Post on 20-Apr-2023
© 2020 EVOQUA WATER TECHNOLOGIES | 2
This presentation 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 related to the impact of COVID-19 and disruptions in the global oil markets; our ability to compete successfully in our markets; our ability to execute projects in a timely manner; our ability to accurately predict the timing of contract awards; 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 achieve the expected benefits of our restructuring actions and restructuring our business into two segments; 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; 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; risks associated with product defects and unanticipated or improper use of our products; 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; 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; our increasing dependence on the continuous and reliable operation of our information technology systems; risks related to our substantial indebtedness; our need for a significant amount of cash, which depends on many factors beyond our control; AEA’s influence over us; and other factors described in the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 as filed with the SEC on November 25, 2019, included in our Quarterly Report on Form 10-Q for the three months ended March 31, 2020, and in other periodic reports we file with the SEC. All statements other than statements of historical fact included in the presentation are forward-looking statements including, but not limited to, expected results for fiscal 2020, statements related to COVID-19, the impact of which remains inherently uncertain, and statements regarding our digital water strategy. Any forward-looking statement that we make in this presentation speaks only as of August 4, 2020. 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 presentation.Immaterial rounding differences may be present in the data included in this presentation.Use of Non-GAAP Financial Measures - This presentation 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, such as organic revenue growth, adjusted net income, EBITDA, Adjusted EBITDA and free cash flow, are helpful to management and investors in highlighting trends in our operating results and provide greater clarity 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 of revenue growth, net income (loss), operating profit or net cash provided by (used in) operating activities prepared in accordance with GAAP. For reconciliations of the non-GAAP adjusted financial measures used in this presentation to the nearest respective GAAP measures, see the Appendix to this presentation.
Forward-Looking Statement Safe Harbor
© 2020 EVOQUA WATER TECHNOLOGIES | 3
Evoqua Water Technologies at a glance
100 +year legacy of quality and innovation
200,000 +installations worldwide
160locations globally
$1.46BLTM Q3 2020 revenues(1)
$243MLTM Q3 2020(1)
Adjusted EBITDA(2)
Technologies
ServicesSystems
Products
A leading provider of mission critical water and wastewater treatment solutions
(1) LTM results include Memcor. Memcor divestiture was completed on 12/31/2019 . Memcor contributed $60mm of revenue and $8mm of Adj. EBITDA in FY’19.(2) For the definition of Adjusted EBITDA and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto.
© 2020 EVOQUA WATER TECHNOLOGIES | 4
$85 BILLION ADDRESSABLE MARKET(1)
$16 BILLION SERVED MARKET (1)
$600 BILLION GLOBAL WATER MARKET(1)
(1) Management Estimates
ADDRESSED MARKETS• Water treatment
• Technology and innovation
• Service and support
• North America / EMEA / Asia Pacific
UNADDRESSED MARKETS– Chemicals
– Water transportation
– Meters / pumps / valves
– Design and construction
Serving a Large, Growingand Fragmented Market
WE SERVE $16 BILLION OF AN $85 BILLION MARKET (1) ACROSS A DIVERSE, GROWING SET OF SECTORS
FOOD & BEVERAGE
AQUATICS & POOLS
MICROELECTRONICS
HEALTHCARE & PHARMA
DRINKING WATER
POWER
WASTEWATER TECHNOLOGIES
REFINING & CHEMICALS
COMMERCIAL
LIGHT & GENERAL MFG
WE HOLD TOP POSITIONS ACROSS OUR KEY SECTORS
© 2020 EVOQUA WATER TECHNOLOGIES | 5
$487 $490 $498 $505 $507 $516 $520 $529 $538 $537 $536 $538 $551 $563 $581 $593 $600 $604 $594
$572 $579 $597$632 $656 $677 $690
$718 $727 $761 $794 $802 $815 $818 $817$851 $868 $867 $864
$1,059 $1,069 $1,095$1,137 $1,163 $1,193 $1,210
$1,247 $1,265 $1,298 $1,330 $1,340 $1,366 $1,381 $1,398$1,444 $1,468 $1,471 $1,458
Services Products
Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20
Rolling LTM revenue(2)(3) and Adjusted EBITDA(3)
($ in millions)
Adj. EBITDA(1) %
(1) For the definition of Adjusted EBITDA and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto.(2) Prior period amounts have been recast to conform to current period presentation by category.(3) Historical results include Memcor. Annualized revenues ~$60 million in FY19.
LTM Revenue and Profitability DevelopmentCAGR
17.2% Adj.
EBITDA
Adj. EBITDA(1) ($M)
4.5% Services
9.6% Products
7.4% Total
$119 $127 $142 $160 $172 $186 $196 $208 $210 $224 $227 $217 $215 $214 $217 $235 $240 $240 $243
11.3% 11.8% 12.9% 14.1% 14.8% 15.6% 16.2% 16.7% 16.6% 17.3% 17.1% 16.2% 15.8% 15.5% 15.5% 16.3% 16.4% 16.3% 16.7%
LTM results impacted by
Memcor divestiture
(3)
© 2020 EVOQUA WATER TECHNOLOGIES | 6
Priorities in a COVID-19 Impacted World
PROTECT EMPLOYEES
• Protect the health and safety of employees, customers, supply chain partners and communities
• Follow CDC and other health guidelines
• Ensure adequate PPE supplies for all personnel
ENHANCE BUSINESS RESILIENCY
• Maintain business continuity
• Maximize customer operating uptime
• Manage cost structure to support business priorities
• Advance digital strategy
IMPROVE LIQUIDITY AND BALANCE SHEET FLEXIBILITY
• Manage for cash and liquidity while preserving employment base
• Actively manage working capital
• Continue to focus on financial deleveraging
© 2020 EVOQUA WATER TECHNOLOGIES | 7
Q3 COVID-19 Impact Takeaways
STRONG OPERATIONAL EXECUTION
• Employee safety
• Facility / branch utilization
• Return to office coordination
SERVICES
• Stable and resilient service model
• Some pockets of service activities impacted by COVID-19
EXPENSE MANAGEMENT
• Cost reductions in line with expectations
LIQUIDITY ENHANCED SEQUENTIALLY
• Strong working capital performance
• Solid free cash flow
• Improved leverage
CAPITAL
• Capital growth in ISS and APT
• Strong microelectronic demand
ORDERS
• Book to bill ratio above 1.0x
• Uneven in selected end markets
• Strong pipeline of outsourced water opportunities
© 2020 EVOQUA WATER TECHNOLOGIES | 8
PRIMARY END MARKETS 2H 2020 EXPECTED DEMAND OUTLOOK
Healthcare /Pharma / Biotech Growth
Light & General Industry
Slight Decline
Food & Beverage Neutral
Chemical Processing
Slight Decline
Micro-electronics Growth
PERCENTAGE OF SALES (FY19)(1)
Municipal Waste Water Neutral
Power Neutral
Refining / Marine Delays and Cancellations
Municipal Drinking Water Neutral Aquatics Delays and
Cancellations
L OW
/ M
ID S
ING
LE D
IGIT
S~
20%
Responding to a COVID-19 Impacted World
PRIMARY END MARKETS 2H 2020 EXPECTED DEMAND OUTLOOK
(1) Management estimates*This slide is unchanged from the Q2 2020 webcast presentation; represents the Company's demand outlook as of June 30, 2020.
© 2020 EVOQUA WATER TECHNOLOGIES | 9
Q3 2020 Performance Highlights
Revenues
• Revenues changed (3.5)% to $347.8 million; organic revenues essentially flat (0.3)%◦ ISS revenues up 1.5%; organic up 1.0%
◦ APT revenues down (11.7)%; organic down (2.5)%
• Book to bill ratio above 1.0x; growing opportunity pipeline
Profitability
• Adjusted EBITDA of $63.8 million, up 5.3% vs prior year; margin of 18.3%◦ Overall stable (but uneven) revenue volume◦ Favorable operational execution◦ Cost reduction actions
OperationalExecution
• All facilities remained open and operational◦ COVID-19 safety and communication protocols in place
• Net working capital to LTM revenues improved to 13.1% vs 17.7% prior year
• Adjusted free cash flow to adjusted net income conversion rate of 154%• ~$256 million of liquidity - revolver availability & cash; $36 million sequential increase• Improved net leverage to 3.1x from 4.2x at Q3 FY2019; 3.3x at Q2 FY2020• No near term maturities
Leverage /Liquidity Profile
© 2020 EVOQUA WATER TECHNOLOGIES | 10
Integrated Solutions and Services Overview
ISS SEGMENT OVERVIEW▪ North America focused with extensive
• Service branch footprint• Fleet of mobile response equipment
▪ Providing full outsourced water operations▪ Direct sales channel▪ Technology agnostic solutions▪ Focus on service and aftermarket ▪ Digitally enabling 24/7 asset monitoring▪ Process and wastewater solutions
• Recycle / reuse – environmental compliance
MACRO DRIVERS▪ Aging infrastructure▪ Aging workforce▪ Recycle and reuse▪ Regulatory environment▪ Trade dynamics▪ Shift in consumer behavior▪ Public health and safety ▪ Emerging contaminants
Revenues $943 million
Adjusted EBITDA(1)(2)
$215 million23% margin
(1) Excludes certain corporate allocations.(2) For the definition of Adjusted EBITDA on a segment level and a reconciliation to operating profit (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto.
Service60%
Aftermarket13%
Capital27%
LTM Q3 2020
© 2020 EVOQUA WATER TECHNOLOGIES | 11
Integrated Solutions and ServicesUnmatched service and support network…
RANGE OF SERVICE CAPABILITIES
…drives a recurring and highly visible revenue profile
SERVICE ADVANTAGES
▪ ~4x the size of nearest competitor(1)
▪ 2 hours from ~ 90% of industrial customers
▪ ~670 field technicians(2)
▪ 97 U.S. service branches(2)
WaterOne® SERVICES(per usage)
ON-DEMAND SERVICES(As needed)
OPERATING SERVICES(Weekly to daily)
PREVENTATIVE MAINTENANCE (Quarterly to monthly)
(1) Management estimates.(2) As of 9/30/2019.
© 2020 EVOQUA WATER TECHNOLOGIES | 12
Integrated Solutions and Services TechnologiesDivisional Structure
HEAVY INDUSTRY
PROACT ENVIRONMENTAL SERVICES (PES) Rapid response mobile services On-site treatment services Groundwater remediationIndustrial degassing / hydrostatic testing
LIGHT INDUSTRY
MUNICIPAL SERVICESOdor and corrosion controlDisinfection capabilitiesDigitally enabled
Outsourced waterPreventative maintenance servicesRapid response mobile servicesWater One®
Process and Wastewater systems
KEY END MARKETS
Food & Beverage
Government
HPI/CPI
Healthcare
Manufacturing
Microelectronics
Municipal
Pharmaceutical
Power
© 2020 EVOQUA WATER TECHNOLOGIES | 13
Applied Product Technologies Overview
HIGHLY DIFFERENTIATED AND SCALABLE PRODUCTS AND TECHNOLOGIES
▪ Technologies and products sold as
• discrete offerings, or
• components of broader solutions
▪ Sold through indirect channels
▪ Global geographic reach serving North America, EMEA and APAC
▪ Specified by water treatment designers, OEMs and engineers
Revenues(1)
$515 million
Adjusted EBITDA(1)(2)(3)
$104 million20% margin
MACRO DRIVERS ▪ Aging infrastructure
▪ Recycle and reuse
▪ Regulatory environment
▪ Shift in consumer behavior
▪ Public health and safety
▪ Emerging contaminants
(1) Revenue and Adj. EBITDA shown based on actual reported results, inclusive of Memcor.(2) Excludes certain corporate allocations.(3) For the definition of Adjusted EBITDA on a segment level and a reconciliation to operating profit (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto.
Service4%
Aftermarket28%
Capital68%
LTM Q3 2020
© 2020 EVOQUA WATER TECHNOLOGIES | 14
Applied Product TechnologiesDivisional structure by product line
AQUATICSA leader in solutions for commercial pools, water parks and life support systems
DISINFECTIONA complete portfolio, from chemical monitoring to advanced ultraviolet (UV) light systems and ozone generation
ELECTROCHLORINATION Develops and manufactures anodes for the electrochemical industry and refurbishes electrochlorination cells
WASTEWATER TECHNOLOGIESProvides advanced biological treatment, nutrient removal and odor control for municipal and industrial wastewater treatment
ADVANCED FILTRATION & SEPARATIONA suite of removal technologies, from screens and dewatering systems to advanced membrane-based solutions
Aquatics
Commercial
Microelectronics
Municipal
Pharmaceutical
Power
KEY END MARKETS
© 2020 EVOQUA WATER TECHNOLOGIES | 15
Filling Technology Gaps & Expanding Service ReachPRODUCT AND TECH PORTFOLIO GROWTH
Acquired Product Group
Primary Market
Anodes
Aquatics
Filtration
Disinfection
Wastewater
Wastewater
Filtration
Disinfection
Disinfection
Wastewater
SERVICE REACH EXPANSION
Acquired Geographic
South West
West
North America
Canada
Midwest
15 ACQUISITIONS COMPLETED SINCE APRIL 2016
(1) (1) Evoqua owns 60% interest
Multiple
Commercial
Multiple
Commercial
Industrial
Industrial
Multiple
Multiple
Multiple
Industrial
© 2020 EVOQUA WATER TECHNOLOGIES | 16
Delivering Solutions to the Worlds Most Pressing Water Issues Leading with Innovation
Evoqua has the full-suite of technologies, service footprint and capabilities to remove PFAS.• Granular Activated Carbon (GAC)• Ion exchange (IX)• Reverse osmosis (RO)• Oxidation processes• Extensive U.S. service branch network and mobile fleet for rapid response
Water reuse for direct or indirect use PFAS removal for military, municipal water or food and beverage operations
Providing reliable quality and quantity of water for life sciences
© 2020 EVOQUA WATER TECHNOLOGIES | 17
Sustainability Our Responsibility and our Opportunity
OUR HANDPRINT
OUR FOOTPRINT
Evoqua’s responsibility to become more sustainable in our internal operations
Enabling our customers to become more sustainable through our solutions and service offering
At the core of our business, we transform water and enrich life. Sustainability drives our business decisions to uphold transparent business practices, maintain a resilient business strategy, improve our environment and serve our employees and communities. Enabling a more sustainable water system for future generations is both our opportunity and our responsibility. Ron Keating, CEO
© 2020 EVOQUA WATER TECHNOLOGIES | 18
Our Commitment to Sustainability
As the world moves towards a
more circular and sustainable
economy, we are well positioned
to help customers achieve their
sustainability goals. Our offerings
are aligned with the UN
Sustainable Development Goals
(UNSDGs), allowing us to help
our customers create a more
sustainable future.
Our commitment to positively impacting human health and wellness, everyday
© 2020 EVOQUA WATER TECHNOLOGIES | 19
Sustainability in ActionSustainability is our Business ModelOUR FOOTPRINT Evoqua’s responsibility to become more sustainable in our internal operations
OUR HANDPRINT
Enabling our customers to become more sustainable through our solutions and service offering
REDUCED WATER USAGE BY
26%
Our Prevention activities enabled us to REDUCE OUR TOTAL ACCIDENTS BY
14%From FY18 to FY19, surpassing our target by 10%.
Water Reuse to Meet Community Needs
After facing community drought in Southern California, we helped Air Products save up to 75 million gallons of water/year. Our Brine Recovery RO enables water reuse that is monitored in real time via our digital Link2Site® system to ensure performance, reduce freshwater withdrawal, and build resilience into the business.
This Public Private Partnership is helping Air Products to meet their 2020 Sustainability Goals.
In FY19, five of our primary locations reduced their water usage by 26% since FY17.
Building More Resilient Wastewater Treatment with Innovation
BioMag® and CoMag® systems have received market acceptance. With their small footprint, remarkable resilience to input changes, and contaminant removal capabilities, customers know they can rely on the treatment provided by our Ballasted Technologies. These technologies just surpassed 100 Billion Gallons of wastewater treated. These technologies treat the wastewater for nearly 500,000 people every day.
FEATURE STORYQ3 Large Municipal PFAS Win30 large systems treating up to 86 MGD providing ~1.3 million people with clean and safe drinking water on the west coast.
[1] This covers our facilities in Colorado Springs, Colorado; Holland, Michigan; Tewksbury, Massachusetts; Thomasville, Georgia; and Union, New Jersey.
[1]
© 2020 EVOQUA WATER TECHNOLOGIES | 20
As recognized by the SDG2000, Evoqua is listed as one of the world's businesses with the most influence over whether the UN Sustainable Development Goals are achieved by 2030.
Evoqua is recognized in the Global Water Technologies sector for excellence in growth, innovation and leadership.
NAMED AS A MOST INFLUENTIAL COMPANY FOR A SUSTAINABLE FUTURE
GLOBAL COMPANY OF THE YEAR AWARD BY FROST & SULLIVAN
Our 2020 Recognition and Awards
Evoqua was awarded for a CoMag® system technology project that helped our UK based customer meet environmental standards, reduce cost and expand capacity.
AWARDED ‘WASTEWATER INNOVATION PROJECT OF THE YEAR’
© 2020 EVOQUA WATER TECHNOLOGIES | 21
Utilizing Digital SolutionsTo create incremental value
CUSTOMER BENEFITS EVOQUA BENEFITS
Increased ROI
Continuous Monitoring and Control
Human Resource Efficiency
Increased Compliance
Potentially Lower Capital
Increased Profitability
Stable & Recurring Revenue
Expanded Margins
Uptime of Service
Operational Efficiency & Enablement
© 2020 EVOQUA WATER TECHNOLOGIES | 22
Outsourced Water and Customer Managed WaterLeveraging Service and Component Technology
Evoqua owned treatment system assets driving digitally-enabled subscription based services• Mobile assets• Service deionization • Build-own-operate• Municipal services
WHAT IS OUTSOURCED WATER?
Evoqua component technology sold into customer systems• Managed/sold by
◦ Evoqua Integrated Solutions and Services◦ Channel partners◦ End users◦ Evoqua competitors
WHAT IS CUSTOMER MANAGED WATER?
© 2020 EVOQUA WATER TECHNOLOGIES | 23
Evoqua’s Digitally Enabled Go-to-Market ApproachExpanding Across Multiple Treatment Applications
ISS SEGMENTAPT SEGMENT
Benefit to Customer
Boost efficiency, predictive maintenance, asset protection,
predictable total cost of ownership
Effortless quantity and quality with regular billing like a utility
Benefit to Evoqua
Recurring aftermarket, knowledge of product usage, market insights
Customer retention, optimized service spend and routing
through prediction
It starts with connected products and solutions opening the door for outsourced water opportunities
Connected Component Strategy Digitally Enabled Systems & Services
© 2020 EVOQUA WATER TECHNOLOGIES | 24
Water One®
Enabling Evoqua’s Digital Outsourced Water Offering
1• Pay for usage• Predictive & proactive
service• Simplified billing and
pricing• System uptime
• Build-own-operate• Mobile assets• Municipal services
WATER ONE TRANSITIONS CUSTOMERS TO PRICING
MODELS BASED ON USAGECUSTOMER BENEFITS
DRIVING WATER ONE ACROSS OUTSOURCED
WATER ASSETS
2 3
© 2020 EVOQUA WATER TECHNOLOGIES | 25
Long-Term Targets (3-5 years)(1)
ORGANIC SALES GROWTH ~3 – 5%
ADJUSTED EBITDA MARGIN ~20%
ADJUSTED FREE CASH FLOW CONVERSION ~100%
NET FINANCIAL LEVERAGE ~2.5x – 3.0x
Long-Term Target
(1) These long-term targets represent our goals and are not projections of future performance. These targets are forward-looking, are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the control of the Company and its management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results will vary and those variations may be material. For discussion of some of the important factors that could cause these variations, please see “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 as filed with the SEC on November 25, 2019, and in other periodic reports we file with the SEC. Nothing in this presentation should be regarded as a representation by any person that these targets will be achieved, and the Company undertakes no obligation to update this information. See “Forward-Looking Statements Safe Harbor” on page 2 of this presentation.
© 2020 EVOQUA WATER TECHNOLOGIES | 27
Management reviews key performance indicators including revenue, margins, segment operating income and margins, orders growth, working capital and backlog, among others. In addition, we consider certain non-GAAP measures to be useful to management and investors evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations, liquidity, management of assets and future prospects. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including but not limited to: dividends, acquisitions, share repurchases and debt repayment. These adjusted metrics are consistent with how management views our business and are used to make financial, operating, budgeting, planning and strategic decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:
“EBITDA” defined as earnings before interest, taxes, depreciation and amortization expense. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude certain other items, including restructuring and related business transformation costs, purchase accounting adjustment costs, non-cash stock based compensation, sponsor fees, transaction costs and other gains, losses and expenses. "Adjusted EBITDA" on a segment level further reflects the adjustment for the impact of certain other items that have been adjusted at the segment level.
"Adjusted free cash flow” defined as net cash from operating activities, as reported in the Statement of Cash Flows, less capital expenditures as well as adjustments for other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flow does not consider certain non-discretionary cash payments, such as debt.
“Adjusted net income” defined as net income adjusted to exclude certain other items, including restructuring and related business transformation costs, purchase accounting adjustment costs, non-cash stock based compensation, sponsor fees, transaction costs and other gains, losses and expenses.
"Organic revenue growth" defined as the year-over-year rate of change in revenues excluding the impact of foreign exchange, acquisitions and divestitures.
With respect to our guidance, 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 may be recognized.
Non-GAAP Measures
© 2020 EVOQUA WATER TECHNOLOGIES | 28
$360.3
$(1.0)$(9.7) $(1.8)
$347.8
Q3'19 OrganicGrowth
InorganicGrowth
FX Q3'20
Third Quarter 2020 Results ($ in millions)
Third Quarter 2020 Revenue
($ in millions)
(1) Includes non-cash foreign currency positive impact on intercompany loans of $3.0 million period over period.(2) For the definition of Adjusted Net Income and a reconciliation to net income, its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto.(3) For the definition of Adjusted EBITDA and a reconciliation to net income, its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto.(4) Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue.(5) For the definition of organic growth and a reconciliation to revenue growth, its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto.
Third Quarter 2020Revenue change of (3.5)%
• Organic revenue essentially flat (0.3)%
• M&A net impact ~(2.7)%; primarily Memcor
divestiture
• Capital growth in ISS and APT
• Two segment benefits
Adjusted EBITDA up 5.3% year over year• Cost reductions
• Two segment benefits
• Strong APT performance(5)
(0.3)% (2.7)%(0.5)
%
(3.5)%
HIGHLIGHTSQ3'19 Q3'20
Revenue $360.3 $347.8
Gross Profit $111.3 $110.2
Operating Profit(1) $27.1 $33.1
Net Income $4.3 $21.8
Adjusted Net Income(2) $11.3 $24.8
Adjusted EBITDA(3) $60.6 $63.8
Adjusted EBITDA margin(4) 16.8% 18.3%
© 2020 EVOQUA WATER TECHNOLOGIES | 29
($ in thousands)
Revenue - ISS FYE 9/30/19 YTD Q3'19 YTD Q3'20 LTM 6/30/20% of
Revenue
Revenue from capital $ 219,289 $ (152,772) $ 185,404 $ 251,921 27 %
Revenue from aftermarket $ 122,719 $ (93,238) $ 90,717 $ 120,198 13 %
Revenue from service $ 568,826 $ (416,781) $ 418,613 $ 570,658 60 %
Revenue - APT FYE 9/30/19 YTD Q3'19 YTD Q3'20 LTM 6/30/20% of
Revenue
Revenue from capital $ 344,097 $ (230,887) $ 235,794 $ 349,004 68 %
Revenue from aftermarket $ 165,056 $ (120,422) $ 98,189 $ 142,823 28 %
Revenue from service $ 24,454 $ (17,873) $ 16,878 $ 23,459 4 %
LTM Revenue by Segment Source
© 2020 EVOQUA WATER TECHNOLOGIES | 30
Net Sales Growth by Driver
Q3'20 Net Sales Growth % Change
GAAP Reported Currency Acquisitions/Divestitures Organic
Evoqua Water Technologies (3.5) % (0.5) % (2.7) % (0.3) %
Integrated Solutions & Services 1.5 % (0.2) % 0.6 % 1.0 %
Applied Product Technologies (11.7) % (1.0) % (8.2) % (2.5) %
Q3'19 Net Sales Growth % Change
GAAP Reported Currency Acquisitions/Divestitures Organic
Evoqua Water Technologies 5.2 % (1.1) % 4.3 % 2.0 %
Integrated Solutions & Services 7.7 % (0.2) % 6.4 % 1.5 %
Applied Product Technologies 1.3 % (2.3) % 1.1 % 2.5 %
© 2020 EVOQUA WATER TECHNOLOGIES | 31
Adjusted EBITDA Reconciliation - 2020($ in millions)
Q1'20 Q2'20 Q3'20 Q3'20 YTD
Net income $ 53.5 $ 7.9 $ 21.8 $ 83.3 Income tax expense 2.6 0.0 0.8 3.3 Interest expense 13.6 13.3 10.5 37.3 Operating income $ 69.7 $ 21.2 $ 33.1 $ 123.9 Depreciation and amortization 25.1 27.3 27.6 80.1
EBITDA $ 94.8 $ 48.5 $ 60.7 $ 204.0
Restructuring and related business transaction costs 1.7 6.2 3.1 11.0 Share-based compensation 3.7 2.3 2.6 8.6 Transaction costs 0.2 0.5 0.3 1.0 Other (gains), losses and expenses (56.8) (0.8) (2.9) (60.5)
Adjusted EBITDA $ 43.6 $ 56.7 $ 63.8 $ 164.1
Revenue $ 346.1 $ 351.7 $ 347.8 $ 1,045.6
Adjusted EBITDA as a % of Revenue 12.6 % 16.1 % 18.3 % 15.7 %
A
CD
Primarily comprised of severance costs, relocation costs, recruiting expenses, certain non-cash charges and third-party consultant costs associated with the restructuring initiatives to reduce the cost structure and rationalize location footprint following the sale of the Memcor product line, the two-segment realignment and other various restructuring and efficiency initiatives.
Represents non-cash share-based compensation.
Removal of expenses associated with recent acquisitions and divestitures and post-acquisition integration costs including adjustments to earn-outs.
Deduction of gains and add back of losses associated with foreign exchange ($4.0 million gain Q3'20*, $2.50 million gain YTD Q3'20*) and other unusual business gains and expenses primarily consisting of foreign exchange impact related to headquarter allocations ($0.1 million gain Q3'20*, $0 million YTD Q3'20*), remediation of manufacturing defects caused by a third party vendor ($1.5 million expense reduction YTD Q3'20), product rationalization in our electro-chlorination business ($0.1 million expense Q3'20, $0.4 million expense YTD Q3'20), net pre-tax benefit on the sale of the Memcor product line ($58.0 million gain YTD Q3'20*), and expenses related to COVID-19 pandemic ($1.1 million Q3'20 and YTD Q3'20).
*Represents a non-cash item.
B
A
B
C
D
© 2020 EVOQUA WATER TECHNOLOGIES | 32
Adjusted EBITDA Reconciliation - 2019($ in millions)
FYE 9/30 Q1'19 Q2'19 Q3'19 Q4'19 FY2019
Net (loss) income $ (16.3) $ 1.6 $ 4.3 $ 1.9 $ (8.5) Income tax (benefit) / expense (4.5) (4.6) 7.9 10.8 9.6 Interest expense 14.4 14.5 14.9 14.8 58.6 Operating (loss) profit $ (6.4) $ 11.5 $ 27.1 $ 27.5 $ 59.7 Depreciation and amortization 23.1 24.2 24.1 26.8 98.2
EBITDA $ 16.7 $ 35.7 $ 51.2 $ 54.3 $ 157.9
Restructuring and related business transaction costs 5.7 8.3 4.5 5.7 24.2 Share-based compensation 4.6 4.7 5.0 5.7 20.0
Transaction costs 2.1 2.4 1.0 6.1 11.6 Other losses, (gains) and expenses 9.3 5.6 (1.1) 7.5 21.3
Adjusted EBITDA $ 38.4 $ 56.7 $ 60.6 $ 79.3 $ 235.0
Revenue $ 323.0 $ 348.6 $ 360.3 $ 412.5 $ 1,444.4
Adjusted EBITDA as a % of Revenue 11.9 % 16.3 % 16.8 % 19.2 % 16.3 %
ABCD
Primarily comprised of severance costs, relocation costs, recruiting expenses and third-party consultant costs associated with the two-segment realignment and other various restructuring and efficiency initiatives.
Represents non-cash share-based compensation.
Removal of expenses associated with recent acquisitions and divestitures and post-acquisition integration costs.
Deduction of gains and add back of losses associated with foreign exchange, expenses related to maintaining non-operational business locations and other unusual business gains and expenses primarily consisting of the remediation of manufacturing defects caused by a third-party vendor, product rationalization in our electro-chlorination business, gain on the sale of property and the provision for write-off of inventory in our aquatics business associated with product rationalization and facility consolidation.
A
B
C
D
© 2020 EVOQUA WATER TECHNOLOGIES | 33
Adjusted EBITDA Reconciliation - 2018
Primarily comprised of severance, relocation, recruiting and other costs associated with the voluntary separation program and other various restructuring and efficiency initiatives.
Represents non-cash stock-based compensation related to option awards.
Elimination of management fees paid to AEA. AEA’s management agreement terminated at the IPO closing.
Removal of expenses associated with recent acquisitions and divestitures and post-acquisition integration costs.
Deduction of gains and add back of losses associated with foreign exchange, recent asset sales, foreign exchange impact of headquarter allocations, expenses related to maintaining non-operational business locations, expenses incurred related to remediation of manufacturing defects caused by a third-party vendor, gain on the sale of assets related to the disposition of land and the write-off of obsolete inventory as part of the migration of an operational business unit to a new enterprise resource planning system.
($ in millions)
FYE 9/30 Q1'18 Q2'18 Q3'18 Q4'18 FY2018
Net (loss) income $ (3.0) $ 13.0 $ 1.0 $ (3.1) $ 7.9 Income tax (benefit) / expense (4.4) 2.0 1.4 2.4 1.4
Interest expense 17.2 10.8 12.4 17.1 57.5 Operating profit $ 9.8 $ 25.8 $ 14.8 $ 16.4 $ 66.8 Depreciation and amortization 19.9 20.5 21.6 24.0 85.9
EBITDA $ 29.7 $ 46.3 $ 36.4 $ 40.4 $ 152.7
Restructuring and related business transaction costs 8.1 8.2 8.9 9.1 34.4
Share-based compensation 2.6 4.3 4.4 4.5 15.8 Sponsor fees 0.3 — — — 0.3
Transaction costs 0.5 0.8 4.7 1.6 7.6 Other (gains), losses and expenses (1.3) (1.9) 3.6 5.6 6.1
Adjusted EBITDA $ 39.9 $ 57.7 $ 58.0 $ 61.2 $ 216.9
Revenue $ 297.1 $ 333.6 $ 342.5 $ 366.3 $ 1,339.5
Adjusted EBITDA as a % of Revenue 13.4 % 17.3 % 16.9 % 16.7 % 16.2 %
ABCDE
A
B
C
D
E
© 2020 EVOQUA WATER TECHNOLOGIES | 34
Adjusted EBITDA Reconciliation - 2017
Primarily comprised of severance, relocation, recruiting and other costs associated with the voluntary separation program and other various restructuring and efficiency initiatives.
Reverses the impact from step-up to fair market value for inventory acquired with the purchase of Magneto.
Represents non-cash stock-based compensation related to option awards.
Elimination of management fees paid to AEA. AEA’s management agreement terminated at the IPO closing.
Removal of expenses associated with recent acquisitions and divestitures and post-acquisition integration costs.
Deduction of gains and add back of losses associated with foreign exchange and recent asset sales along with expenses related to maintaining non-operational business locations.
($ in millions)
FYE 9/30 Q1'17 Q2'17 Q3'17 Q4'17 FY2017
Net (loss) income $ (13.2) $ 4.9 $ 1.8 $ 13.0 $ 6.4 Income tax (benefit) / expense (7.1) (4.8) 12.2 7.1 7.4 Interest expense 14.8 11.9 12.5 16.3 55.4 Operating (loss) profit $ (5.5) $ 12.0 $ 26.4 $ 36.4 $ 69.2 Depreciation and amortization 18.6 18.9 18.3 22.1 77.9
EBITDA $ 13.1 $ 30.9 $ 44.7 $ 58.5 $ 147.1
Restructuring and related business transaction costs 13.2 9.9 13.3 14.9 51.3
Purchase accounting adjustment costs 0.2 — — — 0.2 Share-based compensation 0.5 0.6 0.6 0.6 2.3
Sponsor fees 1.0 1.0 1.0 1.1 4.2 Transaction costs 1.4 2.4 1.9 1.7 7.3 Other losses, (gains) and expenses 7.9 (0.8) (6.5) (5.4) (4.7)
Adjusted EBITDA $ 37.2 $ 43.9 $ 55.1 $ 71.4 $ 207.7
Revenue $ 279.9 $ 299.9 $ 311.1 $ 356.5 $ 1,247.4
Adjusted EBITDA as a % of Revenue 13.3 % 14.6 % 17.7 % 20.0 % 16.7 %
ABCDEF
A
B
C
D
E
F
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Adjusted EBITDA Reconciliation - 2016
Primarily comprised of severance, relocation, recruiting and other costs associated with the voluntary separation program and other various restructuring and efficiency initiatives.
Reverses the impact from step-up to fair market value for inventory acquired with the purchase of Magneto.
Represents non-cash stock-based compensation related to option awards.
Elimination of management fees paid to AEA. AEA’s management agreement terminated at the IPO closing.
Removal of expenses associated with recent acquisitions and divestitures and post-acquisition integration costs.
Deduction of gains and add back of losses associated with foreign exchange and recent asset sales along with expenses related to maintaining non-operational business locations.
($ in millions)
FYE 9/30 Q1'16 Q2'16 Q3'16 Q4'16 FY2016
Net (loss) income $ (2.7) $ (0.9) $ 16.5 $ 0.2 $ 13.0
Income tax (benefit) / expense (5.0) (1.4) (14.1) 2.0 (18.4)
Interest expense 9.0 9.0 11.5 13.1 42.5 Operating profit $ 1.3 $ 6.8 $ 13.8 $ 15.2 $ 37.2
Depreciation and amortization 16.3 16.3 18.4 18.3 69.3
EBITDA $ 17.7 $ 23.0 $ 32.2 $ 33.5 $ 106.4
Restructuring and related business transaction costs 4.5 7.0 6.6 24.9 43.1
Purchase accounting adjustment costs — — — 1.3 1.3
Share-based compensation 0.5 0.4 0.5 0.6 2.0 Sponsor fees 0.8 1.1 1.0 0.9 3.8
Transaction costs 0.1 2.4 1.4 1.4 5.4
Other losses, (gains) and expenses 1.9 (4.1) 3.5 (3.2) (1.9)
Adjusted EBITDA $ 25.4 $ 29.9 $ 45.2 $ 59.4 $ 160.1
Revenue $ 254.5 $ 270.0 $ 293.3 $ 319.4 $ 1,137.2
Adjusted EBITDA as a % of Revenue 10.0 % 11.1 % 15.4 % 18.6 % 14.1 %
ABCDEF
A
C
D
E
F
B
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LTM Revenue and Adjusted EBITDA
($ in millions)
RevenueFYE
9/30/2019 YTD Q3'19 YTD Q3'20 LTM 6/30/20Evoqua Water Technologies $ 1,444.4 $ (1,032.0) $ 1,045.6 $ 1,458.0
Integrated Solutions & Services $ 910.8 $ (662.8) $ 694.7 $ 942.7
Applied Product Technologies $ 533.6 $ (369.2) $ 350.9 $ 515.3
RevenueFYE
9/30/2019 YTD Q3'19 YTD Q3'20 LTM 6/30/20Revenue $ 1,444.4 $ (1,032.0) $ 1,045.6 $ 1,458.0
Revenue from product sales $ 851.1 $ (597.3) $ 610.1 $ 863.9
Revenue from services $ 593.3 $ (434.7) $ 435.5 $ 594.1
Adjusted EBITDAFYE
9/30/2019 YTD Q3'19 YTD Q3'20 LTM 6/30/20LTM EBITDA
Margin %Evoqua Water Technologies $ 235.0 $ (155.7) $ 164.1 $ 243.4 16.7 %
Integrated Solutions & Services $ 206.9 $ (145.6) $ 153.5 $ 214.8 22.8 %
Applied Product Technologies $ 99.9 $ (62.5) $ 66.5 $ 103.9 20.2 %
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Segment Adjusted EBITDA Reconciliation
Year Ended Three Months Ended June 30, Nine Months Ended June 30,
September 30, 2019 2019 2020 2019 2020
(In millions) ISS APT ISS APT ISS APT ISS APT ISS APTNet pre-tax benefit on sale of the Memcor product line $ — $ — $ — $ — $ — $ — $ — $ — $ — $ (58.0)
Gain on sale of property — (0.4) — (0.4) — — — (0.4) — —
Remediation of manufacturing defects — 2.1 — 0.4 — — — 1.7 — (1.5) Product rationalization in electro-chlorination business — 3.7 — 0.3 — 0.1 — 3.2 — 0.4 Expenses related to maintaining non-operational business locations 0.1 — — — — — 0.1 — — —
Write-off of inventory — 5.0 — (0.1) — — — 5.0 — — Foreign exchange impact related to headquarter allocations — — — — — — — 0.1 — —
Total $ 0.1 $ 10.4 $ — $ 0.2 $ — $ 0.1 $ 0.1 $ 9.6 $ — $ (59.1)
Year Ended Three Months Ended June 30, Nine Months Ended June 30,
September 30, 2019 2019 2020 2019 2020
(In millions) ISS APT ISS APT ISS APT ISS APT ISS APT
Segment Operating Profit $ 148.6 $ 69.4 $ 37.4 $ 22.5 $ 32.6 $ 23.6 $ 102.3 $ 38.4 $ 102.5 $ 110.5
Depreciation and amortization 57.2 17.7 14.0 4.4 17.8 3.5 42.3 13.1 50.7 10.7
Segment EBITDA $ 205.8 $ 87.1 $ 51.4 $ 26.9 $ 50.4 $ 27.1 $ 144.6 $ 51.5 $ 153.2 $ 121.2 Restructuring and related business transformation costs 0.5 1.1 — 0.2 0.2 1.6 0.4 0.7 0.3 5.6
Transaction costs 0.5 0.7 — — — 0.1 0.5 0.7 — (1.2)
Legal fees — 0.6
Other (gains) losses and expenses (a) 0.1 10.4 — 0.2 — 0.1 0.1 9.6 — (59.1)
Segment Adjusted EBITDA $ 206.9 $ 99.9 $ 51.4 $ 27.3 $ 50.6 $ 28.9 $ 145.6 $ 62.5 $ 153.5 $ 66.5
Note: Segment Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business. Segment Adjusted EBITDA is defined as operating profit before depreciation, amortization and certain other adjustments distinct to the respective reported segments.
(a) Other (gains) losses and expenses include the following:
© 2020 EVOQUA WATER TECHNOLOGIES | 38
Adjusted Free Cash Flow
(1) Refer to adjustments on the Adjusted EBITDA reconciliation on prior slides.
($ in millions) Q3'18 YTD FY'18 Q3'19 YTD FY'19 Q3'20 YTDOperating cash flow $ 36.8 $ 81.0 $ 54.4 $ 125.2 $ 82.5
(+) EBITDA adjustments, excluding share-based compensation and
gain on sale of property, net of tax(1) 30.4 43.9 28.3 42.6 21.6 (+) Adoption of ASC 842 — — — — (2.0) (-) Capital Expenditures (54.6) (80.7) (63.9) (88.9) (65.9) (+) Financing related to growth capital expenditures 3.5 5.7 16.0 38.4 14.2 (+) Financing related to property acquisition 1.9 1.9 — — — (-) Purchases of intangibles (e.g., software licenses) (1.5) (2.0) (4.8) (6.4) (0.7) Adjusted Free Cash Flow $ 16.5 $ 49.8 $ 30.0 $ 110.9 $ 49.7
% of Adjusted net income 35.3 % 80.2 % 106.4 % 228.2 % 106.2 %
($ in millions) Q3'19 Q3'20Operating cash flow $ 27.0 $ 60.5
(+) EBITDA adjustments, excluding share-based compensation and
gain on sale of property, net of tax(1) 3.6 0.5 (+) Adoption of ASC 842 — — (-) Capital Expenditures (23.3) (27.2) (+) Financing related to growth capital expenditures 5.3 4.6 (+) Financing related to property acquisition — — (-) Purchases of intangibles (e.g., software licenses) (1.9) (0.1) Free Cash Flow $ 10.7 $ 38.3
% of Adjusted net income 94.7 % 154.4 %
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Adjusted Net Income and Adjusted EPS Q3'20Three Months Ended June 30, 2020
(In millions, except per share amounts) GAAP Reported
Restructuring and Related Business Transformation
Costs (b)
Share-based Compensation
(b)Transaction
Costs (b)Other (gains)
losses (b) Non-GAAP Adjusted
Revenue $ 347.8 $ — $ — $ — $ — $ 347.8
Cost of product sales and services (237.6) 1.8 — 0.1 0.8 (234.9)
Gross profit 110.2 1.8 — 0.1 0.8 112.9
General and administrative expense (44.9) 1.3 2.6 0.2 (3.7) (44.5)
Sales and marketing expense (29.8) — — — — (29.8)
Research and development expense (2.8) — — — — (2.8)
Other operating income (expense), net 0.4 — — — — 0.4
Interest expense (10.5) — — — — (10.5)
Income (loss) before income taxes 22.6 3.1 2.6 0.3 (2.9) 25.7
Income tax (expense) benefit (a) (0.8) (0.1) (0.1) — 0.1 (0.9)
Net income (loss) 21.8 3.0 2.5 0.3 (2.8) 24.8
Net income attributable to non-controlling interest 0.4 — — — — 0.4 Net income (loss) attributable to Evoqua Water Technologies Corp. $ 21.4 $ 3.0 $ 2.5 $ 0.3 $ (2.8) $ 24.4
Basic income (loss) per common share $ 0.18 $ 0.03 $ 0.02 $ — $ (0.02) $ 0.21
Diluted income (loss) per common share $ 0.18 $ 0.02 $ 0.02 $ — $ (0.02) $ 0.20
Basic # of shares (in millions) 116.6
Diluted # of shares (in millions) 120.2
(a) The blended statutory tax rate was 3.5% in the three months ended June 30, 2020. (b) Refer to adjustments on the Adjusted EBITDA reconciliation on prior slides.
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Adjusted Net Income and Adjusted EPS Q3'19Three Months Ended June 30, 2019
(In millions, except per share amounts) GAAP Reported
Restructuring and Related Business Transformation
Costs (b)Share-based
Compensation (b)Transaction Costs
(b)Other (gains) losses
(b) Non-GAAP Adjusted
Revenue $ 360.3 $ — $ — $ — $ — $ 360.3
Cost of product sales and services (249.0) 2.0 — 0.1 0.7 (246.2)
Gross profit 111.3 2.0 — 0.1 0.7 114.1
General and administrative expense (49.6) 2.2 5.0 0.9 (1.4) (42.9)
Sales and marketing expense (31.9) 0.3 — — — (31.6)
Research and development expense (3.3) — — — — (3.3)
Other operating income, net 0.6 — — — (0.4) 0.2
Interest expense (14.9) — — — — (14.9)
(Loss) income before income taxes 12.2 4.5 5.0 1.0 (1.1) 21.6
Income tax benefit (expense) (a) (7.9) (1.2) (1.3) (0.3) 0.4 (10.3)
Net income 4.3 3.3 3.7 0.7 (0.7) 11.3
Net income attributable to non-controlling interest 0.2 — — — — 0.2
Net income attributable to Evoqua Water Technologies Corp. $ 4.1 $ 3.3 $ 3.7 $ 0.7 $ (0.7) $ 11.1
Basic income per common share $ 0.04 $ 0.03 $ 0.03 $ 0.01 $ (0.01) $ 0.10
Diluted income per common share $ 0.03 $ 0.03 $ 0.03 $ 0.01 $ (0.01) $ 0.09
Basic # of shares (in millions) 114.7
Diluted # of shares (in millions) 119.4
(a) The blended statutory tax rate was 26.0% in the three months ended June 30, 2019. The blended annual effective tax rate on Non-GAAP adjustments to net income was also 26.0% in the three months ended June 30, 2019.(b) Refer to adjustments on the Adjusted EBITDA reconciliation on prior slides.
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Adjusted Net Income and Adjusted EPS Q3'20 YTDNine Months Ended June 30, 2020
(In millions, except per share amounts) GAAP Reported
Restructuring and Related Business Transformation
Costs (b)
Share-based Compensation
(b)Transaction
Costs (b)Other (gains)
losses (b)
Extraordinary interest expense
(c) Non-GAAP Adjusted
Revenue $ 1,045.6 $ — $ — $ — $ — $ — $ 1,045.6
Cost of product sales and services (718.4) 6.0 (0.1) 1.3 — (711.2)
Gross profit 327.2 6.0 — (0.1) 1.3 — 334.4
General and administrative expense (152.8) 4.9 8.6 1.1 (1.9) — (140.1)
Sales and marketing expense (101.8) 0.1 — — — — (101.7)
Research and development expense (9.7) — — — — — (9.7)
Other operating income, net 61.0 — — — (59.9) — 1.1
Interest expense (37.3) — — — — 1.8 (35.5)
(Loss) income before income taxes 86.6 11.0 8.6 1.0 (60.5) 1.8 48.5
Income tax benefit (expense) (a) (3.3) (0.4) (0.3) — 2.4 (0.1) (1.7)
Net (loss) income 83.3 10.6 8.3 1.0 (58.1) 1.7 46.8
Net income attributable to non‑controlling interest 1.0 — — — — — 1.0 Net (loss) income attributable to Evoqua Water Technologies Corp. $ 82.3 $ 10.6 $ 8.3 $ 1.0 $ (58.1) $ 1.7 $ 45.8
Basic (loss) income per common share $ 0.71 $ 0.09 $ 0.07 $ 0.01 $ (0.50) $ 0.01 $ 0.39
Diluted (loss) income per common share $ 0.68 $ 0.09 $ 0.07 $ 0.01 $ (0.48) $ 0.01 $ 0.38
Basic # of shares (in millions) 116.6
Diluted # of shares (in millions) 121.1
(a) The blended annual projected tax rate of 4.0% was used for the adjustments due to the impact of the Memcor transaction. (b) Refer to adjustments on the Adjusted EBITDA reconciliation on prior slides. (c) In January 2020, the Company utilized $100 million of the proceeds from the sale of the Memcor product line to repay a portion of the Company’s First Lien Term Loans. As a result of the prepayment, the Company wrote off $1.8 million of deferred financing fees during the nine months ended June 30, 2020.
© 2020 EVOQUA WATER TECHNOLOGIES | 42
Adjusted Net Income and Adjusted EPS Q3'19 YTDNine Months Ended June 30, 2019
(In millions, except per share amounts) GAAP Reported
Restructuring and Related Business Transformation
Costs (b)Share-based
Compensation (b)Transaction Costs
(b)Other (gains) losses
(b) Non-GAAP Adjusted
Revenue $ 1,032.0 $ — $ — $ — $ — $ 1,032.0
Cost of product sales and services (736.4) 5.4 — 1.4 10.6 (719.0)
Gross profit 295.6 5.4 — 1.4 10.6 313.0
General and administrative expense (152.6) 12.1 14.3 4.1 3.6 (118.5)
Sales and marketing expense (103.5) 0.9 — — — (102.6)
Research and development expense (11.4) 0.1 — — — (11.3)
Other operating income, net 4.1 — — — (0.4) 3.7
Interest expense (43.8) — — — — (43.8)
(Loss) income before income taxes (11.6) 18.5 14.3 5.5 13.8 40.5
Income tax benefit (expense) (a) 1.2 (4.8) (3.7) (1.4) (3.6) (12.3)
Net (loss) income (10.4) 13.7 10.6 4.1 10.2 28.2
Net income attributable to non‑controlling interest 0.8 — — — — 0.8
Net (loss) income attributable to Evoqua Water Technologies Corp. $ (11.2) $ 13.7 $ 10.6 $ 4.1 $ 10.2 $ 27.4
Basic (loss) income per common share $ (0.10) $ 0.12 $ 0.09 $ 0.04 $ 0.09 $ 0.24
Diluted (loss) income per common share $ (0.10) $ 0.12 $ 0.09 $ 0.04 $ 0.09 $ 0.24
Basic # of shares (in millions) 114.7
Diluted # of shares (in millions) 114.7
(a) The blended statutory tax rate was 26.0% in the nine months ended June 30, 2019. The blended annual effective tax rate on Non-GAAP adjustments to net income was also 26.0% in the nine months ended June 30, 2019.(b) Refer to adjustments on the Adjusted EBITDA reconciliation on prior slides.
© 2020 EVOQUA WATER TECHNOLOGIES | 43
Adjusted Net Income and Adjusted EPS Q3'18 YTD
Nine Months Ended June 30, 2018
(In millions, except per share amounts) GAAP Reported
Restructuring and Related Business Transformation
Costs (b)Share-based
Compensation (b)Sponsor fees
(b)Transaction
Costs (b)Other (gains)
losses (b)
Extraordinary interest
expense (c)Non-GAAP
Adjusted
Revenue $ 973.2 $ — $ — $ — $ — $ — $ — $ 973.2
Cost of product sales and services (674.8) 7.0 — — — 2.6 — (665.2)
Gross profit 298.4 7.0 — — — 2.6 — 308.0 General and administrative expense (140.8) 17.3 11.3 0.3 6.0 7.0 — (98.9) Sales and marketing expense (102.5) 0.7 — — — — — (101.8) Research and development expense (12.4) 0.7 — — — — — (11.7)
Other operating income, net 7.7 (0.4) — — — — — 7.3 Interest expense (40.4) — — — — (9.2) 5.1 (44.5)
Income before income taxes 10.0 25.3 11.3 0.3 6.0 0.4 5.1 58.4
Income tax benefit (a) 1.0 6.6 2.9 0.1 1.6 0.1 1.3 13.6 Net income 11.0 18.7 8.4 0.2 4.4 0.3 3.8 46.8
Net income attributable to non‑controlling interest 1.4 — — — — — — 1.4
Net income attributable to Evoqua Water Technologies Corp. $ 9.6 $ 18.7 $ 8.4 $ 0.2 $ 4.4 $ 0.3 $ 3.8 $ 45.4
Basic income per common share $ 0.08 $ 0.17 $ 0.07 $ — $ 0.04 $ 0.01 $ 0.03 $ 0.40 Diluted income per common share $ 0.08 $ 0.16 $ 0.07 $ — $ 0.04 $ — $ 0.03 $ 0.38
Basic # of shares (in millions) 113.8Diluted # of shares (in millions) 119.9
(a) The blended statutory tax rate was 26.0% in the nine months ended June 30, 2018. The blended annual effective tax rate on Non-GAAP adjustments to net income was also 26.0% in the nine months ended June 30, 2018.(b) Refer to adjustments on the Adjusted EBITDA reconciliation on prior slides. (c) For purposes of Adjusted Net Income analysis, an adjustment of $5.1 million was recognized in the nine months ended June 30, 2018 related to the write-off of deferred financing fees and incremental interest costs associated with the debt refinancing completed in the fiscal year.
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Adjusted Net Income and Adjusted EPS FY19Fiscal Year Ended September 30, 2019
(In millions, except per share amounts) GAAP Reported
Restructuring and related business
transformation costs (b)
Share-based compensation (b)
Transaction costs (b)
Other (gains) losses and expenses (b) Non-GAAP Adjusted
Revenue $ 1,444.4 $ — $ — $ — $ — $ 1,444.4
Cost of product sales and services (1,018.4) 7.5 — 3.2 11.9 (995.8)
Gross profit 426.0 7.5 — 3.2 11.9 448.6
General and administrative expense (217.1) 15.5 20.0 8.4 10.1 (163.1)
Sales and marketing expense (138.9) 1.1 — — — (137.8)
Research and development expense (15.3) 0.1 — — — (15.2)
Other operating income (expense), net 5.0 — — — (0.7) 4.3
Interest expense (58.6) — — — — (58.6)
Income before income taxes 1.1 24.2 20.0 11.6 21.3 78.2
Income tax (expense) (a) (9.6) (6.3) (5.2) (3.0) (5.5) (29.6)
Net (loss) income (8.5) 17.9 14.8 8.6 15.8 48.6
Net income attributable to non‑controlling interest 1.0 — — — — 1.0
Net (loss) income attributable to Evoqua Water Technologies Corp. $ (9.5) $ 17.9 $ 14.8 $ 8.6 $ 15.8 $ 47.6
Basic (loss) income per common share $ (0.08) $ 0.16 $ 0.13 $ 0.06 $ 0.14 $ 0.41
Diluted (loss) income per common share $ (0.08) $ 0.16 $ 0.13 $ 0.06 $ 0.14 $ 0.41
Basic # of shares 114.7
Diluted # of shares 114.7
(a) The blended statutory tax rate was 26.0% in the fiscal year ended September 30, 2019. The blended annual effective tax rate on Non-GAAP adjustments to net income was also 26.0% in the fiscal year ended September 30, 2019.(b) Refer to adjustments on the Adjusted EBITDA reconciliation on prior slides.
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Adjusted Net Income and Adjusted EPS FY18Fiscal Year Ended September 30, 2018
(In millions, except per share amounts) GAAP Reported
Restructuring and related business transformation
costs (b)Share-based
compensation (b)Sponsor fees
(b)Transaction
costs (b)
Other (gains) losses and
expenses (b)
Extraordinary interest
expense (c)Non-GAAP
Adjusted
Revenue $ 1,339.5 $ — $ — $ — $ — $ — $ — $ 1,339.5
Cost of product sales and services (934.8) 10.1 — — 0.5 7.8 — (916.4)
Gross profit 404.7 10.1 — — 0.5 7.8 — 423.1
General and administrative expense (193.8) 22.2 15.8 0.3 7.1 7.3 — (141.1)
Sales and marketing expense (136.0) 0.9 — — — — — (135.1)
Research and development expense (15.9) 0.7 — — — — — (15.2)
Other operating income (expense), net 7.8 0.5 — — — (9.0) — (0.7)
Interest expense (57.5) — — — — — 9.1 (48.4)
Income before income taxes 9.3 34.4 15.8 0.3 7.6 6.1 9.1 82.6
Income tax expense (a) (1.4) (8.9) (4.1) (0.1) (2.0) (1.6) (2.4) (20.5)
Net income 7.9 25.5 11.7 0.2 5.6 4.5 6.7 62.1
Net income attributable to non‑controlling interest 1.8 — — — — — — 1.8
Net income attributable to Evoqua Water Technologies Corp. $ 6.1 $ 25.5 $ 11.7 $ 0.2 $ 5.6 $ 4.5 $ 6.7 $ 60.3
Basic income per common share $ 0.05 $ 0.22 $ 0.10 $ — $ 0.05 $ 0.05 $ 0.06 $ 0.53
Diluted income per common share $ 0.05 $ 0.21 $ 0.10 $ — $ 0.04 $ 0.04 $ 0.06 $ 0.50
Basic # of shares 113.9
Diluted # of shares 120.2
(a) The blended statutory tax rate was 26.0% in the fiscal year ended September 30, 2018. The blended annual effective tax rate on Non-GAAP adjustments to net income was also 26.0% in the fiscal year ended September 30, 2018.(b) Refer to adjustments on the Adjusted EBITDA reconciliation on prior slides. (c) For purposes of Adjusted Net Income analysis, an adjustment of $9.1 million was recognized in FY18 related to the write-off of deferred financing fees and incremental interest costs associated with the debt refinancing completed in the fiscal year.
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Capital Structure Overview
($ in millions) 9/30/2018 12/31/2018 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020
Cash and cash equivalents $ 82.4 $ 63.2 $ 66.8 $ 61.1 $ 109.9 $ 194.9 $ 108.5 $ 142.7
Revolving Credit Facility — — — — — — — —
First Lien Term Facility 938.2 935.9 933.5 931.1 928.8 926.4 824.0 821.6
Mortgage 1.8 1.8 1.7 1.7 1.6 1.7 1.6 1.6
Equipment financing facilities 13.7 17.2 23.3 28.0 46.8 48.9 53.9 56.7
Finance leases 32.1 30.1 34.5 32.2 36.1 38.0 36.7 37.3
Total debt including finance leases 985.8 985.0 993.0 993.0 1,013.3 1,015.0 916.2 917.2
Less unamortized discount and lenders fees (14.1) (13.6) (13.1) (12.6) (12.1) (11.6) (10.3) (10.0)
Total net debt including finance leases(1) 889.3 908.2 913.1 919.3 891.3 808.5 797.4 764.5
Leverage Table calculation:
Total net debt / Adjusted EBITDA(2) 4.1x 4.2x 4.3x 4.2x 3.8x 3.4x 3.3x 3.1x
(1) Total net debt is total debt less unamortized discount and lenders fees minus cash and cash equivalents.(2) Adjusted EBITDA (with contributions from acquisitions) inclusive of completed acquisitions. For the definition of Adjusted EBITDA and a reconciliation to net income (loss),
its most directly comparable financial measure presented in accordance with GAAP, see elsewhere in this Appendix.
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LTM Adjusted FCF and Adjusted Net Income
($ in millions)
FYE 9/30/2019 YTD Q3'19 YTD Q3'20 LTM 6/30/20Adjusted FCF $ 110.9 $ (30.0) $ 49.7 $ 130.6
Adjusted Net Income $ 48.6 $ (28.2) $ 46.8 $ 67.2
FYE 9/30/2018 YTD Q3'18 YTD Q3'19 LTM 6/30/19Adjusted FCF $ 49.8 $ (16.5) $ 30.0 $ 63.3
Adjusted Net Income $ 62.1 $ (46.8) $ 28.2 $ 43.5