AquaVenture Holdings (NYSE:WAAS)
Q3 2016 Earnings Conference Call
November 18, 2016 8:00 AM ET
Douglas Brown - Chief Executive Officer of AquaVenture Holdings and Seven Seas Water
Tony Ibarguen - President
Lee Muller - Chief Financial Officer of AquaVenture Holdings and Seven Seas Water
Andrew Kaplowitz - Citigroup
Deane Dray - RBC Capital Markets
Vishal Shah - Deutsche Bank
Chip Moore - Canaccord Genuity
Pavel Molchanov - Raymond James
Good morning and welcome to AquaVenture Holdings Third Quarter 2016 Earnings Conference Call. Today’s call is being recorded and we have allocated one hour for prepared remarks and Q&A.
At this time, I’d like to turn the conference over to Jeff Grossman [ph], Investor Relations at AquaVenture. Thank you, sir. Please go ahead.
Unidentified Company Representative
Thank you, operator. Good morning, everyone. We released our earnings press release yesterday and posted a slide presentation to the investor relations portion of our website at investors.aquaventure.com. We will be referencing slides during this call. Today’s speakers are Doug Brown, AquaVenture’s Chief Executive Officer; Tony Ibarguen, AquaVenture’s President; and Lee Muller, AquaVenture’s Chief Financial Officer.
On Slide 2, before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, believes, estimates, plans and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our final prospectus dated October 5, 2016 and in our subsequent filings with the Securities and Exchange Commission. We do not undertake any duty to update such forward-looking statements.
Additionally, during today’s call, we will discuss non-GAAP measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for the results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release.
I would now like to turn the call over to our Chief Executive Officer, Doug Brown.
Good morning and thank you for taking the time to join us on today’s call. This is our first earnings call as a publicly traded company, following the successful completion of our initial public offering in October. The offering was a result of a lot of hard work over the last few years, and I’d like to thank the many people involved.
From a strategic standpoint, we believe the timing was right for AquaVenture to enter the public markets and are looking forward to executing our unique Water-as-a-Service strategy on behalf of our public shareholders.
I would like to start today’s call by providing highlights from our third quarter results then Tony Ibarguen and I will give a brief overview of our business for any listeners who may be new to the AquaVenture story. Tony will then pass the call on to Lee Muller, who will then walk you through our financial results in more detail, and then I’ll come back to provide an update to our market outlook before opening the line to – for your questions.
Starting on Slide 3, we’re pleased with our financial and operational performance in Q3, as we delivered strong results for the three months ended September 30, 2016. On a year-over-year basis, total revenues increased 6.4% to $28.9 million from $27.1 million a year ago.
Revenues for our Seven Seas Water and Quench segments increased 3.5% and 9.2%, respectively, year-over-year. For both units, this represents organic growth as there were no – there was no M&A activity impacting Q3 results.
Net loss was $4.7 million compared to $4.1 million during the same period from the prior year. Adjusted EBITDA increased 30% to $9.7 million from $7.5 million a year ago, and adjusted EBITDA margin increased to 33.7% from 27.6% for the same period of 2015.
On a year-to-date basis, consolidated revenue grew 14%, Seven Seas Water grew 19%, Quench revenue grew 10%, and consolidated Seven Seas and Quench adjusted EBITDAs all grew 35%.
Subsequent to the end of the quarter on October 12, we completed our IPO issuing almost 7.5 million shares, which raised net proceeds of just under $120 million for the company. Additionally, on October 31, we completed the acquisition of Aguas de Bayovar in Peru for a total purchase price of approximately $46 million.
As we are new to the public markets, I’d like to provide a brief overview of AquaVenture and the water industry for those who may have missed us on our IPO road show. In Slide 4, you can see that AquaVenture Holdings was founded in 2007, and is a leading pure-play provider of water purification solutions leveraging our Water-as-a-Service or WAAS business model to our broad customer base across North America, the Caribbean, Latin America and the Middle East. We deliver our Water-as-a-Service solutions through two operating business segments; Seven Seas Water and Quench. Both of our businesses enjoy scalable platforms designed to produce expanded margins through organic and inorganic growth.
Turn to Slide 5, our business as a whole plays on the broader macro trend of the scarcity and the amount of usable pure water in the world today. 97% of the world’s water supply is in the oceans. The demand for water is not going away and AquaVenture is well-positioned to take advantage of increasing demand for potable and industrial use by providing various water purification solutions through what we call the Water-as-a-Service business model.
The Slide 6, our Water-as-a-Service or WAAS solutions provide drinking and process water to municipal, industrial and commercial customers under long-term contracts. We generally provide the WAAS solutions using company-owned equipment and are basically selling purified water to our customers. The WAAS business model creates a value proposition for our customers, while providing economic benefits to us.
WAAS minimizes customer capital investment and yields long-term customer relationships. We invest capital in developing, installing, operating, and maintaining engineered water systems to generate predictable and steady revenue, earnings and cash flow, as well as a strong unit economic model that drives attractive adjusted EBITDA margins and growth. Our revenue is contracted and recurring with relationships lasting typically 10 to 20 years.
With that said, I’d now like to move on to our operating platforms. Slide 7, Seven Seas Water is a multinational provider of desalination and wastewater treatment solutions, providing 7 billion gallons of potable, high purity industrial and ultra-pure water per year to governmental, municipal, industrial and hospitality customers.
We signed long-term contracts with our customers leading to a stable revenue base that is contracted and recurring with relationships lasting typically 10 to 20 years. We are currently the primary water supplier to the U.S. Virgin Islands, Dutch St. Maarten and Tortola in the British Virgin Islands, and we also maintain significant plant operations in Trinidad, Curacao and Peru.
We currently have 10 significant water treatment facilities worldwide. We service numerous markets, including industrial, municipal, energy and commercial markets through a number of WAAS offerings, including municipal desalination, industrial desalination, wastewater treatment, water recovery and reuse, emergency water, and ultra-pure water.
Looking on Slide 8, lastly, our recent acquisition of Aguas de Bayovar improved, further reinforces our ability to grow our Seven Seas Water business inorganically with the capacity to deliver over 7.9 million gallons per day of seawater to the phosphate mine and 2.7 million gallons per day of desalinated process water from a seawater reverse osmosis facility located at the mine site.
Bayovar is an example of one of the medium scale desalination plants we target for acquisitions. The Bayovar acquisition provides a new operation in South America and an entry into the mining sector. We are confident in our ability to provide a reliable supply of purified water to the mining sector much as we have demonstrated success in serving our industrial and municipal clients.
We continue to see a robust pipeline of acquisition candidates similar to Bayovar. Most of these plants are seawater RO plants and our sweet spot of between 2 million and 13 million gallons per day of capacity. For many of these desalination plants, the owners are not water experts, and they often struggle to provide a reliable water supply. These situations offer us a chance after the acquisition to substantially improve plant operations, thereby improving the reliability of the water supply for the customer, and at the same time improving our investment returns through more efficient plant operations.
As you know, these deals take time. While we do have a program to proactively identify and qualify potential acquisition targets, it is challenging if not impossible to accurately predict when a specific acquisition will take place.
I’d now like to turn the call over to Tony, who will talk about the Quench business and AquaVenture strategy going forward.
Thanks, Doug. Moving to our Quench business on Slide 9, Quench is a leading provider of point-of-use filtered water and related services to more than 40,000 institutional and commercial customers across a broad mix of industries in the United States, including more than half of the Fortune 500. Quench provides bottleless filtered water coolers and other products that use filtered water such as ice machines, sparkling water dispensers and coffee brewers.
As of the end of the third quarter, our installed base was over 89,000 rental units. Like Seven Seas Water, our customer relationships are long lasting. New customers typically sign an auto renewing three-year rental agreement. As of the end of the third quarter, our unit attrition rate was 7.8% on a trailing 12-month basis, which is below our 8% target and implies an average of over 11 years of rental life.
Quench also has the opportunity to expand inorganically. Quench operates in a fragmented market with market share of approximately 6.5%. We have a solid pipeline and see great potential for inorganic growth opportunities in the future. In summary, we are pleased with the results in both segments and believe we are well-positioned for future growth, both organically and inorganically.
Moving to Slide 10. We believe our Water-as-a-Service business model offers a differentiated value proposition and an opportunity for growth outlined as follows. We have experienced robust revenue growth driven by a balanced mix of organic and inorganic growth and we’ll selectively pursue acquisitions that fit into our overall growth strategy.
We have a highly visible and sticky recurring revenue stream with long-term contracts. Our business has a flexible and highly scalable cost structure and we have a proven ability to leverage our existing infrastructure to drive growth and lower incremental costs. We will continue to be an industry leader in the liability, quality, service and,efficiency and finally, we develop new business opportunities and add new customers for growth along with further penetration of existing customers.
With that, I’ll turn it over to Lee, who will walk you through this quarter’s financial results in more detail. Lee?
Thanks, Tony. Now turning to Slide 11 in our third quarter 2016 results, we are pleased with our performance as we reported strong results for the quarter, as total revenues increased 6% to $28.9 million from $27.1 million in the prior year.
Gross margin increased to 50.5% for Q3 2016, as compared to 46.8% during the same period of 2015. The increase was mainly due to higher margins at our Seven Seas Water segment due to an increase in contracted billing rates without a corresponding increase in costs and higher margins for our Quench segment due to improvements in our management of expenses, including compensation and freight.
Total selling, general and administrative expenses increased $1.9 million to $15.1 million for Q3 2016, as compared to $13.2 million for the same period of 2015, primarily related to costs incurred in 2016 related to the Quench ERP system implementation, incremental depreciation expense related to a reduction in the remaining useful life of the existing Quench ERP system, and an increase in acquisition-related expenses for our Seven Seas Water segment.
Net loss for the third quarter was $4.7 million compared to $4.1 million during the same period from the prior year. Adjusted EBITDA increased to $9.7 million compared to $7.5 million for the prior year, up 30%. Adjusted EBITDA margin increased to 33.7% from 27.6% for the same period of 2015.
Moving on to our segment results, Seven Seas Water revenue increased to $13.9 million for the third quarter, which was a 4% increase compared to the $13.4 million for the same period a year ago, due to an increase in contracted billing rates offset by a decrease in the volume of water delivered to our customers. There was no M&A included in growth during this year-over-year time period. Seven Seas Water gross margin for the third quarter improved 470 basis points to 44.6%, as compared to 39.9% for the same period of 2015, due to a combination of an increase in the contracted billing rates and reduced operating expenses primarily at our Trinidad facility.
Seven Seas adjusted EBITDA for the third quarter increased to $5.8 million compared to $5.4 million in the third quarter of 2015. Adjusted EBITDA margin increased to 41.8%, as compared to 40.5% for the same period of 2015.
Quench revenues for the quarter increased to $15 million, or 9.2% increase compared to $13.7 million from the same period of 2015, primarily due to higher rental revenue associated with additional units placed under new leases in excess of unit attrition over the past year. An increase in sales of equipment, coffee and consumables also contributed to the increase in Quench revenues. There was no M&A included in growth during this year-over-year time comparison.
Gross profit for Quench improved 230 basis points to 55.9%, as compared to 53.6% for the same period of 2015, primarily due to the management of expenses, including personnel and freight costs. These improvements were partially offset by an increase in depreciation expense related to the increase in new company-owned units placed on lease.
Quench adjusted EBITDA for the third quarter increased to $3.9 million compared to $2.1 million in the third quarter of 2015. Adjusted EBITDA margin increased to 26.2% from 15.1% for the same period of 2015.
To wrap up, I’d like to provide a brief update on our balance sheet and cash flows, which can be found on Slide 13. As a reminder, we completed our IPO in October and today’s results are as of September 30, 2016.
Cash and cash equivalents were $25 million. Our total current assets were $54.9 million and our total long-term debt was $150.2 million. Post quarter-end, we received net IPO proceeds of almost $120 million, of which $46 million we used to purchase Bayovar. Now that we’ve completed our IPO, we are looking at ways to optimize our capital structure.
As of the end of Q3, we have variable rate loans outstanding of $126.2 million that adjust with interest rate movements in LIBOR or the lending banks prime lending rate. The portion of our debt that bears interest at a fixed rate is currently at 18% and will vary from time to time. Hypothetical, 100 basis point increase in our interest rates in effect at September 30, 2016, would have a $1.1 million increase to our interest expense on an annualized basis.
Please note that our long-term contracts generally include escalators, which we expect to mitigate interest rate movements over time. Further we believe that the capital markets remain constructive for both corporate and project financing. With regard to currency, we have minimal net exposure to our financials.
Moving to cash flow items, net cash provided by operating activities for the nine months ended September 30, 2016 amounted to $11.9 million, as compared to $9.2 million for 2015. Capital expenditures and long-term contract expenditures were $16.6 million for the nine months ended September 30, 2016, as compared to $18.3 million for the same period of 2015.
As mentioned earlier, post quarter-end, the company closed its acquisition of the outstanding shares of Bayovar and all the rights and obligations under a design and construction contract for a desalination plant and related infrastructure located in Peru for a purchase price of approximately $46 million. The rights to the design and construction contract include monthly installment payments for the construction of the desalination plant and related infrastructure. These payments will be accounted for as a long-term note receivable.
We anticipate receiving payments into 2024 of just over $2 million per quarter related to the notes receivable. The Bayovar integration is underway and everything has proceeded according to plan and the plant is operating, as expected. While the company will not be providing a 2016 outlook on this call, we do anticipate providing a 2017 outlook on our fourth quarter update with regard to top line revenue and adjusted EBITDA.
I will now turn the call back over to Doug for closing remarks.
Thanks, Lee. Turning to Slide 14 now, I’d like to provide some context around our markets, as it is important to understand the key trends in the global water market and how they impact our outlook for the future.
First, population growth and increasing per capita water consumption are driving water scarcity. We expect global water demand, excluding irrigation to grow at three times faster than global population growth. Currently over $750 million people do not have access to clean drinking water and by 2030, global water demand will exceed supply by approximately 40%.
Second, another key trend to understand revolves around the heightened health environmental awareness phenomenon that is taking place. More and more individuals are choosing water as their beverage of choice due to health and wellness benefits. They are also more aware of the potential contaminants in the water they consume and have a heightened desire for purity.
In addition, there’s an increase in public awareness of the negative environmental impacts of bottled water and its associated plastic waste. We believe both our operating segments offer us opportunities for significant organic and inorganic growth due to their size, positive long-term growth trends and market fragmentation.
As water demand continues to grow, we believe the need for water treatment solutions, such as desalination and point-of-use filtration will increase and our operating platforms will benefit from these trends. We remain well-positioned to execute on our Water-as-a-Service strategy and we’re very excited about the prospects, especially in light of entering the public markets.
Once again, I’m pleased with our solid third quarter results and I’m extremely excited about AquaVenture’s opportunities for growth as we mature as a public company. In my view, water is a nonpartisan issue. Our growth prospects remain attractive regardless of the election results, as both sides of the political spectrum recognized the need for clean usable water. And I for one still get thirsty irrespective of who holds office.
So, in closing, we’d like to thank the AquaVenture team and employees who have worked so hard bringing us to this point, and we thank you our investors for your interest in the company.
With that, operator, please open the line for questions.
Thank you. At this time we’ll be conducting a question-and-session. [Operator Instructions] Our first question comes from the line of Andrew Kaplowitz with Citi. Please proceed with your question.
Good morning, guys. Congratulations on the IPO.
Thank you, Andy.
Thank you, Andy.
Doug, so in the release last night, you mentioned all the priorities you have as a public company, including winning new customers, expanding existing customer relationships, pursing strategic acquisitions and developing new market opportunities. Maybe you could talk about the tech in [ph] order of these priorities, as you enter 2017? It’s a low-hanging fruit towards improved growth through expanding existing customer relationships, or do you think acquisitions is more a priority for you at this point?
I’d say the first priority is expanding the existing relationships. We’ve had a good history on both Quench and Seven Seas of taking a customer relationship and getting more and more out of it over time. That’s really the low-hanging fruit. It’s also the most profitable fruit for us to pick, because the incremental margin that we can derive from an existing customer is quite significant.
So I’d say, that’s the first priority. But we are on both sides of the business in Quench and Seven Seas, we see significant M&A opportunity, as well. We’re operating in a fragmented market, both in the industrial desal and in the POU cooler space. And so, we’re quite bullish on our opportunities in exploring through M&A, as well.
Okay. So, Doug, I know you said you don’t want to talk about 2017, but we’re going to ask you about and we’ll try to ask you about it. So let me just ask you in this sense. If you look at the organic growth of 70, you did 3.5%. As you look into 2017, you should get some organic growth from some of that expansion that you finished. But there are level of base volume and our pricing growth that we could think about, as we go forward here? And then, is there any seasonality in the business that we should think about as we go into 4Q?
So just on an organic basis, our view is that the Seven Seas business is probably 3% to 5% is a reasonable assumption. And on the Quench business, it’s probably more like 8% to 10% for organic growth. And so you put those together and we’re in the 6% to 7% range, I think, it’s a pretty good way to look forward.
Sorry, what was the second part of the question, seasonality?
Yes fair enough.
So there will be – there’s a little bit of seasonality in the Quench business. There’s also in the Seven Seas business a little bit of – it’s a little tough to look at quarter-to-quarter. There are things that come into play that can cause volumes to go up or down in the quarter. They don’t indicate a long-term trend.
We tend to look at the Seven Seas side volumes on more of an annual basis than a quarterly basis, because there’s just an inside any quarter on the Seven Seas side, you can see volume go plus or minus 2% that doesn’t mean anything.
Got it. And then just one follow-up for Lee on cash – free cash flow was about what we modeled that cash box was low well so as CapEx. The cash is lumpy, was there a working capital, you said generally was a little higher than you saw in the quarter layer, is it just a little bumpiness for the business?
You’ll see shifts quarter-by-quarter. In this particular quarter, it just had to do with the collection cycle of accounts receivable. Also in connection with our IPO, we had some IPO expenses that were capitalized and that will be offset against proceeds. So that will be eliminated in Q4, but that was just a particular to Q3.
All right. Thanks, guys. Good quarter.
Thank you. Our next question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your questions.
Thank you. Good morning, everyone.
Hi, Deane, good morning.
Hey, I’d also like to add my congrats. To start off with this question on Seven Seas and the dynamics there for the quarter, you commented on seeing some better pricing, was that the escalators and the fact there was anything going on there separately on pricing? And then can you specify where the decline in volume of water was on Seven Seas?
Great. Yes, the price increase was all due to contractual escalators. And on the volume decrease, it was principally in the USVI and Curacao.
What would cause a decline in volumes?
Some – there’s some seasonality, believe it or not, rain can make a difference.
Sure. All right. And then for Tony, I know there was no M&A involved in Quench for this quarter, but yes, they can get for that organic revenue growth, can you parse out for us how much of that organic came from new customers, or for the penetration of existing customers taking on more units?
Right, thanks, Deane. Yes, it’s – typically, over time, it’s about 50% of our new business is actually add-ons and growth from existing customers, oh okay, and this quarter is no exception to that. So it floats between 45%, 55%, 60% of any given period comes from existing customers. And as Doug said, I’ll reiterate certainly for Quench that the lowest hanging fruit is in fact to take care of our customers, extend those relationships, minimize the attrition, and take advantage of the length of that relationship to then sell additional add-on equipment to those customers.
Got it. And then for Lee, I know, we’re not giving any sort of guidance on the fourth quarter. But since it’s year-end, are there any unusual year-end charges, timing of expenses, taxes, anything that we should know about?
There’s nothing other than we – what we disclosed in our earnings release, there’s nothing beyond that.
Great. And then just last quick question, it would be for Doug, on the pipeline of deals, how does that look in terms of the mix of utility customers versus industrial or commercial? Is there and do you have any preference across those considering that you’ve got your first mining customer? Thank you.
I would say the mix is a little bit more industrial than municipal. If you just look at the population of these softwares that are out there, especially the ones where you have an owner that owns one desal plant, the population has skewed more to industrial than municipal.
Our preference frankly, we’re bit indifferent. But the reality of the world seems to be that the industrial owners are quicker to make decisions than municipal owners. Municipal owners often get hung up in political considerations. And so I would expect that it’s more likely industrials and municipal as we go forward. Hard to say how much percentage on each side, but I would say, it would be more skewed to industrial customers.
Terrific. Thank you.
Thank you, Deane.
Thank you. our next question comes from the line of Vishal Shah with Deutsche Bank. Please proceed with your questions.
Yes. Hi, thanks for taking my question. Doug, you mentioned leveraging existing relationships over 10 plants for Seven Seas, what percentage have you already extended through relationships, in other words, improved the efficiency that maybe added on some attritional contracts on those customers?
I would say, at least, six have been expanded.
And if you look forward, we see opportunities – significant expansion opportunities into.
Okay, that’s helpful. And then just on the Quench side, great job on the attrition side. I mean, do you feel like this – the attrition rate improvement is a function of some additional volumes with coffee and some of the other segments that you guys are looking at? And what’s the outlook for additional growth drivers in that segment?
Right. Thank you. That’s a great question. The way we calculate attrition is actually on the units – on the water rental units. So it’s really not going to be impacted by additional revenue volumes from coffee or other. As far as how that looks going forward, we are constantly working on improving our relationship with our customers and enhancing our services. And we have always targeted to get to 8% and below, and we think that’s a good range certainly relative to other industries and other competitors in our industry.
That’s helpful. Thank you. And just one last housekeeping, this fourth quarter do you see any impact at all from Hurricane Matthew on your operation in Seven Seas especially? Thank you.
Nothing. No we had no impact from the hurricane. We had a short period of a shutdown, but then as soon as power came back, we were back online and making at a higher volume to make up for the water, while we were shutdown and so no damage…
No damage and no, I mean, noticeable loss in business.
Great. Thank you, guys.
Thank you. Our next question comes from the line of Chip Moore with Canaccord Genuity. Please proceed with your question.
Morning, thanks, and it echo my congrats. So now that you’ve taken ownership in Peru, Doug, maybe you can talk a little bit more about what needs to be done to optimize that asset and then what you think you can get out of those investments?
So we have, I think, a general rule of thumb, we’ve gone through this in Tortola. We’re in the process. We’ve been upgrading that plant since we bought it and have been seeing improved operations at that plant. We have an improvement program for Bayovar. Generally speaking, the good rule of thumb is between 5% and 10% of the purchase price. We will invest an additional improvements in the plant when we buy it. Sometimes it will be a little more and sometimes less depending on the condition of the plant.
Our objective is to be able to increase the production capacity of the plant through better online reliability not necessarily increasing the instantaneous throughput capacity of the plant, but by being able to operate it more consistently over time, and that will produce more water for the mine, which they want. And that – these capital improvement programs take about a year or so to implement. We have to do it gradually, because we cannot shut the plant down, while we’re making these improvements.
So we’re trying to do these improvements, while continuing to produce as much water as we can. But generally speaking, that 5% to 10% improvement investment results in significant increase in throughput. And as a result for us a significant increase in EBITDA that we generate from that plant.
Perfect. And Doug, maybe if we go back to M&A pipeline for Seven Seas now that you’ve made your prospect deal outside the Caribbean, maybe you can talk broad strokes sort of cadence potential deals in the pipeline Caribbean versus other territories?
Yes. We’re not being too specific about investment opportunities that we’re pursuing, but the pipeline is quite robust. We have actually seen some opportunities in the Caribbean, but most of them obviously are outside the Caribbean. We have a significant effort in South America because of our office in Santiago. We’re also seeing some acquisition opportunities in the Middle East. The Middle East is the biggest desal market in the world.
There’s a significant population of installed plants and there are people in the Middle East that are having the same problems that they’re having in South America, where you have somebody trying to run one of these plants that really aren’t water experts. They don’t know how to optimize the operation of the plant, and after a couple years, they get frustrated and they’re very open to our approach to take over the facility, but that’s a – in terms of geographically, I would say, we’re focused on South America, North America, and the Middle East.
Okay. And then just lastly, Tony, on Quench, maybe you can talk a little bit more about price versus volume on that 9% growth. How was coffee ice sparkling adoption playing out there? Thanks, guys.
Right, thanks, Chip. Yes, price was up a little bit. We’re not getting too specific on that at this stage, but it was up a little bit, volume was steady and on plan. And I think what you’re referring to, which is correct is that the mix of products continues to skew towards higher value.
Services like sparkling and ice and coffee and that does have a positive impact on us, as we go forward, not only in terms of the price that we can extract per unit, but also in terms of the stickiness of the relationship, as we cross-sell multiple services into what is always in universally going to start as a water cooler only account. So that continues and we’re making good progress there.
Thank you. [Operator Instructions] Our next question comes from the line of Pavel Molchanov with Raymond James. Please proceed with your question.
Hey, guys, You’ve entered a lot of the stuff already. I wanted to touch on kind of a macro topic. So in the last 100 days or so, we’ve seen a multi-billion dollar water tech M&A deal involving Xylem. And just a few weeks ago, GE has been talking about selling its GE water segment and I pursue you guys have some experience with that. What is this M&A trend tell you about the space?
That’s a good question, Pavel. It’s – I think what’s interesting is that, I think, a lot of people view the most likely buyer of the GE water business to be a private equity firm. We’ve seen Advent pick up call again. We’ve seen other private equity investors Gastech [ph] in Europe. So it’s interesting. I think that it says that for some of these large multinationals, they’re starting to understand that the water business is perhaps a little bit more tricky than they realized. And the financial institutions are realizing that the water business can be – can generate very good investment returns. And so you’re seeing, I think, a significant interest in the private equity in the investment community in general in these were deals.
I think that the sale of GE is a little bit hard to see the number of strategics is probably a bit limited. My guess is that that is going to go to private equity shop. That means that that business will probably get leveraged up to support the transaction.
That means that they may be whoever the buyer is maybe opening to – open to selling off some of these build on operate assets, their capital intensive, and is away to raise some capital to pay down debt, so it wouldn’t surprise me that you see a private equity buyer. And then we might see an opportunity to pick up an asset here or there. We know the GE portfolio quite well for obvious reasons. And there are some interesting assets in there that we would be – we be interested in.
Okay. You referenced the election, of course, infrastructure modernization was one of the topics raised during the campaign vis-à-vis potential Seven Seas opportunities in the lower 48. Is there any relevance from what happens kind of on the political landscape?
I don’t think so from our side. I honestly don’t. The municipal – there’s a huge investment in the municipal water infrastructure the United States is required. Most of that is conventional treatment and frankly piping and leaking piping, repair and leaking piping, that’s the kind of infrastructure, I think, that really is required in the U.S. that doesn’t really impact us.
There are certain places that do need to look for new water sources like Texas, like California, that we’re active in Texas, Florida. But I don’t think that where that the election is going to particularly impact the attractiveness or the likelihood of success in those areas.
All right. I appreciate you, guys.
Thank you. Mr. Brown, there are now further questions. I’d like to turn the floor back to you for final remarks.
Well, thank you very much. I’d like to thank you for your interest in AquaVenture and we look forward to speaking to you – with you on the next call. Thanks very much, everyone.
Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
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