect to finalize our assessment and provide a qualitative and quantitative impact during 2017. We expect to early adopt the guidance on a retrospective basis effective January 1, 2018 in conjunction with the guidance regarding revenue from contracts with customers.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our financial statements. On an ongoing

23

basis, we evaluate our estimates and judgments used. Actual results may differ from these estimates under different assumptions or conditions. In making estimates and judgments, management employs critical accounting policies.

There have been no material changes to our critical accounting policies from those described in “Management’s discussion and analysis of financial condition and results of operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Results of Operations

The following tables set forth our operating results for the periods presented. 

The consolidated and Seven Seas Water segment results include the results from the Peru Acquisition for the periods following its completion on October 31, 2016. Through ADB, we sell water, on a take-or-pay basis, to our customer under an operating and maintenance (“O&M”) contract, while pursuant to the design and construction contract, we receive payments that are accounted for as a note receivable. These contracts with the customer are structured differently from those with our other Seven Seas Water customers. Only the operating activities related to the O&M contract are included in revenues and cost of revenues. The payments received on the design and construction contract includes amounts accounted for as principal repayments, which are not reflected in the consolidated statement of operations, and interest income. Because the contracts are structured differently from our other Seven Seas Water customer contracts, the inclusion of our Peru operations has a negative impact on Seven Seas Water gross margins as the profitability profile of the O&M contract by itself is lower than other Seven Seas Water customer contracts.

Further, the operating expenses of the parent, AquaVenture Holdings Limited, are reported separately from the two operating and reportable segments below. See “Operating Segments” located in the “Overview” section above for more information.

The following table sets forth the components of our consolidated statements of operations for each of the periods presented.

	Three Months Ended
	March 31,
	2017		2016
Revenues:
Bulk water	$	14,215	$	13,491
Rental		12,804		11,706
Other		1,989		1,932
Total revenues		29,008		27,129
Cost of revenues:
Bulk water		8,824		7,663
Rental		5,754		5,464
Other		1,136		1,039
Total cost of revenues		15,714		14,166
Gross profit		13,294		12,963
Selling, general and administrative expenses		16,488		13,697
Loss from operations		(3,194)		(734)
Other expense:
Interest expense, net		(1,815)		(2,580)
Other expense, net		(182)		(46)
Loss before income tax expense		(5,191)		(3,360)
Income tax expense		935		628
Net loss	$	(6,126)	$	(3,988)

24

The following table sets forth the components of our consolidated statements of operations for each of the periods presented as a percentage of revenue.

	Three Months Ended
	March 31,
	2017		2016
Revenues:
Bulk water	49.0	%	49.7	%
Rental	44.1	%	43.1	%
Other	6.9	%	7.2	%
Total revenues	100.0	%	100.0	%
Cost of revenues:
Bulk water	30.4	%	28.2	%
Rental	19.8	%	20.1	%
Other	3.9	%	3.8	%
Total cost of revenues	54.1	%	52.1	%
Gross profit	45.8	%	47.8	%
Selling, general and administrative expenses	56.8	%	50.5	%
Loss from operations	(11.0)	%	(2.7)	%
Other expense:
Interest expense, net	(6.3)	%	(9.5)	%
Other expense, net	(0.6)	%	(0.2)	%
Loss before income tax expense	(17.9)	%	(12.4)	%
Income tax expense	3.2	%	2.3	%
Net loss	(21.1)	%	(14.7)	%

Comparison of Three Months ended March 31, 2017 and 2016

Revenues

The following table presents revenue for each of our two operating segments:

	Three Months Ended
	March 31,				Change
	2017		2016		Dollars		Percent
	(dollars in thousands)
Revenues:
Seven Seas Water	$	14,215	$	13,491	$	724	5.4	%
Quench		14,793		13,638		1,155	8.5	%
Total revenues	$	29,008	$	27,129	$	1,879	6.9	%

Our total revenues of $29.0 million for the three months ended March 31, 2017 increased $1.9 million, or 6.9%, as compared to the same period of 2016.

Seven Seas Water revenues for the three months ended March 31, 2017 increased $0.7 million, or 5.4%, as compared to the same period of 2016, mainly due to the inclusion of incremental revenues of $0.8 million from our Peru operations, which were acquired in October of 2016, and a $0.4 million increase in revenues over the prior year at our Trinidad plant due to an increase in volume of water delivered to our customer resulting from a plant expansion completed in 2016, net of a reduction in the average per unit price charged due to a lower rate being charged for incremental water delivered in excess of certain thresholds. These increases were partially offset by a decrease in revenues as compared to the prior year of $0.4 million at our BVI operations primarily due to the recording of an accrual for an expected rate change in connection with a pending contract amendment which is currently being finalized.

Quench revenues for the three months ended March 31, 2017 increased $1.2 million, or 8.5%, as compared to the same period of 2016. The increase in revenues over the prior year included an increase in rental revenues of $1.1 million, or 9.4%, due to additional units placed under new leases in excess of unit attrition and an increase in other revenues of $0.1 million, or 3.0%, driven by an increase in the sale of coffee and consumables.

As a result of the pending contract amendment, we expect revenues recognized from our BVI operations to be lower than the comparable periods in 2016 for the remainder of the year.

25

Cost of revenues, gross profit and gross margin

The following table presents the major components of cost of revenues, gross profit and gross margin for our two operating segments:

	Three Months Ended
	March 31,						Change
	2017			2016			Dollars		Percent
	(dollars in thousands)
Cost of Revenues:
Seven Seas Water	$	8,824		$	7,663		$	1,161	15.2	%
Quench		6,890			6,503			387	6.0	%
Total cost of revenues	$	15,714		$	14,166		$	1,548	10.9	%
Gross Profit:
Seven Seas Water	$	5,391		$	5,828		$	(437)	(7.5)	%
Quench		7,903			7,135			768	10.8	%
Total gross profit	$	13,294		$	12,963		$	331	2.6	%
Gross Margin:
Seven Seas Water		37.9	%		43.2	%
Quench		53.4	%		52.3	%
Total gross margin		45.8	%		47.8	%

Seven Seas Water gross margin for the three months ended March 31, 2017 decreased 530 basis points to 37.9% as compared to 43.2% for the same period of 2016. The decrease was mainly due to: (i) the inclusion of our Peru operations, which negatively impacted gross margin due to the lower margin profile of the operating and maintenance contract included in our operating results and elevated repairs and maintenance expense during the first quarter, which were planned as part of our post-acquisition integration and (ii) the reduction in gross margins for our BVI operations from the aforementioned accrual for an expected rate change. Partially offsetting these decreases was an increase in gross margin for our Trinidad operations as a result of higher revenues from the previously mentioned plant expansion without a commensurate increase in operating costs.

Quench gross margin for the three months ended March 31, 2017 improved 110 basis points to 53.4% as compared to 52.3% for the same period of 2016, primarily due to the management of expenses, including reduced freight and personnel costs. These improvements were partially offset by an increase in depreciation expense related to the increase in new company-owned units placed on lease and a decrease in the gross margin earned on equipment sales in return for a higher volume of sales to certain existing customers.

As a result of the pending BVI contract amendment and the inclusion of the Peru O&M contract, we expect gross margins for our Seven Seas Water segment to be lower than the comparable periods in 2016 for the remainder of the year.

Selling, general and administrative expenses

The following table presents SG&A expenses for our two operating segments and expenditures classified as Corporate and Other:

	Three Months Ended
	March 31,				Change
	2017		2016		Dollars		Percent
	(dollars in thousands)
Selling, General and Administrative Expenses:
Seven Seas Water	$	6,154	$	4,342	$	1,812	41.7	%
Quench		9,411		9,011		400	4.4	%
Corporate and Other		923		344		579	168.3	%
Total selling, general and administrative expenses	$	16,488	$	13,697	$	2,791	20.4	%

26

Total SG&A expenses for the three months ended March 31, 2017 increased $2.8 million, or 20.4%, as compared to the same period of 2016.

Seven Seas Water SG&A expenses for the three months ended March 31, 2017 increased $1.8 million, or 41.7%, as compared to the same period of 2016. The increase was mainly due to a $1.5 million increase in share-based compensation resulting from the equity award grants following our initial public offering (“IPO”) in the fourth quarter of 2016 and $0.4 million higher compensation and benefits expense resulting from increases in headcount and discretionary compensation as compared to the prior year. Seven Seas Water SG&A expenses as a percentage of revenue were 43.3% for the three months ended March 31, 2017, as compared to 32.2% for the same period of 2016, which was primarily driven by the increase in share-based compensation expense as noted above.

Quench SG&A expenses for the three months ended March 31, 2017 increased $0.4 million, or 4.4%, as compared to the same period of 2016. The increase was mainly due to a $0.6 million increase in share-based compensation resulting from the equity award grants following our IPO in the fourth quarter of 2016; a $0.4 million increase in expense related to the implementation of a new software-as-a-service (“SAAS”) based enterprise resource planning (“ERP”) system, which is expected to be completed during 2017; and a $0.2 million increase in amortization expense of deferred lease costs related to the increase in the units placed on lease. These increases were partially offset by a $0.3 million decrease in depreciation expense related to the acceleration of depreciation in the prior year on an existing ERP system, $0.3 million lower compensation and benefits expense, and a $0.2 million reduction in the bad debt reserve resulting from enhanced collection efforts to reduce aged receivables during the quarter. Quench SG&A expenses as a percentage of revenue were 63.6% for the three months ended March 31, 2017, a decrease of 250 basis points as compared to 66.1% for the same period of 2016.

Corporate and Other SG&A expenses for the three months ended March 31, 2017 increased $0.6 million as compared to the same period of 2016. The increase was mainly due to increases in insurance expense and professional fees, including higher legal, audit and consulting and advisory costs, since becoming a public company in October 2016.

Other expense

	Three Months Ended
	March 31,				Change
	2017		2016		Dollars		Percent
	(dollars in thousands)
Interest expense, net	$	(1,815)	$	(2,580)	$	765	(29.7)	%
Other expense, net		(182)		(46)		(136)	295.7	%
Total other expense	$	(1,997)	$	(2,626)	$	629	(24.0)	%

Interest expense, net for the three months ended March 31, 2017 decreased by $0.8 million as compared to the same period of 2016. The decrease was primarily related to the interest income earned on the payments we received on the design and construction contract acquired in the Peru Acquisition, interest income earned on cash balances and lower interest expense related to amortization of existing borrowings that resulted from scheduled debt repayments. The decreases were partially offset by an increase in interest expense from our draw-downs on the Curaçao Credit Facility in March 2016 and on the non-revolving credit facility in Trinidad in May 2016.

Income tax expense

	Three Months Ended
	March 31,						Change in
	2017			2016			Dollars
	(dollars in thousands)
Income tax expense	$	935		$	628		$	307
Effective tax rate		(18.0)	%		(18.7)	%

We operate through multiple legal entities in a variety of domestic and international jurisdictions, some of which do not impose an income tax. Within these jurisdictions, our operations generate a mix of income and losses, which cannot be offset when calculating income tax expense or benefit for each legal entity. Income tax benefits are not recorded for losses generated in jurisdictions where either the jurisdictions do not impose an income tax or we do not believe it is more likely than not that we will realize the benefit of such losses.In general, the provision for income taxes

27

for the three months ended March 31, 2017 and 2016 was calculated using an estimated annual effective tax rate excluding jurisdictions with no income tax and entities which anticipate a current year loss for which no tax benefit can be taken. For legal entities that expect marginal profitability for the year and have permanent differences that result in significant variations in the estimated annual effective tax rate, we have calculated the income tax provision based on the actual effective tax rate for the year-to-date period as this is the best estimate for the reporting period. 

For the three months ended March 31, 2017, we incurred a consolidated pre-tax loss of $5.2 million, which was composed of: (i) an aggregate of $6.6 million of pre-tax losses in jurisdictions which either do not impose an income tax or we do not believe it is more likely than not that we will realize the benefit of such losses and (ii) an aggregate of $1.4 million of pre-tax income in taxable jurisdictions. For the three months ended March 31, 2016, we incurred a consolidated pre-tax loss of $3.4 million, which was composed of: (i) an aggregate of $5.1 million of pre-tax losses in jurisdictions which either do not impose an income tax or we do not believe it is more likely than not that we will realize the benefit of such losses and (ii) an aggregate of $1.7 million of pre-tax income in taxable jurisdictions.

Income tax expense for the three months ended March 31, 2017 and 2016 was $0.9 million and $0.6 million, respectively. The increase was mainly due to taxable income generated by our Peru operations which were acquired in October 2016, income tax expense recorded from a discrete adjustment for certain nondeductible expenses and income tax expense recorded from the recognition of a deferred tax liability that was not classified as a source of future taxable income available to offset a net operating loss in a jurisdiction where we do not believe it is more likely than not that we will realize the benefit of such losses.

Cash paid for income taxes was $0.4 million and $0.1 million during the three months ended March 31, 2017 and 2016, respectively.

Key Metrics

We present Adjusted EBITDA, as well as the other financial information discussed below, because we believe it provides a more accurate comparison of our financial results between periods and more accurately reflects how management assesses our financial results. We use Adjusted EBITDA, as well as the other financial information provided below, as key metrics to measure our performance, evaluate growth trends and determine business strategy.

Non-GAAP Financial Data

Adjusted EBITDA

We regularly use Adjusted EBITDA as a supplemental measure to GAAP measures regarding our operating performance. A detailed explanation and reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure is described below.

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, initial public offering costs, gains (losses) on extinguishment of debt, IPO triggered compensation, gains on bargain purchases and certain adjustments recorded in connection with purchase accounting for acquisitions. Adjusted EBITDA should not be considered a measure of financial performance under GAAP. Management believes that the use of Adjusted EBITDA, which is used by management as a key metric to assess performance, provides consistency and comparability with our past financial performance, and facilitates period‑to‑period comparisons of operations. Management believes that it is useful to exclude certain charges, such as depreciation and amortization, and non‑core operational charges, from Adjusted EBITDA because (1) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (2) such expenses can vary significantly between periods. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

· Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

28

· Adjusted EBITDA does not reflect net interest expense, which represents a reduction in cash available to us;

· Adjusted EBITDA does not reflect income tax expenses that may represent a reduction in cash available to us;

· Adjusted EBITDA does not reflect acquisition‑related expenses, which represents a reduction in cash available to us;

· Adjusted EBITDA does not reflect the implementation expenses incurred for a SAAS‑based ERP system, which represents a reduction in cash available to us;

· Adjusted EBITDA includes an adjustment for non‑cash impairment charge, which will not impact working capital;

· Adjusted EBITDA includes an adjustment for changes in deferred revenue related to our bulk water business to reflect cash received from operations;

· Adjusted EBITDA does not reflect initial public offering costs, which represents a reduction in cash available to us;

· Adjusted EBITDA does not reflect gains (losses) on the extinguishment of debt that may represent a reduction or addition in cash available to us;

· Adjusted EBITDA does not reflect IPO triggered compensation, which represents a reduction in cash available to us;

· Adjusted EBITDA includes an adjustment for non‑cash bargain purchase gain, which will not impact working capital;

· Although depreciation and amortization are non‑cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect the future need to augment or replace such assets; and

· Other companies, including companies in our industry, may rely upon other key metrics or may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure against peer companies.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results.

Adjusted EBITDA Margin

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

29

Reconciliation of Non‑GAAP Financial Data

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

	Three Months Ended March 31, 2017
	Seven Seas						Corporate
	Water			Quench			& Other			Total
	(in thousands)
Net loss	$	(2,880)			(2,617)		$	(629)		$	(6,126)
Depreciation and amortization		4,272			3,535			—			7,807
Interest expense (income), net		1,076			1,033			(294)			1,815
Income tax expense		859			76			—			935
Share-based compensation expense		2,000			830			24			2,854
Loss on disposal of assets		—			268			—			268
Changes in deferred revenue related to our bulk water business		280			—			—			280
ERP implementation charges for a SAAS solution		—			696			—			696
Adjusted EBITDA	$	5,607		$	3,821		$	(899)		$	8,529
Adjusted EBITDA Margin		39.4	%		25.8	%		—	%		29.4	%

	Three Months Ended March 31, 2016
	Seven Seas						Corporate
	Water			Quench			& Other			Total
	(in thousands)
Net loss	$	(749)		$	(2,900)		$	(339)		$	(3,988)
Depreciation and amortization		4,012			3,252			—			7,264
Interest expense, net		1,556			1,024			—			2,580
Income tax expense		628			—			—			628
Share-based compensation expense		477			206			—			683
Loss on disposal of assets		—			192			—			192
Acquisition-related expenses		85			—			—			85
Changes in deferred revenue related to our bulk water business		285			—			—			285
ERP implementation charges for a SAAS solution		—			257			—			257
Adjusted EBITDA	$	6,294		$	2,031		$	(339)		$	7,986
Adjusted EBITDA Margin		46.7	%		14.9	%		—	%		29.4	%

Other Financial Information

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 this design and construction 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 note receivable.  As a result of this accounting treatment, which differs from existing contracts in our Seven Seas Water business, the cash collected on this design and construction contract is not recognized as revenue in our consolidated financial statements.

30

Cash collected on the design and construction contract acquired in the Peru Acquisition, which includes both principal and interest, is shown below.

	Three Months Ended March 31, 2017
	Seven Seas				Corporate
	Water		Quench		& Other		Total
	(in thousands)
Cash collected on design and construction contract	$	2,026	$	—	$	—	$	2,026

	Three Months Ended March 31, 2016
	Seven Seas				Corporate
	Water		Quench		& Other		Total
	(in thousands)
Cash collected on design and construction contract	$	—	$	—	$	—	$	—

We understand that many in the investment community combine our Adjusted EBITDA and the cash we collect from the design and construction contract for purposes of reviewing and analyzing our financial results. Our management and our 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 operations. In this regard, and for the sake of clarity and convenience, the combination of our Adjusted EBITDA and the cash collected on the design and construction contract is shown below.

	Three Months Ended March 31, 2017
	Seven Seas				Corporate
	Water		Quench		& Other		Total
	(in thousands)
Adjusted EBITDA plus cash collected on design and construction contract	$	7,633	$	3,821	$	(899)	$	10,555

	Three Month Ended March 31, 2016
	Seven Seas				Corporate
	Water		Quench		& Other		Total
	(in thousands)
Adjusted EBITDA plus cash collected on design and construction contract	$	6,294	$	2,031	$	(339)	$	7,986

Liquidity and Capital Resources

Overview

As of March 31, 2017 and December 31, 2016, our principal sources of liquidity on a consolidated basis were cash and cash equivalents of $89.9 million and $95.3 million, respectively (excluding restricted cash), which were held for working capital, investment and general corporate purposes. In addition, as of March 31, 2017 and December 31, 2016, we had an aggregate of $6.2 million and $6.1 million, respectively, of restricted cash related to debt service reserve funds for certain of our borrowings and performance security funds for a vendor agreement. Our working capital as of March 31, 2017 was $64.8 million as compared to $75.9 million as of December 31, 2016.

Our cash and cash equivalents are held by our holding company and our subsidiaries primarily in demand deposits with domestic and international banks, money market accounts, and U.S. Treasury bills. We utilize a combination of equity financing and corporate and project debt financing through international commercial banks and other financial institutions to fund our cash needs and the growth of our business. Our debt financing arrangements contain financial covenants and provisions which govern distributions by the borrowers and may limit our ability to transfer cash among us and our subsidiaries. Based on our current level of operations, we believe our cash flow from operations and available cash will be adequate to meet the future liquidity needs of our current operations for at least the next twelve months.

31

Our expected future liquidity and capital requirements consist principally of:

· capital expenditures and investments in infrastructure under concession arrangements related to maintaining or expanding our existing operations;

· development of new projects and new markets;

· acquisitions;

· debt service requirements on our existing and future debt; and

· costs and expenses relating to our ongoing business operations.

Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, as well as future acquisitions, will depend on our future operating performance which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control.

We may in the future be required to seek additional equity or debt financing to meet these future capital and liquidity requirements. If additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired or needed, our business, operating results, cash flow and financial condition would be adversely affected. We currently intend to use our available funds and any future cash flow from operations for the conduct and expansion of our business, debt service requirements and general corporate purposes.

Subsidiary Distribution Policy

A significant portion of our cash flow is provided by operations and borrowings by our principal operating subsidiaries and their intermediate holding companies.

With respect to our Seven Seas Water segment, our distribution policy is to maximize cash distributions through the repayment of intercompany loans and payables from our international operating subsidiaries, unless redeployed for further growth opportunities in the same jurisdiction, to our non U.S. intermediate holding companies for redeployment in the manner intended to optimize our return on invested capital. However, certain of our subsidiaries have loan agreements that restrict distributions to related parties in the event certain financial or nonfinancial covenants are not met, which could reduce our ability to redeploy cash. Distributions are typically in the form of dividends, principal and interest payments on intercompany loans, and repayment of intercompany advances or other intercompany arrangements, including billings from our Tampa operations center. When considering the amount and timing of such distributions, our Seven Seas Water operating subsidiaries must maintain sufficient funds for future capital investment, debt service and general working capital purposes.

With respect to our Quench operating segment, Quench is restricted by its loan agreement from distributing cash to its parent; however, our current intent is for Quench to retain cash for working capital, investment for future growth within the segment and future debt repayment. We have also used cash from corporate financing at Quench to finance Quench’s acquisitions.

Although the governing boards of our subsidiaries have discretion over intercompany dividends or other future distributions, the form, frequency and amount of such distributions will depend on our subsidiaries’ future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions as required by our lenders, tax considerations and other factors that may be deemed relevant.

32

Cash Flows

The following table summarizes our cash flows for the periods:

	Three months ended
	March 31,
	2017		2016
	(in thousands)
Cash provided by operating activities	$	5,300	$	5,450
Cash used in investing activities		(2,497)		(6,346)
Cash (used in) provided by financing activities		(8,111)		11,081
Net change in cash and cash equivalents	$	(5,308)	$	10,185

Operating Activities

The significant variations of cash provided by operating activities and net losses are principally related to adjustments to eliminate non-cash and non-operating charges including, but not limited to, amortization, depreciation, share based compensation, changes in the deferred income tax provision, charges related to the disposal of assets and impairment charges. The largest source of operating cash flow is the collection of trade receivables and our largest use of cash flows is the payment of costs associated with revenue, selling and marketing activities and general and administration activities.

Cash provided by operations during the three months ended March 31, 2017 and 2016 was $5.3 million and $5.5 million, respectively.

Investing Activities

Cash used in investing activities during the three months ended March 31, 2017 and 2016 was $2.5 million and $6.3 million, respectively. The $3.8 million decrease was primarily attributable to a reduction in capital expenditures of $2.7 million along with $1.1 million of principal collected related to the design and construction contract acquired in our Peru Acquisition in October 2016. For the three months ended March 31, 2017 and 2016, there were $0.8 million and $3.3 million, respectively, of capital expenditures and long-term contract expenditures by Seven Seas Water for plant expansions and capacity upgrades, primarily at our Trinidad and USVI operating locations. Quench capital expenditures to support existing operations were $2.6 million and $2.9 million for the three months ended March 31, 2017 and 2016, respectively.

For the remainder of fiscal year 2017, we expect to invest approximately $16.9 million across our Seven Seas Water and Quench businesses in capital expenditures and long-term contract expenditures. We expect that these investments will be financed through existing cash, cash generated from operations and, as needed, incremental debt or equity financing.

Financing Activities

Cash used in financing activities during the three months ended March 31, 2017 was $8.1 million, including $7.0 million of scheduled repayments of long-term debt. Cash provided by financing activities during the three months ended March 31, 2016 was $11.1 million, including $15.0 million of proceeds from borrowings, which were partially offset by $3.8 million of scheduled repayments of long‑term debt.

33

Our long‑term debt is summarized in the table below and further described in the sections that follow. As of March 31, 2017 and December 31, 2016 and, long‑term debt included the following (in thousands):

	March 31,		December 31,
	2017		2016
Trinidad Credit Agreement	$	23,000	$	24,071
USVI Credit Agreement		11,798		12,923
Quench Loan Agreement		37,000		40,000
BVI Loan Agreement		29,909		31,432
Curaçao Credit Facility		35,000		35,000
Vehicle financing		1,521		1,783
Total face value of long-term debt	$	138,228	$	145,209
Face value of long-term debt, current	$	35,293	$	27,963
Less: Current portion of unamortized debt discounts and deferred financing fees		(106)		—
Current portion of long-term debt, net of debt discounts and deferred financing fees	$	35,187	$	27,963
Face value of long-term debt, non-current	$	102,935	$	117,246
Less: Non-current portion of unamortized debt discounts and deferred financing fees		(1,153)		(1,493)
Long-term debt, net of debt discounts and deferred financing fees	$	101,782	$	115,753

Trinidad Credit Agreement

On April 9, 2012, Seven Seas Water (Trinidad) Unlimited, our indirect wholly‑owned subsidiary, entered into a credit agreement (the “Trinidad Credit Agreement”), as a borrower with a bank to partially finance the construction of a water plant in Trinidad. The Trinidad Credit Agreement was subsequently amended on April 15, 2013 to modify restrictions related to distributions and certain financial covenants; May 21, 2013 to modify project completion and drawdown dates; September 9, 2013 to modify the final drawdown date and completion certificate requirements; May 20, 2014 to modify restrictions related to distributions; on October 20, 2014 to reduce the minimum tangible net worth financial covenant of AquaVenture Holdings LLC from $65.0 million to $50.0 million; on June 4, 2015 to reduce restrictions related to financial and non‑financial covenants; on April 18, 2016 to establish a new non‑revolving facility for up to $8.0 million and to eliminate the debt service reserve requirement, which released $1.5 million of restricted cash for general use; and on September 21, 2016 to add AquaVenture Holdings Limited as a guarantor.

We began borrowing under the Trinidad Credit Agreement in August 2012 with the final drawdown of borrowed funds occurring in October 2013. During the drawdown period, the agreement provided for variable interest at LIBOR plus 4.0%. When the drawdown period was completed in October 2013, interest on 50% of the loan was fixed at 5.64% with the remaining 50% at a variable rate based on LIBOR plus 4.0%. The weighted‑average interest rate of the original facility was 5.2% as of March 31, 2017. The loan principal is repayable in equal monthly installments over a seven‑year period maturing in September 2020. Principal on the new $8.0 million non‑revolving facility, of which approximately $7.0 million was drawn on May 16, 2016 with the remaining drawn on August 15, 2016, is due in full in April 2019 while interest is payable monthly. During the drawdown period, the agreement provided for variable interest at LIBOR plus 4.65%. Upon final drawdown in August 2016, interest on 50% of the loan was fixed at 5.84% with the remaining 50% at a variable rate based on LIBOR plus 4.65%.The weighted‑average interest rate of the $8.0 million facility was 5.6% as of March 31, 2017. The bank holds a security interest in the shares and all of the assets of Seven Seas Water (Trinidad) Unlimited.

The Trinidad Credit Agreement is guaranteed by AquaVenture Holdings Limited. The Trinidad Credit Agreement limits the amount of additional indebtedness that Seven Seas Water (Trinidad) Unlimited can incur and places annual limits on capital expenditures by Seven Seas Water (Trinidad) Unlimited. Seven Seas Water (Trinidad) Unlimited is only permitted to make distributions to AquaVenture Holdings Limited shareholders and affiliates if specified debt service coverage ratios are met and it is in compliance with all loan covenants. The Trinidad Credit Agreement contains a number of negative covenants restricting, among other things, indebtedness, investments, liens, dispositions of assets, restricted payments (including dividends), acquisitions, accounting changes, transactions with affiliates, contract amendments, sanctionable practices, prepayments of indebtedness, changes in control and capital expenditures. AquaVenture Holdings Limited as guarantor must maintain a tangible net worth of $50.0 million. In addition, both Seven Seas Water (Trinidad) Unlimited and AquaVenture Holdings Limited, as guarantor, are subject to

34

quarterly financial covenant compliance. We were in compliance with, or received a waiver for, all such covenants as of March 31, 2017.

We may prepay the principal amounts of the loans, prior to the maturity date, in whole or in part.

USVI Credit Agreement

On March 27, 2013, Seven Seas Water Corporation (USVI), our indirect wholly‑owned subsidiary, entered into a credit agreement to partially finance the construction of two water plants in the USVI (the “USVI Credit Agreement”). The USVI Credit Agreement was subsequently amended on: September 9, 2013 to set the final drawdown date and modify the requirements for the project completion certificate; May 20, 2014 to modify restrictions related to distributions; October 20, 2014 to reduce the minimum tangible net worth financial covenant of AquaVenture Holdings Limited from $65.0 million to $50.0 million; and September 21, 2016 to add AquaVenture Holdings Limited as a guarantor.

We began borrowing under the USVI Credit Agreement in April 2013 with the final drawdown of borrowed funds occurring in October 2013. During the drawdown period, the credit agreement provided for variable interest at LIBOR plus 3.3%. When the drawdown period was completed in October 2013, interest on 60% of the loan was fixed at 4.6% with the remaining 40% at a variable rate based on LIBOR plus 3.3%. The weighted‑average interest rate was 4.3% as of March 31, 2017. The loan principal is repayable beginning in January 2014 in twenty‑four monthly installments of $300 thousand followed by twenty‑six monthly installments of $375 thousand with a final balloon payment of $7.7 million due in March 2018. The bank holds a security interest in the shares and all of the assets of Seven Seas Water Corporation (USVI).

The USVI Credit Agreement is guaranteed by AquaVenture Holdings Limited. The USVI Credit Agreement limits the amount of additional indebtedness that Seven Seas Water Corporation (USVI) can incur and places annual limits on capital expenditures by Seven Seas Water Corporation (USVI). Seven Seas Water Corporation (USVI) is only permitted to make distributions to shareholders and affiliates of AquaVenture Holdings LLC if specified debt service coverage ratios are met and it is in compliance with all loan covenants. The USVI Credit Agreement contains a number of negative covenants restricting, among other things, indebtedness, investments, liens, dispositions of assets, restricted payments (including dividends), acquisitions, accounting changes, transactions with affiliates, contract amendments, sanctionable practices, prepayments of indebtedness, changes in control and capital expenditures. AquaVenture Holdings Limited as guarantor must maintain a tangible net worth of $50.0 million and Seven Seas Water Corporation (USVI) must maintain a debt service reserve fund with the bank. In addition, both Seven Seas Water (USVI) Corporation and AquaVenture Holdings Limited, as guarantor, are subject to quarterly financial covenant compliance. We were in compliance with, or received a waiver for, all such covenants as of March 31, 2017.

We may prepay the principal amounts of the loans, prior to the maturity date, in whole or in part.

Quench Loan Agreement

On the date Quench was acquired, the liabilities of Quench included the Amended Loan and Security Agreement between a lender and Quench (the “Quench Loan Agreement”). The Quench Loan Agreement included: (i) a Tranche A Term Loan of $12.5 million with a maturity date of December 23, 2018; (ii) a Tranche B Term Loan of $7.5 million with a maturity date of December 23, 2018; and (iii) a Tranche C Term Loan of $10.0 million with a maturity date of December 23, 2018.

On June 16, 2014, the Quench Loan Agreement was amended in connection with the acquisition of Atlas Watersystems, Inc. (“Atlas”). This amendment included, among other things: (i) a consent of the acquisition of Atlas; (ii) a requirement for an $11.0 million capital contribution to Quench in connection with the Atlas acquisition; (iii) added and disbursed a Tranche D Term Loan in the amount of $10.0 million with a maturity date of December 23, 2018; and (iv) a grant of seven‑year warrants to the lender to purchase 60,635 of Class B Shares of AquaVenture Holdings LLC at a purchase price of $4.9477 per share.

On January 23, 2016, the Quench Loan Agreement was amended to defer the loan amortization payments until July 2016 and to modify the amount of such payments. Subsequently, the Quench Loan Agreement was amended on

35

July 25, 2016 to defer the commencement of principal payments on all Tranches until January 2017, modify the principal payment amounts and require the payment of $350 thousand upon the earlier of December 23, 2018 or the repayment of the entire outstanding principal balance of the Quench Loan Agreement.

The aggregate unpaid principal balance for all Tranches outstanding on December 23, 2016 shall be repaid in 23 equal monthly principal payments of $1.0 million, commencing on January 23, 2017 and one payment of $17.0 million on December 23, 2018.

The Tranche A Term Loan of $12.5 million contains an interest rate per annum equal to the base rate in effect for such month, plus 6% per annum, provided that in no event shall the interest rate per annum be less than 9.5% (10.0% as of March 31, 2017). The Tranche B, C and D Term Loans of $7.5 million, $10.0 million and $10.0 million, respectively, each contain an interest rate per annum equal to the base rate in effect for such month, plus 5.5% per annum, provided that in no event shall the interest rate per annum be less than 9.0% (9.5% as of March 31, 2017). The base rate for each tranche is defined as the greater of the highest Prime Rate in effect during the month or the highest three‑month LIBOR rate in effect during each month, plus 2.5% per annum. Interest only payments were paid monthly through the date the first principal payment was due.

Quench may prepay the principal amounts of the loans, prior to the maturity date, in whole or in part, provided

that Quench concurrently pays all accrued and unpaid interest on the principal so prepaid. Prepayments of the loans shall be applied pro rata to the principal installments due or outstanding on the loans.

The Quench Loan Agreement is collateralized by substantially all of Quench’s assets. In accordance with the negative covenants as defined within the Quench Loan Agreement, Quench is restricted from making distributions or declaring dividends without prior consent of the lender. In addition to a minimum net recurring revenue covenant, Quench is required to comply with certain other financial and nonfinancial covenants. We were in compliance with, or received a waiver for, all such covenants as of March 31, 2017.

BVI Loan Agreement

In connection with our acquisition of the capital stock of Biwater (BVI) Holdings Limited in June 2015, we inherited the $43.0 million credit facility of its subsidiary, Seven Seas Water (BVI) Ltd. arranged by a bank  (the “BVI Loan Agreement”). The BVI Loan Agreement closed on November 14, 2013 and was arranged to finance the construction of the 2.8 million GPD desalination facility at Paraquita Bay in Tortola, BVI and other contractual obligations. The BVI Loan Agreement is project financing with recourse only to the stock, assets and cash flow of Seven Seas Water (BVI) Ltd. The BVI Loan Agreement is guaranteed by the United Kingdom Export Finance but not by AquaVenture Holdings Limited or any of its other subsidiaries. As of the acquisition date of June 11, 2015, $40.8 million remained outstanding. In addition, approximately $820 thousand remained available for draw through October 2016. The BVI Loan Agreement was amended on May 7, 2014 and June 11, 2015 to reflect extensions in milestone dates and our acquisition of Seven Seas Water (BVI) Ltd.

The BVI Loan Agreement provides for interest on the outstanding borrowings at LIBOR plus 3.5% per annum and interest is paid quarterly. As of March 31, 2017, the weighted‑average interest rate was 4.5%. The loan principal is repayable quarterly beginning in March 31, 2015 in 26 quarterly installments that escalate from 3.2% of the original principal balance to 4.6% of the original principal balance. The BVI Loan Agreement is collateralized by all shares and underlying assets of Seven Seas Water (BVI) Ltd.

The BVI Loan Agreement includes both financial and nonfinancial covenants, limits the amount of additional indebtedness that Seven Seas Water (BVI) Ltd. can incur and places annual limits on capital expenditures for this subsidiary. The BVI Loan Agreement also places restrictions on distributions made by Seven Seas Water (BVI) Ltd. which is only permitted to make distributions to shareholders and affiliates of AquaVenture Holdings Limited if specified debt service coverage and loan life coverage ratios are met and it is in compliance with all loan covenants. The BVI Loan Agreement contains a number of negative covenants restricting, among other things, indebtedness, investments, liens, dispositions of assets, restricted payments (including dividends), mergers and acquisitions, accounting changes, transactions with affiliates, prepayments of indebtedness, capital expenditures, changes in nature of business and joint ventures. In addition, Seven Seas Water (BVI) Ltd is subject to quarterly financial covenant compliance, including minimum debt service and loan life coverage ratios, and must maintain a minimum debt service reserve fund with the bank. Seven Seas Water (BVI) Ltd. was in compliance with, or received a waiver for, all such covenants as of March 31, 2017.

36

Seven Seas Water (BVI) Ltd. may prepay the principal amounts of the loans, after completing its obligations with respect to the sewage treatment plants and prior to the maturity date, in whole or in part.

Curaçao Credit Facility

On June 18, 2015, Aqua Venture Holdings Curaçao N.V., a Curaçao naamloze vennootschap and our wholly‑owned subsidiary, entered into a $35.0 million credit facility with a bank  (the “Curaçao Credit Facility”). The Curaçao Credit Facility consists of a term loan of $20.0 million and a delayed draw term loan of up to $15.0 million which was available to be drawn through March 18, 2016. On March 9, 2016, we borrowed the remaining $15.0 million of available borrowing under the facility. On September 21, 2016, the Curaçao Credit Facility was amended to add AquaVenture Holdings Limited as a guarantor. The Curaçao Credit Facility is non‑amortizing, matures in June 2019 and bears interest at either: (i) the higher of 1% or the ICE Benchmark Administration LIBOR Rate, plus an applicable margin ranging from 7.5% to 8.5% depending upon the leverage ratio as defined within the Curaçao Credit Facility; or (ii) the greater of the bank’s base rate or a federal funds rate plus 0.5%, plus an applicable margin ranging from 6.5% to 7.5% depending upon the leverage ratio as defined within the Curaçao Credit Facility. As of March 31, 2017, the interest rate was 9.1%.

The Curaçao Credit Facility is guaranteed by AquaVenture Holdings Limited and contains certain financial and nonfinancial covenants. The financial covenants include minimum interest coverage and maximum leverage ratio requirements that became effective on March 31, 2016 and exclude the operations of Quench, AquaVenture Holdings Peru S.A.C. and ADB, which are considered unrestricted subsidiaries for purposes of the Curaçao Credit Facility and any cash not available for general use. In addition, the Curaçao Credit Facility contains a number of negative covenants restricting, among other things, indebtedness, investments, liens, dispositions of assets, restricted payments (including dividends and certain transfers to and investments in Quench), mergers and acquisitions, accounting changes, transactions with affiliates, prepayments of indebtedness, capital expenditures, changes in nature of business and amendments of documents. The interest coverage ratio covenant will not apply if our minimum cash balance, excluding Quench, exceeds $5.0 million. We were in compliance with, or received a waiver for, all such covenants as of March 31, 2017.

There is no prepayment fee on the Curaçao Credit Facility. The Curaçao Credit Facility is collateralized by all shares of AquaVenture Holdings Curaçao N.V. and the shares of certain other subsidiaries of AquaVenture Holdings Limited excluding Quench and those with pre‑existing security interests.

Other Debt

We finance our vehicles primarily under three‑year terms with interest rates per annum ranging from 1.6% to 4.6%.

Contractual Obligations and Other Commitments

 Please refer to Note 7—“Commitments and Contingencies” to the Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for more information. There were no other material changes to our contractual obligations during the three months ended March 31, 2017. For a complete discussion of our contractual obligations, please refer to our “Management’s discussion and analysis of financial condition and results of operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Off‑Balance Sheet Arrangements

At March 31, 2017, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off‑balance sheet arrangements or other contractually narrow or limited purposes.

37

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to certain market risks in the ordinary course of our business. These risks primarily include credit risk, interest rate risk and foreign exchange risk. 

Credit Risk

We are exposed to credit risk in our Seven Seas Water segment from our principal bulk water sales to customers in Trinidad, the BVI, the USVI, St. Maarten, Peru and Curaçao. While certain of our bulk water customers are quasi-governmental agencies, such customers may not be supported by sovereign guarantees or direct financial undertakings. 

Interest Rate Risk

We had cash and cash equivalents totaling $89.9 million as of March 31, 2017. This amount was invested primarily in demand deposits with domestic and international banks, money market accounts, and U.S. Treasury bills. The cash and cash equivalents are held for investment and working capital purposes. Our cash deposits are maintained for capital preservation purposes. We do not enter into investments for trading or speculative purposes. As of March 31, 2017, we have variable rate loans outstanding of $118.1 million that adjust with interest rate movements in LIBOR or the lending bank's prime lending rate except when interest rate floors apply. Accordingly, we are subject to interest rate risk to the extent that LIBOR or the lending bank's prime lending rate changes. A hypothetical 100 bps increase in our interest rates in effect at March 31, 2017 would have a $1.1 million increase to our interest expense on an annualized basis. A hypothetical 100 bps decrease in our interest rates in effect at March 31, 2017 would have a $0.6 million decrease to our interest expense on an annualized basis. We believe our mixture of fixed rate and variable rate loans helps reduce our overall exposure to interest rate risk.

Foreign Exchange Risk

The U.S. dollar is our functional currency and, for the three months ended March 31, 2017, less than 3% of our consolidated revenues were denominated or paid in a foreign currency. We utilize these payments, in large part, to help minimize our exposure to foreign exchange risk related to payment obligations we may incur in a local currency related to labor, construction, consumables or materials costs, or if our procurement orders are denominated in a currency other than U.S. dollars. If any of these local currencies change in value versus the U.S. dollar, our cost in U.S. dollars would change which could adversely affect our results of operations. We believe that our strategy to carefully manage the exposure to foreign currencies as well as ensure that a majority of our revenues are denominated in the U.S. dollar, helps reduce our overall exposure to foreign exchange risk.

38

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

We have established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2017.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

39

PART II—OTHER INFORMATION

Item 1.Legal Proceedings

From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of any such outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A.Risk Factors

The matters discussed in this Quarterly Report on Form 10-Q include forward-looking statements that involve risks or uncertainties. These statements are neither promises nor guarantees, but are based on various assumptions by management regarding future circumstances, over many of which we have little or no control. A number of important risks and uncertainties, including those identified under the caption “Risk Factors” in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2016 and subsequent filings as well as risks and uncertainties discussed elsewhere in this Quarterly Report on Form 10-Q, could cause actual results to differ materially from those in the forward-looking statements. There are no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC on October 6, 2016 pursuant to Rule 424(b)(4) under the Securities Act. There was no significant use of our proceeds during the three months ended March 31, 2017.

Item 3.Defaults upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

Item 6.Exhibits

(a)Exhibits:

The exhibits listed on the accompanying Exhibit Index are filed, furnished or incorporated by reference as part of this report, and such Exhibit Index is incorporated herein by reference.

40

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AquaVenture Holdings Limited
Date: May 11, 2017	By:	/s/ LEE S. MULLER
		Lee S. Muller
		Chief Financial Officer (Principal Financial Officer)

41

INDEX TO EXHIBITS

Exhibit Number		Description
31.1		Certification of Chief Executive Officer required by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934. †
31.2		Certification of Chief Financial Officer required by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934. †
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *†
101.INS		XBRL Instance Document †
101.SCH	XBRL Taxonomy Extension Schema Document †
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document †
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document †
101.LAB	XBRL Taxonomy Extension Label Linkbase Document †
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document †

†     Filed herewith.

*The certification furnished in Exhibits 32.1 hereto is deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference. Such certification will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference. 

42

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Douglas R. Brown, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of AquaVenture Holdings Limited;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313);

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 11, 2017
/s/ Douglas R. Brown
Douglas R. Brown
Chief Executive Officer
Principal Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Lee S. Muller, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of AquaVenture Holdings Limited;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313);

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 11, 2017
/s/ Lee S. Muller
Lee S. Muller
Chief Financial Officer
Principal Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATIONS OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report on Form 10-Q of AquaVenture Holdings Limited (the “Company”) for the period ended March 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, Douglas R. Brown, Chief Executive Officer of the Company, and Lee S. Muller, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 11, 2017	/s/ Douglas R. Brown
	Douglas R. Brown
	Chief Executive Officer
	Principal Executive Officer

Dated: May 11, 2017	/s/ Lee S. Muller
	Lee S. Muller
	Chief Financial Officer
	Principal Financial Officer

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 09, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	AquaVenture Holdings Ltd
Entity Central Index Key	0001422841
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		26,408,528
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Current Assets:
Cash and cash equivalents	$ 89,918	$ 95,334
Restricted cash	166	166
Trade receivables, net of allowances of $981 and $1,166, respectively	11,939	15,473
Inventory	5,572	6,246
Prepaid expenses and other current assets	7,836	6,401
Total current assets	115,431	123,620
Property, plant and equipment, net	114,456	116,092
Construction in progress	9,759	9,398
Long-term contract costs	85,745	87,512
Restricted cash	6,003	5,895
Other assets	43,254	44,311
Deferred tax asset	353	515
Intangible assets, net	50,091	51,330
Goodwill	98,023	98,023
Total assets	523,115	536,696
Current Liabilities:
Accounts payable	3,123	3,880
Accrued liabilities	9,859	13,075
Current portion of long-term debt	35,187	27,963
Deferred revenue	2,452	2,820
Total current liabilities	50,621	47,738
Long-term debt	101,782	115,753
Deferred tax liability	3,466	2,874
Other long-term liabilities	3,013	2,825
Total liabilities	158,882	169,190
Commitments and contingencies (see Note 7)
Shareholders' Equity
Ordinary shares, no par value, 250,000 shares authorized; 26,388 shares issued and outstanding at March 31, 2017 and December 31, 2016
Additional paid-in capital	560,995	558,141
Accumulated deficit	(196,762)	(190,635)
Total shareholders' equity	364,233	367,506
Total liabilities and shareholders' equity	$ 523,115	$ 536,696

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
Allowances	$ 981	$ 1,166
Common stock par value	$ 0	$ 0
Common stock authorized	250,000	250,000
Common stock issued	26,388	26,388
Common stock outstanding	26,388	26,388

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands		3 Months Ended
		Mar. 31, 2017	Mar. 31, 2016
Revenues:
Bulk water		$ 14,215	$ 13,491
Rental		12,804	11,706
Other		1,989	1,932
Total revenues		29,008	27,129
Cost of revenues:
Bulk water		8,824	7,663
Rental		5,754	5,464
Other		1,136	1,039
Total cost of revenues		15,714	14,166
Gross profit		13,294	12,963
Selling, general and administrative expenses		16,488	13,697
Loss from operations		(3,194)	(734)
Other expense:
Interest expense, net		(1,815)	(2,580)
Other expense, net		(182)	(46)
Loss before income tax expense		(5,191)	(3,360)
Income tax expense		935	628
Net loss		$ (6,126)	$ (3,988)
Loss per share – basic and diluted	[1]	$ (0.23)
Weighted-average shares outstanding – basic and diluted		26,386

[1] Represents loss per share and weighted-average shares outstanding for the period following the Corporate Reorganization and IPO. 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.

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - shares shares in Thousands	Mar. 31, 2017	Dec. 31, 2016	Oct. 05, 2016
Common stock outstanding	26,388	26,388
Ordinary Share Units
Common stock outstanding			0

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities:
Net loss	$ (6,126)	$ (3,988)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	7,807	7,264
Adjustment to asset retirement obligation	12	10
Share-based compensation expense	2,854	683
Provision for bad debts	30	311
Deferred income tax provision	754	497
Inventory adjustment	60	56
Loss on disposal of assets	268	192
Amortization of debt financing fees	209	184
Adjustment to acquisition contingent consideration		21
Accretion of debt	26	91
Other		(6)
Change in operating assets and liabilities:
Trade receivables	3,503	2,286
Inventory	551	195
Prepaid expenses and other current assets	(1,323)	(725)
Other assets	(602)	(438)
Current liabilities	(2,926)	(1,468)
Long-term liabilities	203	285
Net cash provided by operating activities	5,300	5,450
Cash flows from investing activities:
Capital expenditures	(3,153)	(5,447)
Long-term contract expenditures	(252)	(799)
Net cash paid for businesses acquired	(186)	(100)
Principal collected on note receivable	1,094
Net cash used in investing activities	(2,497)	(6,346)
Cash flows from financing activities:
Proceeds from long-term debt		15,000
Payments of long-term debt	(6,944)	(3,821)
Payment of debt financing fees		(98)
Proceeds from exercise of stock options	2
Shares withheld to cover minimum tax withholdings on equity awards	(2)
Issuance costs from issuance of ordinary shares in IPO	(1,167)
Net cash (used in) provided by financing activities	(8,111)	11,081
Change in cash, cash equivalents and restricted cash	(5,308)	10,185
Cash, cash equivalents and restricted cash at beginning of period	101,395	25,026
Cash, cash equivalents and restricted cash at end of period	$ 96,087	$ 35,211

XML

Description of the Business

3 Months Ended

Mar. 31, 2017

Description of the business

Description of the business

1. Description of the Business

AquaVenture Holdings Limited is a British Virgin Islands (“BVI”) company, which was formed on June 17, 2016 for the purpose of completing an initial public offering (“IPO”) as the SEC registrant and carrying on the business of AquaVenture Holdings LLC and its subsidiaries. AquaVenture Holdings Limited and its subsidiaries (collectively, “AquaVenture” or the “Company”) provides its customers Water‑as‑a‑Service (“WAAS”) solutions through two operating platforms: Seven Seas Water and Quench. Both operations are critical to AquaVenture, which is headquartered in the British Virgin Islands.

Seven Seas Water offers WAAS solutions by providing outsourced desalination and wastewater treatment services for governmental, municipal, industrial and hospitality customers. These solutions utilize reverse osmosis and other purification technologies to produce potable and high purity industrial process water in high volumes for customers operating in regions with limited access to potable water. Through this outsourced service model, Seven Seas Water assumes responsibility for designing, financing, constructing, operating and maintaining the water treatment facilities. In exchange, Seven Seas Water enters into long‑term agreements to sell to customers agreed‑upon quantities of water that meet specified water quality standards. Seven Seas Water currently operates primarily throughout the Caribbean region and South America and is pursuing new opportunities in North America, South America and other select markets. Seven Seas Water is supported by an operations center in Tampa, Florida, which provides business development, engineering, field service support, procurement and administrative functions.

Quench offers WAAS solutions by providing bottleless filtered water coolers and other products that use filtered water as an input, such as ice machines, sparkling water dispensers and coffee brewers, to customers across the United States. Quench’s point‑of‑use systems purify a customer’s existing water supply. Quench offers solutions to a broad mix of industries, including government, education, medical, manufacturing, retail, and hospitality. Quench installs and maintains its filtered water systems typically under multi‑year contracts that renew automatically. Quench is supported by an operations center in King of Prussia, Pennsylvania, which provides marketing and business development, field service and supply chain support, customer care and administrative functions.  

Corporate Reorganization

Prior to the completion of the IPO on October 12, 2016, the Company and AquaVenture Holdings LLC completed a series of reorganization transactions which are described below:

· On July 1, 2016, AquaVenture Holdings LLC contributed all of the stock of its wholly-owned subsidiary, AquaVenture Holdings Curaçao N.V., to AquaVenture Holdings Limited in exchange for 1,000,000 ordinary shares of the Company.

· On October 4, 2016, AquaVenture Holdings LLC contributed to AquaVenture Holdings Limited: (i) the stock of Quench USA, Inc. and Seven Seas Water Corporation and (ii) all cash and other remaining assets and liabilities (other than the shares of AquaVenture Holdings Limited it held). Subsequently, AquaVenture Holdings LLC merged with a newly formed subsidiary of AquaVenture Holdings Limited, resulting in each Class A Preferred share, Class B share, Class Q share, Common share, and Management Incentive Plan (“MIP”) share being converted into ordinary shares of AquaVenture Holdings Limited pursuant to the terms of AquaVenture Holdings LLC’s limited liability company agreement. Quench USA Holdings LLC, a member of AquaVenture Holdings LLC, then merged with a separate newly formed subsidiary of AquaVenture Holdings Limited, resulting in the distribution of shares of AquaVenture Holdings Limited to its members pursuant to the terms of Quench USA Holdings LLC’s limited liability company agreement.

The reorganization transactions are considered transactions between entities under common control. As a result, the financial statements for periods prior to the IPO and the reorganization transactions are the financial statements of AquaVenture Holdings LLC as the predecessor to the Company for accounting and reporting purposes. Unless otherwise specified, the “Company” refers to the operations of both AquaVenture Holdings Limited and AquaVenture Holdings LLC throughout the remainder of these notes.

Initial Public Offering

On October 5, 2016, the Company’s IPO was declared effective and on October 12, 2016, the Company completed the IPO of 7,475,000 ordinary shares at a public offering price of $18.00 per share. The Company received net proceeds of $118.8 million, after deducting underwriting discounts and commissions and offering expenses.

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2017

Summary of significant accounting policies

Summary of significant accounting policies

2. Summary of Significant Accounting Policies

Unless otherwise noted below, there have been no material changes to the accounting policies presented in Note 2—“Summary of Significant Accounting Policies” of the notes to the audited consolidated financial statements, included in Item 8. Financial Statements and Supplementary Data of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, certain information and footnotes normally required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation of the Company’s unaudited condensed consolidated balance sheet as of March 31, 2017, the unaudited condensed consolidated statements of operations for the three months ended March 31, 2017 and 2016 and the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2017 and 2016. The unaudited condensed consolidated balance sheet as of December 31, 2016 was derived from the audited consolidated balance sheet as of December 31, 2016, as presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

The unaudited condensed consolidated financial statements include the accounts of AquaVenture Holdings Limited and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include: accounting for goodwill and identifiable intangible assets and any related impairment; property, plant and equipment and any related impairment; long‑term contract costs and any related impairment; share‑based compensation; allowance for doubtful accounts; obligations for asset retirement; and deferred income taxes. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

Adoption of New Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”), issued authoritative guidance that simplifies the accounting related to share-based payment award transaction including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance is effective for annual reporting periods beginning on or after December 15, 2016, including interim periods within those annual periods. The Company has adopted this guidance on January 1, 2017. Beginning January 1, 2017, on a prospective basis, excess tax benefits or deficiencies are reflected in the consolidated statements of operations as a component of the provision for income taxes. Additionally, the consolidated statement of cash flows now present excess tax benefits as an operating activity on a prospective basis and employee taxes paid by the Company when shares are withheld as a financing activity on a retrospective basis. Lastly, on a modified retrospective basis, the Company has elected to account for forfeitures as they occur. When compared to the Company’s policy for forfeitures prior to the adoption of the pronouncement, the election had no impact. There was no impact to the consolidated unaudited loss from operations, net loss, or unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2016 or consolidated net assets and accumulated deficit as of December 31, 2016.

In November 2016, the FASB issued authoritative guidance that requires inclusion of cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The Company has adopted this guidance on January 1, 2017. The Company now presents the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows and no longer presents transfers between cash and cash equivalents and restricted cash and restricted cash investments in the statement of cash flows. Cash, cash equivalents and restricted cash stated in the consolidated unaudited statement of cash flows represents the addition of cash and cash equivalents, restricted cash classified as current and restricted cash classified as non-current line items in the unaudited condensed consolidated balance sheet. The adoption was on a retrospective basis and the unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2016 has been adjusted to reflect the adoption. The adoption does not have any impact on the unaudited condensed consolidated balance sheet or statement of operations.

In August 2016, the FASB issued authoritative guidance that addresses various classification issues related to the statement of cash flows. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The Company has adopted this guidance on January 1, 2017 on a retrospective basis. The adoption did not have any impact on the unaudited condensed consolidated financial statements.

New Accounting Pronouncements

In January 2017, the FASB issued authoritative guidance that updates and clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The Company is currently evaluating the potential impact of the accounting and disclosure requirements on the consolidated financial statements. The Company has not yet decided whether to early adopt during 2017, but will comply upon adoption.

In October 2016, the FASB issued authoritative guidance, that requires the recognition of income tax consequences of intercompany asset transfers other than inventory at the transaction date. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The Company is currently evaluating the potential impact of the accounting and disclosure requirements on the consolidated financial statements. The Company expects to finalize its assessment during 2017.

In May 2014, the FASB issued authoritative guidance regarding revenue from contracts with customers that specifies that revenue should be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration which the company expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning on or after December 15, 2017 and interim periods within those annual periods and will require enhanced disclosures. While the Company is currently developing its approach for its assessment to determine the potential impact of the accounting and disclosure requirements on the consolidated financial statements, it expects to finalize its assessment and provide a qualitative and quantitative impact during 2017. The Company expects to adopt the guidance on a retrospective basis on January 1, 2018. In conjunction with this adoption, the Company will also adopt the authoritative guidance issued in March 2017 regarding the determination of the customer in a service concession arrangement. 

In February 2016, the FASB issued authoritative guidance regarding leases that requires lessees to recognize a lease liability and right‑of‑use asset for operating leases, with the exception of short‑term leases. In addition, lessor accounting was modified to align, where necessary, with lessee accounting modifications and the authoritative guidance regarding revenue from contracts with customers. This guidance will be effective for annual reporting periods beginning on or after December 15, 2018, including interim periods within those annual periods, and early adoption is permitted. While the Company is currently developing its approach for its assessment to determine the potential impact of the accounting and disclosure requirements on the consolidated financial statements, it expects to finalize its assessment and provide a qualitative and quantitative impact during 2017. The Company expects to early adopt the guidance on a retrospective basis effective January 1, 2018 in conjunction with the guidance regarding revenue from contracts with customers.

XML

Business Combinations

3 Months Ended

Mar. 31, 2017

Business Combinations

Business Combinations

3. Business Combinations

Aguas De Bayovar S.A.C.

On October 31, 2016, AquaVenture Holdings Peru S.A.C. ("AVH Peru"), a Peruvian company and an indirect

wholly-owned subsidiary of AquaVenture Holdings Limited, acquired 100% of the outstanding shares of Aguas de Bayovar S.A.C. (‘‘ADB’’) and all of the rights and obligations under a design and construction contract for a desalination plant and related infrastructure located in Peru for an aggregate purchase price of $46.5 million in cash,

including a final working capital adjustment of $186 thousand (the “Peru Acquisition”) which was paid in February

2017. The desalination plant and related infrastructure, which was completed in 2010, has a design capacity of 2.7

million gallons per day, and ADB operates and maintains the desalination plant and related infrastructure constructed

under the design and construction agreement to produce water for a contracted fee on a take-or-pay basis for a phosphate

mining company pursuant to an operating and maintenance contract, which expires in 2037. The rights to the design

and construction contract are accounted for as a note receivable that requires monthly installment payments from the

customer for the construction of the desalination plant and related infrastructure, which continue until 2024.

The operations of ADB are included in the Seven Seas Water reportable segment for the periods after the date of acquisition.

The Seven Seas Water business completed the Peru Acquisition to expand its installed base of seawater reverse

osmosis desalination facilities used to provide WAAS, its presence in South America and the industries served.

Pro Forma Financial Information

The following unaudited pro forma financial information (in thousands) for the Company gives effect to the acquisition of ADB, which occurred on October 31, 2016, as if it had occurred on January 1, 2016. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisitions occurred on the date indicated, or that may result in the future.

	Three months ended
	March 31,
	2017		2016
Revenues	$	29,008	$	28,008
Net loss	$	(6,126)	$	(2,810)

XML

Fair Value Measurements

3 Months Ended

Mar. 31, 2017

Fair Value Measurements

Fair Value Measurements

4. Fair Value Measurements

At March 31, 2017 and December 31, 2016, the Company had the following assets and liabilities measured at fair value on a recurring basis in the unaudited condensed consolidated balance sheets:

· U.S. Treasury securities are measured on a recurring basis and are recorded at fair value based on quoted market value in an active market, which is considered a Level 1 input.

· Money market funds are measured on a recurring basis and are recorded at fair value based on each fund’s quoted market value per share in an active market, which is considered a Level 1 input.

There were no transfers into or out of Level 1, 2 or 3 assets during the three months ended March 31, 2017. Transfers between levels are deemed to have occurred if the lowest level of input were to change.

The Company’s fair value measurements as of March 31, 2017 and December 31, 2016 were as follows (in thousands):

			Quoted Prices in		Significant
			Active Markets		Other		Significant
	Asset/		for Identical		Observable		Unobservable
Assets/Liabilities Measured at Fair Value	(Liability)		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
As of March 31, 2017
Recurring basis:
Money market funds	$	31,655	$	31,655	$	—	$	—
U.S. Treasury securities	$	29,307	$	29,307	$	—	$	—
As of December 31, 2016
Recurring basis:
Money market funds	$	29,523	$	29,523	$	—	$	—
U.S. Treasury securities	$	24,777	$	24,777	$	—	$	—

XML

Share-Based Compensation

3 Months Ended

Mar. 31, 2017

Share-based Compensation

Share-Based Compensation

5. Share‑Based Compensation

AquaVenture Equity Awards

As described in Note 1—“Description of the Business”, the Company completed a reorganization on October 4, 2016, which resulted in the conversion, pursuant to the terms of AquaVenture Holdings LLC’s limited liability agreement, of all outstanding equity awards of AquaVenture Holdings LLC to equity awards of AquaVenture Holdings Limited, with the underlying security being ordinary shares of AquaVenture Holdings Limited. The conversion retained the same economics of each of the outstanding equity awards. All other terms, including vesting, remained unchanged.

The Quench USA Holdings LLC 2014 Equity Incentive Plan and Quench USA, Inc. 2008 Stock Plan (collectively, the “Quench Equity Plans”) were assumed by AquaVenture Holdings Limited on October 4, 2016. All outstanding awards of the Quench Equity Plans were converted to equity awards of AquaVenture Holdings Limited, with the underlying security being ordinary shares of the AquaVenture Holdings Limited. Consistent with the effects of the conversion on the AquaVenture Holding LLC equity awards, economics for each outstanding award were retained and all terms, including vesting, remained unchanged.

Issuances of securities under the AquaVenture Holdings LLC Amended and Restated Equity Incentive Plan and the Quench Equity Plans ceased at the time of the effectiveness of the IPO on October 5, 2016. As a result, no securities remain available for issuance under these plans.

On September 22, 2016, the Company approved and adopted the AquaVenture Holdings Limited 2016 Share Option and Incentive Plan (the “2016 Plan”), which allows for the issuance of incentive share options, non-qualified share options, share appreciation rights, restricted share units, restricted share awards, unrestricted share awards, cash-based awards, performance share awards and dividend equivalent rights to officers, employees, managers, directors and other key persons, including consultants to the Company. The aggregate number of ordinary shares initially available for issuance, subject to adjustment upon a change in capitalization, under the 2016 Plan was 5.0 million shares. The shares available for issuance will increase annually by 4% of the number of ordinary shares issued and outstanding on the immediately preceding December 31. As of January 1, 2017, the number of ordinary shares available for issuance under the 2016 Plan is 6.1 million shares.

During the three months ended March 31, 2017, the Company granted options to purchase 39 thousand ordinary shares to eligible recipients with an exercise price of $16.49 per share. The options to purchase ordinary shares have a time-based vesting schedule of four years with 25% on the first anniversary and the remaining 75% vesting quarterly over the remaining three years. In addition, the Company also granted 18 thousand restricted share units. The restricted share units have a time-based vesting schedule of four years with 25% on the first anniversary and the remaining 75% vesting quarterly over the remaining three years. There was no significant exercises or forfeiture activity during the three months ended March 31, 2017. During the three months ended March 31, 2016, the Company did not make any grants and there were no exercises or significant forfeiture activity.

Share‑Based Compensation Expense

               Total share‑based compensation expense recognized related to all equity awards during the three months ended March 31, 2017 and 2016 was $2.9 million and $0.7 million, respectively. There was no related tax benefit for the three months ended March 31, 2017 and 2016 as a full deferred tax asset valuation allowance was recorded in the United States for domestic operations.

XML

Loss per Share

3 Months Ended

Mar. 31, 2017

Loss per Share

Loss per Share

6. Loss per Share

Basic earnings (loss) per share is computed by dividing net earnings (loss) attributable to ordinary shareholders for the period by the weighted-average number of ordinary shares outstanding during the same period. Basic weighted-average shares outstanding excludes unvested shares of restricted share awards. Diluted earnings (loss) per share is computed by dividing net earnings (loss) attributable to ordinary shareholders for the period by the weighted-average number of ordinary shares outstanding adjusted to give effect to potentially dilutive securities using the treasury stock method, except where the effect of including the effect of such securities would be anti-dilutive.

There were no ordinary shares outstanding prior to October 6, 2016, therefore no loss per share information has been presented for any period prior to that date. The following table provides information for calculating net loss applicable to ordinary shareholders (in thousands, except per share amounts):

	Three months ended
	March 31, 2017
Numerator:
Net loss	$	(6,126)
Denominator:
Weighted-average ordinary shares outstanding - basic and diluted		26,386
Loss per share - basic and diluted	$	(0.23)

Given that the Company had a net loss for the period ended March 31, 2017, the calculation of diluted loss per share is computed using basic weighted average ordinary shares outstanding.

Approximately 3.9 million weighted-average outstanding share awards were excluded from the calculation of diluted earnings per share because their effect was antidilutive.

XML

Commitments and Contingencies

3 Months Ended

Mar. 31, 2017

Commitments and Contingencies Disclosure

Commitments and Contingencies

7. Commitments and Contingencies

Asset Retirement Obligations

Asset retirement obligation (“ARO”) liabilities, which arise from contractual requirements to perform certain asset retirement activities and is generally recorded when the asset is constructed, is based on the Company’s engineering estimates of future costs to dismantle and remove equipment from a customer’s plant site and to restore the site to a specified condition at the conclusion of a contract. As appropriate, the Company revises certain of its liabilities based on changes in the projected costs for future removal and shipping activities. These revisions, along with accretion expense, are included in cost of revenues in the unaudited condensed consolidated statement of operations.

During the three months ended March 31, 2017 and 2016, the Company recorded accretion expense of $12 thousand and $10 thousand, respectively. No valuation adjustments were recorded during the three months ended March 31, 2017 and 2016.

At March 31, 2017 and December 31, 2016, the current portion of the ARO liabilities was $26 thousand and $0, respectively, and was recorded in accrued liabilities in the unaudited condensed consolidated balance sheets. At March 31, 2017 and December 31, 2016, the long‑term portion of the ARO liabilities was $1.0 million $1.1 million, respectively, and was recorded in other long‑term liabilities in the unaudited condensed consolidated balance sheets.

Litigation, Claims and Administrative Matters

               The Company, may, from time to time, be a party to legal proceedings, claims, and administrative matters that arise in the normal course of business. The Company has made accruals with respect to certain of these matters, where appropriate, that are reflected in the unaudited condensed consolidated financial statements but are not, individually or in the aggregate, considered material. For other matters for which an accrual has not been made, the Company has not yet determined that a loss is probable or the amount of loss cannot be reasonably estimated. While the ultimate outcome of the matters cannot be determined, the Company currently does not expect that these proceedings and claims, individually or in the aggregate, will have a material effect on the unaudited condensed consolidated financial position, results of operations, or cash flows. The outcome of any litigation is inherently uncertain, however, and if decided adversely to the Company, or if the Company determines that settlement of particular litigation is appropriate, the Company may be subject to liability that could have a material adverse effect on the unaudited condensed consolidated financial position, results of operations, or cash flows. The Company maintains liability insurance in such amounts and with such coverage and deductibles as management believes is reasonable. The principal liability risks that the Company insures against are customer lawsuits caused by damage or nonperformance, workers’ compensation, personal injury, bodily injury, property damage, directors’ and officers’ liability, cybersecurity and cyber incidents, errors and omissions, employment practices liability and fidelity losses. There can be no assurance that the Company’s liability insurance will cover all events or that the limits of coverage will be sufficient to fully cover all liabilities. As of March 31, 2017, the Company has determined there are no matters for which a material loss is reasonably possible or the Company has either determined that the range of loss is not reasonably estimable or that any reasonably estimable range of loss is not material to the unaudited condensed consolidated financial statements.

XML

Cash Flow Information

3 Months Ended

Mar. 31, 2017

Cash Flow Information

Cash Flow Information

8. Cash Flow Information

Supplemental cash flow information is as follows (in thousands):

	Three Months Ended
	March 31,
	2017		2016
Cash paid during the period:
Income taxes, net	$	427	$	54
Interest, net	$	2,582	$	2,315
Non-Cash Transaction Information:
Non-cash capital expenditures	$	168	$	1,007
Unpaid offering costs	$	—	$	881
Unpaid debt financing costs	$	—	$	11

The components of total ending cash for the periods presented in the unaudited condensed consolidated statement of cash flows are as follows (in thousands):

	Three Months Ended
	March 31,
	2017		2016
Cash and cash equivalents	$	89,918	$	27,987
Restricted cash, current		166		930
Restricted cash, non-current		6,003		6,294
	$	96,087	$	35,211

XML

Segment Reporting

3 Months Ended

Mar. 31, 2017

Segment Reporting

Segment Reporting

9. Segment Reporting

The Company has two operating and reportable segments, Seven Seas Water and Quench. This determination is supported by, among other factors, the existence of individuals responsible for the operations of each segment and who also report directly to the Company’s chief operating decision maker (“CODM”), the nature of the segment’s operations and information presented to the Company’s CODM.

Seven Seas Water provides outsourced desalination solutions and wastewater treatment for governmental, municipal, industrial and hospitality customers internationally under long‑term contracts. Quench provides bottleless filtered water coolers and other products that use filtered water as an input, such as ice machines, sparkling water dispensers and coffee brewers, to customers throughout the United States typically under multi‑year contracts. Revenues reported under the Seven Seas Water reportable segment primarily represent bulk water sales and service, including revenues generated from service concession arrangements, whereas revenues reported under the Quench reportable segment primarily represent rental of filtered water and related systems.

Prior to January 1, 2017, the Company included the majority of certain general and administrative costs, primarily professional service and other expenses to support the activities of the registrant holding company, within the Seven Seas reportable segment. Beginning January 1, 2017, the Company began separating “Corporate and Other” for the CODM and for segment reporting purposes. The Corporate and Other administration function is not treated as a segment but includes certain general and administrative costs that are not allocated to either of the reportable segments. These costs include, but are not limited to, professional service and other expenses to support the activities of the registrant holding company. Corporate and Other does not include any labor allocations from the Seven Seas Water and Quench segments. The Company believes this presentation more accurately portrays the results of the core operations of each of the operating and reportable segments to the CODM. As a result of this change, the Company has restated prior periods for segment reporting purposes.

As part of the segment reconciliation below, intercompany interest expense and the associated intercompany interest income are included but are eliminated in consolidation.

The following table provides information by reportable segment and a reconciliation to the consolidated results for the three months ended March 31, 2017 (in thousands):

	Three months ended March 31, 2017
	Seven Seas				Corporate
	Water		Quench		& Other		Total
Revenues:
Bulk water	$	14,215	$	—	$	—	$	14,215
Rental		—		12,804		—		12,804
Other		—		1,989		—		1,989
Total revenues		14,215		14,793		—		29,008
Gross profit:
Bulk water		5,391		—		—		5,391
Rental		—		7,050		—		7,050
Other		—		853		—		853
Total gross profit		5,391		7,903		—		13,294
Selling, general and administrative expenses		6,154		9,411		923		16,488
Loss from operations		(763)		(1,508)		(923)		(3,194)
Other (expense) income, net		(1,258)		(1,033)		294		(1,997)
Loss before income tax expense		(2,021)		(2,541)		(629)		(5,191)
Income tax expense		859		76		—		935
Net loss	$	(2,880)	$	(2,617)	$	(629)	$	(6,126)
Other information:
Depreciation and amortization expense	$	4,272	$	3,535	$	—	$	7,807
Interest expense (income), net	$	1,076	$	1,033	$	(294)	$	1,815
Expenditures for long-lived assets	$	841	$	2,564	$	—	$	3,405
Amortization of deferred financing fees	$	138	$	71	$	—	$	209

The following table provides information by reportable segment and a reconciliation to the consolidated results for the three months ended March 31, 2016 (in thousands):

	Three months ended March 31, 2016
	Seven Seas				Corporate
	Water		Quench		& Other		Total
Revenues:
Bulk water	$	13,491	$	—	$	—	$	13,491
Rental		—		11,706		—		11,706
Other		—		1,932		—		1,932
Total revenues		13,491		13,638		—		27,129
Gross profit:
Bulk water		5,828		—		—		5,828
Rental		—		6,242		—		6,242
Other		—		893		—		893
Total gross profit		5,828		7,135		—		12,963
Selling, general and administrative expenses		4,342		9,011		344		13,697
Income (loss) from operations		1,486		(1,876)		(344)		(734)
Other (expense) income, net		(1,607)		(1,024)		5		(2,626)
Loss before income tax expense		(121)		(2,900)		(339)		(3,360)
Income tax expense		628		—		—		628
Net loss	$	(749)	$	(2,900)	$	(339)	$	(3,988)
Other information:
Depreciation and amortization expense	$	4,012	$	3,252	$	—	$	7,264
Interest expense, net	$	1,556	$	1,024	$	—	$	2,580
Expenditures for long-lived assets	$	3,320	$	2,926	$	—	$	6,246
Amortization of deferred financing fees	$	151	$	33	$	—	$	184

As of March 31, 2017, total assets for the Seven Seas Water and Quench reportable segments were $268.0 million and $191.8 million, respectively. As of December 31, 2016, total assets for the Seven Seas Water and Quench reportable segments were $274.2 million and $193.4 million, respectively.

As of March 31, 2017 and December 31, 2016, total assets for Corporate and Other were $63.4 million and $69.0 million, respectively.

XML

Significant Concentrations, Risks and Uncertainties

3 Months Ended

Mar. 31, 2017

Significant Concentrations, Risks and Uncertainties

Significant Concentrations, Risks and Uncertainties

10. Significant Concentrations, Risks and Uncertainties

The Company is exposed to interest rate risk resulting from its variable rate loans outstanding that adjust with movements in LIBOR or the lending bank’s prime lending rate.

For the three months ended March 31, 2017, a significant portion of the Company’s revenues are derived from territories and countries in the Caribbean region. Demand for water in the Caribbean region is impacted by, among other things, levels of rainfall and the tourism industry. High levels of rainfall and a downturn in the level of tourism and demand for real estate could adversely impact the future performance of the Company.

At March 31, 2017, a significant portion of the Company’s property, plant and equipment is located in the Caribbean region. The Caribbean islands are situated in a geography where tropical storms and hurricanes occur with regularity, especially during certain times of the year. The Company designs its plant facilities to withstand such conditions; however, a major storm could result in plant damage or periods of reduced consumption or unavailability of electricity or source seawater needed to produce water. It is the Company’s policy to maintain adequate levels of property and casualty insurance; however, the Company only insures certain plants for wind.

The operation of desalination plants requires significant amounts of electricity which typically is provided by the local utility of the jurisdiction in which the plant is located. A shortage of electricity supply caused by force majeure or material increases in electricity costs could adversely impact the Company’s operating results. To mitigate the risk of electricity cost increases, the Company has generally contracted with major customers for those cost increases to be borne by the customers and has invested in energy efficient technology. Management believes that rising energy costs and availability of its supply of electricity would not have a material adverse effect on its future performance.

XML

Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2017

Summary of significant accounting policies

Basis of Presentation

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, certain information and footnotes normally required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation of the Company’s unaudited condensed consolidated balance sheet as of March 31, 2017, the unaudited condensed consolidated statements of operations for the three months ended March 31, 2017 and 2016 and the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2017 and 2016. The unaudited condensed consolidated balance sheet as of December 31, 2016 was derived from the audited consolidated balance sheet as of December 31, 2016, as presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

The unaudited condensed consolidated financial statements include the accounts of AquaVenture Holdings Limited and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include: accounting for goodwill and identifiable intangible assets and any related impairment; property, plant and equipment and any related impairment; long‑term contract costs and any related impairment; share‑based compensation; allowance for doubtful accounts; obligations for asset retirement; and deferred income taxes. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

New Accounting Pronouncements

Adoption of New Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”), issued authoritative guidance that simplifies the accounting related to share-based payment award transaction including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance is effective for annual reporting periods beginning on or after December 15, 2016, including interim periods within those annual periods. The Company has adopted this guidance on January 1, 2017. Beginning January 1, 2017, on a prospective basis, excess tax benefits or deficiencies are reflected in the consolidated statements of operations as a component of the provision for income taxes. Additionally, the consolidated statement of cash flows now present excess tax benefits as an operating activity on a prospective basis and employee taxes paid by the Company when shares are withheld as a financing activity on a retrospective basis. Lastly, on a modified retrospective basis, the Company has elected to account for forfeitures as they occur. When compared to the Company’s policy for forfeitures prior to the adoption of the pronouncement, the election had no impact. There was no impact to the consolidated unaudited loss from operations, net loss, or unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2016 or consolidated net assets and accumulated deficit as of December 31, 2016.

In November 2016, the FASB issued authoritative guidance that requires inclusion of cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The Company has adopted this guidance on January 1, 2017. The Company now presents the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows and no longer presents transfers between cash and cash equivalents and restricted cash and restricted cash investments in the statement of cash flows. Cash, cash equivalents and restricted cash stated in the consolidated unaudited statement of cash flows represents the addition of cash and cash equivalents, restricted cash classified as current and restricted cash classified as non-current line items in the unaudited condensed consolidated balance sheet. The adoption was on a retrospective basis and the unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2016 has been adjusted to reflect the adoption. The adoption does not have any impact on the unaudited condensed consolidated balance sheet or statement of operations.

In August 2016, the FASB issued authoritative guidance that addresses various classification issues related to the statement of cash flows. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The Company has adopted this guidance on January 1, 2017 on a retrospective basis. The adoption did not have any impact on the unaudited condensed consolidated financial statements.

New Accounting Pronouncements

In January 2017, the FASB issued authoritative guidance that updates and clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The Company is currently evaluating the potential impact of the accounting and disclosure requirements on the consolidated financial statements. The Company has not yet decided whether to early adopt during 2017, but will comply upon adoption.

In October 2016, the FASB issued authoritative guidance, that requires the recognition of income tax consequences of intercompany asset transfers other than inventory at the transaction date. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The Company is currently evaluating the potential impact of the accounting and disclosure requirements on the consolidated financial statements. The Company expects to finalize its assessment during 2017.

In May 2014, the FASB issued authoritative guidance regarding revenue from contracts with customers that specifies that revenue should be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration which the company expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning on or after December 15, 2017 and interim periods within those annual periods and will require enhanced disclosures. While the Company is currently developing its approach for its assessment to determine the potential impact of the accounting and disclosure requirements on the consolidated financial statements, it expects to finalize its assessment and provide a qualitative and quantitative impact during 2017. The Company expects to adopt the guidance on a retrospective basis on January 1, 2018. In conjunction with this adoption, the Company will also adopt the authoritative guidance issued in March 2017 regarding the determination of the customer in a service concession arrangement. 

In February 2016, the FASB issued authoritative guidance regarding leases that requires lessees to recognize a lease liability and right‑of‑use asset for operating leases, with the exception of short‑term leases. In addition, lessor accounting was modified to align, where necessary, with lessee accounting modifications and the authoritative guidance regarding revenue from contracts with customers. This guidance will be effective for annual reporting periods beginning on or after December 15, 2018, including interim periods within those annual periods, and early adoption is permitted. While the Company is currently developing its approach for its assessment to determine the potential impact of the accounting and disclosure requirements on the consolidated financial statements, it expects to finalize its assessment and provide a qualitative and quantitative impact during 2017. The Company expects to early adopt the guidance on a retrospective basis effective January 1, 2018 in conjunction with the guidance regarding revenue from contracts with customers.

XML

Business Combinations (Tables)

3 Months Ended

Mar. 31, 2017

Business Combinations

Pro Forma Financial Information

	Three months ended
	March 31,
	2017		2016
Revenues	$	29,008	$	28,008
Net loss	$	(6,126)	$	(2,810)

XML

Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2017

Fair Value Measurements

Schedule of fair value measurements

The Company’s fair value measurements as of March 31, 2017 and December 31, 2016 were as follows (in thousands):

			Quoted Prices in		Significant
			Active Markets		Other		Significant
	Asset/		for Identical		Observable		Unobservable
Assets/Liabilities Measured at Fair Value	(Liability)		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
As of March 31, 2017
Recurring basis:
Money market funds	$	31,655	$	31,655	$	—	$	—
U.S. Treasury securities	$	29,307	$	29,307	$	—	$	—
As of December 31, 2016
Recurring basis:
Money market funds	$	29,523	$	29,523	$	—	$	—
U.S. Treasury securities	$	24,777	$	24,777	$	—	$	—

XML

Loss per Share (Tables)

3 Months Ended

Mar. 31, 2017

Loss per Share

Schedule of net loss per share

The following table provides information for calculating net loss applicable to ordinary shareholders (in thousands, except per share amounts):

	Three months ended
	March 31, 2017
Numerator:
Net loss	$	(6,126)
Denominator:
Weighted-average ordinary shares outstanding - basic and diluted		26,386
Loss per share - basic and diluted	$	(0.23)

XML

Cash Flow Information (Tables)

3 Months Ended

Mar. 31, 2017

Cash Flow Information

Supplemental cash flow information

Supplemental cash flow information is as follows (in thousands):

	Three Months Ended
	March 31,
	2017		2016
Cash paid during the period:
Income taxes, net	$	427	$	54
Interest, net	$	2,582	$	2,315
Non-Cash Transaction Information:
Non-cash capital expenditures	$	168	$	1,007
Unpaid offering costs	$	—	$	881
Unpaid debt financing costs	$	—	$	11

The components of total ending cash for the periods presented in the unaudited condensed consolidated statement of cash flows are as follows (in thousands):

	Three Months Ended
	March 31,
	2017		2016
Cash and cash equivalents	$	89,918	$	27,987
Restricted cash, current		166		930
Restricted cash, non-current		6,003		6,294
	$	96,087	$	35,211

XML

Segment Reporting (Tables)

3 Months Ended

Mar. 31, 2017

Segment Reporting

Schedule of information by reportable segment

The following table provides information by reportable segment and a reconciliation to the consolidated results for the three months ended March 31, 2017 (in thousands):

	Three months ended March 31, 2017
	Seven Seas				Corporate
	Water		Quench		& Other		Total
Revenues:
Bulk water	$	14,215	$	—	$	—	$	14,215
Rental		—		12,804		—		12,804
Other		—		1,989		—		1,989
Total revenues		14,215		14,793		—		29,008
Gross profit:
Bulk water		5,391		—		—		5,391
Rental		—		7,050		—		7,050
Other		—		853		—		853
Total gross profit		5,391		7,903		—		13,294
Selling, general and administrative expenses		6,154		9,411		923		16,488
Loss from operations		(763)		(1,508)		(923)		(3,194)
Other (expense) income, net		(1,258)		(1,033)		294		(1,997)
Loss before income tax expense		(2,021)		(2,541)		(629)		(5,191)
Income tax expense		859		76		—		935
Net loss	$	(2,880)	$	(2,617)	$	(629)	$	(6,126)
Other information:
Depreciation and amortization expense	$	4,272	$	3,535	$	—	$	7,807
Interest expense (income), net	$	1,076	$	1,033	$	(294)	$	1,815
Expenditures for long-lived assets	$	841	$	2,564	$	—	$	3,405
Amortization of deferred financing fees	$	138	$	71	$	—	$	209

The following table provides information by reportable segment and a reconciliation to the consolidated results for the three months ended March 31, 2016 (in thousands):

	Three months ended March 31, 2016
	Seven Seas				Corporate
	Water		Quench		& Other		Total
Revenues:
Bulk water	$	13,491	$	—	$	—	$	13,491
Rental		—		11,706		—		11,706
Other		—		1,932		—		1,932
Total revenues		13,491		13,638		—		27,129
Gross profit:
Bulk water		5,828		—		—		5,828
Rental		—		6,242		—		6,242
Other		—		893		—		893
Total gross profit		5,828		7,135		—		12,963
Selling, general and administrative expenses		4,342		9,011		344		13,697
Income (loss) from operations		1,486		(1,876)		(344)		(734)
Other (expense) income, net		(1,607)		(1,024)		5		(2,626)
Loss before income tax expense		(121)		(2,900)		(339)		(3,360)
Income tax expense		628		—		—		628
Net loss	$	(749)	$	(2,900)	$	(339)	$	(3,988)
Other information:
Depreciation and amortization expense	$	4,012	$	3,252	$	—	$	7,264
Interest expense, net	$	1,556	$	1,024	$	—	$	2,580
Expenditures for long-lived assets	$	3,320	$	2,926	$	—	$	6,246
Amortization of deferred financing fees	$	151	$	33	$	—	$	184

XML

Description of the Business - Corporate Reorganization (Details)		3 Months Ended
	Jul. 01, 2016 shares	Mar. 31, 2017 segment
Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract]
Number of operating platforms | segment		2
AquaVenture Holdings Curacao | AquaVenture Holdings LLC | Transaction Between Entities Under Common Control | Ordinary shares
Business Acquisition [Line Items]
Shares issued to acquire predecessor during reorganization | shares	1,000,000

XML

Description of the Business - Initial Public Offering (Details) - IPO $ / shares in Units, $ in Millions	Oct. 12, 2016 USD ($) $ / shares shares
Subsidiary, Sale of Stock [Line Items]
Ordinary shares issued | shares	7,475,000
Public offering price (in dollars per share) | $ / shares	$ 18.00
Proceeds from IPO, net | $	$ 118.8

XML

Business Combinations - ADB (Details) - AVH Peru - ADB $ in Thousands, gal in Millions	Oct. 31, 2016 USD ($) gal
Business Acquisition [Line Items]
Percentage acquired	100.00%
Purchase price	$ 46,500
Working capital adjustment	$ 186
Desalination infrastructure capacity (in gallons) | gal	2.7

XML

Business Combinations - Proforma financial information (Details) - ADB - AquaVenture Water Corporation - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Business Acquisition, Pro Forma Information [Abstract]
Revenues	$ 29,008	$ 28,008
Net loss	$ (6,126)	$ (2,810)

XML

Fair Value Measurements - Fair Value Measurements (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Abstract]
Asset transfers out of Level 1 into Level 2	$ 0
Assets transfers out of Level 2 into Level 1	0
Asset transfers into (out of) Level 3	0
Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Abstract]
Money market funds	31,655	$ 29,523
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Abstract]
Money market funds	31,655	29,523
Fair Value, Measurements, Recurring | US Treasury securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Abstract]
Held-to-maturity securities	29,307	24,777
Fair Value, Measurements, Recurring | US Treasury securities | Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Abstract]
Held-to-maturity securities	$ 29,307	$ 24,777

XML

Share-Based Compensation - Equity Awards before Corporate Reorganization (Details) $ / shares in Units, $ in Thousands		3 Months Ended
	Jan. 01, 2017 shares	Mar. 31, 2017 USD ($) $ / shares shares	Mar. 31, 2016 USD ($) shares	Sep. 22, 2016 shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense | $		$ 2,900	$ 700
Tax benefit | $		$ 0	$ 0
2016 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grants of options			0
Forfeited		0	0
Exercised (number of shares)		0	0
Ordinary Share Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grants of options		39,000
Exercise price (in dollars per share) | $ / shares		$ 16.49
Ordinary Share Units | First Anniversary
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting Period		4 years
Vesting Percentage		25.00%
Ordinary Share Units | Thereafter
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting Percentage		75.00%
Ordinary Share Units | 2016 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate number of shares by class authorized for grant under the Equity Incentive Plan	6,100,000			5,000,000
Annual percentage increase in shares available for issuance	4
Restricted Stock Units | First Anniversary
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting Period		4 years
Vesting Percentage		25.00%
Restricted Stock Units | Thereafter
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting Percentage		75.00%
Restricted Stock Units | 2016 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted in period		18,000

XML

Loss per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Oct. 05, 2016
Common stock outstanding	26,388		26,388
Numerator:
Net loss	$ (6,126)	$ (3,988)
Denominator:
Weighted-average ordinary shares outstanding - basic and diluted	26,386
Loss per share - basic and diluted	$ (0.23)
Ordinary Share Units
Common stock outstanding				0
Denominator:
Weighted average outstanding share awards excluded from the calculation of diluted earnings per share	3,900

XML

Commitments and Contingencies - Asset Retirement Obligations (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Asset Retirement Obligation, Roll Forward Analysis [Roll Forward]
Accretion of obligation	$ 12	$ 10
Valuation adjustments	0	$ 0
Accrued Liabilities
Asset Retirement Obligation, Roll Forward Analysis [Roll Forward]
Current portion of the ARO liabilities	26		$ 0
Other Noncurrent Liabilities
Asset Retirement Obligation, Roll Forward Analysis [Roll Forward]
Long-term portion of the ARO liabilities	$ 1,000		$ 1,100

XML

Cash Flow Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Cash Paid During The Period [Abstract]
Income taxes, net	$ 2,582	$ 2,315
Interest, net	427	54
Noncash Investing and Financing Items [Abstract]
Non-cash capital expenditures	168	1,007
Unpaid offering costs		881
Unpaid debt financing costs		11
Components of Total Ending Cash
Cash and cash equivalents	89,918	27,987	$ 95,334
Restricted cash, current	166	930	166
Restricted cash, non-current	6,003	6,294	5,895
Cash, cash equivalents and restricted cash	$ 96,087	$ 35,211	$ 101,395	$ 25,026

XML

Segment Reporting - Information by Reportable Segment (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($) segment	Mar. 31, 2016 USD ($)	Dec. 31, 2016 USD ($)
Segment Reporting Information, Operating Income (Loss) [Abstract]
Number of operating segments | segment	2
Number of reportable segments | segment	2
Bulk water	$ 14,215	$ 13,491
Rental	12,804	11,706
Other	1,989	1,932
Total revenues	29,008	27,129
Bulk water	5,391	5,828
Rental	7,050	6,242
Other	853	893
Total gross profit	13,294	12,963
Selling, general and administrative expenses	16,488	13,697
Loss from operations	(3,194)	(734)
Other (expense) income, net	(1,997)	(2,626)
Loss before income tax expense	(5,191)	(3,360)
Income tax expense	935	628
Net loss	(6,126)	(3,988)
Other information
Depreciation and amortization	7,807	7,264
Interest expense, net	1,815	2,580
Expenditures for long-lived assets	3,405	6,246
Amortization of deferred financing fees	209	184
Assets	523,115		$ 536,696
Seven Seas Water
Segment Reporting Information, Operating Income (Loss) [Abstract]
Bulk water	14,215	13,491
Total revenues	14,215	13,491
Bulk water	5,391	5,828
Total gross profit	5,391	5,828
Selling, general and administrative expenses	6,154	4,342
Loss from operations	(763)	1,486
Other (expense) income, net	(1,258)	(1,607)
Loss before income tax expense	(2,021)	(121)
Income tax expense	859	628
Net loss	(2,880)	(749)
Other information
Depreciation and amortization	4,272	4,012
Interest expense, net	1,076	1,556
Expenditures for long-lived assets	841	3,320
Amortization of deferred financing fees	138	151
Assets	268,000		274,200
Quench USA Holdings LLC
Segment Reporting Information, Operating Income (Loss) [Abstract]
Rental	12,804	11,706
Other	1,989	1,932
Total revenues	14,793	13,638
Rental	7,050	6,242
Other	853	893
Total gross profit	7,903	7,135
Selling, general and administrative expenses	9,411	9,011
Loss from operations	(1,508)	(1,876)
Other (expense) income, net	(1,033)	(1,024)
Loss before income tax expense	(2,541)	(2,900)
Income tax expense	76
Net loss	(2,617)	(2,900)
Other information
Depreciation and amortization	3,535	3,252
Interest expense, net	1,033	1,024
Expenditures for long-lived assets	2,564	2,926
Amortization of deferred financing fees	71	33
Assets	191,800		193,400
Corporate & Other
Segment Reporting Information, Operating Income (Loss) [Abstract]
Selling, general and administrative expenses	923	344
Loss from operations	(923)	(344)
Other (expense) income, net	294	5
Loss before income tax expense	(629)	(339)
Net loss	(629)	$ (339)
Other information
Interest expense, net	(294)
Assets	$ 63,400		$ 69,000