Evoqua Water Technologies Corp. [AQUA] Filings

10-Q 1 aqua-20220331.htm 10-Q aqua-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒						Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
March 31, 2022
Or
☐						Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
						For the transition period from _____ to _____

Commission File Number: 001-38272

EVOQUA WATER TECHNOLOGIES CORP.

(Exact name of registrant as specified in its charter)


Delaware		46-4132761
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
210 Sixth Avenue		15222
Pittsburgh,	Pennsylvania
(Address of principal executive offices)		(Zip Code)

(724) 772-0044

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	AQUA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 121,282,642 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of April 29, 2022.

EVOQUA WATER TECHNOLOGIES CORP.

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

Item 1

Financial Statements

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3

Quantitative and Qualitative Disclosures About Market Risk

Item 4

Controls and Procedures

PART II - OTHER INFORMATION

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3

Defaults Upon Senior Securities

Item 4

Mine Safety Disclosures

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) 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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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. In particular, statements about the markets in which we operate, including growth of our various markets, our expectations, beliefs, plans, strategies, objectives, prospects, assumptions, or future events or performance, statements regarding our restructuring actions and expected restructuring charges and cost savings, statements regarding our cash requirements, working capital needs and expected capital expenditures, statements regarding our expectations for fiscal 2022, customer demand, supply chain challenges, material availability, price/cost, labor shortages, inflation, and general macroeconomic conditions, and statements related to the COVID-19 pandemic and its ongoing impact on our business contained in this Report are forward‑looking statements.

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, including those discussed in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, as filed with the Securities and Exchange Commission (“SEC”) on November 17, 2021, and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report may cause our actual results, performance or achievements to differ materially from any future results, performance, or achievements expressed or implied by these forward‑looking statements or could affect our share price. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward‑looking statements include, among other things:

•general global economic and business conditions, including the impacts of the COVID-19 pandemic and geopolitical conflicts, such as the conflict between Russia and Ukraine;

•our ability to execute projects on budget and on schedule;

•material, freight, and labor inflation, commodity and component availability constraints, and disruptions in global supply chains and transportation services;

•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 (“ESG”) 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, 2021, as filed with the SEC on November 17, 2021, and in other filings we may make from time to time with the SEC.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward‑looking statements. The forward‑looking statements contained in this Report are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward‑looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward‑looking statements contained in this Report, they may not be predictive of results or developments in future periods.

Any forward‑looking statement that we make in this Report speaks only as of the date of such statement. 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, whether as a result of new information, future events, or otherwise, after the date of this Report.

Part I - Financial Information

Item 1. Financial Statements

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Evoqua Water Technologies Corp.
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 202 2 (Unaudited) and September 30, 2021			4
Unaudited Consolidated Statements of Operations for the Three and Six Months Ended March 31, 202 2 and 20 21			5
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended M arch 31 , 202 2 and 20 21			6
Unaudited Consolidated Statements of Changes in Equity for the Three and Six Months Ended Marc h 31, 202 2 and 20 21			7
Unaudited Consolidated Statements of Changes in Cash Flow for the Six Months Ended March 31, 2022 and 2021			8
Unaudited Supplemental Disclosure of Cash Flow Information for the Six Months Ended March 31, 202 2 and 20 21			9
Notes to Unaudited Consolidated Financial Statements			10

Evoqua Water Technologies Corp.

Consolidated Balance Sheets

(In thousands)


	(Unaudited)
	March 31, 2022		September 30, 2021
ASSETS
Current assets	$	777,532	$	678,458
Cash and cash equivalents	129,500		146,244
Receivables, net	283,092		277,995
Inventories, net	216,933		158,503
Contract assets	99,502		72,746
Prepaid and other current assets	47,923		21,871
Income tax receivable	582		1,099

Property, plant, and equipment, net	395,290		374,988
Goodwill	476,259		407,376
Intangible assets, net	328,024		290,075
Deferred income taxes, net of valuation allowance	7,769		8,285
Operating lease right-of-use assets, net	49,395		45,521
Other non‑current assets	98,292		64,188

Total assets	$	2,132,561	$	1,868,891
LIABILITIES AND EQUITY
Current liabilities	$	430,839	$	405,989
Accounts payable	191,122		164,535
Current portion of debt, net of deferred financing fees and discounts	14,219		12,775
Contract liabilities	55,593		55,883
Product warranties	7,498		8,138
Accrued expenses and other liabilities	158,510		160,367
Income tax payable	3,897		4,291

Non‑current liabilities	$	1,063,651	$	880,683
Long-term debt, net of deferred financing fees and discounts	920,343		730,430
Product warranties	3,191		2,966
Obligation under operating leases	39,995		37,935
Other non‑current liabilities	83,418		92,909
Deferred income taxes	16,704		16,443

Total liabilities	$	1,494,490	$	1,286,672
Commitments and Contingent Liabilities (Note 19)
Shareholders’ equity
Common stock, par value $0.01: authorized 1,000,000 shares; issued 122,766 shares, outstanding 121,102 at March 31, 2022; issued 122,173 shares, outstanding 120,509 at September 30, 2021	$	1,229	$	1,223
Treasury stock: 1,664 shares at March 31, 2022 and 1,664 shares at September 30, 2021	(2,837)		(2,837)
Additional paid-in capital	592,105		582,052
Retained earnings (deficit)	2,135		(11,182)
Accumulated other comprehensive income, net of tax	43,846		11,415
Total Evoqua Water Technologies Corp. equity	$	636,478	$	580,671
Non-controlling interest	1,593		1,548
Total shareholders’ equity	$	638,071	$	582,219
Total liabilities and shareholders’ equity	$	2,132,561	$	1,868,891

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Revenue from product sales	$	259,775	$	202,466	$	472,343	$	382,481
Revenue from services	166,953		144,098		320,653		286,276
Revenue from product sales and services	$	426,728	$	346,564	$	792,996	$	668,757
Cost of product sales	(185,330)		(144,521)		(339,125)		(275,582)
Cost of services	(112,512)		(96,124)		(214,477)		(191,911)
Cost of product sales and services	$	(297,842)	$	(240,645)	$	(553,602)	$	(467,493)
Gross profit	$	128,886	$	105,919	$	239,394	$	201,264
General and administrative expense	(66,976)		(52,928)		(124,805)		(95,211)
Sales and marketing expense	(39,859)		(33,830)		(76,308)		(67,758)
Research and development expense	(3,751)		(3,393)		(7,203)		(6,516)
Total operating expenses	$	(110,586)	$	(90,151)	$	(208,316)	$	(169,485)
Other operating income	1,415		511		3,072		991
Other operating expense	(143)		(101)		(290)		(358)
Income before interest expense and income taxes	$	19,572	$	16,178	$	33,860	$	32,412
Interest expense	(9,950)		(8,395)		(16,529)		(17,068)
Income before income taxes	$	9,622	$	7,783	$	17,331	$	15,344
Income tax expense	(2,248)		(2,701)		(3,869)		(3,785)
Net income	$	7,374	$	5,082	$	13,462	$	11,559
Net income attributable to non‑controlling interest	44		46		145		90
Net income attributable to Evoqua Water Technologies Corp.	$	7,330	$	5,036	$	13,317	$	11,469
Basic income per common share	$	0.06	$	0.04	$	0.11	$	0.10
Diluted income per common share	$	0.06	$	0.04	$	0.11	$	0.09

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Comprehensive Income (Loss)

(In thousands)


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Net income	$	7,374	$	5,082	$	13,462	$	11,559
Other comprehensive income (loss)
Foreign currency translation adjustments	2,176		26,891		3,785		22,014
Unrealized derivative gain on cash flow hedges, net of tax	21,730		9,091		28,311		10,093
Change in pension liability, net of tax	166		110		335		374
Total other comprehensive income	$	24,072	$	36,092	$	32,431	$	32,481
Less: Comprehensive income attributable to non‑controlling interest	(44)		(46)		(145)		(90)
Comprehensive income attributable to Evoqua Water Technologies Corp.	$	31,402	$	41,128	$	45,748	$	43,950

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Changes in Equity

(In thousands)


	Common Stock			Treasury Stock			Additional Paid‑in Capital		Retained (Deficit) Earnings		Accumulated Other Comprehensive Income		Non‑controlling Interest		Total
	Shares	Cost		Shares	Cost
Balance at September 30, 2021	122,173	$	1,223	1,664	$	(2,837)	$	582,052	$	(11,182)	$	11,415	$	1,548	$	582,219

Equity based compensation expense	—	—		—	—		5,203		—		—		—		$	5,203
Issuance of common stock, net	199	2		—	—		822		—		—		—		$	824

Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(100)		$	(100)

Net income	—	—		—	—		—		5,987		—		101		$	6,088
Other comprehensive income	—	—		—	—		—		—		8,359		—		$	8,359
Balance at December 31, 2021	122,372	$	1,225	1,664	$	(2,837)	$	588,077	$	(5,195)	$	19,774	$	1,549	$	602,593

Equity based compensation expense	—	—		—	—		5,386		—		—		—		$	5,386
Issuance of common stock, net	394	4		—	—		(1,358)		—		—		—		$	(1,354)



Net income	—	—		—	—		—		7,330		—		44		$	7,374
Other comprehensive income	—	—		—	—		—		—		24,072		—		$	24,072
Balance at March 31, 2022	122,766	$	1,229	1,664	$	(2,837)	$	592,105	$	2,135	$	43,846	$	1,593	$	638,071


	Common Stock			Treasury Stock			Additional Paid‑in Capital		Retained Deficit		Accumulated Other Comprehensive (Loss) Income		Non‑controlling Interest		Total
	Shares	Cost		Shares	Cost
Balance at September 30, 2020	119,486	$	1,189	2,195	$	(2,837)	$	564,928	$	(62,664)	$	(20,472)	$	1,919	$	482,063

Equity based compensation expense	—	—		—	—		3,019		—		—		—		$	3,019
Issuance of common stock, net	1,264	13		1	—		14,250		—		—		—		$	14,263

Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(250)		$	(250)

Net income	—	—		—	—		—		6,433		—		44		$	6,477
Other comprehensive loss	—	—		—	—		—		—		(3,611)		—		$	(3,611)
Balance at December 31, 2020	120,750	$	1,202	2,196	$	(2,837)	$	582,197	$	(56,231)	$	(24,083)	$	1,713	$	501,961

Equity based compensation expense	—	—		—	—		3,214		—		—		—		$	3,214
Issuance of common stock, net	692	13		(532)	—		(21,377)		—		—		—		$	(21,364)

Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(100)		$	(100)

Net income	—	—		—	—		—		5,036		—		46		$	5,082
Other comprehensive income	—	—		—	—		—		—		36,092		—		$	36,092
Balance at March 31, 2021	121,442	$	1,215	1,664	$	(2,837)	$	564,034	$	(51,195)	$	12,009	$	1,659	$	524,885

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Changes in Cash Flows

(In thousands)


	Six Months Ended March 31,
	2022		2021
Operating activities
Net income	$	13,462	$	11,559
Reconciliation of net income to cash flows provided by operating activities:
Depreciation and amortization	61,156		54,607
Amortization of deferred financing fees (includes $0 and $0 write off of deferred financing fees)	926		1,044
Deferred income taxes	592		476
Share-based compensation	10,589		6,233
(Gain) loss on sale of property, plant, and equipment	(61)		807
(Gain) loss on sale of business	(193)		191
Foreign currency exchange losses (gains) on intercompany loans and other non-cash items	3,728		(3,659)
Changes in assets and liabilities
Accounts receivable	16,554		36,221
Inventories	(26,754)		(14,091)
Contract assets	(26,910)		6,553
Prepaids and other current assets	(14,049)		(9,921)
Accounts payable	19,589		(9,799)
Accrued expenses and other liabilities	(13,648)		(9,089)
Contract liabilities	(382)		9,829
Income taxes	135		(3,948)
Other non‑current assets and liabilities	(15,586)		(13,955)
Net cash provided by operating activities	29,148		63,058
Investing activities
Purchase of property, plant, and equipment	(36,320)		(36,297)
Purchase of intangibles	(1,582)		(539)
Proceeds from sale of property, plant, and equipment	1,940		640
Proceeds from sale of business, net of cash of $0 and $0	356		897
Acquisitions, net of cash received $0 and $0	(194,976)		(8,743)
Net cash used in investing activities	(230,582)		(44,042)
Financing activities
Issuance of debt, net of deferred issuance costs	223,793		13,993

Repayment of debt	(33,362)		(10,036)
Repayment of finance lease obligation	(6,571)		(6,901)

Proceeds from issuance of common stock	5,274		13,430
Taxes paid related to net share settlements of share-based compensation awards	(5,144)		(1,863)




Distribution to non‑controlling interest	(100)		(350)
Net cash provided by financing activities	183,890		8,273
Effect of exchange rate changes on cash	800		2,428

Change in cash and cash equivalents	(16,744)		29,717
Cash and cash equivalents
Beginning of period	146,244		193,001
End of period	$	129,500	$	222,718

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Supplemental Disclosure of Cash Flow Information

(In thousands)


	Six Months Ended March 31,
	2022		2021
Supplemental disclosure of cash flow information
Cash paid for taxes	$	2,889	$	5,457
Cash paid for interest	$	12,537	$	14,647
Non‑cash investing and financing activities

Finance lease transactions	$	6,199	$	9,044
Operating lease transactions	$	11,385	$	7,993

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Notes to Unaudited Consolidated Financial Statements

(In thousands, except per share data)

1. Description of the Company and Basis of Presentation

Background

Evoqua Water Technologies Corp. (referred to herein as the “Company” or “EWT”) is a holding company and does not conduct any business operations of its own. The Company was incorporated on October 7, 2013. On November 6, 2017, the Company completed its initial public offering (“IPO”).

The Business

EWT provides a wide range of product brands and advanced water and wastewater treatment systems and technologies, as well as mobile and emergency water supply solutions and service contract options through its branch network. Headquartered in Pittsburgh, Pennsylvania, EWT is a multinational corporation with operations in the United States (“U.S.”), Canada, the United Kingdom (“UK”), the Netherlands, Germany, Australia, the People’s Republic of China, Singapore and India.

The Company is organizationally structured into two reportable operating segments for the purpose of making operational decisions and assessing financial performance: (i) Integrated Solutions and Services and (ii) Applied Product Technologies.

Basis of Presentation

The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All intercompany transactions have been eliminated. Unless otherwise specified, all dollar and share amounts in these notes are referred to in thousands.

The interim Unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. In our opinion, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. We consistently applied the accounting policies described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, as filed with the SEC on November 17, 2021 (“2021 Annual Report”), in preparing these Unaudited Consolidated Financial Statements, with the exception of accounting standard updates described in Note 2, “Recent Accounting Pronouncements.” These Unaudited Consolidated Financial Statements should be read in conjunction with the audited financial statements and the notes included in our 2021 Annual Report. Certain prior period amounts have been reclassified to conform to the current period presentation.

2. Recent Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

In October 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends Accounting Standards Codification (“ASC”) 805 to require an acquirer to, at the date of acquisition, recognize and measure contract assets and contract liabilities acquired in accordance with ASU 2014-9, Revenue from Contracts with Customers (Topic 606) (“Topic 606”), as if the entity had originated the contracts, rather than adjust them to fair value at the acquisition date. The guidance is effective for fiscal years beginning after December 15, 2022 and is to be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company is currently assessing the impact of adoption on the Company’s Unaudited Consolidated Financial Statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and also issued subsequent amendments to the initial guidance (collectively, “Topic 848”). Topic 848 became effective immediately and expires on December 31, 2022. Topic 848 allows eligible contracts that are modified to be accounted for as a continuation of those contracts, permits companies to preserve their hedge accounting during the transition period and enables companies to make a one-time election to transfer or sell held-to-maturity debt securities that are affected by rate reform. Topic 848 provides optional expedients and exceptions for contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform if certain criteria are met. The Company is currently assessing the impact of adoption on the Company’s Unaudited Consolidated Financial Statements and related disclosures.

3. Variable Interest Entities

Treated Water Outsourcing (“TWO”) is a joint venture between the Company and Nalco Water, an Ecolab company (“Nalco”), in which the Company held a 50% partnership interest as of March 31, 2022. The Company is obligated to absorb all risk of loss up to 100% of the joint venture partner’s equity. As such, the Company fully consolidates TWO as a variable interest entity (“VIE”) under ASC Topic No. 810, Consolidation. The Company has not provided, and is not contractually required to provide, additional financial support to this entity, and the Company does not have the ability to use the assets of TWO to settle obligations of the Company’s other subsidiaries.

The following provides a summary of TWO’s balance sheet as of March 31, 2022 and September 30, 2021, and summarized financial information for the three and six months ended March 31, 2022 and 2021.


	March 31, 2022		September 30, 2021
Current assets (includes cash of $1,165 and $1,380)	$	3,195	$	3,202
Property, plant, and equipment	782		903
Goodwill	2,206		2,206

Total liabilities	(791)		(1,009)


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Total revenue	$	796	$	834	$	1,641	$	1,668
Total operating expenses	(703)		(732)		(1,440)		(1,469)
Income from operations	$	93	$	102	$	201	$	199

On April 1, 2022, the Company acquired the remaining 50% partnership interest in TWO from Nalco. See Note 23, “Subsequent Events” for further discussion.

On October 1, 2019, the Company acquired a 60% investment position in San Diego-based Frontier Water Systems, LLC (“Frontier”). The Frontier acquisition is a VIE because it has insufficient equity to finance its activities due to key assets being assigned to the Company upon acquisition. The Company is the primary beneficiary of Frontier because the Company has the power to direct the activities that most significantly affect Frontier’s economic performance.

In addition, the Company entered into an agreement to purchase the remaining 40% interest in Frontier on or prior to March 30, 2024. This agreement (a) gave holders of the remaining 40% interest in Frontier (the “Minority Owners”) the right to sell to Evoqua up to approximately 10% of the outstanding equity in Frontier at a predetermined price, which right was exercisable by the Minority Owners between January 1, 2021 and February 28, 2021 (the “Option”), and (b) obligates the Company to purchase and the Minority Owners to sell all of the Minority Owners’ remaining interest in Frontier at the fair market value at the time of sale on or prior to March 30, 2024 (the “Purchase Right”). The Purchase Right may be exercised early by the Minority Owners. The agreement to purchase the remaining interest was determined to be a financing due to the mandatory Purchase Right, as per ASC Topic 480, Distinguishing Liabilities From Equity, and as such, the Company recognized a liability for the remaining 40% interest. The Minority Owners exercised the Option, and on April 8, 2021, the Company completed the purchase of an additional 8% of the outstanding equity in Frontier for approximately $1,490. As a result, the Company’s ownership position in Frontier increased to 68%. In January 2022, the Minority Owners exercised the Purchase Right, and on April 1, 2022, the Company purchased the remaining outstanding equity in Frontier. See Note 23, “Subsequent Events” for further discussion.

Additionally, the Company fully consolidates Frontier as a VIE under ASC Topic No. 810, Consolidation.

The following provides a summary of Frontier’s balance sheet as of March 31, 2022 and September 30, 2021, and summarized financial information for the three and six months ended March 31, 2022 and 2021.


	March 31, 2022		September 30, 2021
Current assets (includes cash of $5,959 and $2,095)	$	13,278	$	12,495
Property, plant, and equipment	1,955		2,113
Goodwill	1,798		1,798
Intangible assets, net	7,439		8,265
Total liabilities	(7,911)		(9,425)


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Total revenue	$	6,414	$	2,078	$	13,363	$	2,848
Total operating expenses	(6,149)		(2,401)		(12,135)		(4,139)
Income (loss) from operations	$	265	$	(323)	$	1,228	$	(1,291)

4. Acquisitions and Divestitures

Acquisitions support the Company’s strategy of delivering a broad solutions portfolio with robust technology across multiple geographies and end markets. The Company continues to evaluate potential strategic acquisitions of businesses, assets and product lines and believes that capex-like, tuck-in acquisitions present key opportunities within its overall growth strategy.

On December 20, 2021, the Company and its indirect wholly-owned subsidiaries Evoqua Water Technologies LLC (“EWT LLC”) and Evoqua Water Technologies Ltd. (together with EWT LLC, the “Buyer”) entered into an Asset Purchase Agreement (the “Agreement”) with Cantel Medical LLC, Mar Cor Purification, Inc., and certain of their affiliates (collectively, the “Sellers”), each wholly-owned subsidiaries of Steris plc, pursuant to which the Buyer agreed to acquire certain assets of the Sellers and assume certain liabilities of the Sellers that are owned or used or arise in connection with the global operation of the Sellers’ renal business (the “Mar Cor Business”) for an aggregate purchase price of $196,300 in cash at closing (the “Purchase Price”), subject to customary adjustments, including for working capital (the “Transaction”). On January 3, 2022, we completed the Transaction to acquire the Mar Cor Business for $194,976 paid in cash at closing, following adjustments. The Company utilized cash on hand and borrowed an additional $160,000 under our 2021 Revolving Credit Facility (as defined below) to fund the Transaction. The Mar Cor Business is included within the Integrated Solutions and Services segment.

The Purchase Price includes a $12,300 earn out, which is being held in escrow and will be paid, pro rata, to the Sellers if the Mar Cor Business meets certain sales performance goals through December 31, 2022 (the “Earn Out”). Any portion of the Earn Out not paid to the Sellers during the first year following closing of the Transaction will be returned to the Buyer. A Monte Carlo simulation was performed to determine the fair value of an Earn Out asset for the amount expected to be received back from escrow based on the forecasted achievement of the sales performance goals associated with the Earn Out. See Note 6, Fair Value Measurements, for further discussion. In addition, approximately $12,965 of the Purchase Price was placed into an escrow account, of which $9,815 is to secure general indemnification claims against the Sellers and $3,150 is for net working capital adjustments. During the three and six months ended March 31, 2022, the Company incurred approximately $2,116 and $3,178, respectively, in acquisition costs, which are included in General and administrative expense on the Unaudited Consolidated Statements of Operations.

The acquisition of the Mar Cor Business has been accounted for using the acquisition method of accounting which requires the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. These preliminary estimates are subject to revision during the measurement period as additional analyses are performed and third-party valuations are finalized, and these differences could have a material impact on the accounting for the business combination.


Receivables, net	$	21,418
Inventories, net	32,560
Earn Out asset	7,824
Other current assets	1,732
Property, plant, and equipment, net	18,747
Goodwill	68,370
Intangible assets, net	57,152
Other non-current assets	7,434
Total assets acquired	215,237
Current liabilities	(14,719)
Non-current liabilities	(5,542)
Total liabilities assumed	(20,261)
Net assets acquired	$	194,976

During the three months ended March 31, 2022, the Company completed the divestiture of the resin regeneration assets in Germany (the “Germany Regen Business”) for $356 in cash at closing, resulting in a gain of $193 recognized on the sale. The Germany Regen Business was a part of the Applied Product Technologies segment.

5. Revenue

Performance Obligations

The Company elects to apply the practical expedient to exclude from this disclosure revenue related to performance obligations if the product has an alternative use and the Company does not have an enforceable right to payment for the performance completed to date, including a normal profit margin, in the event of termination for convenience. The Company maintains a backlog of confirmed orders, which totaled approximately $269,814 at March 31, 2022. This backlog represents the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of the end of the reporting period. The Company estimates that the majority of these performance obligations will be satisfied within the next twelve to twenty-four months.

Disaggregation of Revenue

In accordance with Topic 606, the Company disaggregates revenue from contracts with customers into source of revenue, reportable operating segment, and geographical regions. The Company determined that disaggregating revenue into these categories meets the disclosure objective in Topic 606, which is to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

Information regarding the source of revenue:


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Revenue from contracts with customers recognized under Topic 606	$	382,758	$	297,919	$	700,529	$	583,107
Other(1)	43,970		48,645		92,467		85,650
Total	$	426,728	$	346,564	$	792,996	$	668,757

(1) Other revenue relates to revenue recognized pursuant to ASU 2016-02, Leases (Topic 842), primarily attributable to long term rentals.

Information regarding revenue disaggregated by source of revenue and segment is as follows:


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Integrated Solutions and Services
Revenue from capital projects	$	70,702	$	52,093	$	137,804	$	102,719
Revenue from aftermarket	62,271		32,501

Evoqua Water Technologies Corp. [AQUA] Filings
10-Q	[2022-05-03]
10-Q	[2022-02-01]
10-K	[2021-11-17]
10-Q	[2021-08-03]
10-Q	[2021-05-05]
10-Q	[2021-02-02]
10-K	[2020-11-20]
10-Q	[2020-08-04]
10-Q	[2020-05-06]
10-Q	[2020-02-04]
10-K	[2019-11-25]
10-Q	[2019-08-06]
10-Q	[2019-05-10]
10-Q	[2019-02-05]
10-K	[2018-12-11]
10-Q	[2018-08-07]
10-Q	[2018-05-08]
S-1	[2018-03-12]
10-Q	[2018-02-07]
10-K	[2017-12-04]
S-1	[2017-10-03]