PITTSBURGH--(BUSINESS WIRE)--Evoqua Water Technologies Corp. (NYSE:AQUA) today reported results for
its second quarter of fiscal 2019.
Revenues for the second quarter of fiscal 2019 were $348.6 million, an
increase of $14.9 million, or 4.5%, from $333.7 million in the prior
year period. Revenue growth for the second quarter was primarily led by
increased volume in service revenues from organic and recently acquired
businesses, as well as continued strong performance in aftermarket
revenue channels.
Net income for the second quarter of fiscal 2019 was $1.6 million,
compared to net income of $13.0 million in the prior year period,
resulting in diluted earnings per share (“EPS”) of $0.01 compared to
$0.10 in the prior year period. Net income for the quarter includes $0.3
million of non-cash foreign currency loss from intercompany loans,
versus a prior year period non-cash foreign currency gain of $2.1
million. Additional contributing factors to the period over period
change include other non-cash charges of $9.2 million, including product
rationalization and facility consolidation charges associated with the
two-segment realignment, higher depreciation costs associated with
capital investment and acquisitions, as well as higher share-based
compensation charges.
Adjusted EBITDA was $56.7 million in the second quarter of fiscal 2019,
a decrease of $1.0 million, or 1.7%, from the prior year period. The
reduction in Adjusted EBITDA for the second quarter of fiscal 2019 as
compared to the prior year period was driven by factors in our Applied
Product Technologies segment, including product mix in the quarter as
well as the impact of benefits recognized in the prior year period
related to warranty reductions based on improved warranty experience.
“Strong sales growth from Integrated Solutions and Services and
double-digit overall year-to-date order growth highlighted the quarter’s
results, which were in-line with our expectations,” said Ron Keating,
Evoqua’s CEO. “Integrated Solutions and Services second quarter sales
grew 10.9%, and 5.9% organically, over the prior year. Applied Product
Technologies sales were down 5.7% versus last year with growth in
aftermarket offset by a decline in higher margin capital sales. We are
pleased with the strong order book, which reflects continued strength in
our end markets, and we expect it to provide sales growth opportunities
in the latter part of this year and into 2020.”
Mr. Keating stated, “We began our two-segment realignment in October
with the objective of optimizing our ability to quickly serve customers
and channel partners with our broad portfolio of solutions. The
realignment is on-track, and we are seeing the expected benefits of the
two-segment structure in our order rates.”
Mr. Keating continued, “For fiscal 2019, we reaffirm our expected
revenues to be in the range of $1.38 billion to $1.44 billion and
Adjusted EBITDA to be in the range of $220 million to $240 million. We
expect to see improved results in the second half driven by higher
volumes, cost benefits associated with our two-segment realignment and
the impact of favorable pricing actions. While we have visibility on an
annual basis given the recurring nature of much of the business, the
Company is subject to quarterly variability that may result from product
mix and customer schedules changing between periods. As a result, we
expect third quarter Adjusted EBITDA to be approximately flat to up 8%
sequentially over the second quarter 2019 Adjusted EBITDA."
Mr. Keating commented, “Overall demand trends continue to be favorable
as customers recognize the increasing complexities in managing their
water requirements. We believe Evoqua’s broad portfolio of technologies,
integrated solutions and services positions us for continued growth.”
Second Quarter Segment Results
For fiscal 2019, Evoqua has two reportable segments - Integrated
Solutions and Services and Applied Product Technologies. The results of
our segments for the second quarter are as follows:
Integrated Solutions and Services
The Integrated Solutions and Services segment provides tailored services
and solutions in collaboration with our customers backed by life-cycle
services including on-demand water, outsourced water, recycle / reuse
and emergency response service alternatives to improve operational
reliability, performance and environmental compliance. Key offerings
within this segment also include equipment systems for industrial needs
(influent water, boiler feed water, ultrahigh purity, process water,
wastewater treatment and recycle / reuse), municipal services, including
odor and corrosion control services, and full-scale outsourcing of
operations and maintenance.
Segment revenues increased $22.3 million, or 10.9%, to $226.8 million in
the second quarter of fiscal 2019 as compared to $204.5 million in the
same period in the prior year. Organic revenues increased approximately
5.9% as compared to the same period in the prior year -
-
Service revenue growth of $3.8 million, exclusive of acquisitions.
-
Capital and aftermarket revenue grew by $7.6 million, exclusive of
acquisitions, primarily in the microelectronics and food and beverage
markets.
-
Recently acquired businesses of Pure Water, ProAct and Isotope
contributed $10.9 million of revenue compared to the same period in
the prior year.
Operating profit increased $2.4 million, or 6.9%, to $37.0 million in
the second quarter of fiscal 2019 as compared to $34.6 million the same
period of the prior year -
-
Segment profitability improved $5.7 million driven by increased
organic and acquisition related revenue volume as well as improved
pricing across the business.
-
Higher segment operating costs reduced profitability by $0.5 million,
partially derived from higher employment costs.
-
Segment profitability was also impacted by $2.8 million of higher
depreciation and amortization, primarily driven by acquisitions and
capital investment in service assets.
Segment Adjusted EBITDA increased $5.3 million, or 11.5%, to $51.4
million in the second quarter of fiscal 2019 as compared to $46.1
million in the same period in the prior year. The increase in Adjusted
EBITDA resulted from the same factors which impacted operating profit,
other than the change in depreciation and amortization, and for this
segment also excludes $0.1 million of restructuring and realignment
costs incurred, all of which were discrete to the Integrated Solutions
and Services segment. There were no comparable charges incurred in the
same period of the prior year that would impact Adjusted EBITDA for the
Integrated Solutions and Services segment.
Applied Product Technologies
The Applied Product Technologies segment provides a range of highly
differentiated and scalable products and technologies specified by
global water treatment designers, OEMs, engineering firms and
integrators. Key offerings within this segment include filtration and
separation, disinfection, wastewater solutions, anode and
electrochlorination technology and aquatics technologies and solutions
for the global recreational and commercial pool market.
Revenues decreased by $7.4 million, or 5.7%, to $121.8 million in the
second quarter of fiscal 2019, as compared to $129.2 million for the
comparable period in the prior year -
-
Aftermarket revenue grew by $9.9 million, derived from multiple
product lines.
-
Capital products revenues declined by $14.5 million, primarily in
higher margin product lines.
-
Recently acquired business Pacific Ozone contributed $0.9 million of
increased revenue.
-
Revenue was also impacted by unfavorable foreign currency translation
of $3.7 million.
Operating profit decreased $12.8 million, or 53.1%, to $11.3 million for
the second quarter of fiscal 2019 from $24.1 million for the same period
in the prior year -
-
Improvements in profitability included operational leverage of $2.5
million, as well as lower employment costs of $2.7 million as compared
to the prior year period.
-
These improvements in profitability were offset by $7.1 million
related to the decline in revenue volume and the underlying product
mix, as well as the impact of benefits recognized in the prior year
period of $3.6 million related to warranty reductions, net of losses
from our Italian operations, which did not reoccur in the current year.
-
Operating profit was also impacted by unfavorable foreign currency
translation of $1.4 million.
-
Other offsets to segment operating profit include impacts from product
rationalization and facility consolidation, restructuring and costs
associated with the remediation of a manufacturing defect caused by a
third-party vendor in an aggregate amount of $5.4 million, along with
$0.5 million of higher depreciation expense.
Segment Adjusted EBITDA decreased $6.9 million, or 24.6%, to $21.2
million in the second quarter of fiscal 2019 as compared to $28.1
million in the same prior year period. The decline in segment Adjusted
EBITDA was driven by the same factors which impacted segment operating
profit, other than the change from depreciation and amortization, and
also excludes the impacts from product rationalization and facility
consolidation, restructuring and costs associated with the remediation
of a manufacturing defect caused by a third party vendor in an aggregate
amount of $5.4 million incurred during the period that was discrete to
the Applied Product Technologies segment. There were no comparable
charges incurred in the same period of the prior year that would impact
Adjusted EBITDA for the Applied Product Technologies segment.
Second Quarter Earnings Call and Webcast
The Company will hold its second quarter earnings conference call
Friday, May 10, 2019, 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/
.
The link to the webcast replay as well as the presentation slides will
also be posted on Evoqua’s Investor Relations website.
About Evoqua Water Technologies
Evoqua Water Technologies is a leading provider of mission critical
water and wastewater treatment solutions, offering a broad portfolio of
products, services and expertise to support industrial, municipal and
recreational customers who value water. Evoqua has worked to protect
water, the environment and its employees for more than 100 years,
earning a reputation for quality, safety and reliability around the
world. Headquartered in Pittsburgh, Pennsylvania, the company operates
in more than 160 locations across 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.
|
|
|
|
|
EVOQUA WATER TECHNOLOGIES CORP.
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
|
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenue
|
|
$
|
348,628
|
|
|
$
|
333,690
|
|
|
$
|
671,630
|
|
|
$
|
630,740
|
|
Cost of product sales and services
|
|
(253,017
|
)
|
|
(225,693
|
)
|
|
(487,289
|
)
|
|
(434,364
|
)
|
Gross Profit
|
|
95,611
|
|
|
107,997
|
|
|
184,341
|
|
|
196,376
|
|
General and administrative expense
|
|
(48,215
|
)
|
|
(44,742
|
)
|
|
(103,046
|
)
|
|
(83,807
|
)
|
Sales and marketing expense
|
|
(35,435
|
)
|
|
(34,330
|
)
|
|
(71,587
|
)
|
|
(68,571
|
)
|
Research and development expense
|
|
(3,957
|
)
|
|
(4,021
|
)
|
|
(8,103
|
)
|
|
(8,674
|
)
|
Total operating expenses
|
|
(87,607
|
)
|
|
(83,093
|
)
|
|
(182,736
|
)
|
|
(161,052
|
)
|
Other operating income (expense), net
|
|
3,464
|
|
|
904
|
|
|
3,504
|
|
|
311
|
|
Interest expense
|
|
(14,474
|
)
|
|
(10,810
|
)
|
|
(28,917
|
)
|
|
(28,053
|
)
|
(Loss) income before income taxes
|
|
(3,006
|
)
|
|
14,998
|
|
|
(23,808
|
)
|
|
7,582
|
|
Income tax benefit (expense)
|
|
4,579
|
|
|
(2,018
|
)
|
|
9,093
|
|
|
2,393
|
|
Net income (loss)
|
|
1,573
|
|
|
12,980
|
|
|
(14,715
|
)
|
|
9,975
|
|
Net income attributable to non-controlling interest
|
|
189
|
|
|
477
|
|
|
631
|
|
|
1,185
|
|
Net income (loss) attributable to Evoqua Water Technologies Corp.
|
|
$
|
1,384
|
|
|
$
|
12,503
|
|
|
$
|
(15,346
|
)
|
|
$
|
8,790
|
|
Basic income (loss) per common share
|
|
$
|
0.01
|
|
|
$
|
0.11
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.08
|
|
Diluted income (loss) per common share
|
|
$
|
0.01
|
|
|
$
|
0.10
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EVOQUA WATER TECHNOLOGIES CORP.
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
March 31,
|
|
September 30,
|
|
|
2019
|
|
2018
|
ASSETS
|
|
|
|
|
Current assets
|
|
$
|
551,617
|
|
|
$
|
565,560
|
|
Cash and cash equivalents
|
|
66,750
|
|
|
82,365
|
|
Receivables, net
|
|
232,324
|
|
|
254,756
|
|
Inventories, net
|
|
155,863
|
|
|
134,988
|
|
Contract assets
|
|
71,310
|
|
|
69,147
|
|
Other current assets
|
|
25,370
|
|
|
24,304
|
|
Property, plant, and equipment, net
|
|
333,023
|
|
|
320,023
|
|
Goodwill
|
|
407,572
|
|
|
411,346
|
|
Intangible assets, net
|
|
328,021
|
|
|
340,408
|
|
Other non-current assets
|
|
39,941
|
|
|
26,280
|
|
Total assets
|
|
$
|
1,660,174
|
|
|
$
|
1,663,617
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
Current liabilities
|
|
$
|
280,773
|
|
|
$
|
284,719
|
|
Accounts payable
|
|
133,730
|
|
|
141,140
|
|
Current portion of debt
|
|
12,303
|
|
|
11,555
|
|
Contract liabilities
|
|
25,068
|
|
|
17,652
|
|
Accrued expenses and other liabilities
|
|
94,659
|
|
|
97,672
|
|
Other current liabilities
|
|
15,013
|
|
|
16,700
|
|
Non-current liabilities
|
|
1,024,024
|
|
|
1,016,882
|
|
Long-term debt
|
|
933,116
|
|
|
928,075
|
|
Other non-current liabilities
|
|
90,908
|
|
|
88,807
|
|
Total liabilities
|
|
1,304,797
|
|
|
1,301,601
|
|
Shareholders’ equity
|
|
|
|
|
Common stock, par value $0.01: authorized 1,000,000 shares; issued
115,691 shares, outstanding 114,173 shares at March 31, 2019; issued
115,016 shares, outstanding 113,929 shares at September 30, 2018
|
|
1,151
|
|
|
1,145
|
|
Treasury stock: 1,518 shares at March 31, 2019 and 1,087 shares at
September 30, 2018
|
|
(2,837
|
)
|
|
(2,837
|
)
|
Additional paid-in capital
|
|
542,104
|
|
|
533,435
|
|
Retained deficit
|
|
(180,618
|
)
|
|
(163,871
|
)
|
Accumulated other comprehensive loss, net of tax
|
|
(7,615
|
)
|
|
(9,017
|
)
|
Total Evoqua Water Technologies Corp. equity
|
|
352,185
|
|
|
358,855
|
|
Non-controlling interest
|
|
3,192
|
|
|
3,161
|
|
Total shareholders’ equity
|
|
355,377
|
|
|
362,016
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,660,174
|
|
|
$
|
1,663,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EVOQUA WATER TECHNOLOGIES CORP.
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
(Unaudited)
|
(In thousands)
|
|
|
|
|
|
Six Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
2018
|
Operating activities
|
|
|
|
|
Net (loss) income
|
|
$
|
(14,715
|
)
|
|
$
|
9,975
|
|
Reconciliation of net (loss) income to cash flows provided by
operating activities:
|
|
|
|
|
Depreciation and amortization
|
|
47,252
|
|
|
40,363
|
|
Amortization of debt related costs (includes $0 and $2,994 write off
of deferred financing fees)
|
|
1,231
|
|
|
4,145
|
|
Deferred income taxes
|
|
(11,411
|
)
|
|
(6,013
|
)
|
Share-based compensation
|
|
9,270
|
|
|
6,862
|
|
(Gain) loss on sale of property, plant and equipment
|
|
(122
|
)
|
|
102
|
|
Foreign currency exchange losses (gains) on intercompany loans and
other non-cash items
|
|
5,228
|
|
|
(2,934
|
)
|
Changes in assets and liabilities
|
|
(9,389
|
)
|
|
(10,649
|
)
|
Net cash provided by operating activities
|
|
27,344
|
|
|
41,851
|
|
Investing activities
|
|
|
|
|
Purchase of property, plant and equipment
|
|
(40,682
|
)
|
|
(31,670
|
)
|
Purchase of intangibles
|
|
(2,898
|
)
|
|
(291
|
)
|
Proceeds from sale of property, plant and equipment
|
|
2,875
|
|
|
539
|
|
Acquisitions, net of cash received of $0 and $39
|
|
2,048
|
|
|
(10,224
|
)
|
Net cash used in investing activities
|
|
(38,657
|
)
|
|
(41,646
|
)
|
Financing activities
|
|
|
|
|
Issuance of debt, net of deferred issuance costs
|
|
10,663
|
|
|
(1,792
|
)
|
Borrowings under credit facility
|
|
115,000
|
|
|
6,000
|
|
Repayment of debt
|
|
(120,856
|
)
|
|
(111,161
|
)
|
Repayment of capital lease obligation
|
|
(4,925
|
)
|
|
(5,489
|
)
|
Payment of earn-out related to previous acquisitions
|
|
(461
|
)
|
|
—
|
|
Proceeds from issuance of common stock
|
|
341
|
|
|
137,605
|
|
Taxes paid related to net share settlements of share-based
compensation awards
|
|
(936
|
)
|
|
(7,368
|
)
|
Stock repurchases
|
|
—
|
|
|
(230
|
)
|
Cash paid for interest rate cap
|
|
(2,235
|
)
|
|
—
|
|
Distribution to non-controlling interest
|
|
(600
|
)
|
|
(1,550
|
)
|
Net cash (used in) provided by financing activities
|
|
(4,009
|
)
|
|
16,015
|
|
Effect of exchange rate changes on cash
|
|
(293
|
)
|
|
268
|
|
Change in cash and cash equivalents
|
|
(15,615
|
)
|
|
16,488
|
|
Cash and cash equivalents
|
|
|
|
|
Beginning of period
|
|
82,365
|
|
|
59,254
|
|
End of period
|
|
$
|
66,750
|
|
|
$
|
75,742
|
|
|
|
|
|
|
|
|
|
|
Use of Non-GAAP Measures
Adjusted EBITDA
We use 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 benefit (expense)
and depreciation and amortization, adjusted for the impact of certain
other items, including restructuring and related business transformation
costs, purchase accounting adjustment costs, non-cash share-based
compensation, 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;
-
in our management incentive compensation which is based in part on
components of Adjusted EBITDA;
-
in certain calculations under our senior secured credit facilities,
which use components of Adjusted EBITDA;
-
to evaluate the effectiveness of our business strategies;
-
to make budgeting decisions; and
-
to compare our performance against that of other peer companies using
similar measures.
In addition to the above, our chief operating decision maker uses EBITDA
and Adjusted EBITDA of each reportable segment to evaluate the operating
performance of such segments. EBITDA and Adjusted EBITDA of the
reportable segments does 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, integration
costs and recognition of backlog intangible assets recorded in purchase
accounting) and share-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):
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
March 31,
|
|
March 31,
|
(In millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income (loss)
|
|
$
|
1.6
|
|
|
$
|
13.0
|
|
|
$
|
(14.7
|
)
|
|
$
|
10.0
|
|
Income tax (benefit) expense
|
|
(4.6
|
)
|
|
2.0
|
|
(9.1
|
)
|
|
(2.4
|
)
|
Interest expense
|
|
14.5
|
|
|
10.8
|
|
28.9
|
|
|
28.0
|
|
Operating profit
|
|
11.5
|
|
|
25.8
|
|
|
5.1
|
|
|
35.6
|
|
Depreciation and amortization
|
|
24.2
|
|
|
20.5
|
|
|
47.3
|
|
|
40.4
|
|
EBITDA
|
|
35.7
|
|
|
46.3
|
|
|
52.4
|
|
|
76.0
|
|
Restructuring and related business transformation costs (a)
|
|
8.3
|
|
|
8.2
|
|
|
14.0
|
|
|
16.3
|
|
Share-based compensation (b)
|
|
4.7
|
|
|
4.3
|
|
|
9.3
|
|
|
6.9
|
|
Sponsor fees (c)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
Transaction costs (d)
|
|
2.4
|
|
|
0.8
|
|
|
4.5
|
|
|
1.4
|
|
Other losses (gains) and expenses (e)
|
|
5.6
|
|
|
(1.9
|
)
|
|
14.9
|
|
|
(3.2
|
)
|
Adjusted EBITDA
|
|
$
|
56.7
|
|
|
$
|
57.7
|
|
|
$
|
95.1
|
|
|
$
|
97.7
|
|
(a)
|
|
Represents:
|
|
|
|
|
|
|
|
(i)
|
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,
and third-party consultant costs to assist with these initiatives.
This includes:
|
|
|
|
|
|
|
|
|
|
(A)
|
|
$0.3 million for the six months ended March 31, 2018, (all of
which is reflected as a component of Restructuring charges in Note
13, “Restructuring and Related Charges” to our Unaudited
Consolidated Financial Statements to be included in our Quarterly
Report on Form 10-Q for the three months ended March 31, 2019 (the
“Restructuring Footnote”)) related to our voluntary separation
plan pursuant to which approximately 220 employees accepted
separation packages;
|
|
|
|
|
|
|
|
|
|
(B)
|
|
$0.2 million and $0.7 million for the three and six months ended
March 31, 2019, respectively, reflected as components of Cost of
product sales and services (“Cost of sales”) ($0.2 million and
$0.5 million for the three and six month periods, respectively)
and G&A expense ($0.2 million for the six month period) (all of
which is reflected in the Restructuring Footnote); and $1.9
million and $5.4 million for the three and six months ended March
31, 2018, respectively, reflected as components of Cost of sales
($0.3 million and $1.6 million for the three and six month
periods, respectively), R&D expense ($0.2 million and $0.5 million
for the three and six month periods, respectively), S&M expense
($0.2 million and $0.5 million for the three and six month
periods, respectively) and G&A expense ($1.2 million and $2.8
million for the three and six month periods, respectively) (all of
which is reflected in the Restructuring Footnote) related to
various other initiatives implemented to restructure and
reorganize our business with the appropriate management team and
cost structure; and
|
|
|
|
|
|
|
|
|
|
(C)
|
|
$5.1 million and $7.0 million for the three and six months ended
March 31, 2019, respectively, (all of which is reflected in the
Restructuring Footnote), reflected as components of Cost of sales
($2.5 million and $2.7 million for the three and six month
periods, respectively), S&M expense ($0.4 million and $0.6 million
for the three and six month periods, respectively) and G&A expense
($2.1 million and $3.6 million for the three and six month
periods, respectively) 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;
|
|
|
|
|
|
|
|
(ii)
|
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
($0.2 million and $0.6 million for the three and six months ended
March 31, 2019, respectively, reflected as components of Cost of
sales ($0.1 million for the six month period) and G&A expense
($0.2 million and $0.5 million for the three and six month
periods, respectively); and $0.9 million and $1.0 million for the
three and six months ended March 31, 2018, respectively, reflected
as components of Cost of sales ($0.3 million and $0.4 million for
the three and six month periods, respectively) and G&A expense
($0.6 million for each of the three and six month periods));
|
|
|
|
|
|
|
|
(iii)
|
expenses associated with our information technology and functional
infrastructure transformation, including activities to optimize
information technology systems and functional infrastructure
processes ($2.3 million and $5.1 million for the three and six
months ended March 31, 2019, respectively, primarily reflected as
components of Cost of sales ($0.1 million for the six month
period) and G&A expense ($2.3 million and $5.0 million for the
three and six month periods, respectively); and $3.4 million and
$4.7 million in the three and six months ended March 31, 2018,
respectively, primarily reflected as components of Cost of sales
($1.2 million and $2.2 million for the three and six month
periods, respectively), S&M expense ($0.1 million for each of the
three and six month periods) and G&A expense ($2.1 million and
$2.4 million for the three and six month periods, respectively));
and
|
|
|
|
|
|
|
|
(iv)
|
costs associated with our IPO and secondary offering as well as
costs incurred by us in connection with establishment of our
public company compliance structure and processes, including
consultant costs, ($0.4 million and $0.5 million for the three and
six months ended March 31, 2019, respectively, all reflected as a
component of G&A expense; and $2.0 million and $5.0 million for
the three and six months ended March 31, 2018, respectively, all
reflected as a component of G&A expense).
|
|
|
|
|
(b)
|
|
Represents non-cash share-based compensation expenses related to
equity awards. See “Note 16. Share-Based Compensation” to our
Unaudited Consolidated Financial Statements to be included in our
Quarterly Report on Form 10-Q for the three months ended March 31,
2019.
|
|
|
|
|
(c)
|
|
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 18. Related-Party
Transactions” to our Unaudited Consolidated Financial Statements
to be included in our Quarterly Report on Form 10-Q for the three
months ended March 31, 2019 for further detail.
|
|
|
|
|
(d)
|
|
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 ($2.4 million and $4.5
million in the three and six months ended March 31, 2019,
primarily reflected as components of Cost of sales ($1.1 million
and $1.3 million for the three and six month periods,
respectively) and G&A expense ($1.3 million and $3.2 million for
the three and six month periods, respectively) and $0.8 million
and $1.4 million in the three and six months ended March 31, 2018,
respectively, primarily reflected as components of G&A expense).
|
|
|
|
|
(e)
|
|
Represents:
|
|
|
|
|
|
|
|
(i)
|
impact of foreign exchange gains and losses ($0.3 million loss and
$5.0 million loss in the three and six months ended March 31,
2019, respectively, and $2.1 million gain and $3.7 million gain in
the three and six months ended March 31, 2018, respectively);
|
|
|
|
|
|
|
|
(ii)
|
foreign exchange impact related to headquarter allocations ($0.2
million gain for the three and six months ended March 31, 2018,
respectively);
|
|
|
|
|
|
|
|
(iii)
|
expenses on disposal related to maintaining non-operational
business locations ($0.1 million and $0.6 million in the three and
six months ended March 31, 2019, respectively and $0.5 million and
$0.7 million in the three and six months ended March 31, 2018,
respectively);
|
|
|
|
|
|
|
|
(iv)
|
expenses incurred by the Company related to the remediation of
manufacturing defects caused by a third-party vendor for which the
Company is seeking restitution ($0.3 million and $1.3 million for
the three and six months ended March 31, 2019, respectively, all
reflected as a component of Cost of sales);
|
|
|
|
|
|
|
|
(v)
|
charges incurred by the Company related to product rationalization
in its electro-chlorination business ($0.1 million expense
reduction and $3.0 million expense for the three and six months
ended March 31, 2019, respectively, all reflected as a component
of Cost of sales); and
|
|
|
|
|
|
|
|
(vi)
|
expenses incurred by the Company related to the write-off of
inventory in its aquatics business associated with product
rationalization and facility consolidation ($5.1 million for the
three and six months ended March 31, 2019, all reflected as a
component of Cost of sales).
|
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. The following is a reconciliation
of our segment operating profit to Adjusted EBITDA:
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
|
Integrated
|
|
Applied
|
|
Integrated
|
|
Applied
|
|
|
Solutions and
|
|
Product
|
|
Solutions and
|
|
Product
|
(In millions)
|
|
Services
|
|
Technologies
|
|
Services
|
|
Technologies
|
Operating Profit
|
|
$
|
37.0
|
|
|
$
|
11.3
|
|
|
$
|
34.6
|
|
|
$
|
24.1
|
Depreciation and amortization
|
|
14.3
|
|
|
4.5
|
|
|
11.5
|
|
|
4.0
|
EBITDA
|
|
$
|
51.3
|
|
|
$
|
15.8
|
|
|
$
|
46.1
|
|
|
$
|
28.1
|
Restructuring and related business transformation costs (a)
|
|
0.1
|
|
|
0.2
|
|
|
—
|
|
|
—
|
Transaction costs (b)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Other losses and expenses (c)
|
|
—
|
|
|
5.2
|
|
|
—
|
|
|
—
|
Adjusted EBITDA
|
|
$
|
51.4
|
|
|
$
|
21.2
|
|
|
$
|
46.1
|
|
|
$
|
28.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
|
Integrated
|
|
Applied
|
|
Integrated
|
|
Applied
|
|
|
Solutions and
|
|
Product
|
|
Solutions and
|
|
Product
|
(In millions)
|
|
Services
|
|
Technologies
|
|
Services
|
|
Technologies
|
Operating Profit
|
|
$
|
64.9
|
|
|
$
|
15.8
|
|
|
$
|
68.7
|
|
|
$
|
32.2
|
Depreciation and amortization
|
|
28.3
|
|
|
8.8
|
|
|
22.6
|
|
|
7.9
|
EBITDA
|
|
$
|
93.2
|
|
|
$
|
24.6
|
|
|
$
|
91.3
|
|
|
$
|
40.1
|
Restructuring and related business transformation costs (a)
|
|
0.4
|
|
|
0.5
|
|
|
—
|
|
|
—
|
Transaction costs (b)
|
|
0.5
|
|
|
0.7
|
|
|
—
|
|
|
—
|
Other losses and expenses (c)
|
|
0.2
|
|
|
9.3
|
|
|
—
|
|
|
—
|
Adjusted EBITDA
|
|
$
|
94.3
|
|
|
$
|
35.1
|
|
|
$
|
91.3
|
|
|
$
|
40.1
|
(a)
|
|
Represents costs and expenses in connection with restructuring
initiatives distinct to our Integrated Solutions and Services and
Applied Product Technologies segments, respectively, incurred in
the three and six months ended March 31, 2019. Such expenses are
primarily composed of severance and relocation costs.
|
|
|
|
(b)
|
|
Represents costs associated with a change in the current estimate
of certain acquisitions achieving their earn-out targets, which
resulted in an increase to the fair valued amount of the earn-out
recorded upon the acquisitions in the six months ended March 31,
2019, distinct to our Integrated Solutions and Services and
Applied Product Technologies segments.
|
|
|
|
(c)
|
|
Represents:
|
|
|
|
|
|
(i)
|
|
expenses incurred by the Company in the six months ended March 31,
2019, distinct to our Integrated Solutions and Services segment,
related to maintaining non-operational business locations;
|
|
|
|
|
|
(ii)
|
|
expenses incurred by the Company in the three and six months ended
March 31, 2019, distinct to our Applied Product Technologies
segment, as a result of product rationalization in our
electro-chlorination business and the remediation of manufacturing
defects caused by a third-party vendor for which the Company is
seeking restitution; and
|
|
|
|
|
|
(iii)
|
|
expenses incurred by the Company in the three and six ended March
31, 2019, distinct to our Applied Product Technologies segment, as
a result of the write-off of inventory in the aquatics business
associated with product rationalization and facility consolidation.
|
Net Sales Growth by Driver
The following is a reconciliation of net sales growth by driver for the
three months ended March 31, 2019. Organic revenue growth is defined as
the year-over-year rate of change in revenues excluding the impact of
foreign exchange, acquisitions and divestitures.
|
|
Q2 FY19 Net Sales Growth % Change
|
|
|
GAAP
|
|
|
|
Acquisitions/
|
|
|
|
|
Reported
|
|
Currency
|
|
Divestitures
|
|
Organic
|
Evoqua Water Technologies
|
|
4.5
|
%
|
|
(1.3
|
)%
|
|
3.5
|
%
|
|
2.3
|
%
|
Integrated Solutions & Services
|
|
10.9
|
%
|
|
(0.3
|
)%
|
|
5.3
|
%
|
|
5.9
|
%
|
Applied Product Technologies
|
|
(5.7
|
)%
|
|
(2.8
|
)%
|
|
0.6
|
%
|
|
(3.5
|
)%
|
Forward-Looking Statements
This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. All of
these forward-looking statements are based on our current expectations,
assumptions, estimates and projections. While we believe these
expectations, assumptions, estimates and projections are reasonable,
such forward-looking statements are only predictions and involve known
and unknown risks and uncertainties, many of which are beyond our
control. These and other important factors may cause our actual results,
performance or achievements to differ materially from any future
results, performance or achievements expressed or implied by these
forward-looking statements, or could affect our share price. Some of the
factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include among
other things, general global economic and business conditions; 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 of our business into two segments; 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 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, 2018 and in other periodic reports we file with the SEC.
All statements other than statements of historical fact included in this
press release are forward-looking statements including, but not limited
to, expectations for the quarter ending June 30, 2019 and fiscal 2019,
statements regarding our two-segment restructuring actions, and expected
restructuring charges and cost savings for fiscal 2019 and beyond.
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.