Evoqua Water Technologies Reports First Quarter 2021 Results

First Quarter 2021 Financial Highlights:

• Revenue of $322.2 million, down 6.9% compared to the prior year period; organic revenue down 3.5%
• Net income of $6.5 million; diluted earnings per share of $0.05
• Adjusted EBITDA of $44.8 million
• Operating cash flow of $15.6 million, an increase of $10.9 million 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 first quarter ended December 31, 2020.

Revenue for the first quarter of fiscal 2021 was $322.2 million, compared to $346.1 million in the prior year period, a decrease of 6.9%, or $23.9 million. The decline in revenue as compared to the prior year period reflects the divestiture of the Memcor product line, which resulted in a decrease to revenue of 4.1%, or $14.1 million, net of contributions from acquisitions. Organic revenue decreased 3.5%, or $12.0 million, mostly related to the pandemic’s impact on volume in the quarter, as well as the timing of completion of certain large projects in the prior year. The decline in revenue was partially offset by a favorable change in foreign currency translation of $2.2 million. Net income for the quarter was $6.5 million, resulting in diluted earnings per share (“EPS”) of $0.05, as compared to net income of $53.5 million and diluted EPS of $0.44 in the prior year period. The prior year period net income included the gain from the sale of the Memcor product line, which resulted in a net pre-tax benefit of $49.0 million. Adjusted EBITDA for the quarter was $44.8 million as compared to $43.6 million in the prior year period. See the “Use of Non-GAAP Measures” section below for additional information regarding adjusted EBITDA and organic revenue.

“We reported solid first quarter results while navigating varying demand trends across our end markets amid ongoing COVID-19 challenges. Our organization is focused on engaging with our customers and delivering solutions and technologies that address increasingly complex water treatment problems. Organic orders grew, our pipeline remains solid, and our book to bill ratio remains above 1.0.” said Mr. Ron Keating, Evoqua’s CEO.

Mr. Keating continued, “We continue to prioritize the health and safety of our team members, maintaining customer continuity and service excellence, and improving our balance sheet flexibility. Our team has responded well and our first quarter financial results were largely as expected. We note strength in adjusted EBITDA growth and margin as well as solid free cash flow. Our strong order book will continue to drive investments in organic growth opportunities and technology expansion.”

Mr. Keating stated, “We expect continued uneven market demand due to COVID-19 with visibility across the full year remaining somewhat limited. Our focus will remain on delivering organic growth through outsourced water solutions, wastewater recycle/reuse, Water One® digitally enabled systems and selling our broad portfolio of component technologies. We expect M&A to supplement our organic growth strategy, and we welcome the employees of Ultrapure & Industrial Services, our latest acquisition, to the Evoqua family. Our sustainability initiatives are gaining traction, and we are providing solutions to help our customers meet their sustainable objectives. We look forward to publishing our 2020 Sustainability Report this Spring.”

First Quarter Segment Results

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

Integrated Solutions and Services

Segment revenues decreased $13.4 million, or 5.9%, to $214.7 million in the first quarter of fiscal 2021 as compared to the prior year period.

• Service revenues decreased $6.9 million as compared to the prior year period, primarily driven by temporary delays in annual maintenance in the oil and gas refining end market, the timing of completion of certain large projects in the prior year and shutdowns and delays due to COVID-19. Price realization related to established service contracts and service growth in the healthcare and pharmaceuticals end markets partially offset these declines.
• Capital revenues declined $4.0 million as compared to the prior year period, primarily related to the timing of projects in the microelectronics end market, which was partially offset by new projects across a variety of end markets.
• The remaining decrease was due to a reduction in aftermarket revenue of $2.5 million.

Operating profit decreased by $6.8 million, or 20.5%, to $26.4 million in the first quarter of fiscal 2021 as compared to the prior year period.

• Segment profitability decreased by $7.3 million as compared to the prior year period driven by lower volume and mix, lower productivity due to customer shutdowns and enhanced safety protocols as a result of the COVID-19 pandemic, and increased operating costs based on changes in allocation methodologies for corporate expenses. These declines were partially offset by additional price realization in the current period.
• Positive drivers to profitability were associated with a decrease in travel and discretionary spending of $1.7 million.
• Depreciation and amortization expense increased by $1.2 million compared to the prior year period as the segment continues to invest in revenue generating assets.

Segment adjusted EBITDA decreased $5.6 million, or 11.5%, to $43.2 million in the first quarter of fiscal 2021 as compared to the prior year period. The decline in segment adjusted EBITDA resulted from the same factors that impacted operating profit, other than the change in depreciation and amortization.

Applied Product Technologies

Segment revenues decreased by $10.5 million, or 8.9%, to $107.5 million in the first quarter of fiscal 2021 as compared to the prior year period.

• The divestiture of the Memcor product line resulted in a reduction in revenue of $14.4 million as compared to the prior year period.
• Revenues increased $6.0 million in the Asia Pacific region as compared to the prior year period. This volume increase was partially offset by revenue declines across multiple product lines in both the Americas and EMEA regions by $0.6 million and $3.7 million, respectively, as compared to the prior year period, mainly due to continued customer site access challenges and delays primarily impacting the Municipal Drinking Water and Aquatics end markets.
• Foreign currency translation resulted in a favorable revenue impact of $2.2 million as compared to the prior year period.

Operating profit decreased $49.7 million to $13.4 million for the first quarter of fiscal 2021 as compared to the prior year period.

• The decline in segment profitability was primarily related to the net pre-tax benefit on sale of the Memcor product line of $49.0 million in the prior year period. Operating profit was also impacted by a $1.2 million decrease related to the reduction in revenue volume as a result of the divestiture.
• Organic volume as well as improvement in operational efficiencies and cost containment measures, partially offset by the impact of variances in product mix, contributed a net $4.7 million in profitability as compared to the prior year period, while inflation and employee related costs reduced operating profit by $0.9 million.
• Operating profit was benefited $0.5 million by foreign currency translation as compared to the prior year period.
• Further net operating profit decrease of $3.8 million was attributable to higher restructuring costs and changes in other non-recurring activity as compared to the prior year period.

Segment adjusted EBITDA increased $3.2 million to $19.0 million in the first quarter of fiscal 2021, as compared to $15.8 million in the same period of the prior year. The increase in segment adjusted EBITDA was driven by the same factors that impacted segment operating profit, other than the change in depreciation and amortization, and also excludes restructuring and other non-recurring activity recognized in the period.

First Quarter Earnings Call and Webcast

The Company will hold its first quarter fiscal 2021 earnings conference call Tuesday, February 2, 2021, 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/.

Conference telephone number:

US Participant Dial-in: (866) 690-2108

International Participant Dial-in: (918) 398-8081

Conference ID: 3280356

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

US Replay: (855) 859-2056

International Replay: (404) 537-3406

Replay available: Beginning 1:00 p.m. ET on February 2 until 11:59 p.m. on February 16, 2021

Conference ID: 3280356

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 160 locations across ten countries. Serving more than 38,000 customers and 200,000 installations worldwide, our employees are united by a common purpose: Transforming Water. Enriching Life.

Use of Non-GAAP Financial Measures

This press release contains “non-GAAP financial measures,” which are adjusted financial measures that are not calculated and presented in accordance with generally accepted accounting principles in the United States, or “GAAP.” These non-GAAP adjusted financial measures are provided as additional information for investors. We believe these non-GAAP adjusted financial measures, which include organic and inorganic revenue and adjusted EBITDA, are 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 regarding 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 reconciliations of the non-GAAP adjusted financial measures used in this press release to the most directly comparable respective GAAP measures, see the “Use of Non-GAAP Measures” section below.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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, general global economic and business conditions, including the impacts of the COVID-19 pandemic and disruptions in global oil markets; our ability to compete successfully in our markets; 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 customers’ safety standards or the potential for adverse publicity affecting our reputation as a result of incidents such as workplace accidents, mechanical failures, spills, uncontrolled discharges, damage to customer or third-party property or the transmission of contaminants or diseases; our ability to continue to develop or acquire new products, services and solutions and adapt our business to meet the demands of our customers, comply with changes to government regulations and achieve market acceptance with acceptable margins; 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 or otherwise successfully implement our growth strategy; our ability to achieve the expected benefits of our restructuring actions, including restructuring our business into two segments; material and other cost inflation and our ability to mitigate the impact of inflation by increasing selling prices and improving our productivity efficiencies; our ability to accurately predict the timing of contract awards; 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 and other key personnel; our increasing dependence on the continuous and reliable operation of our information technology systems; risks associated with product defects and unanticipated or improper use of our products; litigation, regulatory or enforcement actions and reputational risk as a result of the nature of our business or our participation in large-scale projects; seasonality of sales and weather conditions; risks related to government customers, including potential challenges to our government contracts or our eligibility to serve government customers; the potential for our contracts with federal, state and local governments to be terminated or adversely modified prior to completion; risks related to foreign, federal, state and local environmental, health and safety laws and regulations and the costs associated therewith; risks associated with international sales and operations, including our operations in China; our ability to adequately protect our intellectual property from third-party infringement; risks related to our substantial indebtedness; our need for a significant amount of cash, which depends on many factors beyond our control; risks related to AEA Investors LP’s ownership interest in us; and other factors described in the “Risk Factors” section included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, as filed with the SEC on November 20, 2020, and in other periodic reports we file 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 2021 and statements related to the COVID-19 pandemic, the impact of which remains inherently uncertain. Additionally, any forward-looking statements made in this press release speak only as of the date of this release. We undertake no 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. 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.

Use of Non-GAAP Measures

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP financial measures provide users of the Company’s financial information with additional useful information in evaluating operating performance. We use the non-GAAP financial measures “EBITDA,” “adjusted EBITDA,” and “organic revenue” in evaluating our past performance and future prospects. EBITDA is defined as net income (loss) before interest expense, income tax benefit (expense) and depreciation and amortization. Adjusted EBITDA is defined as net income (loss) before interest expense, income tax benefit (expense) and depreciation and amortization, adjusted for the impact of certain other items, including restructuring and related business transformation costs, purchase accounting adjustment costs, non-cash share-based compensation, transaction costs and other gains, losses and expenses.

Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business. We present adjusted EBITDA because we believe it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Further, we believe it is helpful in highlighting trends in our operating results and provides greater clarity and comparability period over period to management and our investors regarding the operational impact of long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. Management uses adjusted EBITDA to supplement GAAP measures of performance as follows:

• to assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance;
• in our management incentive compensation, which is based in part on components of adjusted EBITDA;
• in certain calculations under our senior secured credit facilities, which use components of adjusted EBITDA;
• to evaluate the effectiveness of our business strategies;
• to make budgeting decisions; and
• to compare our performance against that of other peer companies using similar measures.

In addition to the above, our chief operating decision maker uses EBITDA and adjusted EBITDA of each reportable operating segment to evaluate the operating performance of such segments. EBITDA and adjusted EBITDA of the reportable operating segments do not include certain charges that are presented within corporate activities. These charges include certain restructuring and other business transformation charges that have been incurred to align and reposition the Company to the current reporting structure, acquisition related costs (including transaction costs and certain integration costs) and share-based compensation charges.

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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