PITTSBURGH--(BUSINESS WIRE)--Evoqua Water Technologies Corp. (NYSE:AQUA) today reported results for
its first quarter of fiscal 2018.
Evoqua reported revenues for the first quarter of fiscal 2018 of $297.1
million, an increase of $17.2 million or 6.1% as compared to the first
quarter of the prior year. Revenue growth was driven by an increase in
organic service revenues in the Industrial segment associated with
account penetration in the power, hydrocarbon processing and chemical
processing markets and from recently acquired businesses. Net loss for
the quarter was $3.0 million, an improvement of $10.2 million or 77.2%
year-over-year. Adjusted EBITDA was $40.0 million in the first quarter
of fiscal 2018, an increase of $2.7 million or 7.4% year-over-year. The
improvement in Adjusted EBITDA was driven by an increase in revenues and
related gross margin as well as a decrease in operating expenses
year-over-year.
“For the first quarter, Evoqua generated record sales and Adjusted
EBITDA led by strong growth in the Industrial segment, complemented by
the realization of continued operational efficiency benefits,” said Ron
Keating, Evoqua CEO. “Fiscal 2018 is off to a strong start. We continue
to be well positioned to capture organic and inorganic growth
opportunities across our business segments.”
First Quarter Segment Results
The Company has three reportable segments - Industrial, Municipal and
Products.
Industrial
The Industrial segment combines equipment and services to improve
operational reliability and environmental compliance for heavy and light
industry, commercial and institutional markets. Their customers span
industries including hydrocarbon processing, chemical processing, power,
food and beverage, life sciences, health services and microelectronics.
Revenues in the Industrial segment increased $19.5 million, or 13.4%, to
$165.2 million in the first quarter of fiscal 2018 as compared to $145.7
million in the same period in the prior year. Growth was driven by an
increase in service revenue of $7.1 million primarily in the power,
hydrocarbon processing and chemical processing markets as well as $2.3
million from further capital expansion, primarily in the power market
and remediation projects. In addition, an increase of $10.1 million of
revenue year-over-year was attributable to the acquisitions of ETS, ADI
and Noble Water Technologies, which occurred during the fiscal year
ended September 30, 2017.
Operating profit in the Industrial segment increased $6.9 million, or
29.9%, to $30.0 million in the first quarter of fiscal 2018 from $23.1
million in the same period of the prior year. The increase in operating
profit was driven by the revenues from acquisitions noted above, which
contributed $3.0 million, as well an increase of $2.5 million from
organic revenue growth and $1.4 million of benefits resulting from lower
employment costs driven by restructuring and cost improvement
initiatives implemented in the current and prior fiscal year. EBITDA in
the Industrial segment increased $8.1 million, or 25.4%, to $40.1
million in the three months ended December 31, 2017 from $32.0 million
in the three months ended December 31, 2016.
Municipal
The Municipal segment helps engineers and municipalities meet new
demands for plant performance through market-leading equipment,
solutions and services backed by trusted brands and over 100 years of
applications experience. The segment’s customers include waste water and
drinking water collection and distribution systems and utility
operators. The segment’s services include odor and corrosion control
services.
Municipal revenues decreased slightly by $0.7 million, or (1.2)%, to
$61.9 million for the first quarter of fiscal 2018 as compared to $62.6
million for the comparable period in the prior year. Service and project
revenues increased 4.3% and 1.6%, respectively, while the expected
timing of aftermarket product revenues drove a decline of 16.1% as
compared to the prior year period.
Operating profit in the Municipal segment decreased $1.7 million, or
(26.1)%, to $4.8 million for the first quarter of fiscal 2018 from $6.5
million for the same period in the prior year. The decrease in operating
profit was primarily due to product mix and planned timing of certain
recurring expenses, which accounted for approximately $3.6 million of
the decline. These decreases were offset by lower employment and legal
expenses of $1.3 million and $0.7 million of benefits as a result of
restructuring and cost improvement initiatives implemented in the prior
fiscal year. EBITDA in the Municipal segment decreased $2.0 million, or
23.0%, to $6.6 million in the three months ended December 31, 2017 from
$8.6 million in the three months ended December 31, 2016.
Products
The Products segment has distinct business operating units, each built
on well-known brands and technologies that are sold globally through
multiple sales and aftermarket channels. Additionally, the Products
segment also offers industrial, municipal and recreational users
improved operational reliability and environmental compliance. The
segment’s customers include original equipment manufacturers, regional
and global distributors, engineering, procurement and contracting
customers, and end users in the industrial, municipal and commercial
industries.
Products revenues decreased $1.5 million, or (2.2)%, to $70.0 million in
the first quarter of fiscal 2018 from $71.5 million in the comparable
period of the prior year. The expected decline in revenues was primarily
due to the timing of larger projects completed in the first quarter of
the prior year in the Aquatics product line, offset by an increase in
revenues related to the Electrocatalytic ballast water and Separation
Technologies product lines, and continued strong growth in the China
market.
Operating profit in the Products segment decreased $3.7 million, or
(32.3)%, to $7.7 million for the first quarter of fiscal 2018 as
compared to $11.4 million in the prior year period. The decline in
operating profit was attributable to product mix and the timing of
larger projects completed in the first quarter of the prior year in the
Aquatics product line. EBITDA in the Products segment decreased $4.2
million, or 28.3%, to $10.7 million in the three months ended
December 31, 2017 from $14.9 million in the three months ended
December 31, 2016.
Summary and Outlook
“All three of our segments continue to deliver as planned, and we are
particularly pleased by the strong growth delivered by the Industrial
segment,” said Keating. “Secular trends in our key vertical markets
continue to be positive and support profitable growth. For 2018, we
reaffirm our expected revenues to be in the range of $1.33 billion and
$1.36 billion and Adjusted EBITDA to be in the range of $235 million and
$255 million.”
About Evoqua Water Technologies
Evoqua Water Technologies is a leading provider of mission critical
water treatment solutions, offering services, systems and technologies
to support its customers’ full water lifecycle needs. Evoqua Water
Technologies 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, Evoqua operates 160 locations in eight countries and, with
over 200,000 installations and 87 service branches, holds leading
positions in the North American industrial, commercial and municipal
water treatment markets, serving more than 38,000 customers worldwide.
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EVOQUA WATER TECHNOLOGIES CORP.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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(in thousands, except per share amounts)
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Three months ended
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Three months ended
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December 31, 2016
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December 31, 2017
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Revenue from product sales and services
|
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$279,872
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|
|
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$297,051
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|
|
|
|
|
|
|
|
|
Cost of product sales and services
|
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(196,813
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)
|
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(208,672
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)
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|
|
|
|
|
|
|
|
|
Gross Profit
|
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|
83,059
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|
|
|
88,379
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|
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General and administrative expense
|
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(49,186
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)
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|
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(39,064
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)
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Sales and marketing expense
|
|
|
(35,093
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)
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|
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(34,241
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)
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Research and development expense
|
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(5,005
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)
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|
|
(4,653
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)
|
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Other operating income (expense)
|
|
|
683
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|
|
|
(593
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)
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Interest expense
|
|
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(14,753
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)
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|
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(17,243
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)
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Loss before income taxes
|
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|
(20,295
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)
|
|
|
(7,415
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)
|
|
Income tax benefit
|
|
|
7,095
|
|
|
|
4,410
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|
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Net loss
|
|
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(13,200
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)
|
|
|
(3,005
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)
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Net income attributable to non-controlling interest
|
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|
399
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|
708
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Net loss attributable to Evoqua Water Technologies Corp.
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$
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(13,599
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)
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$
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(3,713
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)
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Basic (loss) earnings per common share
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($0.13
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)
|
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($0.03
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)
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Diluted (loss) earnings per common share
|
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($0.13
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)
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|
($0.03
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)
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EVOQUA WATER TECHNOLOGIES CORP.
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CONSOLIDATED BALANCE SHEETS
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(in thousands, except per share amounts)
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(Unaudited)
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September 30, 2017
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December 31, 2017
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ASSETS
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Current assets
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$512,240
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$520,436
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Cash and cash equivalents
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59,254
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80,250
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Receivables, net
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245,248
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226,719
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Inventories, net
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120,047
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128,306
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Cost and earnings in excess of billings on uncompleted contracts
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66,814
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65,038
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Prepaid and other current assets
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20,046
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19,287
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Income tax receivable
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831
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|
836
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Property, plant, and equipment, net
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280,043
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281,507
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Goodwill
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321,913
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320,927
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Intangible assets, net
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333,746
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329,568
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Deferred income taxes
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2,968
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2,968
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Other non-current assets
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22,399
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23,503
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Total assets
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$1,473,309
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$1,478,909
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LIABILITIES AND EQUITY
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Current liabilities
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$291,899
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$263,746
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Accounts payable
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114,932
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|
114,489
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Current portion of debt
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11,325
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11,033
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Billings in excess of costs incurred
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27,124
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36,511
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Product warranties
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11,164
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9,807
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Accrued expenses and other liabilities
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121,923
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|
88,793
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Income tax payable
|
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5,431
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|
3,113
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Non-current liabilities
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964,835
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|
866,366
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Long-term debt
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878,524
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777,900
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Product warranties
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6,110
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|
6,497
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Other non-current liabilities
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|
67,673
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|
68,884
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Deferred income taxes
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|
12,528
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|
|
9,160
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Total liabilities
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|
1,256,734
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|
1,126,187
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Commitments and Contingent Liabilities (Note 17)
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Shareholders’ equity
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Common stock, par value $0.01: authorized 1,000,000 shares; issued
105,359 shares, outstanding 104,949 shares at September 30, 2017;
issued 113,692 shares, outstanding 113,264 shares at December 31,
2017.
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1,054
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1,137
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Treasury stock: 410 shares at September 30, 2017 and 428 shares at
December 31, 2017
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(2,607
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)
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(2,837
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)
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Additional paid-in capital
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388,986
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529,120
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Retained deficit
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(170,006
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)
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(173,719
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)
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Accumulated other comprehensive loss, net of tax
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(5,989
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)
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(6,324
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)
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Total Evoqua Water Technologies Corp. equity
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211,438
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347,377
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Non-controlling interest
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5,137
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|
5,345
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Total shareholders’ equity
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216,575
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352,722
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Total liabilities and shareholders’ equity
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$1,473,309
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$1,478,909
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EVOQUA WATER TECHNOLOGIES CORP.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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(in thousands)
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Three months ended
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Three months ended
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|
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December 31, 2016
|
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December 31, 2017
|
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Operating activities
|
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|
|
|
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Net loss
|
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$
|
(13,200
|
)
|
|
$
|
(3,005
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)
|
|
Reconciliation of net loss to cash flows from operating activities:
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|
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Depreciation and amortization
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18,647
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|
19,883
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Amortization of deferred financing costs (includes $2,075 and $2,944
write off of deferred financing fees)
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3,573
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|
3,842
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|
Deferred income taxes
|
|
(7,064
|
)
|
|
(3,088
|
)
|
|
Share based compensation
|
|
466
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|
|
2,612
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|
|
Gain on sale of property, plant and equipment
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(464
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)
|
|
182
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|
|
Foreign currency losses on intracompany loans
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7,485
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|
|
(1,583
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)
|
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Changes in assets and liabilities
|
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|
|
|
|
Accounts receivable
|
|
(11,988
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)
|
|
18,864
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|
Inventories
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(6,623
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)
|
|
(8,259
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)
|
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Cost and earnings in excess of billings on uncompleted contracts
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5,680
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|
1,905
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|
Prepaids and other current assets
|
|
(1,344
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)
|
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938
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|
|
Accounts payable
|
|
(14,765
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)
|
|
(513
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)
|
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Accrued expenses and other liabilities
|
|
(10,677
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)
|
|
(32,810
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)
|
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Billings in excess of costs incurred
|
|
1,467
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|
|
9,313
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|
|
Income taxes
|
|
(1,831
|
)
|
|
(2,341
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)
|
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Other non-current assets and liabilities
|
|
1,809
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|
|
(359
|
)
|
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Net cash (used in) provided by operating activities
|
|
(28,829
|
)
|
|
5,581
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|
Investing activities
|
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|
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|
|
Purchase of property, plant and equipment
|
|
(13,603
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)
|
|
(15,257
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)
|
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Proceeds from sale of property, plant and equipment
|
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746
|
|
|
387
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|
Acquisitions, net of cash received of $0
|
|
(10,730
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)
|
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0
|
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|
Net cash used in investing activities
|
|
(23,587
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)
|
|
(14,870
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)
|
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Financing activities
|
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|
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|
|
Issuance of debt
|
|
150,000
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|
--
|
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Capitalized deferred issuance costs related to refinancing
|
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(3,928
|
)
|
|
(1,792
|
)
|
|
Borrowings under credit facility
|
|
15,000
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|
|
6,000
|
|
|
Repayment of debt
|
|
(111,358
|
)
|
|
(108,663
|
)
|
|
Repayment of capital lease obligation
|
|
(2,113
|
)
|
|
(2,283
|
)
|
|
Shares of common stock issued in initial public offering, net of
offering costs
|
|
4,052
|
|
|
137,605
|
|
|
Stock repurchases
|
|
(120
|
)
|
|
(230
|
)
|
|
Distribution to non-controlling interest
|
|
(750
|
)
|
|
(500
|
)
|
|
Net cash provided by financing activities
|
|
50,783
|
|
|
30,137
|
|
|
Effect of exchange rate changes on cash
|
|
2,852
|
|
|
148
|
|
|
Change in cash and cash equivalents
|
|
1,219
|
|
|
20,996
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
Beginning of period
|
|
50,362
|
|
|
59,254
|
|
|
End of period
|
|
$51,581
|
|
|
$80,250
|
|
|
|
|
|
|
|
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Adjusted EBITDA
We make use of the non-GAAP financial measure “Adjusted EBITDA” in
evaluating our past performance and future prospects. Adjusted EBITDA is
defined as net income (loss) before interest expense, income tax expense
(benefit) and depreciation and amortization, adjusted for the impact of
certain other items, including restructuring and related business
transformation costs, purchase accounting adjustment costs, non cash
stock based compensation, sponsor fees, transaction costs and other
gains, losses and expenses.
Adjusted EBITDA is one of the primary metrics used by management to
evaluate the financial performance of our business. We present Adjusted
EBITDA, which is not a recognized financial measure under GAAP, because
we believe it is frequently used by analysts, investors and other
interested parties to evaluate companies in our industry. Further, we
believe it is helpful in highlighting trends in our operating results,
because it excludes, among other things, certain results of decisions
that are outside the control of management, while other measures can
differ significantly depending on long term strategic decisions
regarding capital structure, the tax jurisdictions in which we operate
and capital investments. Management uses Adjusted EBITDA to supplement
GAAP measures of performance as follows:
-
to assist investors and analysts in comparing our operating
performance across reporting periods on a consistent basis by
excluding items that we do not believe are indicative of our core
operating performance;
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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;
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to make budgeting decisions; and
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to compare our performance against that of other peer companies using
similar measures.
In addition to the above, our chief operating decision maker uses EBITDA
of each reportable segment to evaluate the operating performance of such
segments. EBITDA of the reportable segments does not include certain
unallocated charges that are presented within Corporate activities.
These unallocated 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, integration costs and
recognition of backlog intangible assets recorded in purchase
accounting) and stock-based compensation charges.
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, Adjusted EBITDA may not be
comparable to similarly titled measures used by other companies in our
industry or across different industries.
The following is a reconciliation of our net income (loss) to Adjusted
EBITDA (unaudited, amounts in thousands):
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Three months ended
|
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Three months ended
|
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|
|
|
December 31, 2016
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|
|
December 31, 2017
|
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Net loss
|
|
|
$
|
(13,200
|
)
|
|
|
$
|
(3,005
|
)
|
|
Interest expense
|
|
|
14,753
|
|
|
|
17,243
|
|
|
Income tax benefit
|
|
|
(7,095
|
)
|
|
|
(4,410
|
)
|
|
Depreciation and amortization
|
|
|
18,647
|
|
|
|
19,883
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
13,105
|
|
|
|
29,711
|
|
|
Restructuring and related business transformation costs (a)
|
|
|
13,158
|
|
|
|
8,115
|
|
|
Purchase accounting adjustment costs (b)
|
|
|
219
|
|
|
|
—
|
|
|
Stock-based compensation (c)
|
|
|
466
|
|
|
|
2,612
|
|
|
Sponsor fees (d)
|
|
|
1,000
|
|
|
|
333
|
|
|
Transaction costs (e)
|
|
|
1,359
|
|
|
|
514
|
|
|
Other gains, losses and expenses (f)
|
|
|
7,932
|
|
|
|
(1,304
|
)
|
|
Adjusted EBITDA
|
|
|
$
|
37,239
|
|
|
|
$
|
39,981
|
|
_______________________
|
(a)
|
|
Represents:
|
|
|
|
|
|
|
|
|
|
(i)
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costs and expenses in connection with various restructuring
initiatives since our acquisition, through our wholly-owned
entities, EWT Holdings II Corp. and EWT Holdings III Corp., of all
of the outstanding shares of Siemens Water Technologies, a group of
legal entity businesses formerly owned by Siemens
Aktiengesellschaft, on January 15, 2014 (the “AEA Acquisition”),
including severance costs, relocation costs, recruiting expenses,
write-offs of inventory and fixed assets and third-party consultant
costs to assist with these initiatives (includes (A) $10.2 million
for the three months ended December 31, 2016 and $0.4 million in the
three months ended December 31, 2017 (all of which is reflected as a
component of Restructuring charges in “Note 11-Restructuring and
Related Charges” to our unaudited condensed consolidated financial
statements to be included in our Quarterly Report on Form 10-Q for
the three months ended December 31, 2017) related to our voluntary
separation plan pursuant to which approximately 220 employees
accepted separation packages, and (B) $1.1 million for the three
months ended December 31, 2016, reflected as a components of Cost of
product sales and services ($0.8 million) and General and
administrative expense ($0.3 million), and $3.5 million for the
three months ended December 31, 2017, reflected as components of
Cost of product sales and services ($1.3 million), Research and
development expense ($0.3 million), Sales and marketing expense
($0.3 million) and General and administrative expense ($1.6 million)
(all of which is reflected as a component of Restructuring charges
in “Note 11-Restructuring and Related Charges” to our unaudited
condensed consolidated financial statements to be included in our
Quarterly Report on Form 10-Q for the three months ended December
31, 2017) related to various other initiatives implemented to
restructure and reorganize our business with the appropriate
management team and cost structure);
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(ii)
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legal settlement costs and intellectual property related fees
associated with legacy matters prior to the AEA Acquisition,
including fees and settlement costs related to product warranty
litigation on MEMCOR products and certain discontinued products
($0.5 million for the three months ended December 31, 2016,
reflected as components of Cost of product sales and services ($0.1
million) and General and administrative expense ($0.4 million), and
$0.1 million in the three months ended December 31, 2017, primarily
reflected as a component of Cost of product sales and services);
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(iii)
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expenses associated with our information technology and functional
infrastructure transformation following the AEA Acquisition,
including activities to optimize information technology systems and
functional infrastructure processes ($1.4 million for the three
months ended December 31, 2016, primarily reflected as components of
Cost of product sales and services ($0.5 million), Sales and
marketing expense ($0.3 million) and General and administrative
expense ($0.6 million), and $1.3 million in the three months ended
December 31, 2017, primarily reflected as components of Cost of
product sales and services ($0.9 million), Sales and marketing
expense ($0.1 million) and General and administrative expense ($0.3
million); and
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(iv)
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costs incurred by us in connection with the IPO, including
consultant costs and public company compliance costs ($2.9 million
in the three months ended December 31, 2017, all reflected as a
component of General and administrative expense).
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(b)
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Represents 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 Magneto.
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(c)
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Represents non-cash stock-based compensation expenses related to
option awards. See “Note 14-Stock Compensation” to our unaudited
condensed consolidated financial statements to be included in our
Quarterly Report on Form 10-Q for the three months ended December
31, 2017 for further detail.
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(d)
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Represents management fees paid to AEA pursuant to the management
agreement. Pursuant to the management agreement, AEA provided
advisory and consulting services to us in connection with the AEA
Acquisition, including investment banking, due diligence, financial
advisory and valuation services. AEA also provided ongoing advisory
and consulting services to us pursuant to the management agreement.
In connection with the IPO, the management agreement was terminated.
See “Note 16-Related-Party Transactions” to our unaudited condensed
consolidated financial statements to be included in our Quarterly
Report on Form 10-Q for the three months ended December 31, 2017 for
further detail.
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(e)
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Represents expenses associated with acquisition and
divestiture-related activities and post-acquisition integration
costs and accounting, tax, consulting, legal and other fees and
expenses associated with acquisition transactions ($1.4 million in
the three months ended December 31, 2016 and $0.5 million in the
three months ended December 31, 2017).
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(f)
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Represents:
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(i)
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impact of foreign exchange gains and losses ($7.6 million loss in
the three months ended December 31, 2016 and $1.5 million gain in
the three months ended December 31, 2017);
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(ii)
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foreign exchange impact related to headquarter allocations ($0.2
million gain in the three months ended December 31, 2016); and
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(iii)
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expenses related to maintaining non-operational business locations
($0.1 million in the three months ended December 31, 2016 and $0.2
million in the three months ended December 31, 2017).
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This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. All of
these forward-looking statements are based on our current expectations,
assumptions, estimates and projections. While we believe these
expectations, assumptions, estimates and projections are reasonable,
such forward-looking statements are only predictions and involve known
and unknown risks and uncertainties, many of which are beyond our
control. These and other important factors may cause our actual results,
performance or achievements to differ materially from any future
results, performance or achievements expressed or implied by these
forward-looking statements, or could affect our share price. Some of the
factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include among
other things, general global economic and business conditions; our
ability to compete successfully in our markets; 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 of 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 to be described in the “Risk
Factors” section in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2017, as filed with the SEC December 4, 2017, and in
other periodic reports we file with the SEC. Additionally, any forward
looking statements made in this press release speak only as of the date
of this release. We undertake no obligation to update or revise, or to
publicly announce any update or revision to, any of the forward-looking
statements made herein, whether as a result of new information, future
events or otherwise. These forward-looking statements should not be
relied upon as representing the Company’s views as of any date
subsequent to the date of this release.
