Evoqua Water Technologies Reports Fourth Quarter and Full Year 2022 Results

PITTSBURGH–(BUSINESS WIRE)–Evoqua Water Technologies (NYSE:AQUA), an industry leader in mission-critical water treatment solutions, today reported results for its fourth quarter and fiscal year ended September 30, 2022.

Revenue for the fourth quarter of fiscal year 2022 was $504.8 million, compared to $426.0 million in the prior year period, an increase of 18.5%, or $78.8 million. Organic revenue growth contributed 8.7%, or $37.0 million, driven by favorable price realization and higher volume for products and services across most product lines and regions. Inorganic revenue contributed $49.3 million, primarily related to our acquisition of the Mar Cor business on January 3, 2022. Revenue was unfavorably impacted by $7.5 million in the period related to foreign currency translation. Net income for the quarter was $41.3 million, resulting in diluted earnings per share (“EPS”) of $0.33, as compared to net income of $26.9 million and diluted EPS of $0.22 in the prior year period. The increase in net income of 53.5%, or $14.4 million, was favorably impacted by a non-cash benefit of $17.3 million associated with the release of a tax valuation allowance, as well as increased operational volume. These benefits were partially offset by increased operating expenses, primarily due to higher wages and other costs associated with acquisitions and inflation, as well as higher non-cash foreign currency translation losses as compared to the prior period. Adjusted EBITDA for the quarter was $93.2 million, as compared to $81.9 million in the prior year period, an increase of 13.8%, or $11.3 million. See the “Use of Non-GAAP Measures” section below for additional information regarding adjusted EBITDA.

Revenue for the fiscal year 2022 was $1.74 billion, compared to $1.46 billion in the prior year period, an increase of 18.6%, or $272.7 million. Organic revenue growth contributed 10.2%, or $149.4 million, driven by favorable price realization and higher volume for products and services across most product lines and all regions. Inorganic revenue contributed $137.1 million, primarily related to our acquisition of the Mar Cor business on January 3, 2022. Revenue was unfavorably impacted by $13.8 million in the year related to foreign currency translation. Net income for the year was $72.3 million, resulting in diluted earnings per share (“EPS”) of $0.58, as compared to net income of $51.7 million and diluted EPS of $0.42 in the prior year. The increase in net income of 39.8%, or $20.6 million, was favorably impacted by a non-cash benefit of $17.3 million associated with the release of a tax valuation allowance, as well as increased operational volume. These benefits were partially offset by increased operating expenses, primarily due to higher wages and salaries and other costs associated with acquisitions and inflation, as well as non-cash foreign currency translation losses of $18.7 million in the current year, compared to foreign currency translation gains of $0.9 million in the prior year, mostly related to intercompany loans. Adjusted EBITDA for the year was $297.7 million, as compared to $250.9 million in the prior year period, an increase of 18.7%, or $46.8 million. See the “Use of Non-GAAP Measures” section below for additional information regarding adjusted EBITDA.

“We completed another strong fiscal year with outstanding fourth quarter results. Our team executed well delivering revenue growth of approximately 19% for both the fourth quarter and full year. Demand continues to be strong across multiple end markets generating organic revenue growth of approximately 10% for the fiscal year and 9% for the fourth quarter. Acquisition integrations continue to be favorable, and our team is efficiently managing supply chain challenges. Adjusted EBITDA grew by almost 19% to $298 million for the full year, while margin remained flat versus prior year, despite inflationary challenges. We are also pleased to again report a positive price/cost ratio for the fourth quarter and for the full year,” said Mr. Ron Keating, Evoqua’s CEO.

Mr. Keating continued, “Cash flow generation remains a key priority, and we were very pleased with our results. We again delivered improvements in operating cash, adjusted free cash flow, liquidity, and our net debt leverage. As we enter fiscal 2023, we expect to maintain a solid and flexible balance sheet to support continued organic and inorganic growth investments. We delivered on two fiscal 2022 goals of exceeding 55% water reuse in our top ten facilities and reducing our safety incident rate across the company from the prior year.”

Mr. Keating closed, “We enter the new year with a healthy backlog following our second consecutive year with a book-to-bill ratio of approximately 1.1. We continue to see significant growth opportunities, both organic and inorganic, and will closely monitor our pipeline to respond quickly to changes in our markets and incoming order rates. Our diverse end markets should minimize the effects of economic uncertainty, giving us a balanced outlook for the full year. For fiscal 2023, we expect revenues to be $1.81 to $1.89 billion and adjusted EBITDA to be $310 to $330 million for year-over-year growth of approximately 4% to 9% and approximately 4% to 11%, respectively.”

Fourth Quarter Segment Results

Evoqua has two reportable operating segments – Integrated Solutions and Services and Applied Product Technologies. The results of our segments for the fourth quarter are as follows:

Integrated Solutions and Services

Segment revenue increased by $65.8 million, or 23.4%, to $347.2 million in the fourth quarter of fiscal 2022, as compared to $281.4 million in the prior year period.

  • Aftermarket and service revenue increased by $28.3 million and $27.0 million, respectively, driven by contributions from acquisitions, favorable pricing and growth across most end markets.
  • Capital revenue increased by $10.5 million driven by contributions from acquisitions that were slightly offset by a decline in volume in the chemical processing industry related to the timing of completion of projects.

Operating profit decreased by $0.1 million, or 0.2%, to $52.3 million in the fourth quarter of fiscal 2022, as compared to $52.4 million in the prior year period.

  • Segment profitability increased by $8.6 million due to increased sales volume, favorable price/cost, and mix.
  • Higher employee related expenses decreased segment profitability by $4.6 million while increased travel and other discretionary spending also impacted profitability by $0.7 million.
  • Higher depreciation and amortization expense impacted segment operating profit by $0.6 million.
  • Higher restructuring and other non-recurring expense, primarily associated with acquisition integrations, decreased segment operating profit by $2.8 million.

Segment adjusted EBITDA increased by $7.1 million, or 10.1%, to $77.6 million in the fourth quarter of fiscal 2022, as compared to $70.5 million in the prior year period. The increase in segment adjusted EBITDA resulted from the same factors that impacted operating profit, other than the change in depreciation and amortization. Segment adjusted EBITDA also excludes restructuring and other non-recurring activity recognized in the period. See the “Use of Non-GAAP Measures” section below for a reconciliation of segment adjusted EBITDA to segment operating profit.

Applied Product Technologies

Segment revenue increased by $13.0 million, or 9.0%, to $157.6 million in the fourth quarter of fiscal 2022, as compared to $144.6 million in the prior year period.

  • Revenue increased in the Asia and Americas regions across multiple product lines, driven by favorable pricing and higher volume.
  • Foreign currency translation unfavorably impacted revenue by $6.9 million, primarily in the EMEA region.

Operating profit increased by $5.0 million, or 17.4%, to $33.7 million for the fourth quarter of fiscal 2022, as compared to $28.7 million in the prior year period.

  • Segment profitability increased by $7.4 million due to favorable price/cost and increased revenue volume, partially offset by unfavorable operational variances associated with supply chain challenges.
  • Higher employee related expenses reduced segment profitability by $1.2 million driven by higher labor costs and increased travel spending.
  • Foreign currency translation unfavorably impacted segment profitability by $1.6 million.
  • Lower depreciation and amortization expense increased operating profit by $0.2 million.
  • Lower restructuring and other non-recurring costs also increased operating profit by $0.2 million.

Segment adjusted EBITDA increased by $4.6 million, or 13.9%, to $37.7 million in the fourth quarter of fiscal 2022, as compared to $33.1 million in the prior year period. The change in segment adjusted EBITDA was driven by the same factors that impacted segment operating profit, other than the change in depreciation and amortization. Segment adjusted EBITDA also excludes restructuring and other non-recurring activity. See the “Use of Non-GAAP Measures” section below for a reconciliation of segment adjusted EBITDA to segment operating profit.

About Evoqua Water Technologies

Evoqua Water Technologies is a leading provider of mission critical water and wastewater treatment solutions, offering a broad portfolio of products, services, and expertise to support industrial, municipal and recreational customers who value water. Evoqua has worked to protect water, the environment and its employees for more than 100 years, earning a reputation for quality, safety and reliability around the world. Headquartered in Pittsburgh, Pennsylvania, the company operates in more than 150 locations across nine countries. Serving more than 38,000 customers and 200,000 installations worldwide, our employees are united by a common purpose: Transforming Water. Enriching Life.