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AquaVenture Holdings Limited (NYSE:WAAS)
Q1 2019 Earnings Call
May. 8, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the AquaVenture Holdings First Quarter 2019 Earnings Conference Call. Today's call is being recorded, and we have allocated time for prepared remarks and Q&A.

At this time, I would like to turn the conference over to Courtney Denihan, Investor Relations at AquaVenture. Thank you. Please go ahead.

Courtney Denihan -- Investor Relations

Thank you, operator. Good morning, everyone. We released our earnings press release this morning and posted a slide presentation to the Investor Relations section of our website at investors.aquaventure.com. We will be referencing the slides during this call. Present on today's call are: Tony Ibarguen, Chief Executive Officer; Doug Brown, Chairman of the Board; and Lee Muller, Chief Financial Officer. 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, beliefs, intentions, goals, strategies, plans or prospects, including without limitation, statements relating to AquaVenture's strategic focus, our forecast of full year 2019 financial results; our ability to produce positive operating cash flows; expectations regarding future business development and acquisition activities; expectations regarding performance, growth, cash flows and margins from recently completed and pending acquisitions; the impacts on operating results of the timing, size, integration and accounting treatment of acquisitions and other business development activities; and AquaVenture's ability to successfully integrate and operate the acquired businesses or assets and to achieve the expected financial, including EBITDA contributions from them.

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 annual report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2019, and in our subsequent filings with the Securities and Exchange Commission. We do not undertake any duty to update such forward-looking statements. In addition, during today's call, we will discuss non-GAAP measures and other key metrics, 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 results prepared in accordance with GAAP. A reconciliation of the 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, Tony Ibarguen.

Anthony A. Ibarguen -- President, Director & Chief Executive Officer

Thanks, Courtney. Good morning, and thank you for joining us on today's call. I'd like to start today's call by commenting on our overall performance of AquaVenture's first quarter of 2019, including our operational highlights, and provide an update on the integration efforts of our recent acquisitions. Lee will then walk you through our financial results in more detail. I'll return to provide an update on our outlook for 2019 and some closing remarks. And finally, Doug, Lee and I will take your questions.

Starting on Slide 3. AquaVenture had another terrific quarter with revenues of $46.6 million, which represented an increase of more than 43% over the first quarter of 2018. This impressive growth reflects the impact of the successful execution of our strategic acquisitions in 2018, coupled with solid organic growth during the quarter. In addition, we're pleased to report adjusted EBITDA of $16.5 million during the first quarter of 2019, a 60% increase over the prior year, and adjusted EBITDA plus principal collected on the Peru construction contract of $17.8 million, a 55% year-over-year increase. We also continued to gain operating leverage as our business grows. That was reflected in our adjusted EBITDA margin of 35.5%, which saw growth of 380 basis points over the prior year and 130 basis points over the prior quarter.

Both Quench and Seven Seas Water delivered solid organic performance in the quarter. Quench reported over 12% organic year-over-year revenue growth, showing robust growth in both the direct rental and indirect dealer units. Seven Seas Water saw continued growth in its existing operations and also announced an amendment of our water agreement with Limetree Bay Terminals in the United States Virgin Islands. This extends our relationship for an incremental 3 years and expands our water production capacity from 0.7 million gallons per day to 1.7 million gallons per day. We anticipate that project being completed and having a positive effect on our operations in the fourth quarter of this year. This one is a testament to the long-standing relationship Seven Seas Water develops with its customers. Both teams were also very busy in the quarter integrating our large fourth quarter 2018 acquisitions.

At Quench, the team executed the full integration of the PHSI direct rental business into Quench systems as of February 1, less than 2 months after closing. We're also well along in the integration of the indirect dealer business, including meetings with all key dealers, and expect to have completed these systems integration of our entire indirect business by the end of the second quarter. All of our new PHSI teammates, including the direct sales, service and support team, the entire Korean manufacturing and R&D staff and the indirect dealer sales and support team, are fully productive at this stage of the integration. All other third and fourth quarter acquisitions at Quench have already been fully integrated. At Seven Seas Water, we're also making great progress on integrating the AUC acquisition.

We're on track for implementing a new ERP platform by -- at AUC by the end of the third quarter. This will be a major upgrade from their historical platform and the same system we use for our desalination business. We also have and will continue to share knowledge of advanced water treatment technologies between the Seven Seas Water and AUC teams. And lastly, we started some cross-selling efforts to introduce our new wastewater treatment capabilities to several of our desalination customers. On Slide 4, you'll see why we're so excited about AUC's recurring wastewater treatment lease business. Our leasing option provides the customer with low initial capital outlay and adds to our portfolio recurring revenues. This creates a win-win for both AquaVenture and its customers and complements our already solid portfolio of cycle-resistant businesses.

As of March 31, 2019, AUC has approximately 90 leases with customers. We also have great visibility into a pipeline of new leases due to the extended planning phase of new real estate development projects and insight into the wastewater needs of the customers. It can take several years of planning for a project to come to the bid process and then from 9 to 18 months from the bid to the completion of Phase 1 construction with subsequent phases to follow. We refer to this construction period as signed but not billed leases and closely track our projects throughout this phase. Based on our current backlog of signed but not billed leases, we remain confident with our previously provided projections for 2019 of between $13 million and $15 million of adjusted EBITDA from AUC as well as mid-teens growth in 2020.

While we've been focused on the integration of our significant acquisitions during the quarter, we continue to actively pursue additional acquisition targets. As discussed on our year-end call, the long stop date on the pending acquisition in Ghana expired at the end of March. We continue to be interested in this project and monitor its progress. We are awaiting the completion of certain milestones but believe it to be an attractive investment opportunity on the right terms. And we'll certainly continue to grow our businesses, both organically and inorganically, and we'll provide you updates on our achievements as they occur.

So with that, I'll now turn it over to Lee to provide some financial highlights in more detail.

Lee Muller -- Senior Vice President & Chief Financial Officer, Treasurer & Assistant Secretary

Thanks, Tony. As Tony mentioned, we are pleased with our strong start to the year, which saw significant year-over-year revenue and adjusted EBITDA growth in both segments. On Slide 5, Seven Seas Water reported revenues of $20.1 million during the first quarter of 2019, a 36.4% increase over the prior year. This increase was primarily driven by our inorganic activities, including the acquisition of AUC and the commencement of our water contract in Anguilla, which now has the capacity to produce up to 1 million gallons per day, twice its original capacity of 500,000 gallons per day. Organically, we saw higher production volumes in our USVI operations as well as an increase in our water rate for our BVI operations compared to the prior year. This year-over-year organic growth rate was 1.9%.

However, excluding the prior year period revenue received in connection with nonroutine services performed for our customer in Peru, our organic growth over Q1 2018 would have been 3.6%. Gross margin of 56.3% reflected a 40 basis point increase over the prior year, which was primarily driven by 150 basis points increase in the bulk water gross margin. Adjusted EBITDA of $10.9 million for the first quarter of 2019 increased 51.2% over Q1 2018 and adjusted EBITDA margin of 54.1%, reflected an increase of 530 basis points over the prior year. Finally, adjusted EBITDA plus collected principal increased 45.1% to $12.2 million in the first quarter. Turning to Quench results on Slide 6. The highlights for the quarter were Quench's adjusted EBITDA, which increased 65.9% to $6.8 million and its adjusted EBITDA margin of 25.7%, which reflected a year-over-year increase of 260 basis points.

Revenues of $26.4 million were 48.8% higher than the prior year and consisted of 36.7% of inorganic growth from acquisitions and 12.1% organic growth. Rental revenues and product sales both reported significant year-over-year increases that were bolstered by inorganic activities and strong organic growth. Quench's gross margin of 49.1% for the first quarter saw a slight decline of 40 basis points compared to Q1 2018, which was primarily due to a decrease in rental gross margin, partially offset by an increase in product sales gross margin with the inclusion of higher-margin indirect equipment sales from PHSI. On Slide 7, I'd like to provide a brief update on select balance sheet and cash flow items. As of March 31, 2019, cash and cash equivalents were $47.4 million and our total debt was $318.7 million, resulting in net debt of $271.3 million.

In regard to cash, we reported $400,000 of cash flow used in operating activities compared to cash flow from operations of $5.1 million in the prior year period. The $5.5 million swing is largely driven by an incremental $3.3 million in interest related to higher total debt and approximately $1 million related to the impact of the adoption of new lease accounting guidance. Additionally, cash from operations was impacted by expected working capital needs associated with the completion and integration of recent acquisitions and the timing of collection of certain receivables which straddled quarter end. As a reminder, we typically see lower operating cash flow in the first quarter due to the cash needs of the business and budget for it accordingly. On a trailing 12-month basis, operating cash flow was $21.4 million as compared to $17.9 million for the 12-month period ending March 31, 2018.

This reflects the continued growth of cash generation as the business expands. And while there can be swings in any given quarter due to the timing of payables and receivables, we expect to complete the year with positive operating cash flow well in excess of the level achieved in 2018. For the first quarter, we had capital expenditures of $7.2 million supporting the growth of our recently acquired AUC business and the expansion of our plant in Anguilla and the placement of additional Quench units. Combined with our cash used in operations, this results in a $7.6 million negative free cash flow. As a reminder, our capital expenditures are largely composed of growth-related activities that will result in the generation of additional revenues and adjusted EBITDA in future years.

I will now turn it over to Tony to discuss our outlook and provide closing remarks.

Anthony A. Ibarguen -- President, Director & Chief Executive Officer

Thanks, Lee. As you'll see on Slide 8, we are reaffirming the 2019 financial outlook that we provided on our last call. We're still targeting annual revenues of between $190 million and $197 million, adjusted EBITDA of between $67 million and $72 million and adjusted EBITDA plus collected principal of between $72 million and $77 million. As a reminder, this outlook excludes the impact of any pending or future acquisitions. On Slide 9, I'd like to give you some context for our provided guidance by using the midpoint of our ranges in comparison to our financial results for 2016. As a reminder, when AquaVenture went public in late 2016, our goal was to double our adjusted EBITDA by strategically deploying the capital from IPO proceeds, internally generated free cash flow and borrowings. As you can see, we're anticipating meeting this goal in 2019 as our adjusted EBITDA is expected to more than double that of 2016. And our revenues are anticipated to be 73% higher than they were in 2016.

From a compounded annual growth rate perspective, the midpoint of our guidance would represent a 3-year compounded annual growth rate of 20% on revenues and 30% on an adjusted EBITDA plus collected principal. We're really excited to be on track to accomplish this goal. And it demonstrates our track record of producing strong organic growth, coupled with the successful execution of our M&A strategy that has resulted in 15 completed acquisitions since the IPO. This growth in turn has driven great operating leverage across our platforms, as shown by the anticipated adjusted EBITDA margin expansion of 620 basis points from 29.7% in 2016 to 35.9% in 2019. In summary, we're very happy with our strong start to the year and look forward to building upon the solid foundation we've developed. To help with these efforts, I'd like to highlight the recent appointment of Brian Miller as Senior Vice President and General Counsel.

We're thrilled to have Brian onboard as he brings a wealth of legal and general management experience in addition to deep knowledge of mergers and acquisitions, government relations, compliance, cybersecurity and audit. Going forward, we will continue to focus on growing internally generated cash flow and investing in organic expansion and strategic acquisitions in the Water-as-a-Service applications of desalination, wastewater treatment and point-of-use purification. In addition, we're proud of the positive impact we're having on our communities. Every day, we provide millions of gallons of potable water to drought-prone areas, treat wastewater and facilitate the displacement of plastic jugs and bottles and the reduction of greenhouse gas emissions.

We use state-of-the-art equipment and the most energy-efficient technologies. We hire locally and invest in the communities we serve. We're excited about our ability to broaden our impact even further as we continue to grow our businesses. On behalf of our entire executive team, we would like to thank our dedicated employees across the world, without whom these results would not be possible. And on behalf of all of them, we thank you for your continued interest and support as we remain committed to the purpose of performing for our shareholders in creating clean water solutions for customers around the world.

With that operator, please open the line for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) The first question is from the line of Vladimir Bystricky with Citigroup. Please proceed with your questions.

Vladimir Bystricky -- Citigroup -- Analyst

Morning guys. Nice quarter. So organic growth at Quench, 12.1% in 1Q. And I think 4Q last year was the highest we've seen to date. And this is obviously a step-up from the high single digits you did in 4Q. So can you talk about what's changed in the business to drive this accelerating organic growth and whether you think you could potentially sustain low double-digits organic growth at Quench in the coming quarters?

Anthony A. Ibarguen -- President, Director & Chief Executive Officer

Yes, great question, Vlad. The organic growth at Quench was a combination of both the rental business and the indirect business. We had a great job done by the indirect team going back to the Wellsys acquisition in September of '17. They had a phenomenal quarter. So a lot of the growth came from there. The rental business grew at a healthy 7% and change as well. And that's generally what we've guided you to is kind of mid- to high single digits for overall. The indirect business just outperformed. Having said that, we're having a lot of strength right now in the rental business. We're feeling very, very positive about the growth in the marketplace. Our positioning, as we had hoped as one of the few, if only, national service provider in this space, is paying off. And so we're getting quite a bit of business growth in the core business plus in the specialty areas of ice and sparkling. So I'd say from mid- to high single digits, it's probably more likely higher single digits overall for Quench. But I don't know that I'm ready to say that we can sustain double digits consistently going forward.

Vladimir Bystricky -- Citigroup -- Analyst

Okay. That's helpful color, nice to see Wellsys performing so well. Then maybe just shifting a bit to capital structuring and capital allocation, if I take the midpoint of your '19 EBITDA, it looks like leverage net debt to EBITDA, about 3.6x on my math. Can you remind us on what you're comfortable with in taking that up to on if you were to find suitable M&A transactions and what your overall liquidity available under your debt is today?

Lee Muller -- Senior Vice President & Chief Financial Officer, Treasurer & Assistant Secretary

Sure. It's Lee. So right now, our net debt leverage ratio is around 3.7x on a pro forma basis. In terms of our comfort level, we're comfortable with net debt at between 4 and 4.5x primarily because of the recurring nature of our revenue stream. So we feel comfortable at that leverage level.

Vladimir Bystricky -- Citigroup -- Analyst

Okay. Thanks a lot. I'll hop back to.

Operator

Our next question is from the line of Deane Dray with RBC. Please proceed with your questions.

Deane Dray -- RBC -- Analyst

Thank you. Good morning everyone.

Anthony A. Ibarguen -- President, Director & Chief Executive Officer

Good morning.

Deane Dray -- RBC -- Analyst

Hey. Congrats on printing a nice, what I'd call an, as expected, no surprises, reaffirmed guidance quarter. We haven't seen a lot of those this earnings season.

Anthony A. Ibarguen -- President, Director & Chief Executive Officer

All right. Thank you. Not to mention the 60% year-over-year EBITDA growth.

Deane Dray -- RBC -- Analyst

Yes, sir. All right. So there's really not any big focal point from our perspective here but just a couple of good-to-knows. And the first one would be on the AUC integration. Anytime anyone says they're doing ERP conversion, I start officially getting nervous. But it's already a system that you guys are using on Seven Seas. So just take us through the process you're going to run in parallel for how long, you're going to cut over any of the financials? Just how's that being managed?

Anthony A. Ibarguen -- President, Director & Chief Executive Officer

It's not a big system. This is nothing to be too worried about. We use IFS at Seven Seas, we have for many years. It's just going to bring them on to our platform. And if you consider we're talking about under 100 leases, a few hundred other customers, 20-some people, it's not a very complicated ERP conversion. It's still something we're taking very seriously. We're operating it very carefully. We have the IT team at Seven Seas on the case. And we're confident that we will be able to do this without a hitch by the early third quarter. So we don't -- considering the ERP conversion at Quench, which was a more massive exercise over multiple years, we think this one is well in hand.

Deane Dray -- RBC -- Analyst

That's good to hear. And then on the Limetree contract, so you're more than doubling the contract size. And my experience has been that you guys will typically be operating the plant at the higher-than-contracted levels, which was at 700,000. So were you already operating at a much higher level? Or is this all new equipment to take you up to the 1.7 million?

Douglas R. Brown -- Founder & Chairman

The 0.7 million stays in place. Those are containers that have been there for several years. And frankly, they've been running at below capacity because the terminal was just performing as an oil terminal. The 1 million is a new -- it's one of our quick-deploy skids, that's 1 million gallons a day. And we expect to have that running fairly at full capacity by the end of the year.

Deane Dray -- RBC -- Analyst

That's great. And then how does that compare to the Anguilla contract, where it looks as though you're operating above the contracted volumes and it looks like the island is ready to have you go much higher from there? Where does that stand? And can you comment on that negotiation?

Douglas R. Brown -- Founder & Chairman

Yes. The Anguilla expansion is basically complete and the plant is running at a much higher capacity than what we're contractually obligated to deliver. Water demand in Anguilla has continued to go up. And there's even discussions about a further expansion somewhere down the road, which we would be in a good position to secure. And the 1.7 million in Limetree, to be honest, would probably expected to be running at about 1.5 million gallons a day, something like that.

Deane Dray -- RBC -- Analyst

Excellent. And then just last question from me. I'm not sure I heard it on the prepared remarks, but I did see it in the release. There was a reference to a plant where you were operating at looks like the take-or-pay trigger. Was that this quarter? Or was that a reference to a year ago?

Douglas R. Brown -- Founder & Chairman

That was a reference to this quarter. And yes, we're running at less than the take-or-pay minimum. But it means we're getting paid at the take-or-pay minimum.

Deane Dray -- RBC -- Analyst

Which contract is that? And what are circumstances?

Douglas R. Brown -- Founder & Chairman

That's in Curacao. And the refinery has been running on a lower volume output because they've been struggling to get crude. You might have noticed that the U.S. government has announced that there's a release on the embargo against crude in Curacao coming from Venezuela. So we expect that the production of that refinery to go up going forward.

Deane Dray -- RBC -- Analyst

Terrific. Okay. Well, that's exactly why you have those take-or-pay contracts. So, seeing that. That's it for me. Thank you.

Operator

The next question is from the line of Joseph Osha with JMP Securities. Please proceed with your questions.

Hilary Cauley -- JMP Securities -- Analyst

This is Hilary on for Joe. I think, during your prepared remarks, you had mentioned you're already kind of starting to see some cross-selling between the AUC transaction and in desal. And I was wondering if you could just kind of talk about what that opportunity might look like and if we'll see a step-up in the growth at Seven Seas as a result of that.

Douglas R. Brown -- Founder & Chairman

There's a couple of different possibilities. There have been some opportunities in the Caribbean that are with our existing customers that we're introducing our waste treatment capacity. We have one particular -- we've seen our first opportunity that is a combined feedwater/wastewater treatment project. So that would be both some kind of desal on the front end in providing drinking water and then sewage treatment on the back end. We're not really at liberty to specify where that is yet because it's a deal that we're still trying to negotiate and land. But we are seeing -- we are taking a proactive effort in going to our existing customer base and operators in the territories we're doing business to introduce the fact that we have this wastewater treatment capability now.

Hilary Cauley -- JMP Securities -- Analyst

Okay. Great. And then just kind of on the M&A pipeline, if you could give kind of updated thoughts in terms of what's the most appealing and if there's any particular markets that you're seeing a lot of interest?

Anthony A. Ibarguen -- President, Director & Chief Executive Officer

Well, on both segments, we continue to work the M&A opportunities around the world and we remain very positive. As I mentioned, 15 deals in the last 2.5 years, it's a pretty good pace. We had a lot of integration work to do this particular quarter, as promised on the call. We focus on that. Our dedicated M&A teams are definitely very active. And we'd expect to see some positive announcements and things that we can talk to you about probably by next quarter. As far as where in the world, we mentioned Ghana is still in our sights. That's something that we continue to think as a potential opportunity down the road, assuming certain things happen over the coming months and quarters in Ghana. But we're looking at other markets in the Middle East, in Northern Africa, parts of Spain, around the Caribbean and South America and even in the U.S. in the desal world. And then of course, with AUC in the fold, we're expanding our M&A horizons to include wastewater treatment and reuse. And so there's quite a lot going on. We're pretty optimistic about where we're headed on that.

Hilary Cauley -- JMP Securities -- Analyst

Great. Thanks so much.

Operator

The next question is from the line of Rob Brown with Lake Street Capital. Please proceed with your question.

Rob Brown -- Lake Street Capital -- Analyst

Good morning. On the Quench business, you're seeing some good margin improvement. Where do say you're at in terms of scaling that business and getting the scale benefits and maybe a sense of where that margin can go?

Anthony A. Ibarguen -- President, Director & Chief Executive Officer

Yes. Excellent. There's margin at two levels. Operating leverage really is probably the best way to think about it in two levels within Quench. One is at a macro level, which is taking advantage of the platform operation that can grow with very little incremental cost, can handle incremental volume. That was the purpose and point of our multiyear, multimillion-dollar implementation of the new system and the centralization of a lot of resources into key operating centers. But then on top of that, we get significant operating leverage market-by-market as we grow in our penetration of each of these markets around the country. We still have -- I think we're probably at a dozen or 14 marketplaces around the country, where we have a single technician and we don't have a sales rep.

And so those are opportunities for us to continue to grow as well as to add in whitespace around the country. As those markets gain in density and penetration, not only are we more efficient in delivering service, but we actually have increased service levels, which tends to lead to retention and lower churn means more growth. So two levels of operating leverage there. And we're not quite sure where the end is. So we've got plenty of room to grow. We see several points of opportunity of improvement from where we stand today.

Rob Brown -- Lake Street Capital -- Analyst

Okay. Good. That's great. And then on the AUC business, I think you talked about kind of mid-teens growth there. How do you see that rolling out? Is that you've got a pipeline of contracts that kind of come on ratably or projects that come on ratably? Or is that more lumpy growth?

Douglas R. Brown -- Founder & Chairman

That's going to be much more smoother growth. It's going to be probably between the middle of Quench and Seven Seas. The contracts are a lot smaller. But the good thing about the AUC business is this signed but not billed category of contracts. These are contracts where we have a customer who signed a lease, but it takes us 9 to 12 months to actually build the plant and put it into service. And that's when we can start billing the leases. So we've got a very good visibility looking out to the next 12 to 18 months. And that's how we're able to say with a high degree of confidence that we're going to be able to hit our budget targets for this year. And next year, 2020 should be a mid-teens growth year.

Rob Brown -- Lake Street Capital -- Analyst

Thank you.

Operator

(Operator Instructions) The next question is from the line of Jeff Van Sinderen with B. Riley FBR. Please proceed with your question.

Jeff Van Sinderen -- B. Riley FBR -- Analyst

A follow-up on Quench. Just wondering if you expect faster growth from recently acquired businesses in 2019 at Quench and then maybe if you can touch on any regional opportunities that you see driving higher growth at Quench. And then also anything you could speak about in terms of the timing of additional acquisitions at Quench that you might consummate this year?

Anthony A. Ibarguen -- President, Director & Chief Executive Officer

Sure. Let me take those one at a time, Jeff, good questions. In terms of acquisitions, so we report sort of organic and inorganic by tracking acquired revenue for 12 months from the date of acquisition and we consider that inorganic. And then it basically blends into the base, into the portfolio. We see opportunities in many of our acquired customer bases to cross-sell and upgrade to other Quench systems. Quench has a significantly broader product line and line card than our typical acquired regional or smaller player. And so that gives the sales team an opportunity to call on existing customers, welcome them to the Quench family and then offer them the opportunity to upgrade and extend their contract. So we do get a fair amount of organic growth from that once that customer has settled in. As far as particular regions, this is -- we have strategically targeted areas to increase our density as well as other areas of the country in Canada, where we have whitespace but we'd like to get a foothold into those markets.

But this is also somewhat opportunistic. There are a lot of people in our network, who at some point in time will sell, but obviously we can't buy it until they're ready to sell it. If you remember, one of the reasons we doubled down on the indirect business with the acquisition of PHSI in the fourth quarter was to significantly grow our dealer base. And now we have over 200, 250 dealers out there. And we're constantly in communication with them about their long-term plans. How do you help them grow the business in the short term? And in the event that they eventually do want to exit, obviously we would be the logical exit partner. So that's how we expect a lot of our pipeline to develop in the near future. As far as aspects of growth other than regional, I mentioned earlier in response to a question that we're seeing a lot of growth in specialty products. Things like ice and sparkling water are growing significantly faster than the average.

These are higher rate, higher value systems. They tend to be very sticky with customers and they tend to be less price-sensitive, a little less competition out there. So it's something we're focused on increasingly. And it's a great cross-sell, up-sell into the existing 50,000 customer base that we have around the country. So that's something that we're pretty excited about. And then lastly, you asked about upcoming M&A. We don't forecast upcoming M&A. It's not in our numbers. Last year, Quench did 9 acquisitions. As I mentioned this year, we wanted to focus in particular in the first quarter, the first half of the year on making sure that we're integrating properly all of those acquisitions. And that is exactly what we've been up to. But we have some good activity on the M&A front. And I'll foreshadow that I would expect to have some news for you by the next earnings call. But beyond that, we're -- we've learned over the years is that it's better to tell you when it's done and it's in the fold. So that's our plan going forward.

Jeff Van Sinderen -- B. Riley FBR -- Analyst

Okay. Fair enough. And then if we could just turn back to -- I know you're getting a lot of questions about AUC this morning. But now that you had AUC in-house, sort of understand that's a multiyear process for signed but not billed. But is there a point at which we might see a step-up from new business at AUC? And then maybe if you could just touch on the O&M contracts that you could add there.

Anthony A. Ibarguen -- President, Director & Chief Executive Officer

Well, I'd say first off, it is relatively recent. We've had them for about 4 or 5 months. And the first thing I want to say is no surprises. We had a great opportunity to do our diligence before the acquisition and where we sit right now. And we were pleased to be able in the prepared remarks to reaffirm not only the overall guidance for the year for AVH but also the specific guidance for AUC, which we gave you because we have such great visibility in this category that Doug described of signed but not billing yet. And so that's a really good feeling. And we're working hard with the team to identify ways that we can help them grow the business both organically and inorganically.

But given the growth that we're talking about for them this year, they have a handful. There's a lot going on over there. So we're also being careful not to -- we love this business. And we all want to go to Houston and help the guys. And we're being careful not to overwhelm them with a bearhug that chokes some of what they're really good at. So we're finding a good rhythm and balance. And I think every quarter going forward, we'll have some more good news for you on that front as we grow the business. But it's a little early yet to be forecasting beyond what we've already shared.

Jeff Van Sinderen -- B. Riley FBR -- Analyst

Okay Fair enough. Thanks for taking my questions and continued success

Anthony A. Ibarguen -- President, Director & Chief Executive Officer

Thanks Jeff.

Operator

The next question is from the line of Pavel Molchanov with Raymond James. Please proceed with your question.

Pavel Molchanov -- Raymond James -- Analyst

Thanks for taking the question. And let me echo the point about we like seeing nice, steady-state, predictable quarters. We're about to head into Caribbean hurricane season. And remembering the events of 2 years ago, I thought I would give you guys kind of the opportunity to talk about any preparations you're making and generally what we should expect if the weather does not cooperate as much as we might want it to.

Douglas R. Brown -- Founder & Chairman

Well, Pavel, 2 years ago was a real outlier of a hurricane season. Last year was also kind of an outlier because there were very few hurricanes. So from 1 year to the next, it's a little bit hard to predict how bad a season it's going to be. I think 2 years ago, that was one of the worst on records. And we made it through fine at the end of the day with a minimal financial impact. We have done certain things as a result of our learning experience from that 2 years ago though. We have satellite radios in all of our installations. We actually stock food in our installations. Because 2 years ago, we found that we had a lot of people living in our plants because they were the place -- the only places that still had a roof on.

So we've kind of anticipated that in an emergency, we may need to be housing some of our employees. So we stock food at the plants. We've done certain things. Most of the damage that our plants did receive was dislocated air-conditioning systems that were mounted outside. We've reinstalled them in a more secure way so that, that won't happen. But generally speaking, our hurricane preparation is well-refined. And in Maria -- in the 2 hurricanes we had, we survived really well. So we feel very good that we have a preparation protocol that gives us the best opportunity to survive any hurricanes with minimal damage.

Pavel Molchanov -- Raymond James -- Analyst

Yes. That's helpful. And I agree with you. We've seen both extreme ends of the spectrum in the last 2 years. Turning back to the core business, on the M&A front, it obviously has been a much slower 3, 4 months versus the kind of late 2018, when you did 2 of your biggest acquisitions on record. One of the things I remember you saying a quarter ago before the Ghana deal expired, was that your relationship with OPIC would lend itself to additional opportunities in emerging markets, Africa included. And with Ghana following Peru, is there progress kind of additional dialogue with OPIC that gives you confidence that they can in fact give you some promising opportunities going forward?

Douglas R. Brown -- Founder & Chairman

Absolutely. And in fact, we've got several -- a couple of deals on our list that we're working on that were introduced to us by OPIC. And we have a couple of deals where we introduced OPIC to the deal. And so there's a number of opportunities we're working with them in parallel for. Great organization, and they know us from our old Ionics days. And we think extremely highly of them and what they bring to the table.

Pavel Molchanov -- Raymond James -- Analyst

Alright. Appreciate it, guys.

Douglas R. Brown -- Founder & Chairman

Thanks.

Operator

At this time, we've reached the end of the question-and-answer session. And I'll turn the call over to Tony Ibarguen for closing remarks.

Anthony A. Ibarguen -- President, Director & Chief Executive Officer

Thanks, operator. Thanks, everyone, for your support. And we look forward to delivering another great quarter ahead. And we'll talk to you in early August. Thank you.

Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 43 minutes

Call participants:

Courtney Denihan -- Investor Relations

Anthony A. Ibarguen -- President, Director & Chief Executive Officer

Lee Muller -- Senior Vice President & Chief Financial Officer, Treasurer & Assistant Secretary

Douglas R. Brown -- Founder & Chairman

Vladimir Bystricky -- Citigroup -- Analyst

Deane Dray -- RBC -- Analyst

Hilary Cauley -- JMP Securities -- Analyst

Rob Brown -- Lake Street Capital -- Analyst

Jeff Van Sinderen -- B. Riley FBR -- Analyst

Pavel Molchanov -- Raymond James -- Analyst

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