Evoqua Water Technologies Reports Fourth Quarter and Full Year 2022 Results

Fourth Quarter 2022 Financial Highlights:

• Revenue of $504.8 million, an increase of 18.5% compared to the prior year period; organic revenue growth of 8.7%
• Net income of $41.3 million, an increase of 53.5% compared to the prior year period
• Adjusted EBITDA of $93.2 million, an increase of 13.8% compared to the prior year period

Full Year 2022 Financial Highlights:

• Revenue of $1.74 billion, an increase of 18.6% compared to the prior year period; organic revenue growth of 10.2%
• Net income of $72.3 million, an increase of 39.8% compared to the prior year period
• Adjusted EBITDA of $297.7 million, an increase of 18.7% compared to the prior year period

PITTSBURGH–(BUSINESS WIRE)–Evoqua Water Technologies (NYSE:AQUA), an industry leader in mission-critical water treatment solutions, today reported results for its fourth quarter and fiscal year ended September 30, 2022.

Revenue for the fourth quarter of fiscal year 2022 was $504.8 million, compared to $426.0 million in the prior year period, an increase of 18.5%, or $78.8 million. Organic revenue growth contributed 8.7%, or $37.0 million, driven by favorable price realization and higher volume for products and services across most product lines and regions. Inorganic revenue contributed $49.3 million, primarily related to our acquisition of the Mar Cor business on January 3, 2022. Revenue was unfavorably impacted by $7.5 million in the period related to foreign currency translation. Net income for the quarter was $41.3 million, resulting in diluted earnings per share (“EPS”) of $0.33, as compared to net income of $26.9 million and diluted EPS of $0.22 in the prior year period. The increase in net income of 53.5%, or $14.4 million, was favorably impacted by a non-cash benefit of $17.3 million associated with the release of a tax valuation allowance, as well as increased operational volume. These benefits were partially offset by increased operating expenses, primarily due to higher wages and other costs associated with acquisitions and inflation, as well as higher non-cash foreign currency translation losses as compared to the prior period. Adjusted EBITDA for the quarter was $93.2 million, as compared to $81.9 million in the prior year period, an increase of 13.8%, or $11.3 million. See the “Use of Non-GAAP Measures” section below for additional information regarding adjusted EBITDA.

Revenue for the fiscal year 2022 was $1.74 billion, compared to $1.46 billion in the prior year period, an increase of 18.6%, or $272.7 million. Organic revenue growth contributed 10.2%, or $149.4 million, driven by favorable price realization and higher volume for products and services across most product lines and all regions. Inorganic revenue contributed $137.1 million, primarily related to our acquisition of the Mar Cor business on January 3, 2022. Revenue was unfavorably impacted by $13.8 million in the year related to foreign currency translation. Net income for the year was $72.3 million, resulting in diluted earnings per share (“EPS”) of $0.58, as compared to net income of $51.7 million and diluted EPS of $0.42 in the prior year. The increase in net income of 39.8%, or $20.6 million, was favorably impacted by a non-cash benefit of $17.3 million associated with the release of a tax valuation allowance, as well as increased operational volume. These benefits were partially offset by increased operating expenses, primarily due to higher wages and salaries and other costs associated with acquisitions and inflation, as well as non-cash foreign currency translation losses of $18.7 million in the current year, compared to foreign currency translation gains of $0.9 million in the prior year, mostly related to intercompany loans. Adjusted EBITDA for the year was $297.7 million, as compared to $250.9 million in the prior year period, an increase of 18.7%, or $46.8 million. See the “Use of Non-GAAP Measures” section below for additional information regarding adjusted EBITDA.

“We completed another strong fiscal year with outstanding fourth quarter results. Our team executed well delivering revenue growth of approximately 19% for both the fourth quarter and full year. Demand continues to be strong across multiple end markets generating organic revenue growth of approximately 10% for the fiscal year and 9% for the fourth quarter. Acquisition integrations continue to be favorable, and our team is efficiently managing supply chain challenges. Adjusted EBITDA grew by almost 19% to $298 million for the full year, while margin remained flat versus prior year, despite inflationary challenges. We are also pleased to again report a positive price/cost ratio for the fourth quarter and for the full year,” said Mr. Ron Keating, Evoqua’s CEO.

Mr. Keating continued, “Cash flow generation remains a key priority, and we were very pleased with our results. We again delivered improvements in operating cash, adjusted free cash flow, liquidity, and our net debt leverage. As we enter fiscal 2023, we expect to maintain a solid and flexible balance sheet to support continued organic and inorganic growth investments. We delivered on two fiscal 2022 goals of exceeding 55% water reuse in our top ten facilities and reducing our safety incident rate across the company from the prior year.”

Mr. Keating closed, “We enter the new year with a healthy backlog following our second consecutive year with a book-to-bill ratio of approximately 1.1. We continue to see significant growth opportunities, both organic and inorganic, and will closely monitor our pipeline to respond quickly to changes in our markets and incoming order rates. Our diverse end markets should minimize the effects of economic uncertainty, giving us a balanced outlook for the full year. For fiscal 2023, we expect revenues to be $1.81 to $1.89 billion and adjusted EBITDA to be $310 to $330 million for year-over-year growth of approximately 4% to 9% and approximately 4% to 11%, respectively.”

Fourth Quarter Segment Results

Evoqua has two reportable operating segments – Integrated Solutions and Services and Applied Product Technologies. The results of our segments for the fourth quarter are as follows:

Integrated Solutions and Services

Segment revenue increased by $65.8 million, or 23.4%, to $347.2 million in the fourth quarter of fiscal 2022, as compared to $281.4 million in the prior year period.

• Aftermarket and service revenue increased by $28.3 million and $27.0 million, respectively, driven by contributions from acquisitions, favorable pricing and growth across most end markets.
• Capital revenue increased by $10.5 million driven by contributions from acquisitions that were slightly offset by a decline in volume in the chemical processing industry related to the timing of completion of projects.

Operating profit decreased by $0.1 million, or 0.2%, to $52.3 million in the fourth quarter of fiscal 2022, as compared to $52.4 million in the prior year period.

• Segment profitability increased by $8.6 million due to increased sales volume, favorable price/cost, and mix.
• Higher employee related expenses decreased segment profitability by $4.6 million while increased travel and other discretionary spending also impacted profitability by $0.7 million.
• Higher depreciation and amortization expense impacted segment operating profit by $0.6 million.
• Higher restructuring and other non-recurring expense, primarily associated with acquisition integrations, decreased segment operating profit by $2.8 million.

Segment adjusted EBITDA increased by $7.1 million, or 10.1%, to $77.6 million in the fourth quarter of fiscal 2022, as compared to $70.5 million in the prior year period. The increase in segment adjusted EBITDA resulted from the same factors that impacted operating profit, other than the change in depreciation and amortization. Segment adjusted EBITDA also excludes restructuring and other non-recurring activity recognized in the period. See the “Use of Non-GAAP Measures” section below for a reconciliation of segment adjusted EBITDA to segment operating profit.

Applied Product Technologies

Segment revenue increased by $13.0 million, or 9.0%, to $157.6 million in the fourth quarter of fiscal 2022, as compared to $144.6 million in the prior year period.

• Revenue increased in the Asia and Americas regions across multiple product lines, driven by favorable pricing and higher volume.
• Foreign currency translation unfavorably impacted revenue by $6.9 million, primarily in the EMEA region.

Operating profit increased by $5.0 million, or 17.4%, to $33.7 million for the fourth quarter of fiscal 2022, as compared to $28.7 million in the prior year period.

• Segment profitability increased by $7.4 million due to favorable price/cost and increased revenue volume, partially offset by unfavorable operational variances associated with supply chain challenges.
• Higher employee related expenses reduced segment profitability by $1.2 million driven by higher labor costs and increased travel spending.
• Foreign currency translation unfavorably impacted segment profitability by $1.6 million.
• Lower depreciation and amortization expense increased operating profit by $0.2 million.
• Lower restructuring and other non-recurring costs also increased operating profit by $0.2 million.

Segment adjusted EBITDA increased by $4.6 million, or 13.9%, to $37.7 million in the fourth quarter of fiscal 2022, as compared to $33.1 million in the prior year period. The change in segment adjusted EBITDA was driven by the same factors that impacted segment operating profit, other than the change in depreciation and amortization. Segment adjusted EBITDA also excludes restructuring and other non-recurring activity. See the “Use of Non-GAAP Measures” section below for a reconciliation of segment adjusted EBITDA to segment operating profit.

Fourth Quarter Earnings Call and Webcast

The Company will hold its fourth quarter fiscal 2022 earnings conference call Tuesday, November 15, 2022, at 10:00 a.m. E.T. The live audio webcast and presentation slides for the call will be accessible via Evoqua’s Investor Relations website, http://aqua.evoqua.com/.

Participant Details

Dial-In Numbers:

Toll Free US: 800-225-9448

International: +1 203-518-9708

Conference ID: AQUAQ4

The link to the webcast replay as well as the presentation slides will also be posted on Evoqua’s Investor Relations website.

Replay details:

Dial-In-Numbers:

US Toll Free Phone #: 800-934-3638

International Phone #: +1 402-220-1150

(Conference ID is not needed to access replay)

Replay available: Beginning 1:00 p.m. E.T. on November 15 until 11:59 p.m. ET on January 15, 2023.

Webcast Audience URL:

https://event.on24.com/wcc/r/3979139/F3ACF27A5F3A6FF7E90D300D0DDFA59B

Dissemination of Company Information

The Company intends to make future announcements regarding developments and financial performance through the Investor Relations section of its website, http://aqua.evoqua.com, as well as through press releases, filings with the Securities and Exchange Commission (the “SEC”), conference calls and webcasts. The Company does not incorporate the information contained on, or accessible through, its corporate website into this press release.

About Evoqua Water Technologies

Evoqua Water Technologies is a leading provider of mission critical water and wastewater treatment solutions, offering a broad portfolio of products, services, and expertise to support industrial, municipal and recreational customers who value water. Evoqua has worked to protect water, the environment and its employees for more than 100 years, earning a reputation for quality, safety and reliability around the world. Headquartered in Pittsburgh, Pennsylvania, the company operates in more than 150 locations across nine countries. Serving more than 38,000 customers and 200,000 installations worldwide, our employees are united by a common purpose: Transforming Water. Enriching Life.

Non-GAAP Financial Measures

This press release contains reference to adjusted EBITDA, a financial measure that is not calculated and presented in accordance with generally accepted accounting principles in the United States (“GAAP”). This non-GAAP financial measure is provided as additional information for investors. We believe this non-GAAP financial measure is helpful to management and investors in highlighting trends in our operating results and provide greater clarity and comparability period over period to management and our investors regarding the operational impact of long-term strategic decisions relating to capital structure, the tax jurisdictions in which we operate and capital investments. The presentation of this additional information is not meant to be considered in isolation or as a substitute for GAAP measures. For definitions of the non-GAAP financial measures used in this press release and reconciliations to the most directly comparable respective GAAP measures, see the “Use of Non-GAAP Measures” section below.

With respect to forward-looking guidance provided in this press release, we have not presented a quantitative reconciliation of the forward-looking non-GAAP financial measure adjusted EBITDA to its most directly comparable GAAP financial measure because it is impractical to forecast certain items without unreasonable efforts due to the uncertainty and inherent difficulty of predicting the occurrence and financial impact of, and the periods in which, such items, including foreign exchange impact and certain expenses for which we adjust, may be recognized. For the same reasons, we are unable to address the probable significance of the unavailable information, which could be material to future results.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can generally identify forward-looking statements by our use of forward-looking terminology such as “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “plan,” “progress,” “potential,” “predict,” “projection,” “seek,” “should,” “will,” or “would” or the negative thereof or other variations thereon or comparable terminology. All of these forward-looking statements are based on our current expectations, assumptions, estimates, and projections. While we believe these expectations, assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance, or achievements to differ materially from any future results, performance, or achievements expressed or implied by these forward-looking statements, or could affect our share price. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, among other things, material, freight, and labor inflation, commodity and component availability constraints, and disruptions in global supply chains and transportation services; general global economic and business conditions, including the impacts of rising interest rates, recessionary conditions, geopolitical conflicts, such as the conflict between Russia and Ukraine and tensions between China and the U.S., and the COVID-19 pandemic; our ability to execute projects on budget and on schedule; the potential for us to incur liabilities to customers as a result of warranty claims or failure to meet performance guarantees; our ability to meet our own and our customers’ safety standards; failure to effectively treat emerging contaminants; our ability to continue to develop or acquire new products, services and solutions that allow us to compete successfully in our markets; our ability to implement our growth strategy, including acquisitions, and our ability to identify suitable acquisition targets; our ability to operate or integrate any acquired businesses, assets or product lines profitably; our ability to achieve the expected benefits of our restructuring actions; delays in enactment or repeals of environmental laws and regulations; the potential for us to become subject to claims relating to handling, storage, release or disposal of hazardous materials; our ability to retain our senior management, skilled technical, engineering, sales, and other key personnel and to attract and retain key talent in increasingly competitive labor markets; risks associated with international sales and operations; our ability to adequately protect our intellectual property from third-party infringement; risks related to our contracts with federal, state, and local governments, including risk of termination or modification prior to completion; risks associated with product defects and unanticipated or improper use of our products; our ability to accurately predict the timing of contract awards; risks related to our substantial indebtedness; our increasing dependence on the continuous and reliable operation of our information technology systems; risks related to foreign, federal, state and local environmental, health and safety laws and other applicable laws and regulations and the costs associated therewith; our ability to execute on our strategies related to environmental, social, and governance matters, and achieve related goals and targets, including as a result of evolving standards, laws, regulations, processes, and assumptions, delayed scientific and technological developments, increased costs, and changes in carbon markets; and other risks and uncertainties, including those listed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, to be filed with the SEC, and in other filings we may make from time to time with the SEC. All statements other than statements of historical fact included in this press release are forward-looking statements, including, but not limited to, expectations for fiscal year 2023, expectations related to customer demand, our book to bill ratio, pricing initiatives, supply chain challenges, inflation, material and labor availability, and general macroeconomic conditions, and expectations with respect to the integration and performance of our recent acquisitions, including the realization of expected synergies. Any forward-looking statements made in this press release speak only as of the date of this release. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements made herein, whether as a result of new information, future events or otherwise after the date of this release. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to the date of this release.

EVOQUA WATER TECHNOLOGIES CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
	Three Months Ended September 30,								Year Ended September 30,
	2022				2021				2022				2021
Revenue from product sales and services	$	504,755			$	425,991			$	1,737,076			$	1,464,429
Cost of product sales and services		(344,302	)			(286,932	)			(1,201,097	)			(1,007,077	)
Gross profit	$	160,453			$	139,059			$	535,979			$	457,352
General and administrative expense		(74,319	)			(60,407	)			(260,550	)			(206,455	)
Sales and marketing expense		(44,361	)			(39,481	)			(161,303	)			(143,110	)
Research and development expense		(4,382	)			(3,516	)			(15,442	)			(13,445	)
Total operating expenses	$	(123,062	)		$	(103,404	)		$	(437,295	)		$	(363,010	)
Other operating income, net		1,712				2,940				5,309				4,975
Income before interest expense and income taxes	$	39,103			$	38,595			$	103,993			$	99,317
Interest expense		(9,711	)			(9,283	)			(34,680	)			(37,575	)
Income before income taxes	$	29,392			$	29,312			$	69,313			$	61,742
Income tax benefit (expense)		11,926				(2,408	)			3,030				(10,080	)
Net income	$	41,318			$	26,904			$	72,343			$	51,662
Net income attributable to non‑controlling interest		—				46				145				180
Net income attributable to Evoqua Water Technologies Corp.	$	41,318			$	26,858			$	72,198			$	51,482
Basic income per common share	$	0.34			$	0.22			$	0.60			$	0.43
Diluted income per common share	$	0.33			$	0.22			$	0.58			$	0.42

EVOQUA WATER TECHNOLOGIES CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts)
	(Unaudited)
	September 30, 2022				September 30, 2021
ASSETS
Current assets	$	831,389			$	678,458
Cash and cash equivalents		134,005				146,244
Receivables, net		305,712				277,995
Inventories, net		229,351				158,503
Contract assets		102,123				72,746
Other current assets		60,198				22,970
Property, plant, and equipment, net		405,289				374,988
Goodwill		473,572				407,376
Intangible assets, net		317,733				290,075
Operating lease right-of-use assets, net		53,540				45,521
Other non-current assets		109,340				72,473
Total assets	$	2,190,863			$	1,868,891
LIABILITIES AND EQUITY
Current liabilities	$	483,716			$	405,989
Accounts payable		213,518				164,535
Current portion of debt, net of deferred financing fees and discounts		17,266				12,775
Contract liabilities		62,439				55,883
Accrued expenses and other liabilities		178,272				160,367
Other current liabilities		12,221				12,429
Non-current liabilities		997,054				880,683
Long-term debt, net of deferred financing fees and discounts		863,534				730,430
Obligation under operating leases		43,961				37,935
Other non-current liabilities		89,559				112,318
Total liabilities	$	1,480,770			$	1,286,672
Shareholders’ equity
Common stock, par value $0.01: authorized 1,000,000 shares; issued 123,411 shares, outstanding 121,747 at September 30, 2022; issued 122,173 shares, outstanding 120,509 at September 30, 2021	$	1,235			$	1,223
Treasury stock: 1,664 shares at September 30, 2022 and 1,664 shares at September 30, 2021		(2,837	)			(2,837	)
Additional paid-in capital		607,748				582,052
Retained earnings (deficit)		61,016				(11,182	)
Accumulated other comprehensive income, net of tax		42,931				11,415
Total Evoqua Water Technologies Corp. equity	$	710,093			$	580,671
Non-controlling interest		—				1,548
Total shareholders’ equity	$	710,093			$	582,219
Total liabilities and shareholders’ equity	$	2,190,863			$	1,868,891

EVOQUA WATER TECHNOLOGIES CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
	Year Ended September 30,
	2022				2021
Operating activities
Net income	$	72,343			$	51,662
Reconciliation of net income to cash flows provided by operating activities:
Depreciation and amortization		127,570				113,664
Amortization of deferred financing fees (includes $0 and $1,333 write off of deferred financing fees)		1,866				3,280
Deferred income taxes		(15,018	)			(2,363	)
Share-based compensation		22,104				15,524
(Gain) loss on sale of property, plant and equipment		(1,681	)			1,287
(Gain) loss on sale of business		(193	)			193
Foreign currency exchange losses (gains) on intercompany loans and other non-cash items		18,778				(1,094	)
Changes in assets and liabilities		(44,367	)			(3,448	)
Net cash provided by operating activities		181,402				178,705
Investing activities
Purchase of property, plant, and equipment		(82,045	)			(75,293	)
Purchase of intangibles		(3,281	)			(3,780	)
Proceeds from sale of property, plant, and equipment		3,553				2,041
Proceeds from sale of business, net of cash of $0 and $0		356				897
Acquisitions, net of cash received $411 and $0		(229,277	)			(21,037	)
Net cash used in investing activities		(310,694	)			(97,172	)
Financing activities
Issuance of debt, net of deferred issuance costs		263,396				761,915
Repayment of debt		(127,667	)			(898,024	)
Repayment of finance lease obligation		(13,356	)			(13,396	)
Payment of earn-out related to previous acquisitions		—				(170	)
Proceeds from issuance of common stock		9,556				21,205
Taxes paid related to net share settlements of share-based compensation awards		(6,281	)			(1,323	)
Distribution to non‑controlling interest		(100	)			(551	)
Net cash provided by (used in) financing activities		125,548				(130,344	)
Effect of exchange rate changes on cash		(8,495	)			2,054
Change in cash and cash equivalents		(12,239	)			(46,757	)
Cash and cash equivalents
Beginning of period		146,244				193,001
End of period	$	134,005			$	146,244

Contacts

Investors

Dan Brailer

Vice President, Investor Relations

Evoqua Water Technologies

Telephone: 724-720-1605

Email: dan.brailer@evoqua.com

Media

Sarah Brown

Director of Corporate Communications

Evoqua Water Technologies

Telephone: 506-454-5495

Email: sarah.brown@evoqua.com

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