Fourth Quarter 2022 Financial Highlights:
- Revenue of $504.8 million, an increase of 18.5% compared to the
prior year period; organic revenue growth of 8.7%
- Net income of $41.3 million, an increase of 53.5% compared to
the prior year period
- Adjusted EBITDA of $93.2 million, an increase of 13.8% compared
to the prior year period
Full Year 2022 Financial Highlights:
- Revenue of $1.74 billion, an increase of 18.6% compared to the
prior year period; organic revenue growth of 10.2%
- Net income of $72.3 million, an increase of 39.8% compared to
the prior year period
- Adjusted EBITDA of $297.7 million, an increase of 18.7%
compared to the prior year period
Evoqua Water Technologies (NYSE:AQUA), an industry leader in
mission-critical water treatment solutions, today reported results
for its fourth quarter and fiscal year ended September 30,
2022.
Revenue for the fourth quarter of fiscal year 2022 was $504.8
million, compared to $426.0 million in the prior year period, an
increase of 18.5%, or $78.8 million. Organic revenue growth
contributed 8.7%, or $37.0 million, driven by favorable price
realization and higher volume for products and services across most
product lines and regions. Inorganic revenue contributed $49.3
million, primarily related to our acquisition of the Mar Cor
business on January 3, 2022. Revenue was unfavorably impacted by
$7.5 million in the period related to foreign currency translation.
Net income for the quarter was $41.3 million, resulting in diluted
earnings per share (“EPS”) of $0.33, as compared to net income of
$26.9 million and diluted EPS of $0.22 in the prior year period.
The increase in net income of 53.5%, or $14.4 million, was
favorably impacted by a non-cash benefit of $17.3 million
associated with the release of a tax valuation allowance, as well
as increased operational volume. These benefits were partially
offset by increased operating expenses, primarily due to higher
wages and other costs associated with acquisitions and inflation,
as well as higher non-cash foreign currency translation losses as
compared to the prior period. Adjusted EBITDA for the quarter was
$93.2 million, as compared to $81.9 million in the prior year
period, an increase of 13.8%, or $11.3 million. See the “Use of
Non-GAAP Measures” section below for additional information
regarding adjusted EBITDA.
Revenue for the fiscal year 2022 was $1.74 billion, compared to
$1.46 billion in the prior year period, an increase of 18.6%, or
$272.7 million. Organic revenue growth contributed 10.2%, or $149.4
million, driven by favorable price realization and higher volume
for products and services across most product lines and all
regions. Inorganic revenue contributed $137.1 million, primarily
related to our acquisition of the Mar Cor business on January 3,
2022. Revenue was unfavorably impacted by $13.8 million in the year
related to foreign currency translation. Net income for the year
was $72.3 million, resulting in diluted earnings per share (“EPS”)
of $0.58, as compared to net income of $51.7 million and diluted
EPS of $0.42 in the prior year. The increase in net income of
39.8%, or $20.6 million, was favorably impacted by a non-cash
benefit of $17.3 million associated with the release of a tax
valuation allowance, as well as increased operational volume. These
benefits were partially offset by increased operating expenses,
primarily due to higher wages and salaries and other costs
associated with acquisitions and inflation, as well as non-cash
foreign currency translation losses of $18.7 million in the current
year, compared to foreign currency translation gains of $0.9
million in the prior year, mostly related to intercompany loans.
Adjusted EBITDA for the year was $297.7 million, as compared to
$250.9 million in the prior year period, an increase of 18.7%, or
$46.8 million. See the “Use of Non-GAAP Measures” section below for
additional information regarding adjusted EBITDA.
“We completed another strong fiscal year with outstanding fourth
quarter results. Our team executed well delivering revenue growth
of approximately 19% for both the fourth quarter and full year.
Demand continues to be strong across multiple end markets
generating organic revenue growth of approximately 10% for the
fiscal year and 9% for the fourth quarter. Acquisition integrations
continue to be favorable, and our team is efficiently managing
supply chain challenges. Adjusted EBITDA grew by almost 19% to $298
million for the full year, while margin remained flat versus prior
year, despite inflationary challenges. We are also pleased to again
report a positive price/cost ratio for the fourth quarter and for
the full year,” said Mr. Ron Keating, Evoqua’s CEO.
Mr. Keating continued, “Cash flow generation remains a key
priority, and we were very pleased with our results. We again
delivered improvements in operating cash, adjusted free cash flow,
liquidity, and our net debt leverage. As we enter fiscal 2023, we
expect to maintain a solid and flexible balance sheet to support
continued organic and inorganic growth investments. We delivered on
two fiscal 2022 goals of exceeding 55% water reuse in our top ten
facilities and reducing our safety incident rate across the company
from the prior year.”
Mr. Keating closed, “We enter the new year with a healthy
backlog following our second consecutive year with a book-to-bill
ratio of approximately 1.1. We continue to see significant growth
opportunities, both organic and inorganic, and will closely monitor
our pipeline to respond quickly to changes in our markets and
incoming order rates. Our diverse end markets should minimize the
effects of economic uncertainty, giving us a balanced outlook for
the full year. For fiscal 2023, we expect revenues to be $1.81 to
$1.89 billion and adjusted EBITDA to be $310 to $330 million for
year-over-year growth of approximately 4% to 9% and approximately
4% to 11%, respectively.”
Fourth Quarter Segment
Results
Evoqua has two reportable operating segments - Integrated
Solutions and Services and Applied Product Technologies. The
results of our segments for the fourth quarter are as follows:
Integrated Solutions and Services
Segment revenue increased by $65.8 million, or 23.4%, to $347.2
million in the fourth quarter of fiscal 2022, as compared to $281.4
million in the prior year period.
- Aftermarket and service revenue increased by $28.3 million and
$27.0 million, respectively, driven by contributions from
acquisitions, favorable pricing and growth across most end
markets.
- Capital revenue increased by $10.5 million driven by
contributions from acquisitions that were slightly offset by a
decline in volume in the chemical processing industry related to
the timing of completion of projects.
Operating profit decreased by $0.1 million, or 0.2%, to $52.3
million in the fourth quarter of fiscal 2022, as compared to $52.4
million in the prior year period.
- Segment profitability increased by $8.6 million due to
increased sales volume, favorable price/cost, and mix.
- Higher employee related expenses decreased segment
profitability by $4.6 million while increased travel and other
discretionary spending also impacted profitability by $0.7
million.
- Higher depreciation and amortization expense impacted segment
operating profit by $0.6 million.
- Higher restructuring and other non-recurring expense, primarily
associated with acquisition integrations, decreased segment
operating profit by $2.8 million.
Segment adjusted EBITDA increased by $7.1 million, or 10.1%, to
$77.6 million in the fourth quarter of fiscal 2022, as compared to
$70.5 million in the prior year period. The increase in segment
adjusted EBITDA resulted from the same factors that impacted
operating profit, other than the change in depreciation and
amortization. Segment adjusted EBITDA also excludes restructuring
and other non-recurring activity recognized in the period. See the
“Use of Non-GAAP Measures” section below for a reconciliation of
segment adjusted EBITDA to segment operating profit.
Applied Product Technologies
Segment revenue increased by $13.0 million, or 9.0%, to $157.6
million in the fourth quarter of fiscal 2022, as compared to $144.6
million in the prior year period.
- Revenue increased in the Asia and Americas regions across
multiple product lines, driven by favorable pricing and higher
volume.
- Foreign currency translation unfavorably impacted revenue by
$6.9 million, primarily in the EMEA region.
Operating profit increased by $5.0 million, or 17.4%, to $33.7
million for the fourth quarter of fiscal 2022, as compared to $28.7
million in the prior year period.
- Segment profitability increased by $7.4 million due to
favorable price/cost and increased revenue volume, partially offset
by unfavorable operational variances associated with supply chain
challenges.
- Higher employee related expenses reduced segment profitability
by $1.2 million driven by higher labor costs and increased travel
spending.
- Foreign currency translation unfavorably impacted segment
profitability by $1.6 million.
- Lower depreciation and amortization expense increased operating
profit by $0.2 million.
- Lower restructuring and other non-recurring costs also
increased operating profit by $0.2 million.
Segment adjusted EBITDA increased by $4.6 million, or 13.9%, to
$37.7 million in the fourth quarter of fiscal 2022, as compared to
$33.1 million in the prior year period. The change in segment
adjusted EBITDA was driven by the same factors that impacted
segment operating profit, other than the change in depreciation and
amortization. Segment adjusted EBITDA also excludes restructuring
and other non-recurring activity. See the “Use of Non-GAAP
Measures” section below for a reconciliation of segment adjusted
EBITDA to segment operating profit.
Fourth Quarter Earnings Call and Webcast
The Company will hold its fourth quarter fiscal 2022 earnings
conference call Tuesday, November 15, 2022, at 10:00 a.m. E.T. The
live audio webcast and presentation slides for the call will be
accessible via Evoqua’s Investor Relations website, http://aqua.evoqua.com/.
Participant
Details
Dial-In Numbers:
Toll Free US: 800-225-9448
International: +1 203-518-9708
Conference ID: AQUAQ4
The link to the webcast replay as well as
the presentation slides will also be posted on Evoqua’s Investor
Relations website.
Replay details:
Dial-In-Numbers:
US Toll Free Phone #: 800-934-3638
International Phone #: +1 402-220-1150
(Conference ID is not needed to access
replay)
Replay available: Beginning 1:00 p.m. E.T.
on November 15 until 11:59 p.m. ET on January 15, 2023.
Webcast Audience URL:
https://event.on24.com/wcc/r/3979139/F3ACF27A5F3A6FF7E90D300D0DDFA59B
Dissemination of Company Information
The Company intends to make future announcements regarding
developments and financial performance through the Investor
Relations section of its website, http://aqua.evoqua.com, as well as through press
releases, filings with the Securities and Exchange Commission (the
“SEC”), conference calls and webcasts. The Company does not
incorporate the information contained on, or accessible through,
its corporate website into this press release.
About Evoqua Water Technologies
Evoqua Water Technologies is a leading provider of mission
critical water and wastewater treatment solutions, offering a broad
portfolio of products, services, and expertise to support
industrial, municipal and recreational customers who value water.
Evoqua has worked to protect water, the environment and its
employees for more than 100 years, earning a reputation for
quality, safety and reliability around the world. Headquartered in
Pittsburgh, Pennsylvania, the company operates in more than 150
locations across nine countries. Serving more than 38,000 customers
and 200,000 installations worldwide, our employees are united by a
common purpose: Transforming Water. Enriching Life.
Non-GAAP Financial Measures
This press release contains reference to adjusted EBITDA, a
financial measure that is not calculated and presented in
accordance with generally accepted accounting principles in the
United States (“GAAP”). This non-GAAP financial measure is provided
as additional information for investors. We believe this non-GAAP
financial measure is helpful to management and investors in
highlighting trends in our operating results and provide greater
clarity and comparability period over period to management and our
investors regarding the operational impact of long-term strategic
decisions relating to capital structure, the tax jurisdictions in
which we operate and capital investments. The presentation of this
additional information is not meant to be considered in isolation
or as a substitute for GAAP measures. For definitions of the
non-GAAP financial measures used in this press release and
reconciliations to the most directly comparable respective GAAP
measures, see the “Use of Non-GAAP Measures” section below.
With respect to forward-looking guidance provided in this press
release, we have not presented a quantitative reconciliation of the
forward-looking non-GAAP financial measure adjusted EBITDA to its
most directly comparable GAAP financial measure because it is
impractical to forecast certain items without unreasonable efforts
due to the uncertainty and inherent difficulty of predicting the
occurrence and financial impact of, and the periods in which, such
items, including foreign exchange impact and certain expenses for
which we adjust, may be recognized. For the same reasons, we are
unable to address the probable significance of the unavailable
information, which could be material to future results.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. You
can generally identify forward-looking statements by our use of
forward-looking terminology such as “aim,” “anticipate,” “assume,”
“believe,” “continue,” “could,” “estimate,” “expect,” “goal,”
“intend,” “may,” “might,” “plan,” “progress,” “potential,”
“predict,” “projection,” “seek,” “should,” “will,” or “would” or
the negative thereof or other variations thereon or comparable
terminology. All of these forward-looking statements are based on
our current expectations, assumptions, estimates, and projections.
While we believe these expectations, assumptions, estimates, and
projections are reasonable, such forward-looking statements are
only predictions and involve known and unknown risks and
uncertainties, many of which are beyond our control. These and
other important factors may cause our actual results, performance,
or achievements to differ materially from any future results,
performance, or achievements expressed or implied by these
forward-looking statements, or could affect our share price. Some
of the factors that could cause actual results to differ materially
from those expressed or implied by the forward-looking statements
include, among other things, material, freight, and labor
inflation, commodity and component availability constraints, and
disruptions in global supply chains and transportation services;
general global economic and business conditions, including the
impacts of rising interest rates, recessionary conditions,
geopolitical conflicts, such as the conflict between Russia and
Ukraine and tensions between China and the U.S., and the COVID-19
pandemic; our ability to execute projects on budget and on
schedule; the potential for us to incur liabilities to customers as
a result of warranty claims or failure to meet performance
guarantees; our ability to meet our own and our customers’ safety
standards; failure to effectively treat emerging contaminants; our
ability to continue to develop or acquire new products, services
and solutions that allow us to compete successfully in our markets;
our ability to implement our growth strategy, including
acquisitions, and our ability to identify suitable acquisition
targets; our ability to operate or integrate any acquired
businesses, assets or product lines profitably; our ability to
achieve the expected benefits of our restructuring actions; delays
in enactment or repeals of environmental laws and regulations; the
potential for us to become subject to claims relating to handling,
storage, release or disposal of hazardous materials; our ability to
retain our senior management, skilled technical, engineering,
sales, and other key personnel and to attract and retain key talent
in increasingly competitive labor markets; risks associated with
international sales and operations; our ability to adequately
protect our intellectual property from third-party infringement;
risks related to our contracts with federal, state, and local
governments, including risk of termination or modification prior to
completion; risks associated with product defects and unanticipated
or improper use of our products; our ability to accurately predict
the timing of contract awards; risks related to our substantial
indebtedness; our increasing dependence on the continuous and
reliable operation of our information technology systems; risks
related to foreign, federal, state and local environmental, health
and safety laws and other applicable laws and regulations and the
costs associated therewith; our ability to execute on our
strategies related to environmental, social, and governance
matters, and achieve related goals and targets, including as a
result of evolving standards, laws, regulations, processes, and
assumptions, delayed scientific and technological developments,
increased costs, and changes in carbon markets; and other risks and
uncertainties, including those listed under Part I, Item 1A, “Risk
Factors” in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2022, to be filed with the SEC, and in other
filings we may make from time to time with the SEC. All statements
other than statements of historical fact included in this press
release are forward-looking statements, including, but not limited
to, expectations for fiscal year 2023, expectations related to
customer demand, our book to bill ratio, pricing initiatives,
supply chain challenges, inflation, material and labor
availability, and general macroeconomic conditions, and
expectations with respect to the integration and performance of our
recent acquisitions, including the realization of expected
synergies. Any forward-looking statements made in this press
release speak only as of the date of this release. Except as
required by law, we do not undertake any obligation to update or
revise, or to publicly announce any update or revision to, any of
the forward-looking statements made herein, whether as a result of
new information, future events or otherwise after the date of this
release. These forward-looking statements should not be relied upon
as representing the Company’s views as of any date subsequent to
the date of this release.
EVOQUA WATER TECHNOLOGIES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (Unaudited)
(In thousands, except per share
amounts)
Three Months Ended
September 30,
Year Ended
September 30,
2022
2021
2022
2021
Revenue from product sales and
services
$
504,755
$
425,991
$
1,737,076
$
1,464,429
Cost of product sales and services
(344,302
)
(286,932
)
(1,201,097
)
(1,007,077
)
Gross profit
$
160,453
$
139,059
$
535,979
$
457,352
General and administrative expense
(74,319
)
(60,407
)
(260,550
)
(206,455
)
Sales and marketing expense
(44,361
)
(39,481
)
(161,303
)
(143,110
)
Research and development expense
(4,382
)
(3,516
)
(15,442
)
(13,445
)
Total operating expenses
$
(123,062
)
$
(103,404
)
$
(437,295
)
$
(363,010
)
Other operating income, net
1,712
2,940
5,309
4,975
Income before interest expense and
income taxes
$
39,103
$
38,595
$
103,993
$
99,317
Interest expense
(9,711
)
(9,283
)
(34,680
)
(37,575
)
Income before income taxes
$
29,392
$
29,312
$
69,313
$
61,742
Income tax benefit (expense)
11,926
(2,408
)
3,030
(10,080
)
Net income
$
41,318
$
26,904
$
72,343
$
51,662
Net income attributable to non‑controlling
interest
—
46
145
180
Net income attributable to Evoqua Water
Technologies Corp.
$
41,318
$
26,858
$
72,198
$
51,482
Basic income per common share
$
0.34
$
0.22
$
0.60
$
0.43
Diluted income per common share
$
0.33
$
0.22
$
0.58
$
0.42
EVOQUA WATER TECHNOLOGIES CORP.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands, except per share
amounts)
(Unaudited)
September 30,
2022
September 30,
2021
ASSETS
Current assets
$
831,389
$
678,458
Cash and cash equivalents
134,005
146,244
Receivables, net
305,712
277,995
Inventories, net
229,351
158,503
Contract assets
102,123
72,746
Other current assets
60,198
22,970
Property, plant, and equipment, net
405,289
374,988
Goodwill
473,572
407,376
Intangible assets, net
317,733
290,075
Operating lease right-of-use assets,
net
53,540
45,521
Other non-current assets
109,340
72,473
Total assets
$
2,190,863
$
1,868,891
LIABILITIES AND EQUITY
Current liabilities
$
483,716
$
405,989
Accounts payable
213,518
164,535
Current portion of debt, net of deferred
financing fees and discounts
17,266
12,775
Contract liabilities
62,439
55,883
Accrued expenses and other liabilities
178,272
160,367
Other current liabilities
12,221
12,429
Non-current liabilities
997,054
880,683
Long-term debt, net of deferred financing
fees and discounts
863,534
730,430
Obligation under operating leases
43,961
37,935
Other non-current liabilities
89,559
112,318
Total liabilities
$
1,480,770
$
1,286,672
Shareholders’ equity
Common stock, par value $0.01: authorized
1,000,000 shares; issued 123,411 shares, outstanding 121,747 at
September 30, 2022; issued 122,173 shares, outstanding 120,509 at
September 30, 2021
$
1,235
$
1,223
Treasury stock: 1,664 shares at September
30, 2022 and 1,664 shares at September 30, 2021
(2,837
)
(2,837
)
Additional paid-in capital
607,748
582,052
Retained earnings (deficit)
61,016
(11,182
)
Accumulated other comprehensive income,
net of tax
42,931
11,415
Total Evoqua Water Technologies Corp.
equity
$
710,093
$
580,671
Non-controlling interest
—
1,548
Total shareholders’ equity
$
710,093
$
582,219
Total liabilities and shareholders’
equity
$
2,190,863
$
1,868,891
EVOQUA WATER TECHNOLOGIES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (Unaudited)
(In thousands)
Year Ended September
30,
2022
2021
Operating activities
Net income
$
72,343
$
51,662
Reconciliation of net income to cash flows
provided by operating activities:
Depreciation and amortization
127,570
113,664
Amortization of deferred financing fees
(includes $0 and $1,333 write off of deferred financing fees)
1,866
3,280
Deferred income taxes
(15,018
)
(2,363
)
Share-based compensation
22,104
15,524
(Gain) loss on sale of property, plant and
equipment
(1,681
)
1,287
(Gain) loss on sale of business
(193
)
193
Foreign currency exchange losses (gains)
on intercompany loans and other non-cash items
18,778
(1,094
)
Changes in assets and liabilities
(44,367
)
(3,448
)
Net cash provided by operating
activities
181,402
178,705
Investing activities
Purchase of property, plant, and
equipment
(82,045
)
(75,293
)
Purchase of intangibles
(3,281
)
(3,780
)
Proceeds from sale of property, plant, and
equipment
3,553
2,041
Proceeds from sale of business, net of
cash of $0 and $0
356
897
Acquisitions, net of cash received $411
and $0
(229,277
)
(21,037
)
Net cash used in investing activities
(310,694
)
(97,172
)
Financing activities
Issuance of debt, net of deferred issuance
costs
263,396
761,915
Repayment of debt
(127,667
)
(898,024
)
Repayment of finance lease obligation
(13,356
)
(13,396
)
Payment of earn-out related to previous
acquisitions
—
(170
)
Proceeds from issuance of common stock
9,556
21,205
Taxes paid related to net share
settlements of share-based compensation awards
(6,281
)
(1,323
)
Distribution to non‑controlling
interest
(100
)
(551
)
Net cash provided by (used in) financing
activities
125,548
(130,344
)
Effect of exchange rate changes on
cash
(8,495
)
2,054
Change in cash and cash equivalents
(12,239
)
(46,757
)
Cash and cash equivalents
Beginning of period
146,244
193,001
End of period
$
134,005
$
146,244
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
excluding (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 exclude
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. We exclude the effect of acquisitions
and divestitures during the first 12 months following the closing
of the acquisition or divestiture 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 and
years ended September 30, 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 September 30, 2020
total revenue
$
383.9
n/a
$
249.5
n/a
$
134.4
n/a
Organic
36.4
9.5
%
28.6
11.5
%
7.8
5.8
%
Inorganic
2.5
0.7
%
2.5
1.0
%
—
—
%
Foreign currency translation
3.2
0.8
%
0.8
0.3
%
2.4
1.8
%
Three months ended September 30, 2021
total revenue
$
426.0
11.0
%
$
281.4
12.8
%
$
144.6
7.6
%
Organic
37.0
8.7
%
17.1
6.1
%
19.9
13.7
%
Inorganic
49.3
11.6
%
49.3
17.5
%
—
—
%
Foreign currency translation
(7.5
)
(1.8
)%
(0.6
)
(0.2
)%
(6.9
)
(4.7
)%
Three months ended September 30, 2022
total revenue
$
504.8
18.5
%
$
347.2
23.4
%
$
157.6
9.0
%
Evoqua Water
Technologies
Integrated Solutions and
Services
Applied Product
Technologies
(In millions)
$ Change
% Change
$ Change
% Change
$ Change
% Change
Year ended September 30, 2020 total
revenue
$
1,429.5
n/a
$
944.2
n/a
$
485.3
n/a
Organic
23.1
1.6
%
4.8
0.5
%
18.3
3.8
%
Inorganic
(6.3
)
(0.4
)%
8.1
0.9
%
(14.4
)
(3.0
)%
Foreign currency translation
18.1
1.3
%
2.8
0.3
%
15.3
3.2
%
Year ended September 30, 2021 total
revenue
$
1,464.4
2.4
%
$
959.9
1.7
%
$
504.5
4.0
%
Organic
149.4
10.2
%
88.4
9.2
%
61.0
12.1
%
Inorganic
137.1
9.4
%
137.1
14.3
%
—
—
%
Foreign currency translation
(13.8
)
(1.0
)%
(0.9
)
(0.1
)%
(12.9
)
(2.6
)%
Year ended September 30, 2022 total
revenue
$
1,737.1
18.6
%
$
1,184.5
23.4
%
$
552.6
9.5
%
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
September 30,
Year Ended
September 30,
(In millions)
2022
2021
% Variance
2022
2021
% Variance
Net income
$
41.3
$
26.9
53.5
%
$
72.3
$
51.7
39.8
%
Income tax (benefit) expense
(11.9
)
2.4
(595.8
)%
(3.0
)
10.1
(129.7
)%
Interest expense
9.7
9.2
5.4
%
34.7
37.5
(7.5
)%
Operating profit
$
39.1
$
38.5
1.6
%
$
104.0
$
99.3
4.7
%
Depreciation and amortization
33.7
30.1
12.0
%
127.6
113.7
12.2
%
EBITDA
$
72.8
$
68.6
6.1
%
$
231.6
$
213.0
8.7
%
Restructuring and related business
transformation costs(a)
1.3
2.3
(43.5
)%
6.4
11.3
(43.4
)%
Purchase accounting adjustment
costs(b)
—
—
n/a
4.2
—
n/a
Share-based compensation(c)
6.3
5.9
6.8
%
23.5
17.7
32.8
%
Transaction costs(d)
3.1
—
n/a
8.1
1.6
406.3
%
Other losses (gains) and expenses(e)
9.7
5.1
90.2
%
23.9
7.3
227.4
%
Adjusted EBITDA
$
93.2
$
81.9
13.8
%
$
297.7
$
250.9
18.7
%
(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. (iv) Costs associated with the
secondary public offering of common stock held by certain
shareholders of the Company, as well as costs incurred by us in
connection with establishment of our public company compliance
structure and processes, including consultant costs.
(b) Purchase accounting adjustment costs
Adjusted EBITDA is calculated prior to considering adjustments for
the effect of the purchase accounting step-up in the value of
inventory to fair value recognized in cost of goods sold as a
result of the acquisition of the Mar Cor Business. See Note 4,
“Acquisitions and Divestitures,” to our Consolidated Financial
Statements included in our Annual Report on Form 10-K for the year
ended September 30, 2022 for further detail.
(c)
Share-based compensation Adjusted EBITDA is
calculated prior to considering share-based compensation expenses
related to equity awards. See Note 18, “Share-Based Compensation,”
to our Consolidated Financial Statements included in our Annual
Report on Form 10-K for the year ended September 30, 2022 for
further detail.
(d) 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.
(e) 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;
(ii)
charges incurred by the Company related to
product rationalization in its electro-chlorination business;
(iii)
amounts related to the sale of the Memcor
product line;
(iv)
expenses incurred by the Company as a
result of the COVID-19 pandemic, including additional charges for
personal protective equipment, increased costs for facility
sanitization and one-time payments to certain employees;
(v)
legal fees incurred in excess of amounts
covered by the Company’s insurance related to securities litigation
and SEC investigation matters; and
(vi)
loss on divestiture of the Lange product
line.
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 September
30,
$ 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
$
52.3
$
33.7
$
52.4
$
28.7
$
(0.1
)
$
5.0
(0.2
)%
17.4
%
Depreciation and amortization
22.7
3.6
18.3
3.8
4.4
(0.2
)
24.0
%
(5.3
)%
EBITDA
$
75.0
$
37.3
$
70.7
$
32.5
$
4.3
$
4.8
6.1
%
14.8
%
Restructuring and related business
transformation costs(a)
1.0
0.4
0.4
0.7
0.6
(0.3
)
150.0
%
(42.9
)%
Transaction costs(b)
1.6
—
(0.6
)
(0.1
)
2.2
0.1
(366.7
)%
(100.0
)%
Adjusted EBITDA
$
77.6
$
37.7
$
70.5
$
33.1
$
7.1
$
4.6
10.1
%
13.9
%
(a)
Represents costs and expenses in
connection with restructuring initiatives in the three months ended
September 30, 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 acquisitions.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221115005319/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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