First Quarter 2023 Financial Highlights:
- Revenue of $435.8 million, an increase of 19.0% compared to the
prior year period; organic revenue growth of 9.1%
- Net income of $9.3 million, an increase of 52.5% compared to
the prior year period
- Adjusted EBITDA of $72.7 million, an increase of 33.9% compared
to the prior year period
Evoqua Water Technologies (NYSE:AQUA), an industry leader in
mission-critical water treatment solutions, today reported results
for its first quarter ended December 31, 2022.
Revenue for the first quarter of fiscal year 2023 was $435.8
million, compared to $366.3 million in the prior year period, an
increase of 19.0%, or $69.5 million. Organic revenue growth
contributed 9.1%, or $33.3 million, driven by favorable price
realization and higher volume for products and services across most
product lines and all regions. Inorganic revenue contributed $42.9
million, primarily related to our acquisition of the Mar Cor
business on January 3, 2022. Revenue was unfavorably impacted by
$6.7 million in the period related to foreign currency translation.
Net income for the quarter was $9.3 million, resulting in diluted
earnings per share (“EPS”) of $0.07, as compared to net income of
$6.1 million and diluted EPS of $0.05 in the prior year period. The
increase in net income of 52.5%, or $3.2 million, was favorably
impacted by increased revenues and related profit. These benefits
were partially offset by increased operating expenses as compared
to the prior period, including higher legal expenses as well as
higher wages and other costs associated with acquisitions and
inflation. The increased operating costs were somewhat mitigated by
non-cash foreign currency translation gains in the current period.
Adjusted EBITDA for the quarter was $72.7 million, as compared to
$54.3 million in the prior year period, an increase of 33.9%, or
$18.4 million. See the “Use of Non-GAAP Measures” section below for
additional information regarding adjusted EBITDA.
“We are very pleased with our start to fiscal 2023.” said Ron
Keating, Evoqua President and CEO, “Our first quarter results were
strong across all regions and most end markets, as revenues were up
19.0% over the prior year period, with organic growth contributing
9.1%. We continue to see broad based demand across our key markets,
particularly Life Sciences and Microelectronics. Our order flow
remains healthy as well, with a book to bill ratio again over 1.0.
The ISS backlog continued to grow, and we are pleased with the
progress of outsourced water and our digital strategy. Leverage on
organic growth drove adjusted EBITDA up nearly 34%, and we saw
margin expansion over the prior year quarter.”
Mr. Keating continued, “Our outlook for the broader markets
remains positive, and our pipeline continues to be robust. We have
increased inventory levels to support our strong order book, as
material availability remains limited in certain regions and for
certain components. Despite this, our net debt leverage returned to
pre-Mar Cor acquisition levels just one year after the purchase.
With supply chain visibility improving and inflation abating in
some key commodities, we remain confident we will reach our 100%+
cash conversion target for the year.”
Mr. Keating concluded by stating, “On January 23, 2023, Xylem,
Inc. (“Xylem”) announced that we have entered into a definitive
agreement under which Xylem will acquire Evoqua in an all-stock
transaction. Joining forces with Xylem is an exciting opportunity
for Evoqua and for our team members. This combination provides a
platform to leverage our combined strengths, and we look forward to
the prospect of increasing our impact to better address the most
pressing and increasingly complex global water challenges. While we
remain focused on executing our plan until the deal closes, we will
not be providing updates to guidance going forward.”
First Quarter Earnings Call and Webcast
The Company will hold its first quarter fiscal 2023 earnings
conference call Tuesday, January 31, 2023, 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: 800-245-3047
International: +1 203-518-9765
Conference ID: AQUAQ1
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 #: 800-839-5490
International Phone #: +1 402-220-2550
(Conference ID is not needed to access
replay)
Replay available: Beginning 1:00 p.m. E.T.
on January 31, 2023 until 11:59 p.m. ET on March 31, 2023.
Webcast Audience URL:
https://event.on24.com/wcc/r/4070881/76F46A3E38A9C4A12C8207C25EB049CF
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 references 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 provides 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 free cash flow
conversion 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, the failure to complete the proposed
transaction with Xylem Inc. (“Xylem”) (the “Merger”) on the
anticipated terms and timing, or at all; the failure to obtain
stockholder approvals or to satisfy any of the other conditions to
the Merger on a timely basis or at all, or other delays in
completing the Merger; the failure to obtain necessary regulatory
approvals (and the risk that such approvals may result in the
imposition of conditions that could adversely affect the combined
company or the expected benefits of the Merger); the occurrence of
any event, change or other circumstances that could give rise to
the right of one or both of the parties to terminate the Company’s
merger agreement with Xylem; the possibility that the Merger may be
less accretive than expected, or may be dilutive; the possibility
that the anticipated benefits of the Merger will not be realized
when expected or at all, including as a result of the impact of, or
problems arising from, the integration of the two companies or as a
result of the strength of the economy and competitive factors in
the areas where the Company and Xylem do business; the possibility
that the Merger may be more expensive to complete than anticipated,
including as a result of unexpected factors or events; diversion of
management’s attention from ongoing business operations and
opportunities, as a result of the Merger; the risk that stockholder
litigation in connection with the Merger may affect the timing or
occurrence of the Merger or result in significant costs of defense,
indemnification and liability; the effect of the announcement of
the Merger on our ability to maintain relationships with customers,
suppliers, and other third parties; uncertainty as to the long-term
value of Xylem’s common stock; 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; including as a result of
the announcement of the Merger; 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, as filed
with the SEC on November 16, 2022, 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, certain
plans, expectations, goals, projections, and statements about the
benefits of the Merger, the expected timing of completion of the
Merger, 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.
Additional Information and Where to Find It
In connection with the proposed transaction with Xylem, Xylem
intends to file with the U.S. Securities and Exchange Commission
(“SEC”) a registration statement on Form S-4 that will include a
joint proxy statement of Xylem and Evoqua that also constitutes a
prospectus of Xylem. Each of Xylem and Evoqua also plan to file
other relevant documents with the SEC regarding the proposed
transaction. No offer of securities shall be made, except by means
of a prospectus meeting the requirements of Section 10 of the
Securities Act of 1933, as amended. Any definitive joint proxy
statement/prospectus (if and when available) will be mailed to
shareholders of Xylem and stockholders of Evoqua. INVESTORS AND
SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT,
JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS THAT MAY BE
FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION
ABOUT THE PROPOSED TRANSACTION. Investors and shareholders will be
able to obtain free copies of these documents (if and when
available), and other documents containing important information
about Xylem and Evoqua, once such documents are filed with the SEC
through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed
with the SEC by Xylem will be available free of charge on Xylem’s
website at www.xylem.com or by
contacting Xylem’s Investor Relations Department by email at
andrea.vanderberg@xylem.com or by
phone at +1 (914) 260-8612. Copies of the documents filed with the
SEC by Evoqua will be available free of charge on Evoqua’s internet
website at www.evoqua.com or by
contacting Evoqua Water Technologies Corp., 210 Sixth Avenue, Suite
3300, Pittsburgh, PA 15222, ATTN: General Counsel and
Secretary.
Participants in the Solicitation
Xylem, Evoqua and certain of their respective directors and
executive officers may be deemed to be participants in the
solicitation of proxies in respect of the proposed transaction.
Information about the directors and executive officers of Xylem is
set forth in Xylem’s proxy statement for its 2022 annual meeting of
shareholders, which was filed with the SEC on March 29, 2022, and
Xylem’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2021, which was filed with the SEC on February 25,
2022. Information about the directors and executive officers of
Evoqua is set forth in its proxy statement for its 2023 annual
meeting of stockholders, which was filed with the SEC on December
23, 2022, and Evoqua’s Annual Report on Form 10-K for the fiscal
year ended September 30, 2022, which was filed with the SEC on
November 16, 2022. Other information regarding the participants in
the proxy solicitations and a description of their direct and
indirect interests, by security holdings or otherwise, will be
contained in the joint proxy statement/prospectus and other
relevant materials to be filed with the SEC regarding the proposed
transaction when such materials become available. Investors should
read the joint proxy statement/prospectus carefully when it becomes
available before making any voting or investment decisions. You may
obtain free copies of these documents from Xylem or Evoqua using
the sources indicated above.
No Offer or Solicitation
This document is not intended to and shall not constitute an
offer to buy or sell or the solicitation of an offer to buy or sell
any securities, or a solicitation of any vote or approval, nor
shall there be any sale of securities in any jurisdiction in which
such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of such
jurisdiction. No offer of securities shall be made, except by means
of a prospectus meeting the requirements of Section 10 of the
Securities Act of 1933, as amended.
EVOQUA WATER TECHNOLOGIES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (Unaudited)
(In thousands, except per share
amounts)
Three Months Ended
December 31,
2022
2021
Revenue from product sales and
services
$
435,846
$
366,268
Cost of product sales and services
(305,537
)
(255,760
)
Gross profit
$
130,309
$
110,508
General and administrative expense
(64,076
)
(57,829
)
Sales and marketing expense
(40,386
)
(36,449
)
Research and development expense
(3,835
)
(3,452
)
Total operating expenses
$
(108,297
)
$
(97,730
)
Other operating income, net
1,220
1,510
Income before interest expense and
income taxes
$
23,232
$
14,288
Interest expense
(10,074
)
(6,579
)
Income before income taxes
$
13,158
$
7,709
Income tax expense
(3,890
)
(1,621
)
Net income
$
9,268
$
6,088
Net income attributable to non‑controlling
interest
—
101
Net income attributable to Evoqua Water
Technologies Corp.
$
9,268
$
5,987
Basic income per common share
$
0.08
$
0.05
Diluted income per common share
$
0.07
$
0.05
EVOQUA WATER TECHNOLOGIES CORP.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands, except per share
amounts)
(Unaudited)
December 31,
2022
September 30,
2022
ASSETS
Current assets
$
848,320
$
831,389
Cash and cash equivalents
104,703
134,005
Receivables, net
301,128
305,712
Inventories, net
258,264
229,351
Contract assets
118,466
102,123
Other current assets
65,759
60,198
Property, plant, and equipment, net
409,992
405,289
Goodwill
476,213
473,572
Intangible assets, net
307,747
317,733
Operating lease right-of-use assets,
net
57,624
53,540
Other non-current assets
107,461
109,340
Total assets
$
2,207,357
$
2,190,863
LIABILITIES AND EQUITY
Current liabilities
$
486,837
$
483,716
Accounts payable
219,886
213,518
Current portion of debt, net of deferred
financing fees and discounts
19,322
17,266
Contract liabilities
77,589
62,439
Accrued expenses and other liabilities
156,846
178,272
Other current liabilities
13,194
12,221
Non-current liabilities
990,788
997,054
Long-term debt, net of deferred financing
fees and discounts
852,469
863,534
Obligation under operating leases
47,399
43,961
Other non-current liabilities
90,920
89,559
Total liabilities
$
1,477,625
$
1,480,770
Shareholders’ equity
Common stock, par value $0.01: authorized
1,000,000 shares; issued 123,567 shares, outstanding 121,903 at
December 31, 2022; issued 123,411 shares, outstanding 121,747 at
September 30, 2022
$
1,237
$
1,235
Treasury stock: 1,664 shares at December
31, 2022 and 1,664 shares at September 30, 2022
(2,837
)
(2,837
)
Additional paid-in capital
616,354
607,748
Retained earnings
70,284
61,016
Accumulated other comprehensive income,
net of tax
44,694
42,931
Total shareholders’ equity
$
729,732
$
710,093
Total liabilities and shareholders’
equity
$
2,207,357
$
2,190,863
EVOQUA WATER TECHNOLOGIES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (Unaudited)
(In thousands)
Three Months Ended
December 31,
2022
2021
Operating activities
Net income
$
9,268
$
6,088
Reconciliation of net income to cash flows
(used in) provided by operating activities:
Depreciation and amortization
33,248
28,640
Amortization of deferred financing
fees
476
467
Deferred income taxes
1,852
251
Share-based compensation
6,196
5,203
Gain on sale of property, plant and
equipment
(836
)
(4
)
Foreign currency exchange (gains) losses
on intercompany loans and other non-cash items
(8,184
)
1,502
Changes in assets and liabilities
(43,293
)
(5,767
)
Net cash (used in) provided by operating
activities
(1,273
)
36,380
Investing activities
Purchase of property, plant, and
equipment
(22,742
)
(15,540
)
Purchase of intangibles
(1,120
)
(664
)
Proceeds from sale of property, plant, and
equipment
1,674
1,370
Acquisitions
1,716
—
Net cash used in investing activities
(20,472
)
(14,834
)
Financing activities
Borrowing of debt
23,700
5,949
Repayment of debt
(33,185
)
(19,378
)
Repayment of finance lease obligation
(3,905
)
(3,174
)
Proceeds from issuance of common stock
2,868
2,085
Taxes paid related to net share
settlements of share-based compensation awards
(390
)
(1,261
)
Distribution to non‑controlling
interest
—
(100
)
Net cash used in financing activities
(10,912
)
(15,879
)
Effect of exchange rate changes on
cash
3,355
614
Change in cash and cash equivalents
(29,302
)
6,281
Cash and cash equivalents
Beginning of period
134,005
146,244
End of period
$
104,703
$
152,525
Revenue
Revenue is used by management to evaluate the performance of our
business. Revenue growth is primarily related to organic and
inorganic factors. Organic revenue growth, as a component of
revenue growth, is defined as period over period revenue growth
without (i) the impact from acquisitions and divestitures during
the first 12 months following the closing of the acquisition or
divestiture, which we refer to as inorganic impact, and (ii) the
impact of foreign currency translation. Divestitures include sales
of insignificant portions of our business that did not meet the
criteria for classification as a discontinued operation. We
disregard the effect of foreign currency translation from organic
revenue growth because foreign currency translation is not under
management’s control, is subject to volatility and can obscure
underlying business trends. The effect of acquisitions and
divestitures during the first 12 months following the closing of
the acquisition or divestiture are excluded because they can
obscure underlying business trends and make comparisons of
long-term performance difficult between the Company and its peers
due to the varying nature, size, and number of transactions from
period to period.
Components of our revenue growth for the three months ended
December 31, 2022 and 2021 are as follows:
Evoqua Water
Technologies
Integrated Solutions
and Services
Applied Product
Technologies
(In millions)
$ Change
% Change
$ Change
% Change
$ Change
% Change
Three months ended December 31, 2020 total
revenue
$
322.2
n/a
$
214.7
n/a
$
107.5
n/a
Organic
41.8
13.0
%
28.2
13.1
%
13.6
12.7
%
Inorganic
1.8
0.6
%
1.8
0.8
%
—
—
%
Foreign currency translation
0.5
0.1
%
0.4
0.3
%
0.1
—
%
Three months ended December 31, 2021 total
revenue
$
366.3
13.7
%
$
245.1
14.2
%
$
121.2
12.7
%
Organic
33.3
9.1
%
18.5
7.5
%
14.8
12.2
%
Inorganic
42.9
11.7
%
42.9
17.5
%
—
—
%
Foreign currency translation
(6.7
)
(1.8
) %
(1.1
)
(0.4
)%
(5.6
)
(4.6
)%
Three months ended December 31, 2022 total
revenue
$
435.8
19.0
%
$
305.4
24.6
%
$
130.4
7.6
%
Use of Non-GAAP Measures
The Company reports its financial results in accordance with
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 and adjusted EBITDA
in evaluating the strength and financial performance of our core
business.
EBITDA and Adjusted EBITDA
EBITDA, which is a non-GAAP financial measure, 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, share-based compensation,
transaction costs, and other gains, losses and expenses that we
believe do not directly reflect our underlying business
operations.
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 and
compare operating performance and value companies within 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
relating to capital structure, the tax jurisdictions in which we
operate and capital investments. In addition, adjusted EBITDA
highlights true business performance by removing the impact of
certain items that management believes do not directly reflect our
underlying operations and provides investors with greater
visibility into the ongoing organic drivers of our business
performance.
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 adjusted EBITDA of each reportable operating segment to
evaluate the operating performance of such segments. Adjusted
EBITDA on a segment basis is defined as earnings before
depreciation and amortization, adjusted for the impact of certain
other items that have been reflected at the segment level. 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
integration costs) and share-based compensation charges.
EBITDA and Adjusted EBITDA should not be considered a substitute
for, or superior to, financial measures prepared in accordance with
GAAP. The financial results prepared in accordance with GAAP and
the reconciliations from these results included below should be
carefully evaluated. You are encouraged to evaluate each adjustment
and the reasons we consider it appropriate for supplemental
analysis. In addition, in evaluating adjusted EBITDA, you should be
aware that in the future, we may incur expenses similar to the
adjustments in the presentation of adjusted EBITDA. Our
presentation of adjusted EBITDA should not be construed as an
inference that our future results will be unaffected by unusual or
non-recurring items. In addition, other companies in our industry
or across different industries may calculate adjusted EBITDA
differently.
The following is a reconciliation of our net income to EBITDA
and adjusted EBITDA (unaudited):
Three Months Ended
December 31,
(In millions)
2022
2021
Variance(1)
Net income
$
9.3
$
6.1
52.5
%
Income tax expense
3.9
1.6
143.8
%
Interest expense
10.1
6.6
53.0
%
Operating profit
$
23.3
$
14.3
62.9
%
Depreciation and amortization
33.2
28.6
16.1
%
EBITDA
$
56.5
$
42.9
31.7
%
Restructuring and related business
transformation costs(a)
1.7
1.4
21.4
%
Share-based compensation(b)
6.3
5.3
18.9
%
Transaction costs(c)
3.3
0.9
266.7
%
Other losses (gains) and expenses(d)
4.9
3.8
28.9
%
Adjusted EBITDA
$
72.7
$
54.3
33.9
%
Revenue
$
435.8
$
366.3
19.0
%
Net income as a percent of
revenue
2.1
%
1.7
%
40 bps
Adjusted EBITDA margin
16.7
%
14.8
%
190 bps
(a) Restructuring and related business
transformation costs
Adjusted EBITDA is calculated prior to
considering certain restructuring or business transformation
events. These events may occur over extended periods of time, and
in some cases it is reasonably possible that they could reoccur in
future periods based on reorganizations of the business, cost
reduction or productivity improvement needs, or in response to
economic conditions. For the periods presented such events include
the following:
(i) Certain costs and expenses in
connection with various restructuring initiatives, including
severance and other employee-related costs, relocation and facility
consolidation costs and third-party consultant costs to assist with
these initiatives. This includes:
(A) amounts related to the Company’s
restructuring initiatives to reduce the cost structure and
rationalize location footprint following the sale of the Memcor
product line;
(B) amounts related to the Company’s
transition from a three-segment structure to a two-segment
operating model designed to better serve the needs of customers
worldwide; and
(C) amounts related to various other
initiatives implemented to restructure and reorganize our business
with the appropriate management team and cost structure.
(ii) Legal settlement costs and
intellectual property related fees, including fees and settlement
costs associated with legacy matters related to product warranty
litigation on MEMCOR® products and certain discontinued products.
Memcor ® is a trademark of Rohm & Haas Electronic Materials
Singapore Pte. Ltd.
(iii) Expenses associated with our
information technology and functional infrastructure
transformation, including activities to optimize information
technology systems and functional infrastructure processes.
(b) Share-based compensation
Adjusted EBITDA is calculated prior to
considering share-based compensation expenses related to equity
awards. See Note 17, “Share-Based Compensation,” to our Unaudited
Consolidated Financial Statements included in our Quarterly Report
on Form 10-Q for the three months ended December 31, 2022 for
further detail.
(c) Transaction costs
Adjusted EBITDA is calculated prior to
considering transaction, integration and restructuring costs
associated with business combinations because these costs are
unique to each transaction and represent costs that were incurred
as a result of the transaction decision. Integration and
restructuring costs associated with a business combination may
occur over several years and include, but are not limited to,
consulting fees, legal fees, certain employee-related costs,
facility consolidation and product rationalization costs and fair
value changes associated with contingent consideration.
(d) Other losses (gains) and
expenses
Adjusted EBITDA is calculated prior to
considering certain other significant losses, (gains) and expenses.
For the periods presented such events include the following:
(i) impact of foreign exchange gains and
losses; and
(ii) legal fees and settlement costs
incurred in excess of amounts covered by the Company’s insurance
related to securities litigation and SEC investigation matters.
(1) Variance presented as a percentage for
items presented in dollar values or basis points (“bps”) for items
presented as percentages.
Adjusted EBITDA on a segment basis is defined as earnings before
interest expense, income tax benefit (expense) and depreciation and
amortization, adjusted for the impact of certain other items that
have been reflected at the segment level. We do not present net
income on a segment basis because we do not allocate interest
expense or income tax benefit (expense) to our segments, making
operating profit the most comparable GAAP metric. The following is
a reconciliation of our segment operating profit to our segment
adjusted EBITDA:
Three Months Ended December
31,
$ Variance
% Variance
2022
2021
(In millions)
Integrated Solutions and
Services
Applied Product
Technologies
Integrated Solutions and
Services
Applied Product
Technologies
Integrated Solutions and
Services
Applied Product
Technologies
Integrated Solutions and
Services
Applied Product
Technologies
Operating Profit
$
42.7
$
21.0
$
35.3
$
17.8
$
7.4
$
3.2
21.0
%
18.0
%
Depreciation and amortization
22.5
3.4
17.8
3.5
4.7
(0.1
)
26.4
%
(2.9
)%
EBITDA
$
65.2
$
24.4
$
53.1
$
21.3
$
12.1
$
3.1
22.8
%
14.6
%
Restructuring and related business
transformation costs(a)
1.5
0.1
0.5
0.6
1.0
(0.5
)
200.0
%
(83.3
)%
Transaction costs(b)
2.3
—
(0.1
)
—
2.4
—
(2400.0
)%
n/a
Adjusted EBITDA
$
69.0
$
24.5
$
53.5
$
21.9
$
15.5
$
2.6
29.0
%
11.9
%
(a)
Represents costs and expenses in
connection with restructuring initiatives in the three months ended
December 31, 2022 and 2021, respectively. Such expenses are
primarily composed of severance, relocation and facility
consolidation costs.
(b)
Represents primarily costs associated with
a change in the current estimate of certain acquisitions achieving
their earn-out targets, as well as costs associated with the
integration of recent acquisitions.
Net Leverage Ratio
Net leverage ratio is defined as total net debt divided by net
income, as well as adjusted EBITDA. Total net debt is defined as
total debt including finance leases less unamortized deferred
financing fees minus cash and cash equivalents. The following is a
reconciliation of net leverage ratio for both net income, as well
as adjusted EBITDA, at December 31, 2022 and 2021,
respectively.
As of and for the Three Months
Ended December 31,
(In millions)
2022
2021
Cash and cash equivalents
$
104.7
$
152.5
AR Securitization Program
$
150.3
$
144.2
Revolving Credit Facility
136.5
27.3
First Lien Term Facility
467.9
472.7
Equipment financing facilities
126.5
97.4
Finance lease obligations
38.5
37.6
Total debt including finance
leases
$
919.7
$
779.2
Less unamortized deferred financing
fees
(9.4
)
(11.3
)
Total net debt
$
805.6
$
615.4
LTM Net income
$
75.6
$
51.3
Net leverage ratio based on net
income
10.7x
12.0x
LTM Adjusted EBITDA
$
316.1
$
260.4
Net leverage ratio based on adjusted
EBITDA
2.5x
2.4x
Immaterial rounding differences may be
present in the tables above.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230131005162/en/
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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