2020
ANNUAL REPORT
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Our
Purpose
As a leading provider of mission-
critical water and wastewater
treatment solutions, our employees
are united by a common purpose:
2020
Highlights
Success
despite a
pandemic
Demonstrated
business
resiliency
Supported
critical
infrastructure
Growth of
organic
revenue
Improved
profitability
Increased free
cash flow
Strengthened
balance sheet
Invested in
the future
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Our
Performance
Year Ended September 30
Dollars in millions except for EPS and percentages 2019 2020
Revenue
Gross profi t
Total operating expenses as % of revenue
Adjusted EBITDA*
Net (loss) income
(Loss) earnings per share (diluted)
$
$
$
$
$
1,444.4
426.0
25.7%
235.0
(8.5)
(0.08)
$
$
$
$
$
1,429.5
449.8
23.9%
239.6
114.4
0.94
REVENUE
BY TYPE
REVENUE
BY SEGMENT
59%
41%
66%
34%
Products
Services
Integrated Solutions and Services
Applied Product Technologies
REVENUE
Dollars in millions
2020
$1,429.5
2019
2018
$1,444.4
$1,339.5
ADJUSTED EBITDA
Dollars in millions
2020
2019
2018
$239.6
$235.0
$216.9
*Adjusted EBITDA is a non-GAAP fi nancial measure. For more information and a reconciliation to net income, the most directly comparable GAAP fi nancial
measure, please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - How We Assess the Performance of
Our Business - Adjusted EBITDA” in our 10-K for the fi scal year ended September 30, 2020, included with this Annual Report.
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Fellow Shareholders,
It has been a remarkable year. When COVID-19 prompted
essential services to hospitals, laboratories, government
a widespread economic shutdown, it was necessary
agencies, and pharmaceutical manufacturers.
to reassess the business, adjust to a new operating
We continue to stand strong with our customers,
environment, and fi nd new ways of engaging with our
employees, and communities while urgently providing
team members and our customers to achieve our near-
water solutions to those in need around the world.
term goals.
Along with the rest of the world, we were confronted
with signifi cant uncertainty and critical questions about
how best to manage the company. From the beginning,
our decisions and actions were organized around three
primary goals: protecting the health and safety of our
employees, ensuring that our customers and communities
experienced continuity of supply, and preserving cash to
maintain a healthy balance sheet.
Our market conditions have been dynamic, with demand
varying across the diverse set of markets we serve,
and we expect that trend to continue. However, we are
encouraged by the overall balance that comes from our
broad portfolio exposure. We have responded by further
investing in our strategy of delivering connected solutions,
outsourced water systems, and best-in-class technologies
to ever-increasing water treatment challenges. We have
eff ectively managed our operations and our cost structure
throughout this unprecedented year, and we exited the
fi scal year as a much stronger company.
Overall, the business’s resiliency was reinforced as the
full year ended September 30, 2020, revenues were $1.43
billion, with organic revenue up 1.5%, and an adjusted
EBITDA of $239.6 million, up 2% from the prior year.
Profi tability benefi ted from higher gross margins, cost
reductions, and favorable actions leading to improved
supply chain effi ciencies.
OPERATING IN A PANDEMIC
As an essential provider of services required for the
public’s health and well-being, we have remained
committed to doing our part in providing safe, clean,
reliable water to our customers’ operations during the
pandemic. Our purpose - Transforming Water. Enriching
Life.® - has never been more critical as we provide
STRENGTHENING INVESTMENTS
INTO OUR STRATEGY
The Integrated Solutions and Services (ISS) segment
provides fully integrated systems and service solutions,
utilizing our comprehensive water treatment portfolio
to satisfy our customers’ unique water needs. The
ISS segment is focused on our outsourced water and
digitally enabled capabilities to drive steady, stable,
and profi table revenues. Outsourced water currently
represents approximately one-third of the segment’s
total revenues, with approximately 20% of ISS revenues
being digitally connected. PFAS, selenium, micro-
plastics, and other emerging contaminants continue to
drive complexity in water treatment, which will create
meaningful growth opportunities in the future. We
remain focused on a diversifi ed set of attractive vertical
markets where our portfolio of solutions and services
are competitively diff erentiated.
The Applied Products Technologies (APT) segment sells
world-class water treatment products from our broad
technology portfolio, used as stand-alone systems or
components within integrated solutions. Organic growth
drivers within our APT segment encompass a wide
range of opportunities in domestic and international
markets, focused on mining our rich installed base and
marketing next-generation products and new product
innovations. The APT segment has made a concerted
eff ort to build out our international geographic channel
and actively leverage our ISS segment as a meaningful
domestic channel partner. Additionally, we are investing
in an e-commerce platform that will enhance our
customer experience and drive aftermarket growth,
especially in the rehabilitation and retrofi t business
leveraging decades of APT product installations.
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GROWTH THROUGH PORTFOLIO
MANAGEMENT
It was another pivotal year as we initiated several
important transactions to further the evolution of the
company and our portfolio. This included the Memcor®
membrane product line divestiture, which enhances
our focus on growth and aligns with our strategy of
providing superior technologies and solutions that
are digitally enabled and create sustainable and
recurring revenue. Complementing this strategy, we
completed the acquisition of Aquapure Technologies,
further strengthening our service capabilities. We
also announced a majority investment position in
Frontier Water Systems, growing our portfolio of
advanced wastewater treatment technologies and
our commitment to sustainable solutions addressing
emerging contaminants.
COMMITMENT TO SUSTAINABILITY
We are dedicated to developing and delivering
sustainable solutions that help customers and
communities protect the world’s most valuable
resource — water. With sustainability as a core value,
we believe a sustainable future for all is possible today.
At Evoqua, we think about our impact on sustainability
in two ways. First, our handprint, which enables our
customers to become more sustainable through
our solutions and service off erings. And second, our
We continue to stand
strong with our
customers, employees,
and communities while
urgently providing
water solutions to
those in need around
the world.
We thank you for your support and commitment.
footprint, driving Evoqua to become more sustainable
Together we will continue to fulfi ll our common purpose:
within our internal operations. We will continue to
evolve our strategy as our impact on a sustainable
Transforming Water. Enriching Life.®
future continues to expand.
Sincerely,
As we conclude 2020 and look forward to 2021,
we know there is uncertainty ahead as the global
pandemic continues. The challenges have not lessened;
however, we are performing and remain focused on
what lies ahead. Evoqua is positioned to lead through
RON C. KEATING
this extraordinary time, as we did this past year. We are
fortunate to have a team of the best and the brightest
PRESIDENT, CHIEF EXECUTIVE OFFICER,
in the industry dedicated to our company’s success.
MEMBER OF THE BOARD OF DIRECTORS
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Integrated Solutions
and Services
OVERVIEW
Our Integrated Solutions and Services segment
provides application-specifi c solutions
and full lifecycle services for critical water
applications. Evoqua works with customers
across numerous end markets, including
healthcare, pharmaceutical, manufacturing,
microelectronics, power, and food and beverage.
Our portfolio is competitively diff erentiated to
address each market’s specifi c water needs,
helping our customers to achieve lower costs,
greater effi ciency, regulatory compliance, and
environmental sustainability, while keeping
facilities operating at peak performance.
INDUSTRIAL SUSTAINABILITY
Evoqua’s water reuse and recycling solutions help
our customers lower freshwater costs, reduce
wastewater fl ows, and improve their overall
water footprint, making their operations more
sustainable. Our anaerobic digestion technologies
provide the opportunity for our customers to
tap into renewable green energy by utilizing the
biogas, a by-product of the anaerobic digestion
process. It can be used to replace conventional
energy sources such as natural gas and
electricity, reducing a plant’s carbon footprint.
Biogas Collection Cover
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Organic Revenue Change
Year-Over-Year
3.2%
*Organic revenue is a non-GAAP metric. For a reconciliation
to GAAP reported revenue change, see table prior to 10-K.
2020 Segment
Revenue
$944.2M
DIGITALLY ENABLED
WATER SERVICES
Evoqua’s Water One® service combines our water
expertise, proactive service, proven solutions, and
“smart” technology. The result - a more predictable,
cost-effi cient solution that takes the hassle of water
management off customers hands. The remote
monitoring capabilities enable us to optimize routine
service calls through predictive analytics, allowing
customers to maximize operational uptime. With our
extensive service network, a certifi ed Evoqua Service
Technician is within approximately a two-hour drive
to more than 90% of our industrial North American
customers’ sites.
EMERGING CONTAMINANTS
PFAS, selenium, micro-plastics, and other emerging
contaminants continue to drive complexity in water
treatment and present an ongoing threat to the
quality and safety of our water supply. Removal of
these contaminants is a mission-critical competency
of Evoqua. Our service network, combined with our
comprehensive water treatment solutions portfolio
and extensive mobile fl eet, favorably positions
Evoqua to help solve these water challenges.
Many of the world’s Fortune 500 industrial companies rely on Evoqua and our
solutions to ensure their products are eff ective, reliable, and safe.
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Applied Product
Technologies
OVERVIEW
Our Applied Product Technologies
segment provides water and wastewater
treatment products, which can be
used stand-alone or as components in
integrated solutions, to a diverse set
of system specifi ers, integrators, and
end-users across the globe. Our broad
portfolio is utilized in industrial, municipal,
and commercial applications ranging
from clarifi cation and biological treatment
to fi ltration and disinfection.
MARKET EXPANSION
In addition to supplying products and
components to our Integrated Solutions and
Services segment in the North American
market, the APT segment works closely with
system integrators worldwide. Approximately
22% of our 2020 segment revenue came
from Europe and the Middle East, while 19%
is from our operations in Asia.
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Organic Revenue Change
Year-Over-Year
-1.3%
*Organic revenue is a non-GAAP metric. For a reconciliation
to GAAP reported revenue change, see table prior to 10-K.
2020 Segment
Revenue
$485.3M
NEW PRODUCT INNOVATION
Our portfolio of technologies and products are
sold either as discrete off erings or as components
of broader solutions across industrial, municipal,
and commercial markets. We continue to focus on
developing and marketing next-generation products
and new product innovations to treat continued
challenges with routine and complex water needs.
With the successful integration of ATG-UV, off ering
a UV technology that is a chemical-free disinfection
technique, we continue to expand our global reach
and portfolio of sustainable innovations.
This past year, Evoqua released the Wafer® UV
generator to the commercial aquatics market.
Wafer® UV Generator
DIGITAL CONNECTIVITY
Evoqua is dedicated to helping customers
throughout the life of their system. From virtual
service tools and platforms designed to assist
customers proactively or when on-location
maintenance is not feasible to our enhanced
e-commerce experience, end-users, specifi ers, and
integrators rely on Evoqua as a long-term partner.
Our globally focused segment has offi ces in the US, UK, Germany, the
Netherlands, Singapore, China, and Australia. In this past year, APT opened an
offi ce in India, further expanding our presence in Asia.
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Our Commitment
To Sustainability
OVERVIEW
As the world moves toward a more
circular and sustainable economy, we are
well-positioned to help our customers
achieve their sustainability goals. Our
broad portfolio of innovative products and
services are aligned with the UN Sustainable
Development Goals (SDGs) and help our
customers solve their most complex water
and wastewater treatment challenges.
CLEAN WATER AND
SANITATION | Water scarcity,
emerging contaminants in water,
and climate change are growing
concerns around the world. In
ENERGY | Our anaerobic digestion technology
installations produce enough renewable energy
to meet the electricity needs of the equivalent of
5,000 American homes per day*.
combination with urbanization and
SMART WATER | The Water One® service
population growth, our available water resources are
under stress. Evoqua is dedicated to developing and
delivering sustainable solutions that help customers
and communities protect the world’s most valuable
resource — water. With sustainability as a core value,
we believe a sustainable future for all is possible today.
HEALTH AND WELLNESS | We
provide products and services to
support disinfection and sanitization,
which are critical to maintaining
safe operations in healthcare, aquatics, and food
processing. Our solutions also make drinking water
safe by removing contaminants.
platform provides customers with reliable water
quality and quantity through our digitally enabled,
proactive service model.
CIRCULAR ECONOMY | Water reuse and
recycling technologies, such as UV disinfection
systems, provide a safe alternative water supply,
and reduce dependence on freshwater resources.
CLIMATE CHANGE | With one of the largest
fl eets of temporary and rapid response mobile
units in North America, we are ready to provide
clean water when and where it is needed most.
*This estimate is based on average home electricity usage provided by the U.S. Energy Information Administration.
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For more information, download our 2019 Sustainability Report:
evoqua.com/sustainability
OUR HANDPRINT
Enabling our customers to become
more sustainable through our
solutions and service off erings.
Bush Brothers & Company took action to
lessen their facility’s strain on limited water
resources through a two-phase water reuse
project. Utilizing multiple Evoqua dissolved
air fl otation units and reverse osmosis
systems, Bush Brothers & Company is
successfully maximizing their water reuse
while minimizing their environmental
footprint.
Reverse Osmosis Systems
Enabling a more sustainable water system for future generations is both our
opportunity and our responsibility. - Ron C. Keating, CEO
OUR FOOTPRINT
Evoqua’s responsibility to
become more sustainable in our
internal operations.
In 2020, our carbon reactivation
facilities prevented approximately
15,000 tons of carbon from being
landfi lled.
Carbon Vessels
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Our
Commitments
OUR PURPOSE
Transforming Water. Enriching Life.®
OUR VISION
To be the world’s fi rst choice for water solutions.
OUR VALUES
Integrity: Do What’s Right
• We work safely
• We are honest and keep our word
• We lead by example and are good corporate citizens
Customers: The Foundation of Our Success
• We are responsive and reliable
• We provide high-quality solutions
• We add value as a trusted partner
Sustainable: Our Commitment to Today and Tomorrow
• We transform water for our customers, communities, and the planet
• We embrace inclusion and diversity as a primary catalyst for innovation
• We are stewards of environmental health through our actions and conduct
Performance: Deliver on Our Promises
• We will be even better tomorrow than today
• We collaborate to win together
• We meet or exceed expectations
ABOUT US
Evoqua Water Technologies is a leading provider of mission-critical water and wastewater
treatment solutions, off ering 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 ten countries. Serving
more than 38,000 customers and 200,000 installations worldwide, our employees are united
by a common purpose: Transforming Water. Enriching Life.®
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 2020
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-38272
EVOQUA WATER TECHNOLOGIES CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
210 Sixth Avenue
Pittsburgh, Pennsylvania
(Address of principal executive offices)
46-4132761
(I.R.S. Employer Identification No.)
15222
(Zip code)
(724) 772-0044
(Registrants telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class:
Common Stock, par value $0.01 per share
Trading Symbol(s):
AQUA
Name of each exchange on which registered:
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
No
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
(Do not check if a
smaller reporting
company)
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 has filed a report on and attestation to its managements assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the outstanding common stock, par value $0.01 per share, of the registrant other than shares
held by persons who may be deemed affiliates of the registrant, as of March 31, 2020, the last business day of the registrants
most recently completed second fiscal quarter, was approximately $807 million.
There were 118,276,418 shares of the registrants common stock, par value $0.01 per share, outstanding as of October 30,
2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement (the Proxy Statement) for its annual meeting of shareholders to
be held in February 2021, are incorporated by reference into Part III of this Report. The Proxy Statement will be filed with
the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
EVOQUA WATER TECHNOLOGIES CORP.
INDEX TO FORM 10-K
For the Year Ended September 30, 2020
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Item 16
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Party Transactions and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits
Form 10-K Summary
3
18
48
48
48
49
50
52
53
81
83
147
147
148
149
149
149
149
149
150
154
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K (this Annual Report) contains forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, 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 anticipate, believe, continue, could,
estimate, expect, intend, may, might, plan, 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 for fiscal 2021 and beyond, and statements related to the COVID-19 pandemic and
its impact on our business contained in this Annual Report are forward looking statements.
We have based these forward looking statements 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 this Annual Report in Item 1,
Business, Item 1A, Risk Factors and Item 7, Managements Discussion and Analysis of Financial Condition and Results
of Operations 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
disruptions in global oil markets;
our ability to compete successfully in our markets;
our ability to execute projects on budget and on schedule;
the potential for us to incur liabilities to customers as a result of warranty claims or failure to meet performance
guarantees;
our ability to meet our customerssafety 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;
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;
our ability to achieve the expected benefits of our restructuring actions, including restructuring our business
into two segments;
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 accurately predict the timing of contract awards;
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 and other key personnel;
our increasing dependence on the continuous and reliable operation of our information technology systems;
risks associated with product defects and unanticipated or improper use of our products;
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;
risks related to our substantial indebtedness;
our need for a significant amount of cash, which depends on many factors beyond our control;
risks related to AEA Investors LPs (along with certain of its affiliates, collectively, AEA) ownership interest
in us; and
other risks and uncertainties, including those listed under Item 1A, Risk Factors.
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 Annual 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 Annual 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 Annual Report, they may not be predictive of results or developments in future
periods.
Any forward looking statement that we make in this Annual 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 Annual Report.
Part I
Item 1. Business
History and Company Overview
Our History
Evoqua Water Technologies Corp. (referred to herein as the Company, Evoqua, Evoqua Water Technologies
Corp., EWT Holdings I Corp., we, us, our) was incorporated on October 7, 2013. On January 15, 2014, Evoqua
Water Technologies Corp. acquired, through its wholly owned subsidiaries, EWT Holdings II Corp. and EWT Holdings III
Corp., all of the outstanding shares of Siemens Water Technologies, a group of legal entity businesses formerly owned by
Siemens AG (Siemens). The stock purchase closed on January 15, 2014 and was effective January 16, 2014 (the
Acquisition). On November 6, 2017, we completed our initial public offering (IPO) of 27.8 million shares of common
stock, and our common stock began trading on the New York Stock Exchange (the NYSE) on November 2, 2017 under
the ticker symbol AQUA.
Our fiscal year ends on September 30 of each year, and references in this Annual Report to a particular year refer
to that fiscal year. For example, references in this Annual Report to 2020 relate to the fiscal year ended September 30, 2020.
Company Overview
Evoqua Water Technologies is a leading provider of mission-critical water treatment solutions, offering services,
systems and technologies to support our customers full water lifecycle needs. With over 200,000 installations worldwide,
we hold leading positions in the industrial, commercial and municipal water treatment markets in North America. We offer
a comprehensive portfolio of differentiated proprietary technology solutions sold under several market-leading and well-
established brands to our global customer base. We have worked to protect water, the environment and our employees for
over 100 years. As a result, we have earned a reputation for quality, safety and reliability and are sought out by our customers
to solve the full range of their water treatment needs, and maintaining our reputation is critical to the success of our business.
Our solutions are designed to ensure that our customers have the quantity and quality of water that meets their
unique specifications. We enable our customers to achieve lower costs through greater uptime, throughput and efficiency
in their operations and support their regulatory compliance and environmental sustainability. We deliver and maintain these
mission-critical solutions through the largest service network in North America, assuring our customers continuous uptime
with 92 service branches as of September 30, 2020. We have an extensive service and support network, and as a result, we
have certified Evoqua Service Technicians within approximately a two-hour drive from more than 90% of our industrial
North American customers sites.
We provide solutions across the entire water cycle. The water cycle begins with influent water, which is sourced
from rivers, lakes and other sources. We treat influent water for use in a wide variety of industrial, commercial and municipal
applications. In industrial applications, influent water, after it is treated, is used as process water for applications, including
microelectronic production, ingredient water in the production of food, beverage and other goods, power utility applications
including boiler feed water, cooling water and steam condensate. Commercial applications for influent water include
laboratory testing and aquatic activities, while municipal applications for influent water include treatment to produce safe
drinking water. After the water is used it is considered effluent water, and we enable its treatment through the removal of
impurities so that it can be discharged safely back into the environment or reused for industrial, commercial or municipal
applications.
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As depicted in the table below, we target attractive global end markets that utilize and treat water as a critical part
of their operations or production processes, including pharmaceuticals and health sciences, microelectronics, food and
beverage, hydrocarbon and chemical processing, power, general manufacturing, municipal drinking water and wastewater,
marine and aquatics end markets. While a decline in general global and economic conditions could adversely affect us, our
business is highly diversified across our key attractive and growing end markets presented below, and we believe that no
single end market drives the overall results of our business.
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Our Industry
We estimate the global water and wastewater market to represent more than $600 billion in total revenue, including
both capital and operating expenditures for the treatment of water by industrial, municipal, commercial and residential end-
users. Within the global water and wastewater market, we estimate our addressable market, comprised of equipment,
consumables, aftermarket parts and operations and maintenance (O&M) related services for the treatment of water for
industrial, commercial and municipal end users, to represent over $85 billion in total revenue.
Our estimated addressable market is further refined to focus on our served market, which we estimate to be
approximately $8.5 billion in the North American region and approximately $7.5 billion across Europe and the Asia Pacific
region, totaling approximately $16 billion in total revenue. As compared to our larger addressable market, our served market
excludes sectors that would require meaningful growth investment on our part to capture new customers or market
opportunities.
While a decline in general global economic and business conditions may adversely affect demand for our products,
services and solutions, we believe the global water market will continue to experience growth, supported by a variety of
anticipated secular trends that will drive the demand for water across a multitude of industrial, commercial and municipal
applications. These secular trends include global population growth, urbanization, industrialization and overall economic
growth. In addition, the supply of clean water could be adversely impacted by factors including an aging water infrastructure
within North America and increased levels of water stress from seasonal rainfall, inadequate water storage options or
treatment technologies. More specific to our business, water is a critical component and byproduct of many processes,
including in manufacturing and product development. As such, as global consumption patterns evolve and water shortages
persist, demand for solutions and services will continue to increase. Additionally, a decrease in the supply of clean water,
as well as a heightened focus on environmental sustainability across various end markets, may increase the demand for
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closed-loop solutions that allow recycling and reuse of effluent for certain applications. We believe our business is well
positioned to serve this demand.
We hold leading positions in our North American market verticals that have been cultivated by our suite of
differentiated solutions and our comprehensive service network. However, despite our leading position in many individual
market verticals where we participate, these markets remain very fragmented, and we estimate that our market share was
less than 25% in most market verticals in which we participated during 2020. Evoqua selectively participates in Europe,
Middle East and Africa (EMEA) and Asia Pacific with differentiated product technologies.
Fiscal Year Developments
For the year ended September 30, 2020, we generated revenue, net income and Adjusted EBITDA of $1.43 billion,
$114.4 million and $239.6 million, respectively, with 86% of our revenues being generated in North America. For the year
ended September 30, 2019, we generated revenue, net loss and Adjusted EBITDA of $1.44 billion, $8.5 million and $235.0
million, respectively. Adjusted EBITDA is a non-GAAP financial measure. For more information on Adjusted EBITDA,
including a reconciliation to the most directly comparable GAAP financial measure, see Item 7, Managements Discussion
and Analysis of Financial Condition and Results of Operations-How We Assess the Performance of Our Business-Adjusted
EBITDA.
As part of the ongoing footprint rationalization and business optimization efforts that we have undertaken following
the reorganization of our business into two segments at the beginning of our 2019 fiscal year and our divestiture of the
Memcor product line at the end of the first quarter of our 2020 fiscal year, we have reduced our manufacturing footprint
from 19 facilities as of September 30, 2019 to 13 facilities as of September 30, 2020. This includes the consolidation of
facilities located in Santee, California, Coventry, Rhode Island, Bridgeport, Connecticut, Beaver Dam, Wisconsin, and
Singapore into other existing facilities, and the disposition of our facility in Windsor, Australia as part of the Memcor
divestiture. We expect to continue to evaluate opportunities for facility consolidation in fiscal 2021.
COVID-19
In response to the challenges created by the COVID-19 pandemic in the fiscal year, we have prioritized protecting
the safety of our employees and stakeholders, taking actions to ensure the resiliency of our business and managing the
business for liquidity. Our business has been considered essential under federal and local standards, and, to date, we have
maintained business continuity at our critical service branches and manufacturing facilities. We have taken measures to
protect our employees, including implementation of remote working practices where possible and managing our supply
chain to ensure that necessary personal protective equipment is available to our personnel. We have also taken certain cost
reduction actions, some of which are temporary in nature, such as reduction of marketing and travel activity as well as
deferment of headcount additions to preserve liquidity and reallocated existing resources to maintain productivity levels
where feasible. Given the evolving nature of this unprecedented pandemic, the ultimate impact on our operations cannot
be reasonably estimated at this time. For further discussion regarding the impact of the COVID-19 pandemic on our business
operations and financial results, see Item 7, Managements Discussion and Analysis of Financial Condition and Results
of Operations and Item 1A, Risk Factors-The COVID-19 pandemic and other future public health crises or pandemics
could materially and adversely affect our business, results of operations and financial condition.
Acquisitions and Dispositions
On October 1, 2019, we acquired a 60% investment position in San Diego-based Frontier Water Systems, LLC
(Frontier) for a purchase price of $10.9 million, net of working capital adjustments. We have entered into an agreement
to purchase the remaining 40% interest in Frontier on or prior to March 30, 2024. Frontier is a pioneer in the development
of patented, engineered equipment packages for high-rate treatment and removal of selenium, nitrate and other metals from
complex water systems. Frontier is part of our Integrated Solutions and Services segment and broadens the portfolio of
solutions that we offer to our customers through that segment.
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On December 31, 2019, we completed the sale of the Memcor low pressure membrane product line, including the
product lines global workforce, its manufacturing site in Windsor, Australia, and associated operations and intellectual
property, to DuPont de Nemours, Inc. (DuPont). Following the closing of the transaction, we no longer service the large
municipal install base of Memcor products, which consists primarily of municipal drinking water and wastewater treatment
facilities, but we continue to sell Memcor products, which we will purchase from DuPont, to our industrial customers
through our Integrated Solutions and Services segment. The aggregate purchase price paid by DuPont in the transaction
was $110 million in cash, subject to certain adjustments. Following adjustments for cash and net working capital, gross
proceeds paid by DuPont were $131 million. We utilized $100 million of the proceeds from the transaction to repay a portion
of our First Lien Term Loan (as defined in Note 11, Debt of Part II, Item 8, Financial Statements and Supplementary
Data) in January 2020.
On September 3, 2020, we acquired the assets of privately held Aquapure Technologies of Cincinnati (Aquapure),
a Hamilton, Ohio based water service and equipment company. Aquapure serves the commercial and light industrial markets
and provides customers with a variety of water treatment products and services, including deionization, reverse osmosis,
softeners and filtration systems. We expect this acquisition to strengthen our service capabilities in Cincinnati, Ohio and
the surrounding region.
Amendment of Credit Agreement
On February 18, 2020, we entered into an amendment to our First Lien Credit Agreement pursuant to which, among
other things, the interest rate spread applicable to our term loans was reduced. For additional information regarding the
amendment to our First Lien Credit Agreement, see Note 11, Debt, of Part II, Item 8, Financial Statements and
Supplementary Data.
Controlled Company Status and Stock Offerings
Effective November 2, 2019, as a result of the expiration of certain voting proxies held by affiliates of AEAInvestors
LP (AEA), we no longer qualify as a controlled company within the meaning of the corporate governance standards
of the NYSE. Consistent with NYSE rules, we transitioned to a fully independent Compensation Committee and Nominating
and Corporate Governance Committee effective November 1, 2020, and we currently have a fully independent Audit
Committee and a majority independent Board of Directors.
On March 10, 2020, we completed a secondary public offering, pursuant to which 13 million shares of our common
stock were sold by affiliates of AEA and certain other selling shareholders. On August 10, 2020, we completed another
secondary public offering pursuant to which 9.2 million shares of our common stock were sold by affiliates of AEA and
certain other selling shareholders. The Company did not receive any proceeds from the sale of shares by the selling
shareholders in either of these secondary public offerings.
Our Growth Strategy
The key elements of our strategy include:
Grow and further penetrate our existing customer base. We believe our strong brands, leading position in highly
fragmented markets, scalable and global offerings, leading installed base and unique ability to provide complete treatment
solutions will enable us to capture a larger share of our existing customers water treatment spend while expanding with
existing and new customers into adjacent end markets and underpenetrated regions, including by investing in our sales force
and cross-selling to existing customers. Our growth initiatives include both expanding our presence in our core North
American market as well as replicating our leading position and strategies into underpenetrated global regions.
Through direct and indirect sales efforts, outreach and education, we plan to continue to enhance our relationships
and enable further adoption of our products, technologies and solutions by end customers and key influencers, including
municipal representatives, engineering firms, designers and other system specifiers. Our performance depends, in part, on
our ability to attract, incentivize and retain third party sales representatives that will be able to market and support our
products effectively, and competing for sales personnel with established customer relationships.
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Continued transition of our customers to a higher value-add service-based business model. Our goal is to provide
reliable water treatment solutions by combining our products and technologies with extensive service and distribution
capabilities. We selectively target high-value projects with opportunities for recurring business through service, parts and
other aftermarket opportunities over the lifecycle of the process or capital equipment. In particular, we have developed
internet connected monitoring technologies through the deployment of our WaterOne® service platform, which enables
customers to outsource their water treatment systems and focus on their core business, offering customers system
optimization, predictive and proactive service, and simplified billing and pricing. Our WaterOne® platform also enables
us to transition our customers to pricing models based on usage, which otherwise would not have been possible without
technological advancement. Our outsourced water offerings are high value add solutions utilizing our owned assets to
generate service revenues. These assets, particularly when digitally enabled, create stable, recurring and profitable revenues
through greater efficiency and productivity. Our future growth depends, in part, on our ability to develop or acquire new
products, services and solutions, identify emerging technological trends in our target end markets and maintain the integrity
of our information technology systems.
Drive margin expansion and cash flow improvements through continued focus on operational excellence and
execution. Effective October 1, 2018, we restructured our business into two reportable operating segments. We are currently
on track to realize cost savings in the range of $15 million to $20 million on an annualized basis as a result of the restructuring
once it is fully implemented. We expect to incur approximately $1.0 million of cash costs through fiscal 2021 as a result
of this restructuring related to other non-employee related business optimizations. We have identified and are pursuing
several discrete initiatives that, if successful, we expect could result in additional cost savings over the next two years. These
initiatives include our supply chain improvement program to consolidate and manage global spending, our improved logistics
and transportation management program, capturing benefits of our WaterOne® platform and further optimizing our
engineering cost structure, our global shared services organization and our sales, inventory and operations planning, including
footprint rationalization. Furthermore, as a result of significant investments we have made in our footprint and facilities,
we believe we have the capacity to support our planned growth without commensurate increases in fixed costs.
Commercialize and drive adoption of nascent and newly acquired technologies by leveraging our sales channels
and application expertise. We offer a full range of services, systems and technologies that we continually develop to meet
our customers evolving water lifecycle needs. We develop our technologies through in-house research, development and
engineering and targeted tuck-in, vertical market and geography-expanding, technology enhancing acquisitions. Since April
2016, we have successfully completed fourteen acquisitions and the acquisition of a 60% interest in Frontier Water Systems
LLC, expanding our vertical markets and geographic reach and enhancing our technologies, strengthening our existing
capabilities and adding new capabilities and cross-selling opportunities in areas such as mobile wastewater treatment, soil
and air treatment, regenerative media filtration, anodes, UV and ozone disinfection, aerobic and anaerobic biological
treatment technologies and electrochemical and electrochlorination cells. We must continue to develop and acquire new
products, services and solutions to successfully compete in our markets.
We believe a key differentiator for our technology development program is our strong record of incorporating new
technologies into the comprehensive solutions we provide to our customers across our platform. We can rapidly scale new
technologies using our leading direct and third-party sales channels and our relationships with key influencers, including
municipal representatives, engineering firms, designers and other system specifiers. Through our service network, we have
a direct view of our customers water needs which allows us to focus on developing and acquiring the most relevant and
sought after solutions.
We believe our continued investment in driving penetration of our existing technologies and new capabilities
through our channels to market will allow us to continue to address our customer needs across the water lifecycle.
Continue to expand our capabilities for the treatment of increasingly complex emerging contaminants. Emerging
contaminants such as PFAS, PFOA, selenium, micro-plastics and many others, present global health risks if not properly
removed from drinking water, process water and wastewater. We believe we have one of the leading portfolios of water
treatment products and solutions to remove emerging contaminants from water including granular activated carbon, ion
exchange resin, reverse osmosis and advanced oxidation processes. In addition, we have an extensive service branch network,
located predominantly in the United States, as well as a large fleet of mobile assets to respond quickly to customers water
treatment needs.
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Continue to evaluate and pursue accretive tuck-in acquisitions to add new technologies, attractive geographic
regions and end markets. As a complement to our organic growth initiatives, we view tuck-in acquisitions as a key element
of our overall growth strategy which will enable us to accelerate our growth in our current addressable market, new
geographies and new end market verticals. Our existing customer relationships, channels to market and ability to rapidly
commercialize technologies provide a strong platform to drive growth in the businesses we acquire. To capitalize on these
opportunities, we have built an experienced team dedicated to mergers and acquisitions that has helped us expand our
vertical markets and geographic reach and enhance our portfolio of technologies.
Protect and enhance the sustainability of our business. Sustainable is one of our four core values, along with
Integrity, Performance and Customers. Our objective is to demonstrate this value in our operations and within our business
model by providing technology and solutions to help our customers meet their own sustainability goals. We view
sustainability as a key initiative and have mobilized a cross-functional team to work on advancing our Sustainability Program.
Stakeholder engagement is important to our strategy development. We conducted a materiality assessment in 2019, engaging
a wide range of stakeholders, and we continue to undertake purposeful stakeholder engagement through our investor relations
practices, our collaboration with our Board of Directors, employee engagement surveys, customer questionnaires, focus
groups and other activities. We are focusing on quantifying our environmental and social impact for customers, in part,
through more efficient services enabled by our Water One digital remote monitoring systems. For information on accessing
our sustainability reports, please see the heading Available Information below.
Our Business Segments
Our business is organized into two segments: a customer-facing service organization called Integrated Solutions
and Services (ISS) and a product technology group, Applied Product Technologies (APT) focused on sales primarily
through indirect channels.
Our ISS segment provides fully-integrated systems and service solutions that selectively utilize our comprehensive
portfolio of water treatment technologies to satisfy our customers unique water needs. Our APT segment sells equipment,
based on our broad technology portfolio, which is used as components in integrated solutions specified by water treatment
designers and offered by original equipment manufacturers (OEMs), engineering firms, integrators and our ISS segment.
The chart below reflects revenue by segment for the year ended September 30, 2020:
For additional financial information regarding our reportable segments, see Note 24, Business Segments, of Part
II, Item 8, Financial Statements and Supplementary Data, of this Annual Report.
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The table below provides an overview of our two segments, including their sales channels and a summary of their
key offerings as of September 30, 2020.
North America focused; extensive service branch footprint and fleet of mobile response
equipment
Integrated
Solutions and
Services
Overview
Provides full outsourced water operations
Technology agnostic solutions
Focus on service and aftermarket
Channel Direct sales with market vertical focus
Key
offerings
Full lifecycle service and solutions for process water and wastewater, including on-demand
water, outsourced water, recycle / reuse and emergency response services
Equipment systems for industrial needs: influent water, boiler feed water, ultra-high purity,
process water, wastewater treatment and recycle / reuse
Municipal services, including odor and corrosion control services
Full-scale outsourcing of operations and maintenance, including WaterOne® platforms
Highly differentiated and scalable products and technologies
Overview
Global geographic reach serving North America, EMEA, and Asia Pacific
Specified by water treatment designers, OEMs, and engineers
Channel
Primarily indirect sales through independent sales representatives, system integrators,
distributors, Evoquas Integrated Solutions and Services segment and aftermarket channels
Applied
Product
Technologies
Key
Offerings
Filtration and Separation: regenerative media and microsand; self-cleaning filters and intake
screens; electrodeionization
Disinfection: low and medium pressure ultraviolet (UV); ozone; electrochlorination and gas
chlorination
Wastewater solutions: ultrafiltration membrane bioreactors; advanced biological treatment;
clarifiers, aerators, screens and dewatering; ballasted clarification
Anode and electrochlorination technology
Integrated Solutions and Services Segment
Our Integrated Solutions and Services segment provides application specific solutions and full lifecycle services
for critical water applications. We focus on treating industrial process water, utility water and wastewater and providing
odor and corrosion control services for municipalities. Industrial process water requires specific purity standards, which
are used in making goods in industries such as microelectronics, pharmaceuticals, health sciences and food and beverage,
including ingredient water. Industrial utility water is used for critical industrial applications, including as boiler feed and
cooling water. Industrial wastewater is effluent water discharged from plants or facilities which is treated before it is returned
to the environment or recycled or reused within the water cycle. Our operations across the water cycle are complex and, if
conducted improperly, may result in potential costs and liabilities, including as a result of environmental damage. Our
comprehensive solutions are comprised of capital systems and related recurring aftermarket services, parts and consumables,
along with long-term and short-term service contracts and emergency services. Our comprehensive capabilities range from
discrete offerings to the provision of highly complex, fully integrated solutions. We are able to leverage our broad range of
products and technologies to deliver a tailored solution that best addresses a specific customers needs, including a growing
portfolio of digital technologies encompassed in our WaterOne® platform. Key capital and related aftermarket service and
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product offerings include filtration, reverse osmosis, ion exchange and continuous deionization. As a result of our speed,
capabilities and experience, we serve as a trusted partner to over 25,000 industrial customers, including a substantial majority
of Fortune 500 industrial companies. As water is a critical component in many industrial production processes, the
unavailability of proper water purity, specification or quality can lead to significant constraints, downtime and increased
operating costs for our customers.
The cost of a typical installation can range from a few thousand dollars to a few million dollars and typically
provides an ongoing service and aftermarket revenue opportunity. The service and aftermarket sales component is supported
by our broad application and process expertise and what we believe to be the largest integrated industrial service network
in North America. Our network is comprised of certified technicians and the largest fleet of mobile reverse osmosis and
deionization water treatment systems in North America, based on managements estimate, and enables us to provide a
complete range of services spanning from regular maintenance and emergency support to our unique WaterOne® service
platform. Our WaterOne® service platform is an enhanced model that uniquely combines our water expertise, proactive
service, proven technology and data intelligence to continually improve customers water operation management. Our
remote monitoring capabilities enable us to optimize our routine service calls through predictive analytics and provide
customers a more predictable, cost-efficient water solution. We offer services that include water on-demand, mobile solutions
and smart water systems that leverage our extensive branch network, technical personnel and technology portfolio.
We partner with our industrial customers through our direct sales and service team, which is organized
geographically and by market vertical and is complemented by an inside sales force, field sales engineers and a growing
ecommerce platform. We primarily target four broad categories of customers in our Integrated Solutions and Services
segment, principally based on their end markets and primary applications: Light Industry, Heavy Industry, Proact
Environmental Solutions and Municipal Services.
Light Industry
Our light
industry offerings include our usage-based, WaterOne® deionized water service, preventative
maintenance service contracts, integrated process and wastewater systems and aftermarket consumables and spare parts.
We generally provide light industry services to general manufacturing, pharmaceutical, food and beverage, microelectronics
and health sciences customers. Light industry companies typically utilize treatment solution applications that handle influent
water flows of up to several hundred gallons per minute.
Heavy Industry
Our heavy industry offerings include mobile, rapidly deployable services based on short-term operating contracts,
outsourced water services and accompanying technological support, integrated process and wastewater systems and
aftermarket consumables and spare parts. We generally provide heavy industry services to power generation, chemical
processing, hydrocarbon processing, food and beverage and mining and pulp and paper customers. Heavy industry companies
typically utilize treatment solution applications that handle influent water flows more than several hundred gallons per
minute.
ProAct Environmental Solutions
Our ProAct Environment Solutions offerings include activated carbon, wastewater ion exchange, hydrostatic water
testing, degassing services and groundwater remediation solutions. We generally provide environmental solutions to
hydrocarbon processing, chemical processing, food and beverage and municipal water customers.
Municipal Services
Our Municipal Service offerings include odor and corrosion control and disinfection capabilities, including
advanced remote monitoring and automated control solutions and multi-product liquid and vapor phase product combinations
for wastewater collection. We also provide municipal service solutions for drinking water treatment and distribution.
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Applied Product Technologies Segment
Our Applied Product Technologies segment sells differentiated technologies to a diverse set of water treatment
system specifiers, integrators and end users globally. Our offerings are highlighted by our filtration and disinfection,
electrodeionization and electrochlorination technologies, wastewater treatment, separation technologies and anodes
offerings. Our filtration and disinfection offerings include our Defender line of products, which is a regenerative media
filtration leader in the commercial aquatics market, along with various UV and ozone disinfection products. Our IONPURE
electrodeionization solutions allow customers to achieve ultrahigh purity water without the use of chemicals in the treatment
process. Our electrochlorination products provide extensive water treatment solutions for the maritime, oil and gas and
power markets. We also have extensive capabilities in anode technologies, cathodic protection, solid and liquid separation
technologies and various aftermarket parts, consumables and accessories. Our portfolio of solutions includes advanced
biological treatment, clarifiers, aerators, equipment for new municipal plant builds and retrofit, rehabilitation and aftermarket
parts and services for our extensive installed base. All of our offerings are highly scalable and designed to meet current and
future water treatment needs, with a focus on generating repeat business from our customers. We generally service the
equipment we provide our customers; however, their failure to properly use, safeguard or maintain their equipment or
product defects or unanticipated use of our products could result in liability to us.
Our portfolio of technologies and products are sold either as discrete offerings or as components of broader solutions
through our Integrated Solutions and Services segment. Our Applied Product Technologies segment also sells externally to
a customer base comprised of globally located OEMs, integrators, regional distributors and engineering firms and various
other end users that we reach through multiple established sales and aftermarket channels. We target customers in our
Applied Product Technologies segment principally based on their end markets and primary application: Advanced Filtration
and Separation, Wastewater Technologies, Aquatics, Disinfection, Electrochlorination and Materials.
We maintain a comprehensive municipal representative network that broadly covers the U.S., providing us with a
differentiated ability to influence specifications and the basis of design for new treatment facilities. We have provided
solutions across a large municipal installed base with capacities ranging from 25,000 gallons per day to over 100 million
gallons per day. We maintain relationships with engineering firms, operators and other key influencers through our direct
technical sales force to drive adoption of our offerings. We also have indirect and direct relationships in EMEA, Asia Pacific
and Latin America to service the core applications and support our Applied Product Technologies portfolio.
Our portfolio of products and solution technologies, both acquired as well as those originally developed for
municipal wastewater applications, has also experienced increased demand for industrial wastewater and recycle and reuse
opportunities.
Advanced Filtration and Separation
Our products separate both dissolved and suspended solids from liquids in a variety of slurries, for either disposal
or reuse. We generally provide separation technology products and solutions to power, mining, pharmaceutical, laboratory,
microelectronics, solar, heavy and light industrial and municipal customers. Our electrodeionization technology has primary
applications in high purity process water for use in pharmaceutical, laboratory and microelectronic processing plants and
the removal of dissolved salts from seawater, brackish water and municipal wastewater.
Wastewater Technologies
Our wastewater treatment offerings include advanced biological treatment, clarification, filtration, nutrient
removal, odor and corrosion control, biosolid and field-erected biological wastewater treatment plant solutions. We generally
provide wastewater treatment solutions to both municipal and industrial wastewater treatment facilities. We provide
aftermarket and retrofit solutions to our extensive installed base.
Aquatics
Our aquatics offerings include a wide range of filtration equipment (regenerative media filters, and high rate sand
filters), analyzers, controllers and related accessories. We sell to commercial aquatics designers and end-users worldwide
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through applications including filtration of municipal and recreational pools and leisure facilities, fountains and water
features and recreational water and waterparks.
Disinfection
Our disinfection products include a wide range of chemical and non-chemical disinfection technologies including
onsite hypochlorite generation, UV and ozone disinfection systems. We sell our portfolio to municipal drinking water,
industrial and light manufacturing and commercial customers worldwide. Primary applications include disinfection of
municipal and recreational pools and leisure facilities, disinfection and water chemistry measurement and control for
municipal drinking water, as well as pretreatment and purification systems where ultrapure water polishing is required.
Electrochlorination & Materials
Our electrochlorination products are used with seawater for onsite sodium hypochlorite generating systems for
maritime, oil and gas, power and military customers. Our maritime growth prevention systems are used on military and
commercial ships and in offshore oil and gas applications. We produce custom designed, state-of-the-art mixed-metal oxide
anodes provide recoating and repair services to our external customers and supply the anodes used across our own internal
processing capabilities. We provide anode products and solutions to the mining, chemical processing, light industrial and
microelectronics customers for primary applications including biotechnology, water treatment, cathodic protection, seawater
electrolysis, metal finishing and electroplating and swimming pool chlorination.
Customers
We serve three primary market sectors: (i) industrial, (ii) commercial and (iii) municipal. Industrial and commercial
customers vary in size, scope and the complexity of their water treatment needs and include small manufacturing clients
with a single facility, large commercial waterparks and multinational corporations with a significant global footprint. The
municipal market consists of potable water and wastewater treatment solutions that are sold to municipalities and private
companies operating under a concession agreement to own and operate a treatment facility on behalf of a municipality. We
serve each market with a full range of solutions, services, technologies and aftermarket offerings.
The industrial market is comprised of direct end-market distribution channels. The commercial market includes a
variety of routes to market including direct and third-party channel relationships. The municipal market is comprised of a
wide range of drinking and wastewater treatment facilities.
Our customers span a diverse range of industries and include many of the largest U.S. companies in each of the
pharmaceutical, hydrocarbon processing, power, chemical and food and beverage industries as well as U.S. wastewater
sites and global drinking water treatment sites. We also have customers in the health science, microelectronics, drinking
water, wastewater, general manufacturing, commercial aquatics, maritime and other industries. During the year ended
September 30, 2020, no single customer accounted for more than 4.5% of our revenues, and our top ten customers accounted
for approximately 11.8% of our revenues.
We provide products, services and solutions to federal, state and local government customers both directly and
indirectly as a supplier to general contractors. Many of our government contracts contain a termination for convenience
clause, regardless of whether we are the prime contractor or a subcontractor. Upon a termination for convenience, we are
generally able to recover the purchase price for delivered items and reimbursement of allowable work in process costs. See
also Item 1A, Risk Factors.
Suppliers
We maintain a cost-effective and diversified procurement program focused on supply chain continuity and customer
fulfillment, utilizing strong relationships with strategic suppliers across key commodities. The top materials in our supply
chain include chemicals, membranes, resin, metal fabrications, carbon and electrical components. Procurement strategy
within the project environment is focused on ensuring our ability to meet individual customer needs, with particular focus
on more complex installation projects. We seek to in-source products that align with our existing manufacturing core
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competencies and that enable us to provide our customers with the highest level of value. Our diversified supply base spans
across multiple suppliers and geographies, which we believe enables us to be cost-effective and responsive while also
embracing our sustainability objectives. For a discussion of certain risks relating to our supply chain, see Item 1A, Risk
Factors.
Seasonality
Our business may exhibit seasonality resulting from our customersincreasing demand for our products and services
during the spring and summer months as compared to the fall and winter months. For example, we experience increased
demand for our odor control product lines and services in the warmer months which, together with other factors, typically
results in improved performance in the second half of our fiscal year. Inclement weather, such as hurricanes, droughts and
floods, can also drive increased demand for our products and services. As a result, our results from operations may vary
from period to period.
Sales and Marketing
Our sales and marketing organization is positioned across our vertical markets to drive topline growth and increase
market share for our Company. Our network includes internal general managers, sales directors, sales engineers, third-party
representatives, third party distributors, product managers, vertical market managers and other personnel who support our
day-to-day sales and marketing operations.
Integrated Solutions and Services segment
We market our offerings through our direct sales and service team, which is organized geographically and by end
market and is complemented by an inside sales force, field sales engineers and a growing e-commerce platform. Our
Integrated Solutions and Services segment sales organization focuses on direct sales with a market vertical focus across
geographic, strategic and e-commerce channels to market. Our key market verticals served are healthcare, pharmaceutical,
light manufacturing, microelectronics, food and beverage, power and chemical processing. As of September 30, 2020, our
Integrated Solutions and Services segment included approximately 400 employees in sales and marketing roles and a services
network of approximately 930 employees in field service and application engineering roles.
Applied Product Technologies segment
Our Applied Product Technologies segment delivers a full suite of product technologies, primarily through indirect
channels to serve the global market or through our Industrial Solutions and Services organization. The Applied Product
Technologies segment includes:
Advanced filtration and separation products, such as VAF self-cleaning filters, Ionpure® technologies and
Vortisand® systems;
Wastewater treatment technologies, including the BioMag® system, clarification, odor control and sludge
management solutions;
Disinfection solutions, covering a wide range of solutions from chlorine to ultraviolet (UV) light and ozone
technologies;
Electrocatalytic and materials, which combines our electrochlorination, cathodic protection and anodes product
lines; and
Aquatics products, which combines our highly-valued products, such as the Defender® regenerative media filter,
with a complete set of solutions for our partners.
We maintain relationships with engineering firms, operators and other key influencers through our direct technical
sales force to drive adoption of our offerings. We also maintain a comprehensive municipal representative network in the
U.S., providing us with a unique ability to influence specifications and the basis of design for new treatment facilities. As
of September 30, 2020, we had active relationships with more than 200 OEM partnerships and managed approximately 250
channel partners.
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Research, Development and Engineering
We utilize a disciplined, stage-gate process consisting of development, field test, commercialization, supply chain
and sourcing decisions to identify and develop new technologies to commercialize, focus our efforts on and engage early
with supply chain management to promote profitability. We focus on tuck-in acquisitions as additional resources for new
product innovation and development.
As of September 30, 2020, our global research, development and engineering footprint includes seven facilities
located in the U.S., the United Kingdom, the Netherlands, Germany and India, staffed with managers, scientists, researchers,
engineers and technicians, along with partnerships spanning leading universities research centers and other outside agencies.
Information Technology
Our information technology systems consist of enterprise management, e-commerce, customer relationship and
field service management, customer quoting and billing, environmental compliance, business and operational support, and
procurement and sales force management systems. We continue to focus on integrating our acquisitions onto our enterprise
platform, standardizing our global processes and implementing cyber-security protections. In 2020, we enhanced our
customer relationship and field service management platform to enable our field sales team to better service our customers.
The shift from our initial WaterOne® service platform to the next generation platform is complete, and we expect this will
provide enhanced alerts, monitoring and visibility of customer installations. We have nearly completed our infrastructure
standards deployment globally, and we continue to update our information technology infrastructure through investments
focused on cost efficiencies, reliability, functionality, scalability and security. We intend to continue our digital
transformation with a focus on process ownership, predictive analytics and expansion of our e-commerce capabilities.
Intellectual Property
Our intellectual property and proprietary rights are important to our business. As of September 30, 2020, we have
approximately 1,300 granted or pending patents (after giving effect to patents transferred as a result of acquisitions and
dispositions to date). We undertake to strategically and proactively develop our intellectual property portfolio by pursuing
patent protection, obtaining copyrights and registering our trademarks in the U.S. and in foreign countries. We currently
rely primarily on patent, trademark, copyright and trade secret laws, and control access to our intellectual property through
license agreements, confidentiality procedures, nondisclosure agreements with third parties, employment agreements and
other contractual rights, to protect our intellectual property rights.
Competition
Our industry is highly fragmented and includes a number of regional and niche offering focused competitors.
Competition is largely based on product performance, reliability and innovativeness of products, services and solutions,
application expertise and process knowledge, brand reputation, energy and water efficiency, product compliance with
regulatory and environmental requirements, product lifecycle cost, scalability, timeliness of delivery, the proximity of service
centers to our customers, effectiveness of our distribution channels and price. Within each of our segments and the various
businesses that comprise them, we compete with a fragmented range of companies, but do not have any individually key
competitors.
Backlog
Backlog represents the expected future revenue for unfulfilled and remaining performance obligations for capital
projects where neither Evoqua nor the customer can terminate the contract without penalty. As of September 30, 2020, our
backlog was approximately $165.6 million.
Human Capital Resources
As of September 30, 2020, we had approximately 4,020 employees. Of these employees, approximately 57% were
full-time salaried level staff and the remaining employees consisted of a mix of full-time and part-time hourly workers.
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Approximately 77% of our employees work in our U.S. operations and approximately 23% work in foreign operations.
None of our facilities in the U.S. or Canada are covered by collective bargaining agreements. As is common in Germany
and the Netherlands, our employee populations there are represented by works councils.
Our talent and culture are critical to our success. Our human capital management philosophy and objectives focus
on creating a high performance culture in which our employees are highly enabled to deliver, highly empowered to succeed
and highly accountable to lead. We seek to achieve our objectives through various employee engagement and talent
development efforts. Our employee engagement efforts include our weekly company-wide newsletter and frequent all-
employee town hall meetings, through which we aim to keep our employees well-informed and to increase transparency,
and employee engagement surveys through which we incorporate critical employee feedback into our culture, operations
and strategic plans. Our talent development efforts span across all levels of our organization, including an internship program
through which we have developed strong relationships with multiple universities to attract skilled workers and assess future
talent, our Leadership Development Program, a 24-month program in which future leaders participate in cross-functional
rotations intended to develop their capabilities through organization-wide exposure, and our Leading at Evoqua program,
a six-month customized development program in which cohorts of selected leaders throughout our organization interact
closely with executive team sponsors and external facilitators to focus on self-awareness, management styles and leadership
capabilities.
Our success also depends on our ability to attract, engage and retain a diverse group of employees. Our Code of
Ethics and Business Conduct prohibits discrimination in our hiring and promotional practices based on race, color, creed,
religion, national origin, ancestry, sex, age, physical or mental disability, marital status, pregnancy, genetic information,
sexual orientation, gender identity, veteran or military status or any other category protected under applicable law. In fiscal
2020, we conducted a Global Leadership Gender and Pay Analysis, the results of which were reviewed with our senior
leadership. This analysis included a review by function and level, as well as STEM education levels, to correlate fair share
diversity. From the analysis, we found that at a macro scale, we have relative pay equity across the genders of the groups
surveyed. We embrace diversity and inclusion not only in our employment practices but also in our director selection. Since
October 2018, our Corporate Governance Guidelines have provided that diverse candidates, including women and minorities,
must be included in each pool of candidates from which we select new directors, otherwise known as the Rooney Rule.
Forty percent of our current Board members self-identify as diverse, in terms of race, ethnicity or gender.
As the COVID-19 pandemic forced companies globally to reassess operations and reconsider near-term priorities,
we remained focused on protecting the safety of our employees and managing the business to preserve our workforce.
Health and well-being, financial stability and job security are top concerns for employees during these unprecedented times,
and we have focused on addressing those concerns in meaningful ways. Through careful business management, including
measures to reduce costs and increase cash conservation and liquidity, to date we have avoided layoffs, furloughs and salary
reductions among our workforce. As an essential business, it was critical for us to maintain continuity of operations
throughout our service branch network and manufacturing facilities, and to do so we acted quickly to obtain the personal
protective equipment and to implement policies and procedures necessary to allow our employees to work safely. As a
result, we have been able to maintain to date the continuity of our service branch network and manufacturing facilities
without closures.
Insurance
We maintain insurance policies to cover directors and officers liability, fiduciary, crime, cyber, property, business
interruption, cargo, workers compensation, automobile, general liability, environmental, umbrella and excess liability
insurance.
All of our insurance policies are with third party carriers and syndicates with financial ratings of an A or better.
We and our global insurance broker regularly review our insurance policies and believe the premiums, deductibles, coverage
limits and scope of coverage under such policies are reasonable and appropriate for our business. The continued availability
of appropriate insurance policies on commercially reasonable terms is important to our ability to operate our business and
to maintain our reputation. See Item 1A, Risk Factors.
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Government Regulation
We are subject to extensive and varied laws and regulations in the jurisdictions in which we operate, including
those relating to anti corruption and trade, data security and privacy, employment, workplace safety, public health and safety,
product safety, intellectual property, transportation, zoning and fire codes. We operate our business in accordance with
standards and procedures designed to comply with applicable laws and regulations.
In particular, our international operations subject us to laws and regulations related to anti-corruption and trade,
including those related to export and import compliance, anti-trust, anti-bribery and money laundering. Our policies mandate
compliance with these laws and regulations, and we have established policies and procedures designed to assist us and our
personnel in compliance with applicable U.S. and international laws and regulations. However, any violation of such laws,
regulations or policies could result in substantial fines, sanctions, civil and/or criminal penalties, imprisonment, disgorgement
of profits, debarment from government contracts and curtailment of operations in certain jurisdictions, and might materially
adversely affect our business, financial condition, results of operations or prospects. See Item 1A, Risk Factors-Failure to
comply with applicable anti-corruption and trade laws, regulations and policies, including the U.S. Foreign Corrupt Practices
Act, could result in fines and criminal penalties, causing a material adverse effect on our business, financial condition,
results of operations or prospects.
In certain countries where we operate, our employees are represented by a works council, as required by local law.
In such countries, we are required to consult and seek the consent or advice of these works councils in connection with
certain corporate decisions, such as a major restructuring, a change of control or changes to local management. Certain
other decisions that directly involve employment matters applicable either to all employees or certain groups of employees
may also require works council approval. Further, certain of our international operations offer employees defined benefit
plans in compliance with applicable local legal provisions requiring payments of, among other things, mandatory pension
payments or allocations for severance pay. None of our U.S. or Canadian employees are represented by unions or works
councils, and our U.S. and Canadian operations do not maintain defined-benefit plans.
In addition, there are numerous U.S. federal, state and local laws and regulations and foreign laws and regulations
regarding data security, privacy and the collection, sharing, use, processing, disclosure and protection of personal information
and other user data, the scope of which is changing, subject to differing interpretations, and may be inconsistent among
different jurisdictions. If our efforts to protect the security of information about our customers, suppliers and employees
are unsuccessful, a significant data security breach may result in costly government enforcement actions, private litigation
and negative publicity resulting in reputation or brand damage with customers, and our business, financial condition, results
of operations or prospects could suffer. See Item 1A, Risk Factors-If we experience a significant data security breach or
fail to detect and appropriately respond to a significant data security breach, our business and reputation could suffer.
Further, governments are continuing to focus on privacy and data security and it is possible that new privacy or data security
laws will be passed or existing laws will be amended in a way that is material to our business.
Environmental Matters
The geographic breadth of our facilities and the nature of our operations subject us to extensive environmental,
health and safety laws and regulations in jurisdictions throughout the world. Such laws and regulations relate to, among
other things, emissions to air, the treatment and discharge of drinking water and wastewater, the discharge of hazardous
materials into the environment, the handling, storage, use, transport, treatment and disposal of hazardous materials and
solid, hazardous and other wastes, product safety and workplace health and safety. These laws and regulations impose a
variety of requirements and restrictions on our operations and the products we distribute. The failure by us to comply with
these laws and regulations could result in fines, penalties, enforcement actions, third party claims, damage to property or
natural resources and personal injury claims, requirements to investigate or cleanup property or to pay for the costs of
investigation or cleanup or regulatory or judicial orders requiring corrective measures, including the installation of pollution
control equipment, remedial actions or the pulling of products from the market, and could negatively impact our reputation
with customers. We are not aware of any pending environmental compliance or remediation matters that, in the opinion of
management, are reasonably likely to have a material effect on our business, financial condition, results of operations or
prospects. However, environmental, health and safety laws and regulations applicable to our business, the products we
distribute, the services we provide and the business of our customers, and the interpretation or enforcement of these laws
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and regulations, are constantly evolving and it is impossible to predict accurately the effect that changes in these laws and
regulations, or their interpretation or enforcement, may have upon our business, financial condition, results of operations
or prospects. Should environmental, health and safety laws and regulations, or their interpretation or enforcement, become
more stringent, our costs could increase and significant capital expenditures or operational restrictions could be required,
which may have an adverse effect on our business, financial condition, results of operations or prospects. However, such
increased stringency could also increase demand for our products, services and solutions, which assist various industries
and municipalities in meeting environmental and safety requirements for the treatment and discharge of drinking water and
wastewater. In addition, increased public awareness of the presence and human health impacts of manmade chemicals and
naturally occurring contaminants in drinking water may increase demand for our municipal service offerings.
Correspondingly, if stringent laws or regulations are delayed or are not enacted, or repealed or amended to be less stringent,
or enacted with prolonged phase in periods, or not enforced, then demand for our products and services may also be reduced.
The nature of our operations, which involve the handling, storage, use, transport, treatment and disposal of hazardous
materials and solid, hazardous and other wastes, exposes us to the risk of liability and claims associated with contamination
at our current and former facilities or sites where we have disposed of or arranged for the disposal of waste, or with the
impact of our products and services on human health and safety and the environment. Laws and regulations with respect
to the investigation and remediation of contaminated sites can impose joint and several liability for releases or threatened
releases of hazardous materials upon statutorily defined parties, including us, regardless of fault or the lawfulness of the
original activity or disposal. We have been subject to claims and remediation obligations, including having been named as
a potentially responsible party, in certain proceedings initiated pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act, or CERCLA, and similar state and foreign laws, regulations and statutes, and may be
named a potentially responsible party in other similar proceedings in the future. Unforeseen expenditures or liabilities may
arise in connection with such matters.
Available Information
We are subject to the informational requirements of the Exchange Act, and in accordance therewith, we file reports,
proxy and information statements and other information with the U.S. Securities and Exchange Commission (the SEC).
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments
to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as our sustainability
reports, are available through the Investors section of our website at www.evoqua.com. Reports are available free of
charge as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The information
contained on our website is not incorporated by reference into this Annual Report.
In addition to our website, you may read our reports, proxy and information statements, and other information that
we file electronically with the SEC at www.sec.gov/edgar.
Item 1A. Risk Factors
The following risk factors may be important in understanding any statement in this Annual Report on Form 10-K
or elsewhere. Our business, financial condition, results of operations or prospects could be materially and adversely affected
by a number of factors, whether currently known or unknown, including but not limited to those described below. Any one
or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary
materially from past or anticipated future results of operations and financial condition.
Summary Risk Factors
Some of the factors that could materially and adversely affect our business, financial condition, results of operations
or prospects include, but are not limited to, the following:
the effects of the COVID-19 pandemic could materially and adversely affect our business, results of operations
and financial condition, including by, among other things, decreasing customer demand for our products and
services, limiting our access to our customers sites, putting at risk our ability to collect from customers amounts
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due for products and services, limiting our suppliers ability to provide to us the materials that we need to deliver
to our customers, requiring us to suspend or reduce operations in the event of an outbreak among our service
technicians or employees at our manufacturing facilities, or increasing uncertainty in the equity markets which
may impact our ability to access the capital markets or our usual sources of liquidity on reasonable terms;
our financial results depend on successful project execution and may be adversely affected by cost overruns, failure
to meet customer schedules or other execution issues;
we may incur liabilities to customers as a result of warranty claims or failure to meet performance guarantees,
which could reduce our profitability;
our inability to meet our customers safety standards or adverse publicity affecting our reputation as a result of
workplace accidents or other incidents could have a material adverse effect on our sales and profitability;
our future growth is dependent upon 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 growth strategy includes growth through acquisitions, and we may not be able to identify suitable acquisition
targets or otherwise successfully implement our growth strategy;
we may have difficulty operating or integrating any acquired businesses, assets or product lines profitably due to
our failure to manage the growth effectively, the interruption of, or delays in, the operation of our existing business
or other factors within or beyond our control;
we may not achieve expected benefits of our restructuring actions, including restructuring our business into two
segments, which may result in additional restructuring charges if we are unable to operate within our plans;
material and other cost inflation and our inability to mitigate the impact of inflation by increasing selling prices
and improving our productivity efficiencies could reduce our operating margins and adversely affect our business;
our inability to accurately predict the timing of contract awards may cause our financial results to fluctuate from
period to period;
delays in enactment or repeals of environmental laws and regulations may make our products, services and solutions
unnecessary or less economically beneficial to customers, adversely affecting demand for our offerings;
we may become subject to claims relating to handling, storage, release or disposal of hazardous materials and
could incur significant costs as a result;
our inability to successfully retain our existing senior management and other key personnel or to attract and retain
new qualified personnel could materially and adversely impact our ability to operate or grow our business;
a disruption in the continuous and reliable operation of our information technology systems and digital monitoring
technologies may materially and adversely affect our operations and result in loss of revenue, data breaches,
remediation costs, increased cybersecurity costs or non-compliance with certain laws and regulations, which may
result in litigation or reputational damage;
we may be exposed to 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 may adversely affect, or cause volatility in, our financial results;
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risks related to government customers, including challenges to our government contracts or our eligibility to serve
government customers and the potential for our contracts with government customers to be terminated or adversely
modified prior to completion could materially adversely impact our business and financial condition;
foreign, federal, state and local environmental, health and safety laws and regulations impose substantial compliance
requirements on our operations, and our operating costs could be significantly increased by new or stricter regulatory
standards imposed by environmental agencies or other governmental authorities;
our international sales and operations, including our operations in China, may present additional risks, including,
but not limited to, changes to trade protection measures, taxation policies or other laws and regulations, disruptions
in our global supply chain, currency exchange rate fluctuations, restrictions on currency repatriation, safety and
security considerations, labor disturbances and political instability;
our inability to adequately protect our intellectual property from third party infringement, or claims that we are
infringing on a third partys intellectual property rights, may result in competitive harm, the expenditure of
significant time and resources enforcing our rights or defending against such claims, or restrictions on our sale of
products or services;
our substantial indebtedness could adversely affect our financial condition and limit our ability to raise additional
capital to fund our operations;
we require a significant amount of cash to service our indebtedness, and if we do not generate sufficient cash flow
from operations to service our debt, we may have to refinance or restructure our debt, sell assets or seek to raise
additional capital, which depends on many factors beyond our control;
because AEA holds a significant percentage of our common stock, it may influence major corporate decisions, and
the interests of AEA and its affiliates, including certain of our directors, may conflict with the interests of the
Company and our shareholders; and
general global economic conditions and our inability to compete successfully in our markets may materially and
adversely affect demand for our products, services and solutions.
Risks Related to the COVID-19 Pandemic
The COVID-19 pandemic and other future public health crises or pandemics could materially and adversely affect our
business, results of operations and financial condition.
The COVID-19 pandemic has caused a global economic slowdown, as efforts to control the spread of the virus
have resulted in mandatory closures of certain businesses, shelter in place and stay at home orders forcing employees
to work remotely, significant travel restrictions and global supply chain disruptions. Given the evolving nature of this
unprecedented pandemic, the ultimate impact on our operations cannot be reasonably estimated at this time. The pandemic
and the measures implemented to control its spread have impacted and will likely continue to impact certain of our customers
and suppliers operations, some of whom may face extended financial hardships. Depending on the extent of the impact,
this could decrease customer demand for our products and services, limit our access to our customers sites and put at risk
our ability to collect from customers amounts due for products and services provided to them. Similarly, it could limit our
suppliers ability to provide to us the materials that we need to manufacture and deliver certain products to our customers,
in which case we may need to seek alternate suppliers, which could result in cost increases and delays in shipments. These
impacts on our customers and suppliers could negatively affect our liquidity, sales and profitability and have a material
adverse effect on our overall business and financial condition.
The COVID-19 pandemic has also heightened risks associated with our internal operations. Our service technicians
enter high-risk areas such as hospitals and testing laboratories. Although we are closely monitoring and following guidance
from public health officials related to personal safety, preventative measures and personal protective equipment, these
service technicians are at greater risk of exposure to the virus. An outbreak among our service technician population or an
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outbreak among employees at any of our manufacturing facilities, which may require us to suspend or reduce operations
at that facility, could have a material adverse effect on our overall business and financial condition. We may also experience
decreased productivity due to fear among our employees to return to work at our service branches, manufacturing facilities
and office locations as a result of the pandemic. Additionally, a large number of our employees are working remotely as a
result of restrictions imposed to control the spread of the virus. This could result in decreased employee efficiency and
increased cyber-security risk, each of which could have a material adverse effect on our overall business and financial
condition.
The equity markets in the United States have experienced volatility due to the COVID-19 pandemic and as a result,
the market price of our common stock may decline. Additionally, any increased uncertainty may result in a sustained global
recession and may impact our ability to access the capital markets and our usual sources of liquidity on reasonable terms,
or at all.
The future impact of this pandemic is highly uncertain and cannot be predicted. If COVID-19 continues to spread,
or if the duration of the disruption is prolonged, our business, financial condition, results of operations or prospects could
be materially adversely affected. Even after the COVID-19 outbreak has subsided, we may continue to experience impacts
to our business and our financial results in subsequent periods due to the pandemics impact on the global economy and on
certain markets that we serve. Because this pandemic is unprecedented and continuously evolving, COVID-19 may also
affect our operating and financial results in a manner that is not presently known to us or not presently considered to be a
significant risk to our operations.
Risks Related to our Business and Operations
Our financial results depend on successful project execution and may be adversely affected by cost overruns, failure to
meet customer schedules or other execution issues.
A significant portion of our revenue is derived from large projects that are technically complex and may occur
over multiple years. These projects are subject to a number of significant risks, including project delays, cost overruns,
changes in scope, unanticipated site conditions, design and engineering issues, incorrect cost assumptions, increases in the
cost of materials and labor, safety hazards, third party performance issues, weather issues and changes in laws or permitting
requirements. If we are unable to manage these risks, we may incur higher costs, liquidated damages and other liabilities
to our customers, which may decrease our profitability and harm our reputation. Our continued growth will depend in part
on executing a higher volume of large projects, which will require us to expand and retain our project management and
execution personnel and resources.
We may incur liabilities to customers as a result of warranty claims or failure to meet performance guarantees, which
could reduce our profitability.
Our customers typically require product warranties as to the proper operation and conformance to specifications
of the products we manufacture or install and performance guarantees as to any effluent produced by our equipment and
services. Failure of our products to operate properly or to meet specifications of our customers or our failure to meet our
performance guarantees may increase costs by requiring additional engineering resources and services, replacement of parts
and equipment and frequent replacement of consumables or monetary reimbursement to a customer or could otherwise
result in liability to our customers. We have in the past received warranty claims, and we expect to continue to receive them
in the future. There are significant uncertainties and judgments involved in estimating warranty and performance guarantee
obligations, including changing product designs, differences in customer installation processes and failure to identify or
disclaim certain variables in a customers influent. To the extent that we incur substantial warranty or performance guarantee
claims in any period, our reputation, earnings and ability to obtain future business could be materially adversely affected.
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Our inability to meet our customers safety standards or 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 could have a material adverse effect on our sales and profitability.
Maintaining a strong and reliable reputation for safety is critical to our business. Many of our customers actively
monitor and review our company wide safety record. Further, reports and media coverage of incidents, such as those
involving workplace accidents, mechanical failures, spills, uncontrolled discharges, damage to customer or third party
property, the transmission of contaminants or diseases and other adverse events can result in negative publicity, and
considerable expansion in the use of social media over recent years has increased the ways in which our reputation can be
impacted, and the speed with which such an impact can occur. Such incidents, or reports thereof, could lead to a negative
perception among our customers, prospective customers and the general public regarding the safety or quality of our products,
services and solutions, and anything that damages our reputation or our customers perception of our safety record, whether
or not justified, could have a materially adverse impact on demand for our products and services, result in additional costs
to our business or the loss of customers, result in litigation against us or increase government or regulatory oversight over
us.
Our products and facilities are subject to risks involving workplace accidents, mechanical failures spills,
uncontrolled discharges and damage to customer or third party property, including, among other things, personal injury or
death caused by our products or occurring in our facilities, the destruction of customer or third party property during the
execution of a service arrangement or due to the malfunction of our products, delays in or suspension of service or the
failure to timely deliver our products. A workplace accident, mechanical failure, spill, uncontrolled discharge or any problem
involving any one or more of our products or facilities, or any perceived insufficiency in our response to any such deficiency
or problem, could materially adversely affect our reputation. Although we take precautions to prevent workplace accidents
and mechanical failures, such incidents are difficult to predict and may be outside of our control. If we are unable to meet
our customers stringent workplace safety standards or, if our customers perceive us to have a poor safety record, it could
materially impact our ability to retain their business or attract new business.
Water may be subject to contaminants, including PFAS, PFOA, selenium, micro-plastics, hazardous chemicals, or
pathogens that cause a number of illnesses, including cholera, typhoid fever, giardiasis, cryptosporidiosis, amoebiasis and
free living amoebic infections. Such contaminants or pathogens may be found in the environment, and, as a result, there is
a risk that they could become present in water treated using our systems or products. In applications where treated water
enters the human body, illness and death may result if such contaminants or pathogens are not eliminated during the treatment
process. In particular, such contamination could result from failing to properly treat reusable products before they are
distributed to our customers, or from actions taken by our customers or other third parties using our products, which could
result in material liability. Further, any pandemic or other public health crisis, including those involving non waterborne
illnesses, might adversely impact our business by diminishing the public trust in water and wastewater treatment facilities
or by causing customers to seek sources of water other than those processed using our systems or products. The potential
impact of a contamination of water treated using our products, services or solutions is difficult to predict and could lead to
an increased risk of exposure to product liability claims, increased scrutiny by federal and state regulatory agencies and
negative publicity. Further, an outbreak of disease in any one of the municipal markets we serve could result in a widespread
loss of customers across other such markets.
Our future growth is dependent upon our ability to continue to develop or acquire new products, services and solutions
and adapt our businesses to meet the demands of our customers, comply with changes to government regulations and
achieve market acceptance with acceptable margins.
Our future success depends upon a number of factors, including our ability to adapt our products, services and
solutions to fit localities throughout our end markets, particularly in high growth emerging markets, such as China; identify
emerging technological and other trends in our target end markets; and develop or acquire competitive products and services
and bring them to market quickly and cost effectively. If we are unable to continue to differentiate our products, services
and solutions, or if we are forced to cut prices or hold prices in an otherwise inflationary market in order to remain competitive,
our business, financial condition, results of operations or prospects could be materially and adversely affected.
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We are also impacted by changing technology, competitively imposed process and safety standards and regulatory
requirements, particularly under environmental regulations, each of which influences the demand for our products, services
and solutions. Advances in technology and changes in industrial specifications or in legislative, regulatory and environmental
requirements, including the availability of intellectual property protections in various jurisdictions, may render certain of
our products, services and solutions obsolete.
In addition, our industrial and municipal customers have made considerable fixed cost investments in the
installation of their water and wastewater treatment products and systems, and our municipal customers are often subject
to stringent appropriation requirements and extensive procurement processes. The replacement of our customers installed
products and systems with the new technologies that we develop could entail significant costs to such customers. Further,
many of our potential customers engage and rely on engineering firms to recommend and select products and systems for
their facilities, and many of our products are sold to OEMs as components of larger systems. Our inability to persuade our
customers or other parties to adopt the technologies we develop could have an adverse effect on our business, financial
condition, results of operations or prospects.
Our growth strategy includes growth through acquisitions, and we may not be able to identify suitable acquisition targets
or otherwise successfully implement our growth strategy.
Acquisitions have historically been a significant part of our growth strategy, and we expect to continue to grow
through acquisitions in the future. We expect to continue evaluating potential strategic acquisitions of businesses, assets
and product lines. We may not be able to identify suitable candidates, negotiate appropriate or favorable acquisition terms,
obtain financing that may be needed to consummate such transactions or complete proposed acquisitions. There is significant
competition for acquisition and expansion opportunities in our businesses.
In addition, acquisitions involve numerous risks, including (i) incurring the time and expense associated with
identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in managements attention
being diverted from the operation of our existing business; (ii) using inaccurate estimates and judgments to evaluate credit,
operations, funding, liquidity, business, management and market risks with respect to the target institution or assets;
(iii) litigation relating to an acquisition, particularly in the context of a publicly held acquisition target, that could require
us to incur significant expenses, result in managements attention being diverted from the operation of our existing business
or delay or enjoin the transaction; (iv) failing to properly identify an acquisition candidates liabilities, potential liabilities
or risks; (v) not receiving required regulatory approvals or such approvals being delayed or restrictively conditional; (vi)
potentially insufficient internal controls over financial activities or financial reporting at an acquired entity that could impact
our existing business on a combined basis; and (vii) an adverse impact on our existing business resulting from an acquired
business that historically had a higher risk tolerance or whose personnel fail to comply with our existing policies. In
connection with any acquisitions, we must comply with various antitrust requirements. It is possible that perceived or actual
violations of these requirements could give rise to regulatory enforcement action or result in us not receiving the necessary
approvals to complete a desired acquisition.
We routinely evaluate potential acquisition candidates and engage in discussions and negotiations regarding
potential acquisitions; however, even if we execute a definitive agreement for an acquisition, there can be no assurance that
we will consummate the transaction within the anticipated closing timeframe, or at all. Further, acquisitions typically involve
the payment of a premium over book and market values and, therefore, some dilution of our tangible book value and earnings
per common share may occur in connection with any future transaction.
We may have difficulty operating or integrating any acquired businesses, assets or product lines profitably, or in
successfully implementing our growth strategy.
The anticipated benefits from any potential acquisitions may not be achieved unless the operations of the acquired
business assets or product lines are successfully integrated in an efficient, effective and timely manner. The integration of
our acquisitions will require substantial attention from management and operating personnel to ensure that the acquisition
does not disrupt any existing operations or affect our customers opinions and perceptions of our services, products or
customer support.
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In addition, the integration of any acquisition includes numerous risks, including an acquired business not
performing to our expectations, our failure to integrate it appropriately, our failure to realize anticipated synergies and cost
savings, our failure to preserve the customer relationships and retain key employees of an acquired business and difficulties,
inefficiencies or cost overruns in integrating and assimilating the organizational cultures, operations, technologies, data,
services and products of the acquired business with ours.
The process of integrating acquired businesses, assets and product lines could cause the interruption of, or delays
in, the operation of our existing business, which could have a material adverse effect on our business, financial condition,
results of operations or prospects. Acquisitions also place a burden on our information, financial and operating systems and
our employees and management. Our ability to manage our growth effectively and integrate the operations of acquired
businesses, assets or product lines, will require us to continue to attract, train, motivate, manage and retain key employees
and to expand our information technology, operational and financial systems. If we are unable to manage our growth
effectively, we may spend time and resources on such acquisitions that do not ultimately increase our profitability or that
cause loss of, or harm to, relationships with employees and customers.
We may not achieve some or all of the expected benefits of our restructuring actions, including restructuring our business
into two segments, which may materially adversely affect us.
Effective October 1, 2018, we restructured our business into two reportable operating segments, the Integrated
Solutions and Services segment and the Applied Product Technologies segment, in an effort to better serve the needs of our
customers worldwide and position ourselves for improved long-term growth and profitability. We have also taken certain
restructuring actions following our divestiture of the Memcor product line, which closed on December 31, 2019. These
restructuring actions have included consolidation of certain facilities. We expect these actions to result in efficiencies and
cost savings, however, achieving these cost savings will be subject to significant economic, competitive and other
uncertainties, some of which are beyond our control, and we may not be able to obtain the cost savings and benefits that
we currently anticipate in connection with these restructuring actions. Our assumptions may not be accurate and we may
not be able to operate in accordance with our plans. In that case, we may determine that we must incur additional restructuring
charges. These types of initiatives could yield unintended consequences such as distraction of our management and
employees, business disruption, attrition beyond any planned reduction in workforce, inability to attract or retain key
personnel and reduced employee productivity, which could materially adversely affect our business, financial condition and
results of operations.
The successful implementation and execution of our restructuring actions are critical to achieving our expected
cost savings as well as effectively competing in the marketplace and positioning us for future growth. If our restructuring
actions are not executed successfully, it could have a material adverse effect on our business, financial condition and results
of operations.
Our business could be adversely affected by inflation and other manufacturing and operating cost increases and
commodity availability constraints.
Our operating costs are subject to fluctuations, particularly due to changes in commodity prices, raw materials,
energy and related utilities, freight and cost of labor. In order to remain competitive, we may not be able to recover all or
a portion of these higher costs from our customers through product price increases. In addition, many of our contracts are
long term in nature, and our failure to accurately project operating costs or negotiate or enforce price escalation provisions
in our long term contracts could, in the event of an inflationary or otherwise cost increasing environment, have a material
adverse effect on our business, financial condition, results of operations or prospects. Further, in a declining price
environment, our operating margins may contract because we account for inventory costs on the basis of an average or
first in, first out method. Actions we take to mitigate volatility in manufacturing and operating costs may not be successful
and, as a result, our business, financial condition, results of operations or prospects could be materially and adversely
affected.
We have significant exposures to certain commodities, including, but not limited to, steel, caustic, carbon, calcium
nitrate and iridium, and volatility in the market price and availability of these commodity input materials has a direct impact
on our costs and our business. For example, the U.S. government has recently imposed greater restrictions on international
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trade, including tariffs and other trade restraints on certain imports. These restrictions have increased and could further
increase the cost of our products and have restricted and could further restrict availability of certain commodities, which
may result in delays in our execution of projects. If we are unable to manage commodity fluctuations through pricing actions,
cost savings projects and sourcing decisions as well as through consistent productivity improvements, it may adversely
impact our gross profit and gross margin.
Delays in enactment or repeals of environmental laws and regulations may make our products, services and solutions
unnecessary or less economically beneficial to our customers, adversely affecting demand for our products, services and
solutions.
Certain of our products, services and solutions assist various industries and municipalities in meeting stringent
environmental and safety requirements enacted for the purpose of making water cleaner and safer. Our future growth is
dependent in part on the impact and timing of potential new water laws and regulations, as well as potential changes to
existing laws and regulations. If stricter laws or regulations are delayed or are not enacted, or repealed or amended to be
less strict, or enacted with prolonged phase in periods, or not enforced, demand for our products and services may be reduced.
We are currently unable to predict whether changes to statutes and rules which occur will affect demand for our products
and services. To the extent that such changes have a negative impact on us, including as a result of related uncertainty, these
changes may materially and adversely impact our business, financial condition, results of operations or prospects.
If we become subject to claims relating to handling, storage, release or disposal of hazardous materials, we could incur
significant cost and time to comply.
Our business activities, including our manufacturing processes and waste recycling and treatment processes,
currently involve the use, treatment, storage, transfer, handling and/or disposal of hazardous materials, chemicals and wastes.
These activities create a risk of significant environmental liabilities and reputational damage. Under applicable environmental
laws and regulations, we could be strictly, jointly and severally liable for releases of regulated substances by us at our current
or former properties or the properties of others or by other businesses that previously owned or used our current or former
properties, including if such releases result in contamination of air, water or soil, or cause harm to individuals. We could
also be liable or incur reputational damage if we merely generate hazardous materials or wastes, or arrange for their
transportation, disposal or treatment, or we transport such materials, and they are subsequently released or cause harm, or
if some other entity conducted such activities and by virtue of an acquisition, under applicable law we are a successor to
that entity.
Our business activities also create a risk of contamination or injury to our employees, customers or third parties,
from the use, treatment, storage, transfer, handling and/or disposal of these materials, and these activities could result in
accidental contamination or injury to the general public, as end users of our industrial and municipal customers products
and services.
In the event that our business activities result in environmental liabilities, such as those described above, we could
incur significant costs or reputational damage in connection with the investigation and remediation of environmental
contamination, and we could be liable for any resulting damages including natural resource damages. Such liabilities could
exceed our available cash or any applicable insurance coverage we may have. Additionally, we are subject to, on an ongoing
basis, federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and
specified waste products. The cost of compliance with these laws and regulations may become significant and could have
a material adverse effect on our business, financial condition, results of operations or prospects.
Further, we may incur costs to defend our position even if we are not liable for consequences arising out of a release
of or exposure to a hazardous substance or waste, or other environmental damage. Our insurance policies may not be
sufficient to cover the costs of such claims.
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Failure to retain our existing senior management, skilled technical, engineering, sales and other key personnel or the
inability to attract and retain new qualified personnel could materially and adversely impact our ability to operate or
grow our business.
Our success depends to a significant extent on our ability to retain or attract a significant number of employees in
senior management, skilled technical, engineering, sales, project management and other key personnel. We have focused
on creating a high performance culture, in which our employees are highly enabled, empowered and accountable. Our
inability to continue to develop and maintain our culture by empowering our senior management, other leaders and employees
and promoting an entrepreneurial spirit, could result in our loss of key leaders and employees and have a material adverse
effect on our business, financial condition, results of operations or prospects.
Our experienced sales team has also developed a number of meaningful customer relationships that would be
difficult to replace. Therefore, competition for qualified technical personnel and for sales personnel with established customer
relationships is intense, both in retaining our existing employees and in replacing or finding additional suitable employees.
This is especially true when unemployment rates in the United States are low, as they currently are. There can be no
assurance that the labor pool from which we hire our personnel will increase or remain stable, and any failure to retain our
existing technical and sales personnel and other employees or to attract additional skilled personnel could have a material
adverse effect our business, financial condition, results of operations or prospects.
Our products, services and solutions, or our participation in large scale projects, could expose us to litigation, regulatory
or enforcement actions and reputational risk.
We are subject to various laws, ordinances, regulations and other requirements of government authorities in foreign
countries and in the U.S., any violation of which could potentially create substantial liability for us. Changes in laws,
ordinances, regulations or other government policies, the nature, timing and effect of which are uncertain, may significantly
increase our expenses and liabilities.
From time to time, we are involved in lawsuits that arise from our business. Litigation may, for example, relate to
product liability claims, personal injury, property damage, accidents, regulatory issues, contract disputes or employment
matters. We may face claims that are broader than the scope of our involvement on a project, including claims that seek to
impose liability on us for an entire solution or system for which we provided only limited components.
The occurrence of any of these matters could also create possible damage to our reputation. The defense and
ultimate outcome of lawsuits against us may result in higher operating expenses. Higher operating expenses or reputational
damage could have a material adverse effect on our business, financial condition, results of operations or prospects.
It is not possible to predict with certainty the outcome of claims, investigations and lawsuits, and we could in the
future incur judgments, fines or penalties or enter into settlements of lawsuits and claims that could have a material adverse
effect on our business, financial condition, results of operations or prospects in any particular period. Additionally, we may
be required to change or cease operations at one or more facilities if a regulatory agency determines that we have failed to
comply with laws, regulations or orders applicable to our business.
A number of factors may prevent or delay us in building new plants, expanding our existing plants or installing equipment
at our customers facilities, including our dependence on third party suppliers and construction companies.
A number of factors may prevent or delay construction, expansion or use of our facilities or installation of our
equipment at our customers facilities, including our dependence on third party suppliers of equipment and materials, our
dependence on third party construction companies and the timing of equipment purchases.
Further, we enter into contracts with customers regarding long term engineering, procurement and construction
projects. If a construction company we have commissioned to build a new project defaults or fails to fulfill its contractual
obligations, we could face significant delays and cost overruns. Any construction delays could have a material adverse
impact on us.
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The timing of equipment purchases can pose financial risks to us. We attempt to make purchases of equipment
and/or material as needed. However, from time to time, there may be excess demand for certain types of equipment with
substantial delays between the time we place orders and receive delivery. In those instances, to avoid construction delays,
service disruptions or liquidated damages associated with the inability to own and place such equipment or materials into
service when needed, we may place orders well in advance of deployment or when actual damage to the equipment or
materials occurs. Thus, there is a risk that at the time of delivery of such equipment or materials, there may not yet be a
need to use them; however, we are still required to accept delivery and make payment. In addition, due to the customization
of some of our equipment or materials, there may be a limited market for resale of such equipment or material. This can
result in our incurrence of material equipment and/or material costs, with no use for or ability to resell such equipment.
Wastewater operations entail significant risks that may impose significant costs.
Wastewater treatment involves various unique risks. If our treatment systems fail or do not operate properly, or if
there is a spill, untreated or partially treated wastewater could discharge onto property or into nearby streams and rivers,
causing various damages and injuries, including environmental damage. These risks are most acute during periods of
substantial rainfall or flooding, which are the main causes of sewer overflow and system failure. Liabilities resulting from
such damages and injuries could materially adversely affect our business, financial condition, results of operations or
prospects.
These risks could be increased by the potential physical impacts of climate change on our operations. The physical
impacts of climate change are highly uncertain and would vary depending on geographical location, but could include
changing temperatures, water shortages, changes in weather and rainfall patterns and changing storm patterns and intensities.
Many climate change predictions, if true, present several potential challenges to water and wastewater service providers,
such as increased precipitation and flooding, potential degradation of water quality and changes in demand for water services.
Our business, results of operations and financial condition may be materially adversely affected by risks associated with
international sales and operations.
Our international sales and operations are subject, in varying degrees, to risks inherent to doing business outside
the U.S. These risks include the following:
changes in trade protection measures, including tariff and trade barriers and import and export licensing
requirements;
potential negative consequences from changes to taxation policies;
unanticipated changes in other laws, governmental policies and regulations, or in how such provisions are
interpreted or administered;
risks associated with the withdrawal of the United Kingdom from the European Union, commonly known as
Brexit, including volatility in worldwide and European financial markets, potential restrictions on the free
movement of goods and labor between the United Kingdom and the European Union and other impediments
to our ability to transact within and between each of the United Kingdom and the European Union;
potential disruptions in our global supply chain;
possibility of unfavorable circumstances arising from host country laws or regulations;
restrictions on, or taxation of, dividends on repatriation of earnings under applicable local law, monetary
transfer restrictions and foreign currency exchange regulations in the jurisdictions in which our subsidiaries
operate;
currency exchange rate fluctuations and restrictions on currency repatriation;
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labor disturbances;
safety and security considerations;
increased costs and risks of developing and managing global operations, including our potential failure to
implement global best practices, experiences of employee dissatisfaction and the improper allocation of
resources, as a result of distance as well as language and cultural differences; and
political instability insurrection, armed conflict, terrorism or war.
In addition to the general risks that we face outside the U.S., our operations in emerging markets could involve
additional uncertainties for us, including risks that governments may impose limitations on our ability to repatriate funds;
governments may impose withholding or other taxes on remittances and other payments to us, or the amount of any such
taxes may increase; an outbreak or escalation of any insurrection or armed conflict may occur; governments may seek to
nationalize our assets; or governments may impose or increase investment barriers or other restrictions affecting our business.
The emerging markets in which we are active, including China, pose other uncertainties, including the difficulty of enforcing
agreements, collecting receivables, protecting of our intellectual property and other assets and pricing of our products
appropriately, as well as higher business conduct risks, less qualified talent and risks of political instability. We cannot
predict the impact such events might have on our business, financial condition, results of operations or prospects.
Our operations in China expose us to risks inherent in doing business there.
We currently have operations and source and manufacture certain of our materials and products for global
distribution from third party suppliers and manufacturers in China. Operating in China exposes us to political, legal and
economic risks, as well as risks resulting from disease or public health crises. Our ability to operate in China may be
adversely affected by changes in U.S. and Chinese laws and regulations such as those related to, among other things, taxation,
import and export tariffs, environmental regulations, land use rights, intellectual property, currency controls, network
security, employee benefits and other matters, and we may not obtain or retain the requisite legal permits to continue to
operate in China or we may become subject to costs or operational limitations imposed in connection with obtaining and
complying with such permits. While we believe that we have adequate controls and processes established in our China
operations, we may experience difficulty in maintaining management, legal and financial controls, collecting financial data
and preparing financial statements, books of account and corporate records and instituting business practices that meet U.S.
and international standards. We may also experience difficulty in managing relations with our employees, distributors,
suppliers or customers, with whom disagreements or conflicts of interest could materially adversely affect our operations
or our ability to source and manufacture certain of our materials and products in China. Further, the third parties we rely
on in China may disclose our confidential information or intellectual property to competitors or third parties, which could
result in the illegal distribution and sale of counterfeit versions of our products. Any of these factors could have a material
adverse effect on our business, financial condition, results of operations or prospects.
Additionally, the rapid development of the Chinese economy has led to increased labor costs, and the cost of labor
in China may continue to increase in the future. Our results of operations will be materially and adversely affected if our
labor costs, or the labor costs of our suppliers and manufacturers, increase significantly. We and our manufacturers and
suppliers may be unable to find a sufficient number of qualified workers due to the intensely competitive and fluid market
for skilled labor in China. Furthermore, pursuant to Chinese labor laws, employers in China are subject to various
requirements when signing labor contracts, paying remuneration, determining the term of employees probation and
unilaterally terminating labor contracts. These labor laws and related regulations impose liabilities on employers and may
significantly increase the costs of workforce reductions. If we decide to change or reduce our workforce, these labor laws
could limit or restrict our ability to make such changes in a timely, favorable and effective manner. Any of these events
could have a material adverse effect our business, financial condition, results of operations or prospects.
Disruptions in the global oil markets could have a material adverse effect on demand for our products and services from
customers in the oil and gas industry.
Global oil markets have recently experienced significant volatility and dramatic decreases in spot prices due to
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decreased demand resulting from the COVID-19 pandemic and increased supply resulting from aggressive increases in
production of oil by Saudi Arabia and Russia. As a result of this volatility in global oil markets, certain of our customers
have delayed orders and we have experienced decreased demand for our products and services from customers in the oil
and gas industry. Although these delays and decreases in demand did not have a material effect on our results of operations
in the fiscal year ended September 30, 2020, if such volatility continues, it could have a material adverse effect on our
business, results of operations, financial condition and prospects.
If we do not or cannot adequately protect our intellectual property, if third parties infringe our intellectual property
rights, or if third parties claim that we are infringing or misappropriating their intellectual property rights, we may suffer
competitive injury, expend significant resources enforcing our rights or defending against such claims, or be prevented
from selling products or services.
We own numerous patents, trademarks, service marks, copyrights, trade secrets and other intellectual property and
hold licenses to intellectual property owned by others, which in aggregate are important to our business. The intellectual
property rights that we have and may obtain, however, may not provide our products and services with a significant
competitive advantage because our rights may not be sufficiently broad or may be challenged, invalidated, or subject to
government march in or sovereign rights or compulsory licensing, sunshine laws, or be subject to freedom of information
requests, or court ordered public disclosure, or be subject to open source software licensing, or be circumvented,
independently developed or designed around, misappropriated, disparaged, diluted, or stolen, particularly in countries where
intellectual property rights laws are not highly developed, protected or enforced. Our failure to obtain or maintain intellectual
property rights that convey competitive advantage, adequately protect our intellectual property or detect or prevent
circumvention or unauthorized use of such property and the cost of enforcing our intellectual property rights could materially
adversely impact our business, financial condition, results of operations or prospects.
From time to time, we, or on occasion our suppliers, contractors or indemnified parties in our supply chain including
end users, receive notices from third parties alleging or warning of potential intellectual property infringement or
misappropriation. Any dispute or litigation regarding intellectual property could be costly and time consuming due to the
complexity and the uncertainty of intellectual property litigation. Our intellectual property portfolio may not be useful in
asserting a counterclaim, or negotiating a license, in response to a claim of infringement or misappropriation. We may incur
significant costs and diversion of management attention and resources as a result of such claims of infringement or
misappropriation, and we or our suppliers or sub contractors could lose rights to critical technology, be unable to license
critical technology, provide or sell critical products or services, or be required to pay substantial damages or license fees
with respect to the infringed rights or be required to redesign, rework, re program, or replace our or our customers products,
sub components, software, or systems, or re cast our valuable brands at substantial cost, any of which could materially
adversely impact our competitive position, financial condition and results of operations even if we successfully defend
against such claims of infringement or misappropriation.
Our industry is highly fragmented and localized.
We operate in markets that are characterized by customer demand that is often broad in scope but localized in
delivery. We compete with companies that may be better positioned to capitalize on highly localized relationships and
knowledge that are difficult for us to replicate. Our potential customers may prefer local suppliers, in some cases because
of existing relationships and in other cases because of local legal restrictions or incentives that favor local businesses.
Smaller regional suppliers may also have lower cost structures. As a result, efforts to expand or support our service network
may not improve our ability to penetrate new local markets or expand our footprint in existing markets.
We may be unable to bid on or enter into significant long term agreements if we are not able to obtain letters of credit,
bank guarantees or surety bonds, and our liquidity may be adversely affected by bonding requirements.
A portion of our business, including our water treatment projects and solutions, requires us to provide letters of
credit, bank guarantees or surety bonds in support of our commitments and as part of the terms and conditions on water
treatment projects. In addition, we are required to provide letters of credit or surety bonds to the department of environmental
protection or equivalent in some states in order to maintain our licenses to handle hazardous waste at certain of our
regeneration facilities. We have in the past been, and may in the future be, required to provide bid bonds or performance
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bonds to secure our performance under these construction type customer arrangements or, in some cases, as a pre requisite
to submit a bid on a potential project.
Current or future market conditions, as well as changes in surety companies assessment of our operating and
financial risk, could cause our surety providers and lenders to decline to issue or renew, or substantially reduce the amount
of, bid or performance bonds for our work, and could increase our costs associated with collateral. These actions could be
taken on short notice. Our inability to obtain adequate bonding or letters of credit to meet bid requirements or enter into
significant long term agreements could have a material adverse effect on our business, financial condition, results of
operations or prospects.
Further, surety companies may require that we collateralize a percentage of the bond with cash or another form of
credit enhancement. Some of our customers also require collateral guarantees in the form of letters of credit to secure
performance or to fund possible damages as the result of an event of default under our contracts with them. If we enter into
significant long term agreements that require the issuance of letters of credit, our liquidity could be negatively impacted.
Our operations are subject to various hazards that may cause personal injury or property damage and increase our
operating costs, and which may exceed the coverage of our insurance or for which we are not insured.
There are inherent risks to our operations. We are exposed to risks posed by severe weather and other natural
disasters, such as hurricanes and earthquakes. In addition to natural risks, hazards (such as fire, explosion, collapse or
machinery failure) are inherent risks in our operations which may occur as a result of inadequate internal processes,
technological flaws, human error or certain events beyond our control. We further utilize approximately 740 vehicles in
connection with our offsite services and distribution operations and, from time to time, these drivers are involved in accidents
which may cause injuries, spills or uncontrolled discharges and in which goods carried by these drivers may be lost or
damaged. The hazards described above can cause significant personal injury or loss of life, severe damage to or destruction
of property, plants and equipment, including customer or third party property, contamination of, or damage to, the
environment and suspension of operations. The occurrence of any of these events may result in our being subject to
investigation, required to perform remediation or named as a defendant in lawsuits asserting claims for substantial damages,
environmental cleanup costs, personal injury, natural resource damages and fines or penalties. As a result, we may from
time to time become exposed to significant liabilities for which we may not have adequate insurance coverage. We may
also become exposed to certain claims that are excluded from our insurance coverage, such as claims of fraud or for punitive
damages. Although we have liability insurance, we cannot be certain that this insurance coverage will continue to be available
to us at a reasonable cost or will be adequate to cover any product liability claims. In addition, such events may affect the
availability of personnel, proper functioning of our information technology infrastructure and availability of third parties
on whom we rely, any of which consequences could have a material adverse effect on our business, financial condition,
results of operations or prospects.
We are a holding company with no operations of our own, and we depend on our subsidiaries for cash.
We are a holding company and do not have any material assets or operations other than ownership of equity interests
of our subsidiaries. Our operations are conducted almost entirely through our subsidiaries, and our ability to generate cash
to meet our obligations or to pay dividends, if any, is highly dependent on the earnings of, and receipt of funds from, our
subsidiaries through dividends or intercompany loans. The ability of our subsidiaries to generate sufficient cash flow from
operations to allow us and them to make scheduled payments on our debt obligations will depend on their future financial
performance, which will be affected by a range of economic, competitive and business factors, many of which are outside
of our control. We cannot provide any assurance that the cash flow and earnings of our operating subsidiaries will be adequate
for our subsidiaries to service their debt obligations. Additionally, under the terms of the agreement governing our senior
secured credit facilities, our operating subsidiaries are currently limited in their ability to pay cash dividends to us, and we
expect these limitations to continue in the future under the terms of any future credit agreement or any future debt or preferred
equity securities of ours or of our subsidiaries. If our subsidiaries do not generate sufficient cash flow from operations to
satisfy corporate obligations, we may have to undertake alternative financing plans (such as refinancing), restructure debt,
sell assets, reduce or delay capital investments or seek to raise additional capital. We cannot provide any assurance that any
such alternative refinancing would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the
amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or
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that additional financing would be permitted under the terms of our various debt instruments then in effect. Our inability
to generate sufficient cash flow to satisfy our obligations, or to refinance our obligations on commercially reasonable terms,
could have a material adverse effect on our business, financial condition, results of operations or prospects.
Furthermore, we and our subsidiaries may incur substantial additional indebtedness in the future that may severely
restrict or prohibit our subsidiaries from making distributions, paying dividends, if any, or making loans to us.
Risks Related to Financial or Operating Results
Our financial results may fluctuate from period to period and can be difficult to predict.
Our financial results may be impacted by large projects, which often have lower margins and greater risk from
both a timing and execution standpoint than standard product sales. The timing of these project awards is often unpredictable
and outside of our control. If we fail to accurately estimate our operating costs to complete these projects or if we fail to
execute these projects efficiently and timely, our margins on these projects will be further eroded. The timing of these
project awards is often unpredictable and can change based upon customer requirements due to a number of factors affecting
the project that are outside of our control, such as funding, readiness of the project and regulatory approvals. If any of these
large projects get delayed or canceled, our results during the periods in which these projects were scheduled to occur could
be adversely affected and the delay or failure could have a material adverse effect on our business, financial condition and
results of operations or prospects. In addition, our contracts for large capital water treatment projects, systems and solutions
for municipal and industrial applications are generally fixed price contracts with milestone billings. Additionally,
competitive bid processes impose significant uncertainty with respect to our prospects for success, and our failure to properly
predict our win rate could reduce our margins. Accordingly, our financial results for any given period may fluctuate and
can be difficult to predict.
Further, our capital expenditures for any given fiscal year may exceed our initial forecasts and may vary substantially
if we are required to undertake certain actions to comply with new regulatory requirements or compete with new technologies.
We may not have the capital to undertake the capital investments. If we are unable to do so, we may not be able to effectively
compete.
Seasonality of sales and weather conditions may adversely affect, or cause volatility in, our financial results.
We experience seasonal demand in a number of our markets, as demand for infrastructure and municipal products
and projects follows warm weather trends. Seasonal effects may vary from year to year and are impacted by weather patterns,
particularly by temperatures, heavy flooding and droughts.
Additionally, our operating results and financial condition could be materially and adversely affected by severe
weather, natural disasters, environmental factors, terrorist or other deliberate attacks or hazards (such as fire, explosion or
mechanical failure) resulting from inadequate internal processes, technical flaws, human error or other circumstances.
Repercussions of these catastrophic events may include shutting down operations, a need to obtain additional equipment
or supplies on an emergency basis, evacuation of or injury to personnel, damage to equipment or property, loss of productivity
and harm to our reputation, any of which may result in a decrease in our revenue or decreased profitability.
We may incur impairment charges for our goodwill and other indefinite lived intangible assets which would negatively
impact our operating results.
We have a significant amount of goodwill and purchased intangible assets on our balance sheet as a result of the
Acquisition in 2014 and subsequent acquisitions we have completed. As of September 30, 2020, the net carrying value of
our goodwill and other indefinite lived intangible assets totaled approximately $431.4 million. The carrying value of goodwill
represents the fair value of an acquired business in excess of identifiable assets and liabilities as of the acquisition date. The
carrying value of indefinite lived intangible assets represents the federal hazardous waste treatment management permits
obtained for locations operated by the Company. We do not amortize goodwill and indefinite lived intangible assets that
we expect to contribute indefinitely to our cash flows, but instead we evaluate these assets for impairment at least annually,
or more frequently if changes in circumstances indicate that a potential impairment could exist. Significant negative industry
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or economic trends, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant
changes or planned changes in use of the assets, divestitures and market capitalization declines may impair our goodwill
and other indefinite lived intangible assets. Any charges relating to such impairments could materially adversely affect our
financial condition and results of operations.
Risks Related to Information Technology and Cybersecurity
We are increasingly dependent on the continuous and reliable operation of our information technology systems, and a
disruption of these systems could materially and adversely affect our business.
We rely on our information technology systems in connection with the operation of our business, including with
respect to customer service and billing, accounting and, in some cases, the monitoring and operation of our installations.
Many of our products, services and solutions depend on the integrity of our information technology systems, including our
remote monitoring and data analytics features and our automated control solutions.
Our WaterOne® services are provided using remote monitoring technology that is connected to the Internet of
Things (IoT), which is inherently susceptible to cyber-attacks. A successful attack may result in inappropriate access to
our or our customersinformation or systems or cause our products to function improperly. Additionally, the systems through
which we provide our WaterOne® services use electronic software embedded into a control board and water meter. This
software or the control board could malfunction for a variety of reasons including, without limitation, exposure to software
bugs, extreme heat or cold, corrosive water or simple wear and tear. A malfunction could result in our inability to operate
the system effectively or to collect revenue for the services in a timely fashion. Finally, our IoT systems rely on third party
cellular providers for data transport services. A disruption in service by a cellular provider could adversely affect our ability
to monitor our assets, which could result in a loss of revenue, failure to fulfill contractual obligations and additional costs
to repair damages.
In addition, we rely on our systems to manage maintenance and construction projects, materials and supplies and
our human resource functions. A loss of these systems, major problems with the operation of these systems, the failure to
properly implement these systems, including in customer installations, or the failure to identify market trends and
continuously update our information technology systems could materially adversely affect our operations, sales and
reputation and have a material adverse effect on our business, financial condition, results of operations or prospects.
Specifically, our information technology systems may be vulnerable to damage or interruption from, among other
things:
power loss, computer systems failures and internet, telecommunications or data network failures;
operator negligence or improper operation by, or supervision of, employees;
physical and electronic loss of data;
computer viruses;
intentional security breaches, hacking, denial of service actions, misappropriation of data and similar events;
and
hurricanes, fires, floods, earthquakes and other natural disasters.
Such incidents may result in the loss or compromise of customer, financial or operational data, disruption of billing,
collections or normal field service activities, disruption of data analytics and electronic monitoring and control of operational
systems and delays in financial reporting and other normal management functions. Possible impacts associated with a
cybersecurity incident may include loss of revenue, remediation costs related to lost, stolen, or compromised data, repairs
to infrastructure, physical systems or data processing systems, increased cybersecurity protection costs, or adverse effects
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on our compliance with regulatory and environmental laws and regulations, including standards for drinking water, which
may result in litigation and reputational damage.
We, and some of our third party vendors, have experienced cybersecurity attacks in the past and may experience
them in the future, potentially with more frequency. To date, most of these attacks have been unsuccessful, and none have
resulted in any material adverse impact to our business or operations. We have adopted measures to mitigate potential risks
associated with information technology disruptions and cybersecurity threats; however, given the unpredictability of the
timing, nature and scope of such disruptions and the evolving nature of cybersecurity threats, which vary in technique and
sources, we could potentially be subject to production downtimes, operational delays, other detrimental impacts on our
operations or ability to provide products and services to our customers, the compromising of confidential or otherwise
protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems
or networks, financial losses from remedial actions, loss of business or potential liability, regulatory enforcement actions
and/or damage to our reputation, any of which could have a material adverse effect on our competitive position, results of
operations, cash flows or financial condition. We also have a concentration of operations on certain sites, such as production
and shared services centers, where business interruptions could cause material damage and costs. Transport of goods from
suppliers, and to customers, could also be hampered for the reasons stated above. Although we continue to assess these
risks, implement controls and perform business continuity and disaster recovery planning, we cannot be sure that interruptions
with material adverse effects will not occur.
If we experience a significant data security breach or fail to detect and appropriately respond to a significant data security
breach, our business and reputation could suffer.
The nature of our business involves the receipt and storage of information about our customers, suppliers and
employees. Further, we rely on various information technology systems to capture, process, store and report data in
connection with the products, services and solutions that we provide to our customers, such as our WaterOne® services.
We have procedures in place to detect and respond to data security incidents. However, because the techniques used to
obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect
for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. In
addition, hardware, software or applications we develop or procure from third parties may contain defects in design or
manufacture or other problems that could unexpectedly compromise information security. We outsource administration of
certain functions to vendors that could be targets of cyber attacks. Any theft, loss and/or fraudulent use of customer, employee
or proprietary data as a result of a cyber attack targeting us or one of our third-party service providers could subject us to
significant litigation, liability and costs, as well as adversely impact our reputation with customers and regulators, among
others. Unauthorized parties may also attempt to gain access to our systems or facilities and to our proprietary business
information. If our efforts to protect the security of information about our customers, suppliers and employees are
unsuccessful, a significant data security breach may result in costly government enforcement actions, private litigation and
negative publicity resulting in reputation or brand damage with customers, and our business, financial condition, results of
operations or prospects could suffer. While we maintain insurance coverage that is designed to address certain aspects of
cyber risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in the event
we experience a cybersecurity incident, data breach or disruption, unauthorized access or failure of systems.
We are subject to laws, rules and regulations in the United States (such as the California Consumer Protection Act
(CCPA)), and other countries relating to the collection, use and security of employee and other data. Our ability to execute
transactions and to possess and use personal information and data in conducting our business subjects us to legislative and
regulatory burdens that may require us to notify regulators and customers, employees and other individuals of a data security
breach, including in the European Union under the EU General Data Protection Regulation, or the GDPR. Evolving
compliance and operational requirements under the GDPR, the CCPA, and the privacy laws of other jurisdictions in which
we operate impose significant costs that are likely to increase over time.
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Risks Related to Regulatory and Tax Compliance
The cost of complying with complex governmental regulations applicable to our business, sanctions resulting from
non compliance or reduced demand resulting from certain changes in regulations could increase our operating costs
and reduce our profit.
Our operations are subject to various licensing, permitting, approval and reporting requirements imposed by federal,
state, local and foreign laws. Our operations are subject to inspection and regulation by various governmental agencies,
including the U.S. EPA, the Occupational Safety and Health Administration and equivalent state and local agencies, as well
as their counterparts in various states and foreign countries. A major risk inherent in our operations is the need to obtain
and renew permits from federal, state and local authorities. Delays in obtaining permits, the failure to obtain a permit or a
renewal permit for a project, challenges to our permits by local communities, citizen groups, landowners or others opposed
to their issuance or the issuance of a permit with unreasonable conditions or costs could limit our ability to effectively
provide our services. We are also required to secure and maintain licenses required by several states which can take a
significant amount of time and result in our inability or delays in our ability to bid on and execute certain projects. If we
fail to secure or maintain any such licenses or if states place burdensome restrictions or limitations on our ability to obtain
or maintain such licenses, we may not be able to operate in such states and our business, financial condition, results of
operations or prospects may be materially adversely affected as a result.
Our business may be further impacted by changes in federal, state and local requirements that set forth air and
wastewater discharge parameters, constrain water availability and set quality and treatment standards. Our failure or inability
to comply with the stringent standards set forth by regulating entities or to provide cost effective and compliant design and
construction solutions could result in fines or other penalties, and could have a material adverse effect on our business,
financial condition, results of operations or prospects.
Foreign, federal, state and local environmental, health and safety laws and regulations impose substantial compliance
requirements on our operations. Our operating costs could be significantly increased in order to comply with new or
stricter regulatory standards imposed by foreign, federal and state environmental agencies.
Our operations, products and services are governed by various foreign, federal, state and local environmental
protection and health and safety laws and regulations, including, without limitation, the federal Safe Drinking Water Act,
the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health
Act, the Toxic Substances Control Act and the Federal Insecticide, Fungicide, and Rodenticide Act in the U.S., the
Registration, Evaluation and Authorization of Chemicals, or REACH, directive in Europe, and similar foreign, federal, state
and local laws and regulations and permits issued under these laws by the foreign, federal, state and local environmental
and health and safety regulatory agencies. These laws and regulations establish, among other things, criteria and standards
for drinking water and for discharges into the waters of the U.S. and its states, for the proper management of hazardous and
non hazardous solid waste and for protection of public and worker health and safety. Pursuant to these laws, we are required
to obtain various environmental permits from environmental regulatory agencies for our operations. We cannot provide any
assurance that our operations, products or services will be at all times in total compliance with these laws, regulations and
permits or that we will be able to obtain or renew all required permits. If we violate or fail to comply with these laws,
regulations or permits, we could be fined or otherwise sanctioned by regulators and be subject to lawsuits, civil or criminal,
seeking enforcement and/or injunctive relief. We may also be subject to civil claims by citizens groups seeking to enforce
environmental laws. In the event of an accident or if we otherwise fail to comply with applicable regulations, we could lose
our permits or approvals and/or be held liable for damages and monetary penalties.
Environmental laws and regulations are complex and change frequently. These laws, and the enforcement thereof,
have tended to become more stringent over time. It is possible that new standards could be imposed, either stricter or more
lenient, that could result in the obsolescence of our products or lead to an interruption or suspension of our operations and
have a material adverse effect on the productivity and profitability of a particular manufacturing facility, service or product
or on us as a whole.
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Failure to comply with applicable anti corruption and trade laws, regulations and policies, including the U.S. Foreign
Corrupt Practices Act, could result in fines and criminal penalties, causing a material adverse effect on our business,
financial condition, results of operations or prospects.
Due to our global operations, we are subject to regulation under a wide variety of U.S. federal and state and non U.S.
laws, regulations and policies related to anti corruption and trade, including those related to export and import compliance,
anti trust and money laundering. The U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and similar
anti bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper
payments to government officials or other persons for the purpose of obtaining or retaining business. We operate in parts
of the world that are recognized as high-risk regions for corruption. Our operations in these regions include sales to
government and non-government customers and may include the use of third-party intermediaries. In certain circumstances,
strict compliance with anti-bribery and trade laws, regulations and policies may conflict with local customs and practices
in these regions.
The International Traffic in Arms Regulations generally require export licenses from the U.S. Department of State
for goods, technical data and services sent outside the U.S. that have military or strategic applications. The Export
Administration Regulations regulate the export of certain dual use goods, software and technologies, and in some cases
requires export licenses from the U.S. Department of Commerce. Office of Foreign Asset Control regulations implement
various sanctions programs that include prohibitions of restrictions on dealings with certain sanctioned countries,
governments, entities and individuals. Our policies mandate compliance with these trade laws, regulations and policies, and
we have established procedures designed to assist us and our personnel in compliance with applicable U.S. and international
laws and regulations. However, we cannot provide any assurance that our internal control policies and procedures will
always protect us from improper conduct of our employees or business partners.
In the event that we believe or have reason to believe that our employees or agents have or may have violated
applicable laws, including anti corruption and trade laws, regulations and policies, we may be required to investigate or
engage outside counsel to investigate the relevant facts and circumstances, which can be expensive and require significant
time and attention from senior management. Any such violation could result in substantial fines, sanctions, civil and/or
criminal penalties, imprisonment, disgorgement of profits, debarment from government contracts and curtailment of
operations in certain jurisdictions, and might materially adversely affect our business, financial condition, results of
operations or prospects. In addition, actual or alleged violations could damage our reputation and diminish our ability to
do business. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume
significant time and attention of our senior management.
Changes to tax laws may have a material adverse impact on our business.
We are subject to income taxes and non-income taxes in the United States by federal, state and local tax authorities.
Changes to tax laws and regulations in any of the jurisdictions in which we operate, or in the interpretation of such laws,
could significantly increase our effective tax rate and have a material adverse impact on our business, financial condition,
cash flows and results of operations. For example, the U.S. Tax Cuts and Jobs Act of 2017 (the Tax Act), enacted on
December 22, 2017, significantly changed how corporations are taxed in the U.S., which has an ongoing impact on our
provision for income taxes. Certain aspects of the Tax Act have been modified by subsequent legislation, such as the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act). We cannot predict when or to what extent any U.S.
federal tax laws, regulations, interpretations, or rulings clarifying the Tax Act or the CARES Act will be issued or the impact
of any such guidance on the Company. The Tax Act and other changes in tax laws or regulations in the jurisdictions in which
we do business, including the United States or various states and local jurisdictions, could have a material adverse impact
on our business, financial condition, cash flows and results of operations.
Our ability to use our net operating loss carryforwards may be limited.
As of September 30, 2020, we had approximately $172.0 million of U.S. federal and state net operating loss
carryforwards (NOLs). Our federal NOLs begin to expire in 2035 while certain state NOLs began to expire in 2019.
Utilization of these NOLs depends on many factors, including our future income, which cannot be assured. We have a full
valuation allowance against the NOLs. In addition, U.S. tax reform imposes certain limitations on a corporations ability
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to offset its future income with its NOLs. The legislation reduces the U.S. corporate tax rate, which would result in a reduction
of the expected cash tax benefit that would arise from any future utilization of our NOLs. Finally, Section 382 of the IRC
(Section 382), generally imposes an annual limitation on the amount of taxable income that may be offset by NOLs when
a corporation has undergone an ownership change (as determined under Section 382). Generally, a corporation experiences
such an ownership change if the percentage of its stock owned by its 5 percent stockholders, as defined in Section 382,
increases by more than 50 percentage points (by value) over a three year period. Any unused annual limitation may, subject
to certain limitations, be carried over to later years. We may undergo an ownership change in the future, including an
ownership change as a result of the combined effect of our initial public offering and future equity offerings, which could
result in an annual limitation under Section 382 determined by multiplying the value of our stock at the time of the ownership
change by the applicable long term tax exempt rate as defined in Section 382, increased or decreased under certain
circumstances as a result of built in gains or losses in our assets existing at the time of the ownership change. A limitation
arising from an ownership change could prevent the Company from utilizing our NOLs prior to their expiration. Future
ownership changes or regulatory changes could further limit our ability to utilize our NOLs. To the extent we are not able
to offset our future income with our NOLs, this could adversely affect our operating results and cash flows.
Changes in our effective tax rates may adversely affect our financial results.
Our overall effective tax rate is computed by dividing total tax expense by our total earnings before tax. Tax expense
is provided on a jurisdictional or legal entity basis. We offer our products, services and solutions in more than 100 countries.
Given the global nature of our business, a number of factors may increase our future effective tax rates, including:
the jurisdictions in which profits are determined to be earned and taxed;
the realizability of tax losses and other deferred tax assets and the change in any related tax valuation allowances
provided or reversed;
sustainability of historical income tax rates in the jurisdictions in which we conduct business; and
the resolution of issues arising from tax audits with various tax authorities.
Any significant increase in our future effective tax rates could reduce net income for future periods.
Risks Related to our Channels to Market
The loss of, or disruption in, our ability to efficiently operate our distribution network could have a material adverse
impact on our business.
We rely on the orderly operation of our receiving and distribution process, which depends on our distribution
system, adherence to shipping schedules and effective management of our distribution network. If complications arise with
our distribution system or if our shipping or storage facilities (or a significant portion of inventory located there) is severely
damaged or destroyed, our ability to receive and deliver our products on a timely basis will be significantly impaired. There
can be no assurance that disruptions in operations due to natural or man made disasters, fire, flooding, terrorism or other
catastrophic events, system failure, labor disagreements or shipping problems will not result in delays in the delivery of our
products to our customers. Such delays could materially adversely impact our business, financial condition, results of
operations or prospects. In addition, we could incur significantly higher costs and longer lead times associated with
distributing our products to our customers during the time it takes for us to reopen or replace our facilities. Moreover, our
business interruption insurance may not be adequate to cover or compensate us for any losses that may occur.
We rely upon various means of transportation through third parties, including shipments by air, sea, rail and truck,
to deliver products to our facilities from vendors and from our facilities to our customers, as well as for direct shipments
from vendors to customers. Labor shortages or capacity constraints in the transportation industry, disruptions to the national
and international transportation infrastructure, fuel shortages or transportation cost increases (such as increases in fuel costs
or port fees) could materially adversely affect our business and operating results.
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We rely, in part, on third party sales representatives to assist in selling our products, services and solutions and the failure
of these representatives to perform as expected could reduce our future sales.
Sales of our products, services and solutions to some of our customers are accomplished, in part, through the efforts
of third party sales representatives. We are unable to predict the extent to which these third party sales representatives will
be successful in marketing and selling our products. Moreover, many of these third party sales representatives also market
and sell competing products and may more aggressively pursue sales of our competitors products. Our third party sales
representatives may terminate their relationships with us at any time on short or no notice. Our future performance may
also depend, in part, on our ability to attract, incentivize and retain additional third party sales representatives that will be
able to market and support our products effectively, especially in markets in which we have not previously sold our products.
If we cannot retain our current third party sales representatives or recruit additional or replacement third party sales
representatives or if these sales representatives are not effective, it could have a material adverse effect on our business,
financial condition, results of operations or prospects.
Risks Related to Government Contracts
Government customers involve unique policy , contract and performance related risks, and we may face challenges to
our government contracts or our eligibility to serve government customers, any of which could materially adversely
impact our business, financial condition, results of operations or prospects.
We derive, and expect to continue to derive in the future, a substantial portion of our revenues from government
customers, including municipalities. Sales to governments and related entities present risks in addition to those involved in
sales to industrial and other customers, including policy related risks such as potential disruption due to appropriation and
spending patterns, delays in the adoption of new technologies due to political, fiscal or bureaucratic processes, delays in
approving budgets and the governments right to cancel contracts and purchase orders for its convenience. General political
and economic conditions, which we cannot accurately predict, also directly and indirectly affect policies relating to the
quantity and allocation of expenditures by government customers. In addition, government contracts may involve long
purchase and payment cycles, competitive bidding requirements, qualification requirements, delays or changes in agreed to
funding, budgetary constraints, political agendas, extensive specification development and price negotiations, milestone
requirements and the potential unenforceability of limitations on liability or other contractual provisions, any of which may
create price pressure and reduce our margins. Because our water treatment projects and solutions for municipal customers
often include fixed price contracts with milestone billings and liquidated damages for our delay, our performance under
such contracts involves risks such as not receiving payments, not receiving payments in a timely manner or incurring
significant damages if certain milestones are not met or not met on schedule. As a result, we could experience a material
adverse effect on our business, financial condition, results of operations or prospects.
Each government entity also maintains its own rules and regulations with which we must comply and which can
vary significantly among customers. We face risks associated with the failure to comply with such rules and regulations.
These risks include bid protests, in which our competitors could challenge the contracts we have obtained, or suspension,
debarment or similar ineligibility from serving government customers. Challenges to our current or future government
contracts or to our eligibility to serve government customers could result in a loss of government sales and have a material
adverse effect on our business, financial condition, results of operations or prospects.
Our contracts with federal, state and local governments may be terminated or adversely modified prior to completion,
which could adversely affect our business.
Government contracts generally contain provisions, and are subject to laws and regulations, that give the
government rights and remedies not typically found in commercial contracts, including provisions permitting the government
to terminate our existing contracts, reduce scope and potential future revenues, modify certain terms and conditions of
existing contracts, suspend performance or our ability to do business with the government, impose fines or penalties, subject
us to criminal prosecution or debarment, subject awarded contracts to protests or challenges by competitors or claim rights
in technologies developed by us.
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The government may terminate a contract with us either for convenience (for instance, due to a change in its
perceived needs or its desire to consolidate work under another contract) or if we default by failing to perform under the
contract. Upon a termination for convenience, we are generally able to recover the purchase price for delivered items and
reimbursement of allowable work in process costs. If the government terminates a contract with us based upon our default,
we generally would be denied any recovery for undelivered work, and instead may be liable for excess costs incurred by
the government in procuring undelivered items from an alternative source and other damages as authorized by law. We may
in the future receive show cause or cure notices under contracts that, if not addressed to the governments satisfaction, could
give the government the right to terminate those contracts for default or to cease procuring our services under those contracts.
Risks Relating to Our Indebtedness
Our substantial indebtedness could adversely affect our financial condition and limit our ability to raise additional capital
to fund our operations.
We have a significant amount of indebtedness. As of September 30, 2020, we had total indebtedness of $885.5
million, including $819.3 million of borrowings under our term loan facility, no borrowings under our revolving credit
facility, $63.9 million in borrowings related to equipment financings, $0.6 million of notes payable related to certain
equipment related contracts and $1.7 million in borrowings related to financing our purchase of our facility in Schiedam,
Netherlands. We also had $13.0 million of letters of credit issued under our $125.0 million revolving credit facility and an
additional $52 thousand of letters of credit issued under a separate uncommitted facility as of September 30, 2020.
Our high level of indebtedness could have important consequences to us, including:
making it more difficult for us to satisfy our obligations with respect to our debt;
limiting our ability to obtain additional financing to fund future working capital, capital expenditures,
investments or acquisitions or other general corporate requirements;
requiring a substantial portion of our cash flows to be dedicated to debt service payments and/or debt repayment
instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital
expenditures, investments or acquisitions or other general corporate purposes;
increasing our vulnerability to adverse changes in general economic, industry and competitive conditions;
exposing us to the risk of increased interest rates as borrowings under our senior secured credit facilities (to
the extent not hedged) bear interest at variable rates, which could further adversely impact our cash flows;
limiting our flexibility in planning for and reacting to changes in our business and the industry in which we
compete;
restricting us from making strategic acquisitions or causing us to make non strategic divestitures;
impairing our ability to obtain additional financing in the future;
placing us at a disadvantage compared to other, less leveraged competitors; and
increasing our cost of borrowing.
Any one of these limitations could have a material effect on our business, financial condition, results of operations,
prospects and our ability to satisfy our obligations in respect of our outstanding debt.
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Despite our current debt levels, we may incur substantially more indebtedness, which could further exacerbate the risks
associated with our substantial leverage.
We and our subsidiaries may be able to incur additional indebtedness in the future, which may be secured. While
the agreement governing our senior secured credit facilities limits our ability and the ability of our subsidiaries to incur
additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and thus, notwithstanding
these restrictions, we may still be able to incur substantially more debt. In addition, provided that no default or event of
default (as defined in the agreement governing our senior secured credit facilities) has occurred and is continuing, we have
the option to add one or more incremental term loan or revolving credit facilities or increase commitments under our
revolving credit facility by an aggregate amount which does not cause our total first lien net leverage ratio, on a pro forma
basis (in each case, as defined in the agreement governing our senior secured credit facilities), to exceed 4.50 to 1.00, plus
up to an additional $100.0 million (excluding incremental revolving credit facilities or increases under our revolving credit
facility in an aggregate principal amount not to exceed $30.0 million) (all of which remains available as of September 30,
2020). To the extent that we incur additional indebtedness, the risks that we now face related to our substantial indebtedness
could increase.
To service our indebtedness, we require a significant amount of cash, which depends on many factors beyond our control.
We cannot provide any assurance that our business will generate sufficient cash flow from operations, or that future
borrowings will be available to us under our senior secured credit facilities in amounts sufficient to enable us to fund our
liquidity needs. If we do not generate sufficient cash flow from operations to satisfy our debt obligations, we may have to
undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets or seeking to raise additional
capital. We cannot provide any assurance that we would be able to enter into these alternative financing plans on commercially
reasonable terms or at all. Moreover, any alternative financing plans that we may be required to undertake would still not
guarantee that we would be able to meet our debt obligations. Our inability to generate sufficient cash flow to satisfy our
debt obligations, or to obtain alternative financing, could materially adversely affect our business, financial condition, results
of operations or prospects. See Item 7, Managements Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources.
We will need to repay or refinance borrowings under our senior secured credit facilities.
Our revolving credit facility and term loan facility are scheduled to mature in December 2022 and December 2024,
respectively. We will need to repay, refinance, replace or otherwise extend the maturity of our senior secured credit facilities.
Our ability to repay, refinance, replace or extend these facilities by their maturity dates will be dependent on, among other
things, business conditions, our financial performance and the general condition of the financial markets. If a financial
disruption were to occur at the time that we are required to repay indebtedness outstanding under our senior secured credit
facilities, we could be forced to undertake alternate financings, including a sale of additional common stock, negotiate for
an extension of the maturity of our senior secured credit facilities or sell assets and delay capital expenditures in order to
generate proceeds that could be used to repay indebtedness under our senior secured credit facilities. We cannot provide
any assurance that we will be able to consummate any such transaction on terms that are commercially reasonable, on terms
acceptable to us or at all.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase
significantly.
Borrowings under our senior secured credit facilities are at variable rates of interest and expose us to interest rate
risk. Interest rates are still near historically low levels and are projected to rise in the future. If interest rates rise, our debt
service obligations on the variable rate indebtedness will increase even though the amount borrowed may remain the same,
and our net income and cash flows will correspondingly decrease. Assuming no prepayments of the term loan facility (which
had $819.3 million outstanding as of September 30, 2020) and that our revolving credit facility was fully drawn, each
0.125% change in interest rates would result in an approximate change of $1.2 million in annual interest expense on the
indebtedness under our senior secured credit facilities. We entered into an interest rate swap during the third quarter of fiscal
2020 to mitigate risks associated with variable rate debt. The interest rate swap became effective June 30, 2020, has a term
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of five years to hedge the variability of interest payments on the first $500.0 million of the Companys senior secured debt
and provides for a fixed rate of 0.55%.
In addition, in the third quarter of fiscal 2020, the Company terminated the interest rate cap it had entered effective
November 28, 2018. The LIBOR interest rate cap covered a notional amount of $600.0 million of the Companys senior
secured debt, was effective for a period of three years and had a strike rate of 3.5%.
The covenants in our senior secured credit facilities impose restrictions that may limit our operating and financial
flexibility.
Our senior secured credit facilities contain a number of significant restrictions and covenants that limit our ability,
among other things, to:
incur additional indebtedness;
pay dividends or distributions on our capital stock or repurchase or redeem our capital stock;
prepay, redeem or repurchase specified indebtedness;
create certain liens;
sell, transfer or otherwise convey certain assets;
make certain investments;
create dividend or other payment restrictions affecting subsidiaries;
engage in transactions with affiliates;
create unrestricted subsidiaries;
consolidate, merge or transfer all or substantially all of our assets or the assets of our subsidiaries;
enter into agreements containing certain prohibitions affecting us or our subsidiaries; and
enter into new lines of business.
In addition, our senior secured credit facilities contain a financial covenant requiring us to comply with a 5.55 to
1.00 first lien net leverage ratio test. This financial covenant is solely for the benefit of the lenders under our revolving
credit facility and is tested as of the last day of a quarter on which the aggregate amount of revolving loans and letters of
credit outstanding under the revolving credit facility (net of cash collateralized letters of credit and undrawn outstanding
letters of credit in an amount of up to 50% of the revolving credit facility) exceeds 25% of the total commitments thereunder.
These covenants could materially adversely affect our ability to finance our future operations or capital needs.
Furthermore, they may restrict our ability to expand and pursue our business strategies and otherwise conduct our business.
Our ability to comply with these covenants may be affected by circumstances and events beyond our control, such as
prevailing economic conditions and changes in regulations, and we cannot provide any assurance that we will be able to
comply with such covenants. These restrictions also limit our ability to obtain future financings to withstand a future
downturn in our business or the economy in general. In addition, complying with these covenants may also cause us to take
actions that may make it more difficult for us to successfully execute our business strategy and compete against companies
that are not subject to such restrictions.
A breach of any covenant in our senior secured credit facilities or the agreements and indentures governing any
other indebtedness that we may have outstanding from time to time would result in a default under that agreement or
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indenture after any applicable grace periods. A default, if not waived, could result in acceleration of the debt outstanding
under the agreement and in a default with respect to, and an acceleration of, the debt outstanding under other debt agreements.
If that occurs, we may not be able to make all of the required payments or borrow sufficient funds to refinance such debt.
Even if new financing were available at that time, it may not be on terms that are acceptable to us or terms as favorable as
our current agreements. If our debt is in default for any reason, our business, results of operations and financial condition
could be materially and adversely affected.
The phase-out, replacement or unavailability of the London Interbank Offered Rate (LIBOR) could affect interest rates
under our existing credit facility agreements, as well as our ability to seek future debt financing.
LIBOR is the basic rate of interest used in lending between banks on the London interbank market and is widely
used as a reference for setting the interest rates on loans globally. We use LIBOR as a reference rate to calculate interest
rates under our revolving credit facility and our term loan facility, which are scheduled to mature in December 2022 and
December 2024, respectively. In 2017, the United Kingdoms Financial Conduct Authority, which regulates LIBOR,
announced that it intends to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or
if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve,
in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial
institutions, is considering replacing U.S. dollar LIBOR with a new index, the Secured Overnight Financing Rate (SOFR),
calculated using short-term repurchase agreements backed by Treasury securities, and has proposed a paced market transition
plan to SOFR. Our senior secured credit facilities do not include specific references to SOFR as a replacement for LIBOR,
and whether or not SOFR or another alternative reference rate attains market traction as a LIBOR replacement tool remains
in question. Additionally, it is uncertain if LIBOR will cease to exist after calendar year 2021, or whether additional reforms
to LIBOR may be enacted, or whether alternative reference rates will gain market acceptance as a replacement for LIBOR.
If LIBOR ceases to exist, we will need to agree upon a replacement index with banks under our senior secured credit
facilities, and certain of the interest rates under such agreements may change. The new rates may not be as favorable to us
as those in effect prior to any LIBOR phase-out.
In addition, the transition process may involve, among other things, increased volatility or illiquidity in markets
for instruments that currently rely on LIBOR. The transition may also result in reductions in the value of certain instruments
or the effectiveness of related transactions such as hedges, increased borrowing costs, uncertainty under applicable
documentation, or difficult and costly consent processes. Any such effects of the transition away from LIBOR, as well as
other unforeseen effects, may result in expenses, difficulties, complications or delays in connection with future financing
efforts, which could have a material adverse impact on our business, financial condition and results of operations.
Risks Relating to Ownership of our Common Stock
The market price of our common stock may be highly volatile, and our shareholders may not be able to resell their shares
at or above the price they paid for them.
The trading price of our common stock could be volatile, and our shareholders could lose all or part of their
investment. We cannot provide any assurance that an active public market for our common stock will be sustained. Volatility
or a lack of positive performance in our stock price may adversely affect our ability to retain key employees, many of whom
have been granted stock incentive awards. The following factors, in addition to other factors described in this Risk Factors
section and elsewhere in this Annual Report, may have a significant impact on the market price of our common stock:
negative trends in global economic conditions or activity levels in our industry;
changes in our relationship with our customers or in customer needs, expectations or trends;
announcements concerning our competitors or our industry in general;
our ability to implement our business strategy;
our ability to complete and integrate acquisitions;
41
actual or anticipated fluctuations in our quarterly or annual operating results;
trading volume of our common stock;
the failure of securities analysts to cover the Company or changes in analysts financial estimates;
severe weather, natural disasters, acts of war or terrorism or other external events;
economic, legal and regulatory factors unrelated to our performance;
changes in accounting principles;
the loss of any of our management or key personnel;
sales of our common stock by us, our executive officers and directors or our shareholders (including certain
affiliates of AEA) in the future; and
general economic and market conditions and overall fluctuations in the U.S. equity markets.
In addition, broad market and industry factors may negatively affect the market price of our common stock,
regardless of our actual operating performance, and factors beyond our control may cause our stock price to decline rapidly
and unexpectedly.
Because AEA holds a significant percentage of our common stock, it may influence major corporate decisions, and the
interests of AEA and its affiliates, including certain of our directors, may conflict with the interests of owners of our
common stock and those of the Company.
AEA currently owns approximately 16.6% of our common stock. As a result, although we are no longer a controlled
company, AEA will continue to be able to influence matters requiring approval by our shareholders and/or our board of
directors, including the election of directors and the approval of business combinations or dispositions and other extraordinary
transactions. See Item 13, Certain Relationships and Related Party Transactions.
AEA may have interests that are different from our other shareholders and may vote in a way with which our other
shareholders disagree and which may be adverse to our other shareholders interests. Further, AEAs concentration of
ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer
from attempting to obtain control of us, which could cause the market price of our common stock to decline or prevent our
shareholders from realizing a premium over the market price for their common stock. Additionally, AEA and its affiliates
are in the business of making investments in companies and may from time to time acquire and hold interests in businesses
that compete directly or indirectly with us or supply us with goods and services. Shareholders should consider that the
interests of AEA may differ from their interests in material respects.
Two of our ten directors are currently affiliated with AEA. These persons have fiduciary duties to both us and
AEA. As a result, they may have real or apparent conflicts of interest on matters affecting both us and AEA, which in some
circumstances may have interests adverse to ours. In addition, our amended and restated certificate of incorporation provides
that the doctrine of corporate opportunity will not apply with respect to us, to AEA or certain related parties or any of our
directors who are employees of AEA or its affiliates in a manner that would prohibit them from investing in competing
businesses or doing business with our customers. AEA or its affiliates may also pursue acquisition opportunities that may
be complementary to our business and, as a result, those acquisition opportunities may not be available to us. To the extent
they invest in such other businesses, AEA and its affiliates, including affiliates of AEA who serve on our board of directors,
may have interests that differ from those of our other shareholders.
42
Sales, or the potential for sales, of a substantial number of shares of our common stock in the public market by us or
our existing shareholders could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market or the perception that these sales
might occur, could depress the market price of our common stock and could impair our ability to raise capital through the
sale of additional equity securities. Additionally, future exercises and the vesting of equity awards may result in dilution of
the value of our common stock and could also depress the market price of our common stock. Sales of stock by these
shareholders could have a material adverse effect on the trading price of our common stock.
Holders of an aggregate of approximately 34,420,498 shares of our common stock have rights, subject to certain
conditions, to require us to file registration statements covering their shares or to include their shares in registration statements
that we may file for ourselves or other shareholders. Registration of these shares under the Securities Act, would result in
the shares becoming freely tradable without restriction under the Securities Act, except for shares held by our affiliates as
defined in Rule 144 under the Securities Act. Any sales of securities by these shareholders could have a material adverse
effect on the trading price of our common stock.
We are exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes Oxley Act of 2002.
We are required to comply with the management certification requirement of Section 404 of the Sarbanes Oxley
Act of 2002 (the Sarbanes Oxley Act). As we perform the system and process evaluation and testing, we may identify
control deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board
(PCAOB) rules and regulations that remain unremediated. As a public company, we are required to report, among other
things, control deficiencies that constitute a material weakness or changes in internal controls that, or that are reasonably
likely to, materially affect internal controls over financial reporting. A material weakness is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
If we fail to comply with the requirements of Section 404, regulatory authorities such as the SEC or the PCAOB
might subject us to sanctions or investigation. If we do not implement improvements to our disclosure controls and procedures
or to our internal controls in a timely manner, our independent registered public accounting firm may not be able to certify
as to the effectiveness of our internal controls over financial reporting pursuant to an audit of our controls. This may subject
us to adverse regulatory consequences or a loss of confidence in the reliability of our financial statements. We could also
suffer a loss of confidence in the reliability of our financial statements if our independent registered public accounting firm
reports a material weakness in our internal controls, if we do not develop and maintain effective controls and procedures
or if we are otherwise unable to deliver timely and reliable financial information.
Additionally, effective internal controls are necessary for us to provide reliable financial reports and prevent fraud.
Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could
harm our operating results or cause us to fail to meet our reporting obligations. Inadequate internal controls could also cause
investors to lose confidence in our reported financial information. Any loss of confidence in the reliability of our financial
statements or other negative reaction to our failure to develop timely or adequate disclosure controls and procedures or
internal controls could result in a decline in the price of our common stock. In addition, if we fail to remedy any material
weakness, our financial statements may be inaccurate, we may face restricted access to the capital markets and our stock
price may be adversely affected.
If securities or industry analysts cease publishing research or reports about us, our business or our markets, or if they
adversely change their recommendations or publish negative reports regarding our business or our stock, our stock price
and trading volume could materially decline.
The trading market for our common stock is influenced by the research and reports that industry or securities
analysts may publish about us, our business, our markets or our competitors. We do not have any control over these analysts
and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who
may cover us adversely change their recommendation regarding our stock, or provide more favorable relative
recommendations about our competitors, our stock price could materially decline. If any analyst who may cover us were
43
to cease coverage of our Company or fail to regularly publish reports on us, we could lose visibility in the financial markets,
which in turn could cause our stock price or trading volume to materially decline.
Some provisions of our charter documents and Delaware law may have anti takeover effects that could discourage an
acquisition of us by others, even if an acquisition would be beneficial to our shareholders, and may prevent attempts by
our shareholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, as well
as provisions of the Delaware General Corporation Law (the DGCL), could make it more difficult for a third party to
acquire us or increase the cost of acquiring us, even if doing so would benefit our shareholders, including transactions in
which shareholders might otherwise receive a premium for their shares. These provisions include:
establishing a classified board of directors such that not all members of the board of directors are elected at
one time;
allowing the authorized number of our directors to be determined exclusively by resolution of our board of
directors and granting to our board of directors the sole power to fill any vacancy on the board of directors;
limiting the ability of shareholders to remove directors without cause;
providing that our board of directors is expressly authorized to adopt, or to alter or repeal, our amended and
restated bylaws;
authorizing the issuance of blank check preferred stock by our board of directors, without further shareholders
approval, to thwart a takeover attempt;
prohibiting shareholders action by written consent (and, thus, requiring that all shareholder actions be taken
at a meeting of our shareholders);
eliminating the ability of shareholders to call a special meeting of shareholders;
establishing advance notice requirements for nominations for election to the board of directors or for proposing
matters that can be acted upon at annual shareholder meetings; and
requiring the approval of the holders of at least two thirds of the voting power of all outstanding stock entitled
to vote thereon, voting together as a single class, to amend or repeal our amended and restated certificate of
incorporation or amended and restated bylaws.
In addition, while we have opted out of Section 203 of the DGCL, our amended and restated certificate of
incorporation contains similar provisions providing that we may not engage in certain business combinations with any
interested shareholder for a three year period following the time that the shareholder became an interested shareholder,
unless:
prior to such time, our board of directors approved either the business combination or the transaction that
resulted in the shareholder becoming an interested shareholder;
upon consummation of the transaction that resulted in the shareholder becoming an interested shareholder,
the interested shareholder owned at least 85% of our voting stock outstanding at the time the transaction
commenced, excluding certain shares; or
at or subsequent to that time, the business combination is approved by our board of directors and by the
affirmative vote of holders of at least two thirds of our outstanding voting stock that is not owned by the
interested shareholder.
44
These anti takeover defenses could discourage, delay or prevent a transaction involving a change in control of our
Company. These provisions could also discourage proxy contests and make it more difficult for shareholders to elect directors
of their choosing and cause us to take corporate actions other than those that certain shareholders desire.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the
exclusive forum for certain litigation that may be initiated by our shareholders, which could limit our shareholders
ability to obtain a favorable judicial forum for disputes with us.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware
will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting
a claim of breach of a fiduciary duty owed to us or our shareholders by any of our directors, officers, employees or agents,
(iii) any action asserting a claim against us arising under the DGCL or (iv) any action asserting a claim against us that is
governed by the internal affairs doctrine. Shareholders in our Company will be deemed to have notice of and have consented
to the provisions of our amended and restated certificate of incorporation related to choice of forum. The choice of forum
provision in our amended and restated certificate of incorporation may limit our shareholders ability to obtain a favorable
judicial forum for disputes with us.
We do not currently expect to pay any cash dividends.
We currently anticipate that we will retain future earnings for the development, operation and expansion of our
business, and the continued operation and expansion of our business will require substantial funding. Accordingly, we do
not currently anticipate declaring or paying any cash dividends on shares of our common stock in the foreseeable future.
Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon
results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors
that our board of directors deems relevant. We are a holding company, and substantially all of our operations are carried
out by our operating subsidiaries. Under our senior secured credit facilities, our operating subsidiaries are currently limited
in their ability to pay cash dividends, and we expect these limitations to continue in the future. Our ability to pay dividends
may also be limited by the terms of any future credit agreement or any future debt or preferred equity securities of ours or
of our subsidiaries. Accordingly, realization of a gain on any investment in shares of our common stock will depend on the
appreciation of the price of our common stock, which may never occur.
The requirements of being a public company, including compliance with the reporting requirements of the Exchange
Act and the requirements of the Sarbanes Oxley Act and the NYSE, may strain our resources, increase our costs and
divert managements attention, and we may be unable to comply with these requirements in a timely or cost effective
manner.
As a public company, we are subject to the reporting requirements of the ExchangeAct, and the corporate governance
standards of the Sarbanes Oxley Act and the NYSE. These requirements place a strain on our management, systems and
resources and we will continue to incur significant legal, accounting, insurance and other expenses. The Exchange Act,
requires us to file annual, quarterly and current reports with respect to our business and financial condition within specified
time periods and to prepare a proxy statement with respect to our annual meeting of shareholders. The Sarbanes Oxley Act
requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. The
NYSE requires that we comply with various corporate governance requirements. To maintain and improve the effectiveness
of our disclosure controls and procedures and internal controls over financial reporting and comply with the Exchange Act
and NYSE requirements, significant resources and management oversight will be required. This may divert managements
attention from other business concerns and lead to significant costs associated with compliance, which could have a material
adverse effect on us and the price of our common stock. Furthermore, as we grow our business both organically and through
acquisitions, our disclosure controls and procedures and internal control over financial reporting will become more complex,
and we may require significantly more resources to ensure that these controls and procedures remain effective.
These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance,
including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or
incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more
difficult for us to attract and retain qualified persons to serve on our board of directors or its committees or as our executive
45
officers. Advocacy efforts by shareholders and third parties may also prompt even more changes in governance and reporting
requirements. We cannot predict or estimate the amount of additional costs we may incur or the timing of these costs.
Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common
stock, fines, sanctions and other regulatory action and potentially civil litigation.
We may be subject to securities litigation, which is expensive and could divert management attention.
Our share price has been volatile and, in the past, companies that have experienced volatility in the market price
of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the
future. Litigation of this type could result in substantial costs and diversion of managements attention and resources, which
could have a material adverse effect on our business, financial condition, results of operations or prospects. Any adverse
determination in litigation could also subject us to significant liabilities. See Item 3, Legal Proceedings for a discussion
of the status of certain securities litigation related to our share price volatility.
General Risk Factors
General global economic and business conditions may materially adversely affect demand for our products, services and
solutions.
We compete in various end markets and geographic regions around the world. Among these, the most significant
are global industrial, commercial and municipal markets. In fiscal 2020, 86% and 14% of our revenue was generated in
North America and the rest of world, respectively. We have experienced, and expect to continue to experience, fluctuations
in revenues and operating results due to economic and business cycles. Important factors for our businesses and the businesses
of our customers, both in the U.S. and abroad, include local and global macroeconomic conditions, commodity prices,
energy prices, the timing of projects, the overall strength of and our customers confidence in the economy, industrial and
governmental capital spending, governmental fiscal and trading policies, global environmental and regulatory policies, the
strength of the residential and commercial real estate markets, unemployment rates, consumer spending, availability of
financing, interest rates, tax rates, changes in tax laws and political conditions. The businesses of many of our industrial
customers are, to varying degrees, cyclical, and have experienced periodic downturns. While we attempt to minimize our
exposure to economic or market fluctuations by serving a balanced mix of end markets and geographic regions, any of the
above factors, individually or in the aggregate, or a significant or sustained downturn in a specific end market or geographic
region, could materially reduce demand for our products, services and solutions.
Levels of municipal spending may particularly impact our business, financial condition, results of operations or
prospects. Reduced tax revenue in certain regions, or inability to access traditional sources of credit, may limit spending
and new development by municipalities or local governmental agencies, which in turn may materially adversely affect the
demand for our solutions and reduce our revenue.
Failure to compete successfully in our markets could materially adversely affect our business, financial condition, results
of operations or prospects.
We offer our products, services and solutions in highly competitive markets. We believe the principal points of
competition in our markets are product performance, reliability and innovation of our solutions, application expertise and
process knowledge, brand reputation, energy and water efficiency, product compliance with environmental and regulatory
requirements, product lifecycle cost, scalability, timeliness of delivery, proximity of service centers to our customers,
effectiveness of our distribution channels and price. Maintaining and improving our competitive position will require
successful management of these factors, including continued investment by us in research and development (including
acquisition of technology through transactions), engineering, marketing, customer service and support and our distribution
networks. Our future growth rate depends upon our ability to compete successfully, which is impacted by a number of
factors, including our ability to (i) identify emerging technological trends in our target end markets, (ii) develop and maintain
a wide range of competitive and appropriately priced products, services and solutions, (iii) enhance and differentiate our
products from those of our competitors, (iv) develop and drive commercial acceptance of compelling new products quickly
and cost effectively, (v) ensure that our products, services and solutions remain cost competitive, even when faced with
rising commodity costs, (vi) attract, develop and retain individuals with the requisite technical expertise and understanding
46
of customers needs to develop and sell new technologies and products and (vii) execute projects in a cost-effective manner
according to the schedules required by our customers.Further, many of our customers actively monitor and review our
company wide safety record, and apply rigorous safety standards to us and our competitors. Although we take precautions
to prevent workplace accidents and mechanical failures, such incidents are difficult to predict and may be outside of our
control. If we are unable to meet our customers stringent workplace safety standards, or if our customers perceive us to
have a poor safety record, it could materially impact our ability to retain their business or attract new business.
We may not be successful in maintaining our competitive position for a number of reasons. We may fail to identify
optimal vertical or geographic markets, focus our attention in suboptimal vertical or geographic markets or fail to execute
an appropriate business model in certain vertical or geographic markets. Our competitors may develop disruptive
technologies or products that are superior to our products, develop more efficient or effective methods of providing products
and services, operate with lower cost structures allowing them to price products and services more competitively or adapt
more quickly than we do to new technologies or evolving customer requirements. The failure of our technologies or products
to gain market acceptance due to more attractive offerings by our competitors could significantly reduce our revenues and
materially adversely affect our competitive standing or prospects. Pricing pressures also could cause us to adjust the prices
of certain products to stay competitive, which could materially adversely affect our margins and overall financial
performance. Failure to continue competing successfully or to win business with our existing customers could materially
adversely affect our business, financial condition, results of operations or prospects.
Product defects and unanticipated or improper use of our products could adversely affect our business, reputation and
financial statements.
Manufacturing or design defects in (including in products or components that we source from third parties),
unanticipated or improper use of, or inadequate disclosure of risks relating to the use of our products, services and solutions
by our customers or third parties could create product safety, regulatory or other risks, including personal injury, death or
property damage. These events could lead to recalls or safety alerts relating to our products, result in the removal of a product
from the market and result in product liability claims being brought against us. Recalls, removals and product liability claims
can result in significant costs, as well as negative publicity and damage to our reputation that could reduce demand for our
products and have a material adverse effect on our business, financial condition, results of operations or prospects.
Further, it is generally our responsibility to service the equipment we provide our customers throughout the duration
of our contract with such customers, and our customers may be required to maintain insurance covering loss, damage or
injury caused by our equipment. However, we are not able to monitor our customers use or maintenance of their water
systems or their compliance with our contracts or usage instructions. Customersfailure to properly use, maintain or safeguard
their equipment or customers noncompliance with insurance requirements may reflect poorly on us as the provider of such
equipment and, as a result, damage our reputation.
Significant or prolonged disruptions in the supply of goods or services from third parties could materially adversely
affect our business, financial condition, results of operations or prospects.
We are dependent on a continuing flow of goods and services from suppliers to provide our products, services and
solutions to our customers. A disruption or prolonged delays in obtaining supplies or services, including, for example,
chemicals, electricity or other materials, could materially adversely affect our ability to provide our products, services and
solutions to our customers, and our ability to operate in compliance with all regulatory requirements, which could have a
material adverse effect on our business, financial condition, results of operations or prospects. In certain circumstances, we
rely on third parties to provide certain important services and a disruption in these services could materially adversely affect
our business, financial condition, results of operations or prospects. Some possible reasons for a delay or disruption in the
supply of important goods and services include:
our suppliers may not provide materials that meet our specifications in sufficient quantities;
our suppliers may face production delays due to natural disasters, strikes, lock outs or other such events;
one or more suppliers could make strategic changes in the lines of products and services they offer; and
47
some of our suppliers, such as small companies, may be more likely to experience financial and operational
difficulties than larger, well established companies, because of their limited financial and other resources.
As a result of any of these, or other, factors, we may be required to find alternative suppliers for the materials and
services on which we rely. Accordingly, we may experience delays in obtaining appropriate materials and services on a
timely basis and in sufficient quantities from such alternative suppliers at a reasonable price, which could interrupt services
to our customers and materially adversely affect our business, financial condition, results of operations or prospects.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of September 30, 2020, we operate 160 locations located in the United States, Canada, the United Kingdom,
the Netherlands, Germany, Australia, China, Singapore, India and Korea, including 13 manufacturing facilities, 7 research
and development facilities and 92 service branches. We own 20 of these properties and lease the remaining 140 properties.
The manufacturing and research and development facilities support both our ISS and APT segments globally. The service
branches primarily support our ISS segment. Our North American presence includes 11 resin regeneration plants, 3 carbon
reactivation plants and 1 wastewater ion exchange facility. As of September 30, 2020, the aggregate covered square footage
of our facilities is equal to approximately 3.4 million square feet.
Item 3. Legal Proceedings
From time to time, we are subject to various claims, charges and litigation matters that arise in the ordinary course
of business. We believe these actions are a normal incident of the nature and kind of business in which we are engaged.
While it is not feasible to predict the outcome of these matters with certainty, we do not believe that any asserted or unasserted
legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on our business, financial
condition, results of operations or prospects.
In November 2018, a purported shareholder of the Company filed a class action lawsuit, captioned McWilliams v.
Evoqua Water Technologies Corp., Case No. 1:18-CV-10320, in the United States District Court for the Southern District
of New York alleging that the Company and senior management violated federal securities laws by issuing false, misleading,
and/or omissive disclosures in the period leading up to the Companys October 30, 2018 announcement of, among other
things, (a) preliminary results for the full-year fiscal 2018 that were below previous expectations and (b) a transition from
a three-segment structure to a two-segment operating model. In January 2019, the court appointed lead plaintiffs and lead
counsel and re-captioned the action as In re Evoqua Water Technologies Corp. Securities Litigation (the Securities
Litigation). In March 2019, lead plaintiffs filed an amended complaint, which asserts claims pursuant to the Securities
Exchange Act of 1934 and the Securities Act of 1933 against the Company, members of the Companys board of directors,
senior management, a former executive, AEA, and the underwriters of the Companys IPO and secondary public offering.
The amended complaint alleges that the defendants violated federal securities laws by issuing false, misleading, and/or
omissive disclosures concerning the Companys integration of acquired companies, the Companys reduction-in-force, and
the Companys financial results of operations. The lawsuit seeks compensatory damages in an unspecified amount and an
award of costs and expenses to the plaintiff and class counsel. In March 2020, the Court granted the defendants motion to
dismiss a portion of the claims, dismissing all claims predicated on supposedly intentional misstatements or omissions,
which were brought under the Securities Exchange Act of 1934. The claims that remain are those brought under the Securities
Act of 1933. The Company has filed an answer denying the material allegations of the complaint, and discovery is now
underway. The Company believes that this lawsuit is without merit and intends to vigorously defend itself against the
allegations.
In April 2019, another purported shareholder of the Company filed a derivative lawsuit in the United States District
Court for the Western District of Pennsylvania, captioned Dallas Torgersen v. Ronald C. Keating, Case No. 2:19-CV-410.
48
The complaint names as defendants the Companys CEO & CFO, as well as members of the Companys board of directors,
and it names the Company as a nominal defendant. The complaint alleges, among other things, that the individual defendants
violated federal securities laws by issuing false, misleading, and/or omissive disclosures in the period leading up to the
Companys October 30, 2018 disclosures, and that they breached their fiduciary duties to the Company. The lawsuit seeks
compensatory damages in an unspecified amount, an award of costs and expenses, restitution from the individual defendants,
and an order directing the Company and the individual defendants to take unspecified actions to reform and improve the
Companys corporate governance and internal procedures. The Company believes that this lawsuit is without merit and
intends to vigorously defend itself against the allegations. In June 2019, the Court entered an order staying the lawsuit
pending resolution of the Securities Litigation.
In July 2020, a different purported shareholder of the Company filed a second shareholder derivative lawsuit
ostensibly on behalf of the Company in the United States District Court for the Western District of Pennsylvania, captioned
Robert Hyams v. Ronald C. Keating, Case No. 2:20-CV-1112. The complaint is similar to the one in Torgersen but also
names as defendants AEA and a number of its affiliated entities. In September 2020, the court issued an order consolidating
the Torgersen and Hyams cases under the caption In re Evoqua Water Technologies Corp. Derivative Litigation (the
Derivative Litigation), and staying the consolidated lawsuit pending resolution of the Securities Litigation.
In February 2020, yet another purported shareholder of the Company sent a letter to the board of directors demanding
that it investigate and bring claims against various directors and officers for the same matters that were already the subject
of the Securities Litigation and the Torgersen derivative litigation. Although no lawsuit has yet been filed by this purported
shareholder, the shareholder agreed to stay matters on terms similar to what was agreed in the Derivative Litigation.
In October 2020, the Company learned that the SEC and the United States Attorneys Office for the District of
Massachusetts are investigating whether financial misstatements were made in the Companys public filings and earnings
announcements prior to October 2018, similar to what is alleged in the Securities Litigation. The Company is cooperating
with those investigations. Although the Company is unable to predict the outcome or reasonably estimate any potential
loss, we currently believe that this matter will not have a material adverse effect on our business, financial condition, results
of operations or prospects.
Item 4. Mine Safety Disclosures
None.
49
Part II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
The Companys common stock began trading on the NYSE under the symbol AQUA on November 2, 2017. Before
then, there was no public market for the Companys common stock.
After underwriting discounts and commissions and expenses, we received net proceeds from our initial public offering
of approximately $137.6 million. We used a portion of the net proceeds from our initial public offering to repay approximately
$104.9 million of indebtedness (including accrued and unpaid interest) under our senior secured first lien term loan facility
and we used the remainder for general corporate purposes.
As of October 31, 2020, there were 59 holders of record of the Companys common stock, which does not reflect those
shares held beneficially or those shares held in street name. Accordingly, the number of beneficial owners of our common
stock exceeds this number.
Dividend Policy
No dividends were paid to shareholders during the years ended September 30, 2020, 2019 or 2018. The Company
currently intends to retain all of its future earnings, if any, to finance operations, development and growth of its business
and repay indebtedness. Most of the Companys indebtedness contains restrictions on the Companys activities, including
paying dividends on its capital stock. See Note 11, Debt in Part II, Item 8 of this Annual Report on Form 10-K. Any future
determination relating to our dividend policy will be made at the discretion of the Companys board of directors and will
depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects,
contractual restrictions and covenants and other factors that the board of directors may deem relevant.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
50
Stock Performance Graph
The following graph shows a comparison of cumulative total return to holders of shares of Evoquas common
stock against the cumulative total return of S&P Small Cap 600 Index and S&P Small Cap 600 / Utilities Index from market
close on November 2, 2017 (the first day of trading of our common stock) through September 30, 2020. The comparison
of the cumulative total returns for each investment assumes that $100 was invested in Evoqua common stock and the
respective indices on November 2, 2017 through September 30, 2020, including reinvestment of any dividends (although
no dividends have been declared on our common stock to date). Historical share price performance should not be relied
upon as an indication of future share price performance, and we do not make or endorse any predications as to future
shareholder returns.
This performance graph and related information shall not be deemed soliciting materialor to be filed for
purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed
to be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that we
specifically incorporate it by reference into such filing.
$120
$110
$100
$90
$80
$70
$60
$50
$40
11/2/2017
9/30/2018
9/30/2019
12/31/2019
3/31/2020
6/30/2020
9/30/2020
AQUA
S&P Small Cap 600
S&P Small Cap 600 / Utilities
AQUA . . . . . . . . . . . . . . . $
S&P Small Cap 600. . . . . $
S&P Small Cap 600 /
Utilities . . . . . . . . . . . . . . $
11/2/2017
100
9/30/2018
85
$
9/30/2019
82
$
12/31/2019
88
$
3/31/2020
52
$
6/30/2020
86
$
9/30/2020
98
$
100
100
$
$
117
100
$
$
105
113
$
$
108
109
$
$
73
98
$
$
88
92
$
$
91
82
51
Item 6. Selected Financial Data
Our selected historical Consolidated Balance Sheet data presented below as of September 30, 2020 and 2019 and our
selected historical Consolidated Statements of Operations and cash flow data presented below for each of the years ended
September 30, 2020, 2019, 2018, 2017 and 2016 has been derived from our audited Consolidated Financial Statements. Our
selected historical Consolidated Balance Sheet data presented below as of September 30, 2016, 2017 and 2018 has been derived
from our audited Consolidated Financial Statements not included in this Annual Report.
The historical results presented below are not necessarily indicative of the results to be expected for any future period.
The selected historical consolidated financial data presented below should be read in conjunction with Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations, and our Consolidated Financial Statements and
related notes thereto contained in Item 8, Financial Statements and Supplementary Data, of this Annual Report.
(In millions, except per share amounts)
Year Ended September 30,
2020
2019
2018
2017
2016
Statement of Operations Data:
Revenue from product sales and services. . . . . . . . . . . . . $ 1,429.5
449.8
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(342.0)
Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . .
114.4
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to the Company . . . . . . . . $
Income (loss) per share
113.6
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.97
0.94
Cash Flow Data:
Net cash provided by operating activities. . . . . . . . . . . . . $
Net cash provided by (used in) investing activities . . . . . $
Net cash (used in) provided by financing activities . . . . . $
Balance Sheet Data (as of end of period):
158.4
$
12.0
(89.5) $
$ 1,444.4
$ 1,339.5
$ 1,247.4
$
1,137.2
426.0
(371.3)
(8.5)
(9.5) $
404.7
(345.7)
7.9
6.1
(0.08) $
(0.08) $
0.05
0.05
399.7
(332.0)
6.4
2.2
0.02
0.02
$
$
$
$
$
$
333.1
(302.9)
13.0
11.6
0.11
0.11
125.2
$
(94.5) $
$
5.7
81.0
$
(207.0) $
$
150.6
28.5
$
(134.9) $
$
114.5
31.9
(344.6)
191.4
$
$
$
$
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $
193.0
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,844.5
876.0
Total debt (including current portion). . . . . . . . . . . . . . . . $
$
109.9
$
82.4
$
59.3
$ 1,737.8
$ 1,663.6
$ 1,473.3
$
965.0
$
939.6
$
889.8
$
$
$
50.4
1,296.2
758.2
52
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of our operations should be read in
conjunction with Item 6, Selected Financial and Operating Data and Item 8, Financial Statements and Supplementary
Data, of this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those
differences include, but are not limited to, those identified below and those discussed in the section titled Cautionary Note
Regarding Forward-Looking Statements and in Item 1A, Risk Factors in this Annual Report. Unless otherwise indicated
or the context otherwise requires, all references to the Company, Evoqua, Evoqua Water Technologies Corp., EWT
Holdings I Corp, we, us, our and similar terms refer to Evoqua Water Technologies Corp., together with its
consolidated subsidiaries. Unless otherwise specified, all dollar amounts in this section are referred to in millions. Our
fiscal year ends on September 30 of each year and references in this section to a year refer to our fiscal year. As such,
references to: 2020 relates to the fiscal year ended September 30, 2020, 2019 relates to the fiscal year ended September
30, 2019 and 2018 relates to the fiscal year ended September 30, 2018.
Overview and Background
We are a leading provider of mission critical water treatment solutions, offering services, systems and technologies
to support our customers full water lifecycle needs. With over 200,000 installations worldwide, we hold leading positions
in the industrial, commercial and municipal water treatment markets in North America. We offer a comprehensive portfolio
of differentiated, proprietary technology solutions sold under several market-leading and well-established brands to our
global customer base. We have worked to protect water, the environment and our employees for over 100 years. As a result,
we have earned a reputation for quality, safety and reliability and are sought out by our customers to solve the full range of
their water treatment needs, and maintaining our reputation is critical to the success of our business.
Our solutions are designed to ensure that our customers have the quantity and quality of water that meets their
unique specifications. We enable our customers to achieve lower costs through greater uptime, throughput and efficiency
in their operations and support their regulatory compliance and environmental sustainability. We deliver and maintain these
mission critical solutions through the largest service network in North America, assuring our customers continuous uptime
with 92 service branches as of September 30, 2020. We have an extensive service and support network, and as a result, we
have certified Evoqua Service Technicians within approximately a two-hour drive from more than 90% of our industrial
North American customers sites.
Our vision to be the worlds first choice for water solutions and our values of integrity, customers, performance
and sustainable foster a corporate culture that is focused on establishing a workforce that is enabled, empowered and
accountable, which creates a highly entrepreneurial and dynamic work environment. Our purpose is Transforming water.
Enriching life. We draw from a long legacy of water treatment innovations and industry firsts, supported by more than
1,300 granted or pending patents, which in aggregate are imperative to our business. Our core technologies are primarily
focused on removing impurities from water, rather than neutralizing them through the addition of chemicals, and we are
able to achieve purification levels which are 1,000 times greater than typical drinking water.
Business Segments
For the year ended September 30, 2020, we served our customers through two segments: Integrated Solutions and
Services, a group entirely focused on engaging directly with end users, and Applied Product Technologies, a group focused
on developing product platforms to be sold primarily through third party channels. Our segments draw from the same
reservoir of leading technologies, shared manufacturing infrastructure, common business processes and corporate
philosophies. The key factors used to identify our reportable segments are the organization and alignment of our internal
operations, the nature of the products and services and customer type.
Within the Integrated Solutions and Services segment, we primarily provide tailored solutions in collaboration
with our customers backed by life cycle services including on demand water, outsourced water (formerly
53
known as build-own-operated), recycle and reuse and emergency response service alternatives to improve
operational reliability, performance and environmental compliance.
Within the Applied Product Technologies segment, we provide a highly differentiated and scalable range of
products and technologies specified by global water treatment designers, OEMs, engineering firms and
integrators.
We evaluate our business segmentsoperating results based on income from operations and net income (loss) before
interest expense, income tax benefit (expense) and depreciation and amortization (EBITDA) on a segment basis. Corporate
activities include general corporate expenses, elimination of inter-segment transactions, interest income and expense and
other unallocated charges, which have not been allocated to business segments. As such, the segment results provided herein
may not be comparable to other companies. In addition, our chief operating decision maker uses Adjusted EBITDA of each
reportable segment to evaluate the operating performance of such segments. Adjusted 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 share-based compensation charges.
For the years ended September 30, 2020, 2019 and 2018, our segments accounted for the following percentage of
our revenues:
Integrated Solutions and Services segment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applied Product Technologies segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66.1%
33.9%
63.1%
36.9%
62.4%
37.6%
2020
2019
2018
Organic Growth Drivers
Market Growth
We maintain a leading position among customers in growing industries that utilize water as a critical part of their
operations or production processes, including pharmaceuticals and health sciences, microelectronics, food and beverage,
hydrocarbon and chemical processing, power, general manufacturing, municipal drinking and wastewater, marine and
aquatics. Water treatment is an essential, non discretionary market that is growing in importance as access to clean water
has become an international priority. Underpinning this growth are a number of global, long term trends that have resulted
in increasingly stringent effluent regulations, along with a growing demand for cleaner and sustainable waste streams for
reuse. These trends include the growing global population, increasing levels of urbanization and continued global economic
growth, and we have seen these trends manifest themselves within our various end markets creating multiple avenues of
growth. For example, within the industrial market, water is an integral and meaningful component in the production of a
wide range of goods spanning from consumer electronics to automobiles.
Our Existing Customer Base
We believe our strong brands, leading position in highly fragmented markets, scalable and global offerings, leading
installed base and unique ability to provide complete treatment solutions will enable us to capture a larger share of our
existing customers water treatment spend while expanding with existing and new customers into adjacent end markets and
under-penetrated regions, including by investing in our sales force and cross selling to existing customers. We believe we
are uniquely positioned to further penetrate our core markets, with over 200,000 installations across over 38,000 global
customers. We maintain a customer intimate business model with strong brand value and provide solutions focused offerings
capable of serving a customers full lifecycle water treatment needs, both in current and new geographic regions.
54
Our Service Model
We selectively target high value projects with opportunities for recurring business through service, parts and other
aftermarket opportunities over the lifecycle of the process or capital equipment. In particular, we have developed
internet connected monitoring technologies through the deployment of our WaterOne® service platform, which enables
customers to outsource their water treatment systems and focus on their core business, offering customers system
optimization, predictive and proactive service, and simplified billing and pricing. Our WaterOne® platform also enables
us to transition our customers to pricing models based on usage, which otherwise would not have been possible without
technological advancement. Our technology solutions provide customers with increased stability and predictability in
water related costs, while enabling us to optimize our service route network and on demand offerings through predictive
analytics, which we believe will result in market share gains, improved service levels, increased barriers to entry and reduced
costs.
Product and Technology Development
We develop our technologies through in house research, development and engineering and targeted tuck in, vertical
market and geography expanding, technology-enhancing acquisitions. We have a reservoir of recently launched technologies
and a strong pipeline of new offerings designed to provide customers with innovative, value enhancing solutions.
Furthermore, since April 2016, we have successfully completed fourteen acquisitions and the acquisition of a 60% interest
in Frontier Water Systems LLC, expanding our vertical markets and geographic reach and enhancing our technologies,
strengthening our existing capabilities and adding new capabilities and cross selling opportunities in areas such as mobile
wastewater treatment, soil and air treatment, regenerative media filtration, anodes, UV and ozone disinfection, aerobic and
anaerobic biological treatment technologies and electrochemical and electrochlorination cells. We are able to rapidly scale
new technologies using our leading direct and third party sales channels and our relationships with key influencers, including
municipal representatives, engineering firms, designers and other system specifiers. We believe our continued investment
in driving penetration of our recently launched technologies, robust pipeline of new capabilities and best in class channels
to market will allow us to continue to address our customer needs across the water lifecycle.
Operational Excellence
We believe that continuous improvement of our operations, processes and organizational structure is a key driver
of our earnings growth. We have identified and are pursuing several discrete initiatives that, if successful, we expect could
result in additional cost savings over the next two years. These initiatives include our supply chain improvement program
to consolidate and manage global spending, our improved logistics and transportation management program, capturing
benefits of our WaterOne® platform and further optimizing our engineering cost structure, our global shared services
organization and our sales, inventory and operations planning, including footprint rationalization. These improvements
focus on creating value for customers through reduced leadtimes, improved quality and superior customer support, while
also creating value for shareholders through enhanced earnings growth. Furthermore, as a result of significant investments
we have made in our footprint and facilities, we believe we have the capacity to support our planned growth without
commensurate increase in fixed costs.
Acquisitions
We believe that capex-like, tuck in acquisitions present a key opportunity within our overall growth strategy, which
we will continue to evaluate strategically. These strategic acquisitions will enable us to accelerate our growth by extending
the critical mass in existing markets as well as expand in new geographies and new end market verticals. Our existing
customer relationships, best in class channels to market and ability to rapidly commercialize technologies provide a strong
platform to drive rapid growth in the businesses we acquire. To capitalize on these opportunities, we have built an experienced
team dedicated to mergers and acquisitions that has, since April 2016, successfully completed fourteen acquisitions and the
acquisition of a 60% interest in Frontier Water Systems LLC, expanding our vertical markets and geographic reach and
enhancing our technologies, with purchase prices ranging from approximately $2.0 million to approximately $283.7 million,
and pre acquisition revenues ranging from approximately $2.1 million to approximately $55.7 million.
55
During the year ended September 30, 2020, we acquired a 60% investment position in San Diego-based Frontier
Water Systems, LLC (Frontier), completed the sale of the Memcor product line to DuPont de Nemours, Inc. (DuPont),
and acquired the assets of privately held Aquapure Technologies (Aquapure). The aggregate purchase price paid by DuPont
for the Memcor product line was $110.0 million in cash, subject to certain adjustments. Following adjustments for cash and
net working capital, gross proceeds paid by DuPont were $131.0 million. The Company recognized a $57.7 million net
pre-tax benefit on the sale of the Memcor product line, net of $8.3 million of discretionary compensation payments to
employees in connection with the transaction and $2.1 million in transaction costs incurred. The Company and DuPont
have a history of collaboration, and following the sale, DuPont continues to supply the Company with Memcor products.
During the year ended September 30, 2019, we acquired all of the issued and outstanding equity securities of ATG UV
Technology Limited (ATG UV). See Note 3, Acquisitions and Divestitures, in Item 8 in this Annual Report for a
complete discussion.
We will continue to actively evaluate acquisition opportunities that are consistent with our business strategy. We
maintain a robust pipeline of potential acquisition targets, developed by our management team as well as various outside
industry experts and consultants.
Key Factors and Trends Affecting Our Business and Financial Statements
Various trends and other factors affect or have affected our operating results, including:
Impact of the COVID-19 pandemic. Our business has been considered essential under federal and local standards,
and we have maintained business continuity at our critical service branches and manufacturing facilities to date. We have
taken measures to protect our employees, including implementation of remote working practices where possible and
managing our supply chain to ensure that necessary personal protective equipment is available to our personnel. We have
also taken certain cost reduction actions, some of which are temporary in nature, such as reduction of marketing travel
activity as well as deferment of headcount additions to preserve liquidity and reallocated existing resources to maintain
productivity levels where feasible.
We continue to evaluate the impact of the pandemic on our business and how the economic downturn resulting
from the pandemic might affect our customers willingness to make capital expenditures and our ability to collect from our
customers.
For more information regarding factors and events that may impact our business, results of operations and financial
condition from the effects of the COVID-19 pandemic, see Item 1A. Risk Factors-The COVID-19 pandemic and other
future public health crises or pandemics could materially and adversely affect our business, results of operations and financial
condition.
Overall economic trends. The overall economic environment and related changes in industrial, commercial and
municipal spending impact our business. In general, positive conditions in the broader economy promote industrial,
commercial and municipal customer spending, while economic weakness results in a reduction of new industrial, commercial
and municipal project activity. Macroeconomic factors that can affect customer spending patterns, and thereby our results
of operations, include population growth, total water consumption, municipal budgets, employment rates, business
conditions, the availability of credit or capital, interest rates, tax rates, imposition of tariffs and regulatory changes. Since
the businesses of our customers vary in cyclicality, periodic downturns in any specific sector typically have modest impacts
on our overall business. For example, the recent weakness in global oil markets has created, and may continue to create,
some weakness in demand from customers that we serve in the oil and gas industry. Additionally, the COVID-19 pandemic
has increased economic uncertainty and has caused an economic slowdown that is likely to continue and may result in a
sustained global recession.
Changes in costs and availability. We have significant exposures to certain commodities, including steel, caustic,
carbon, calcium nitrate and iridium, and volatility in the market price and availability of these commodity input materials
has a direct impact on our costs and our business. For example, restrictions on international trade, including tariffs imposed
by the U.S. government and other governments, as well as supply chain disruptions caused by the COVID-19 pandemic,
have increased and could further increase the cost of certain materials and have restricted and could further restrict availability
of certain commodities, which may result in delays in our execution of projects. Although we have offset a portion of these
56
cost increases through price increases, there can be no assurance that we will be able to continue to recuperate additional
cost increases from our customers through product price increases. If we are unable to manage commodity fluctuations
through pricing actions, cost savings projects and sourcing decisions as well as through consistent productivity
improvements, it may adversely impact our gross profit and gross margin. Further, additional potential acquisitions and
international expansion will place increased demands on our operational, managerial, administrative and other resources.
Managing our growth effectively will require us to continue to enhance our management systems, financial and management
controls and information systems. We will also be required to hire, train and retain operational and sales personnel, which
affects our operating margins.
Inflation and deflation trends. Our financial results can be expected to be directly impacted by substantial increases
in costs due to commodity cost increases or general inflation which could lead to a reduction in our revenues as well as
greater margin pressure as increased costs may not be able to be passed on to customers.
Fluctuation in quarterly results. Our quarterly results have historically varied depending upon a variety of factors,
including funding, readiness of projects, regulatory approvals and significant weather events. In addition, our contracts for
large capital water treatment projects, systems and solutions for industrial, commercial and municipal applications are
generally fixed price contracts with milestone billings. As a result of these factors, our working capital requirements and
demands on our distribution and delivery network may fluctuate during the year.
New products and technologies. Our ability to maintain our appeal to existing customers and attract new customers
depends on our ability to originate, develop and offer a compelling array of products, services and solutions responsive to
evolving customer innovations, preferences and specifications. We expect that increased use of water in industrial and
commercial processes will drive increased customer demand in the future, and our ability to grow will depend in part on
effectively responding to innovation in our customers processes and systems. Further, our ability to provide products that
comply with evolving government regulations will also be a driver of the appeal of our products, services and solutions to
industrial and commercial customers.
Government policies. Decaying water systems in the United States (U.S.) will require critical drinking water
and wastewater repairs, often led by municipal governments. Further, as U.S. states increase regulation on existing and
emerging contaminants, we expect that our customers will increasingly require sustainable solutions to their water related
needs. In general, increased infrastructure investment and more stringent municipal, state and federal regulations promote
increased spending on our products, services and solutions, while a slowdown in investment in public infrastructure or the
elimination of key environmental regulations could result in lower industrial and municipal spending on water systems and
products.
Availability of water. In general, we expect demand for our products and services to increase as the availability
of clean water from public sources decreases. Secular trends that will drive demand for water across a multitude of industrial,
commercial and municipal applications include global population growth, urbanization, industrialization and overall
economic growth. In addition, the supply of clean water could be adversely impacted by factors including an aging water
infrastructure within North America and increased levels of water stress from seasonal rainfall, inadequate water storage
options or treatment technologies. Because water is a critical component and byproduct of many processes, including in
manufacturing and product development, we expect that, as global consumption patterns evolve and water shortages persist,
demand for our equipment and services will continue to increase.
Operational investment. Our historical operating results reflect the impact of our ongoing investments to support
our growth. We have made significant investments in our business that we believe have laid the foundation for continued
profitable growth. Activities related to operational investments include employee training and development, integrating
acquired businesses, implementing enhanced information systems, research, development and engineering investments and
other activities to enable us to support our operating model.
Our ability to source and distribute products effectively. Our revenues are affected by our ability to purchase our
inputs in sufficient quantities at competitive prices. While we believe our suppliers have adequate capacity to meet our
current and anticipated demand, our level of revenues could be adversely affected in the event of constraints in our supply
chain, including the inability of our suppliers to produce sufficient quantities of raw materials in a manner that is able to
match demand from our customers.
57
Contractual relationships with customers. Due to our large installed base and the nature of our contractual
relationships with our customers, we have high visibility into a large portion of our revenue. The one to twenty year terms
of many of our service contracts and the regular delivery and replacement of many of our products help to insulate us from
the negative impact of any economic decline.
Exchange rates. The reporting currency for our Consolidated Financial Statements is the U.S. dollar. We operate
in numerous countries around the world and therefore, certain of our assets, liabilities, revenues and expenses are denominated
in functional currencies other than the U.S. dollar, primarily in the euro, U.K. sterling, Chinese renminbi, Canadian dollar,
Australian dollar and Singapore dollar. To prepare our Consolidated Financial Statements we must translate those assets,
liabilities, revenues and expenses into U.S. dollars at the applicable exchange rate. As a result, increases or decreases in the
value of the U.S. dollar against these other currencies will affect the amount of these items recorded in our Consolidated
Financial Statements, even if their value has not changed in the functional currency. While we believe we are not susceptible
to any material impact on our results of operations caused by fluctuations in exchange rates because our operations are
primarily conducted in the U.S., if we expand our foreign operations in the future, substantial increases or decreases in the
value of the U.S. dollar relative to these other currencies could have a significant impact on our results of operations.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures. The
key indicators of the financial condition and operating performance of our business are revenue, gross profit, gross margin,
operating expenses, net income (loss) and Adjusted EBITDA (which is a non-GAAP financial measure, as described more
fully and reconciled to the most directly comparable GAAP financial measure below).
Revenue
Our sales are a function of sales volumes and selling prices, each of which is a function of the mix of product and
service sales, and consist primarily of:
sales of tailored light industry technologies, heavy industry technologies and environmental products, services
and solutions in collaboration with our industrial customers, backed by lifecycle services including emergency
response services and outsourced water alternatives, to a broad group of industrial customers in our U.S.,
Canada and Singapore markets;
sales of products, services and solutions to engineering firms and municipalities to purify drinking water and
treat wastewater globally; and
sales of a wide variety of differentiated products and technologies, to an array of OEM, distributor, end user,
engineering firm and integrator customers in all of our geographic markets and aftermarket channels.
Cost of Sales, Gross Profit and Gross Margin
Gross profit is determined by subtracting cost of product sales and cost of services from our product and services
revenue. Gross margin measures gross profit as a percentage of our combined product and services revenue.
Cost of product sales consists of all manufacturing costs required to bring a product to a ready for sale condition,
including direct and indirect materials, direct and indirect labor costs including benefits, freight, depreciation, information
technology, rental and insurance, repair and maintenance, utilities, other manufacturing costs, warranties and third party
commissions.
Cost of services primarily consists of the cost of personnel and travel for our field service, supply chain and
technicians, depreciation of equipment and field service vehicles and freight costs.
Operating Expenses
Operating expenses consist primarily of the following:
58
General and Administrative. General and administrative expenses (G&A expense) consist of fixed overhead
personnel expenses associated with our corporate functions and our service organization (including district and branch
managers, customer service, contract renewals and regeneration plant management). We expect our general and
administrative expenses to increase due to the anticipated growth of our business and related infrastructure as well as legal,
accounting, insurance, investor relations and other costs associated with being a public company.
Sales and Marketing. Sales and marketing expenses (S&M expense) consist primarily of advertising and
marketing promotions of our products, services and solutions and related personnel expenses (including all Evoqua sales
and application employees base compensation and incentives), as well as sponsorship costs, consulting and contractor
expenses, travel, display expenses and related amortization. We expect our sales and marketing expenses to increase as we
continue to actively promote our products, services and solutions.
Research and Development. Research and development expenses (R&D expense) consist primarily of personnel
expenses related to research and development, patents, sustaining engineering, consulting and contractor expenses, tooling
and prototype materials and overhead costs allocated to such expenses. Substantially all of our research and development
expenses are related to developing new products and services and improving our existing products and services. To date,
research and development expenses have been expensed as incurred, because the period between achieving technological
feasibility and the release of products and services for sale has been short and development costs qualifying for capitalization
have been insignificant.
R&D expense can fluctuate depending on our determination to invest in developing new products, services and
solutions and enhancing our existing products, services and solutions versus adding these capabilities through a mergers
and acquisitions strategy. R&D expenditures are concentrated in our products businesses.
Net Income (Loss)
Net income (loss) is determined by subtracting operating expenses and interest expense from, and adding other
operating income (expense), equity income from our partnership interest in Treated Water Outsourcing and income tax
benefit (expense) to gross profit. For more information on how we determine gross profit, see Gross Profit.
Adjusted EBITDA
Adjusted EBITDA, which is a non-GAAP financial measure, is one of the metrics used by management to evaluate
the financial performance of our business. 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. We present Adjusted EBITDA, which is not a recognized
financial measure under accounting principles generally accepted in the United States (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 and provides greater clarity to management and our investors
regarding the operational impact of 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.
59
In addition to the above, our chief operating decision maker uses EBITDAand Adjusted EBITDAof each reportable
operating segment to evaluate the operating performance of such segments. EBITDAand Adjusted EBITDAof the reportable
operating 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:
(In millions)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restructuring and related business transformation costs (a) . . . . . . . . . . . . . .
Share-based compensation (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sponsor fees (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (gains) losses and expenses (e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(a)
Restructuring and related business transformation costs
Year Ended September 30,
2020
2019
2018
114.4
$
(8.5) $
9.6
$
$
58.6
59.7
98.2
157.9
24.2
20.0
11.6
21.3
7.9
1.4
57.5
66.8
85.9
152.7
34.4
15.8
7.6
0.3
6.1
$
235.0
$
216.9
$
$
7.4
46.6
168.4
107.3
275.7
17.4
10.5
1.9
(65.9)
239.6
Adjusted EBITDA is calculated prior to considering certain restructuring or business transformation
events. These events may occur over extended periods of time and in some cases it is reasonably possible that
they could reoccur in future periods based on reorganizations of the business, cost reduction or productivity
improvement needs, or in response to economic conditions. For the periods presented such events include the
following:
(i)
Certain costs and expenses in connection with various restructuring initiatives, including severance costs,
relocation costs, recruiting expenses, and third-party consultant costs to assist with these initiatives. This
includes:
(A)
(B)
(C)
costs related to our voluntary separation plan pursuant to which approximately 220 employees
accepted separation packages;
amounts related to the Companys restructuring initiatives to reduce the cost structure and
rationalize location footprint following the sale of the Memcor product line;
amounts related to the Companys transition from a three-segment structure to a two-segment
operating model designed to better serve the needs of customers worldwide; and
60
(D)
amounts related to various other initiatives implemented to restructure and reorganize our
business with the appropriate management team and cost structure.
Year Ended September 30,
2020
2019
2018
Voluntary separation plan(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Post Memcor divestiture restructuring(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of product sales and services ("Cost of sales"). . . . . . . . . . . . . . . . . . . .
S&M expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Two-segment restructuring(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
R&D expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&M expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Various other initiatives(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
R&D expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&M expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
9.1
6.6
0.2
1.9
0.4
2.1
1.0
1.1
1.0
0.7
0.1
0.2
$
$
$
11.9
$
$
$
5.2
0.1
1.1
5.5
1.4
0.8
0.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
12.2
$
13.3
$
0.3
9.0
2.8
0.6
0.7
4.7
0.2
9.3
(1)
(2)
(3)
(4)
all of which is reflected as a component of Restructuring charges in Note 14, Restructuring and
Related Charges in Part II, Item 8 of this Annual Report (the Restructuring Footnote).
of which $8.3 million is reflected in the Restructuring Footnote in 2020.
of which $2.1 million and $11.1 million is reflected in the Restructuring Footnote in 2020 and
2019, respectively.
all of which is reflected in the Restructuring Footnote in 2020, 2019 and 2018.
(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. This includes:
Year Ended September 30,
2020
2019
2018
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.5
0.7
2.2
$
$
0.8
0.8
1.6
$
$
3.0
1.3
4.3
(iii)
expenses associated with our information technology and functional infrastructure transformation
subsequent to the AEA Acquisition, including activities to optimize information technology systems and
functional infrastructure processes. This includes:
61
Year Ended September 30,
2020
2019
2018
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.1
0.9
1.0
$
$
0.7
8.4
9.1
$
$
4.2
10.5
0.3
15.0
(iv)
costs associated with our secondary public offering of common stock held by certain shareholders of the
Company, as well as costs incurred by us in connection with our establishment of our public company
compliance structure and processes, including consultant costs. This includes:
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2.0
2.0
$
$
0.2
0.2
$
$
5.8
5.8
Year Ended September 30,
2020
2019
2018
(b)
Share-based compensation
Adjusted EBITDA is calculated prior to considering non cash share based compensation expenses related to equity
awards. See Note 17, Share-Based Compensation in Part II, Item 8 of this Annual Report for further detail.
(c)
Transaction related costs
Adjusted EBITDA is calculated prior to considering transaction, integration and restructuring costs associated with
business combinations because these costs are unique to each transaction and represent costs that were incurred
as a result of the transaction decision. Such costs may include, without limitation, consulting and legal costs
associated with due diligence and closing a transaction, restructuring and integration costs such as severance,
facility consolidation costs, product rationalization or inventory obsolescence charges, system integration or
conversion costs, fair value changes associated with contingent consideration, and costs associated with any
litigation matters that arise subsequent to our acquisition of a business for which the matter in question preceded
the transaction, but was not known, not probable or unresolved at the date of acquisition. We believe that viewing
earnings prior to considering these charges provides investors with useful additional perspective because the
significant costs incurred in connection with business combinations result primarily from the need to eliminate
duplicate assets, activities or employees - a natural result of acquiring or disposing a fully integrated set of activities.
Integration and restructuring costs associated with a business combination may occur over several years. This
includes:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.1
1.8
1.9
$
$
3.2
8.4
11.6
$
$
0.5
7.1
7.6
Year Ended September 30,
2020
2019
2018
(d)
Sponsor fees
Adjusted EBITDA is calculated prior to considering management fees paid to AEA pursuant to a management
agreement. Prior to our IPO, AEA provided advisory and consulting services to us, 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 our IPO, the management agreement
was terminated. See Note 20, Related-Party Transactions in Part II, Item 8 of this Annual Report for further
detail.
62
(e)
Other (gains), losses and expenses
Adjusted EBITDA is calculated prior to considering certain other significant (gains), losses and expenses. Such
significant items represent substantive and/or unusual items that are evaluated on an individual basis. Such
evaluation considers both the quantitative and qualitative aspects of their nature and they may be highly variable
and difficult to predict. Unusual items may represent items that are not part of our ongoing business, items that,
either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular
basis, items that would be non-recurring, or items related to products we no longer sell. While not all-inclusive,
examples of items that could be included as other (gains), losses and expenses would be amounts related to non-
cash foreign currency exchange gains and losses on intercompany loans, significant warranty events, and certain
disposals of businesses, products or facilities that do not qualify as discontinued operations under GAAP. For the
periods presented such events include the following:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
impact of foreign exchange gains and losses;
foreign exchange impact related to headquarter allocations;
expenses on disposal related to maintaining non operational business locations, net of gain on sale;
expenses incurred by the Company related to the remediation of manufacturing defects caused by a third-
party vendor for which partial restitution was received;
charges incurred by the Company related to product rationalization in its electro-chlorination business;
net pre-tax benefit on the sale of the Memcor product line, which is net of $8.3 million of discretionary
compensation payments to employees in connection with the transaction and $2.1 million in transaction
costs incurred in 2020, a gain on the sale of property at a location in our German operations in 2019 and
a gain on the sale of assets related to the disposition of land at our Windsor, Australia location in 2018;
and
expenses incurred by the Company related to the write-off of inventory associated with product
rationalization and facility consolidation.
expenses incurred by the Company as a result of the COVID-19 pandemic, including additional charges
for personal protective equipment, increased costs for facility sanitization and one-time payments to
certain employees.
Other (gains), losses and expenses include the following for the periods presented below:
Year Ended September 30, 2020
Other Adjustments
(v)
(vi)
(vii)
(viii)
Total
$
0.7
0.1
0.3
$ $
0.8
0.5
$
1.4
(7.7)
(59.6)
$ (65.9)
1.3
(58.1)
0.7
$ (57.7) $ $
(i)
Cost of sales . . . . . . . . . . . . . . . $ (0.2) $ $ $ $
G&A expense . . . . . . . . . . . . . .
Other operating (income)
(8.5)
(iii)
(iv)
(ii)
expense . . . . . . . . . . . . . . . . .
(1.5)
Total . . . . . . . . . . . . . . . . . . . . $ (8.7) $ $ $ (1.5) $
63
Year Ended September 30, 2019
Cost of sales . . . . . . . . . . . . . . . $
G&A expense . . . . . . . . . . . . . .
Other operating (income)
expense . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . $ 10.5
Year Ended September 30, 2018
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
Total
Other Adjustments
0.4
$ $
10.1
$
0.3
(0.3)
2.1
2.1
$
$
4.1
4.1
$ $
(0.4)
$ (0.4) $
5.0
5.0
$ $ 11.9
10.1
(0.7)
$ $ 21.3
$ $ $
Other Adjustments
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
Total
Cost of sales . . . . . . . . . . . . . . . $
G&A expense . . . . . . . . . . . . . .
Other operating (income)
expense . . . . . . . . . . . . . . . . .
0.7
7.3
$ $
(0.5)
(2.1)
Total . . . . . . . . . . . . . . . . . . . . $
5.9
$ (0.5) $
1.0
1.0
$
$
3.9
3.9
$ $
$
0.1
(6.9)
$ $ (6.8) $
2.1
0.5
2.6
$ $
$ $
7.8
7.3
(9.0)
6.1
64
Results of Operations
The following tables summarize key components of our results of operations for the periods indicated:
(In millions, except per share amounts)
Revenue from product sales and services . . . . . . . . . $
Cost of product sales and services . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
General and administrative expense . . . . . . . . . . . . .
Sales and marketing expense . . . . . . . . . . . . . . . . . . .
Research and development expense. . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . $
Other operating income, net. . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . $
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
% Variance
2020
2019
% of
Revenue
% of
Revenue
2020
vs. 2019
1,429.5
(979.7)
449.8
(192.6)
(136.2)
(13.2)
100.0 % $
1,444.4
(68.5)%
(1,018.4)
31.5 % $
(13.5)%
(9.5)%
(0.9)%
426.0
(217.1)
(138.9)
(15.3)
(342.0)
(23.9)% $
(371.3)
60.6
(46.6)
121.8
(7.4)
114.4
4.2 %
(3.3)%
8.5 % $
(0.5)%
8.0 % $
5.0
(58.6)
1.1
(9.6)
(8.5)
100.0 %
(70.5)%
29.5 %
(15.0)%
(9.6)%
(1.1)%
(25.7)%
0.3 %
(4.1)%
(1.0)%
(3.8)%
5.6 %
(11.3)%
(1.9)%
(13.7)%
(7.9)%
1,112.0 %
(20.5)%
0.1 % (10,972.7)%
(0.7)%
(0.6)%
(22.9)%
1,445.9 %
interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.8
0.1 %
1.0
0.1 %
(20.0)%
113.6
7.9 % $
(9.5)
(0.7)%
1,295.8 %
Net income (loss) attributable to Evoqua Water
Technologies Corp.. . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average shares outstanding
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (loss) per share
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other financial data:
116.7
121.1
0.97
0.94
Adjusted EBITDA (1) . . . . . . . . . . . . . . . . . . . . . . . . $
239.6
16.8%
114.7
114.7
(0.08)
(0.08)
235.0
16.3 %
2.0 %
$
$
$
(1)
For the definition of Adjusted EBITDA and a reconciliation to net income (loss), its most directly comparable
financial measure presented in accordance with GAAP, see How We Assess the Performance of Our Business-
Adjusted EBITDA.
65
Years Ended September 30, 2020 and September 30, 2019
Consolidated Results
Revenues-Revenues decreased $14.9 million, or 1.0%, to $1,429.5 million in the year ended September 30, 2020
from $1,444.4 million in the prior year. The following table provides the change in revenues from product sales and revenues
from services, respectively:
Revenue from product sales . . . . . . . . . . . . . . . $
Revenue from services . . . . . . . . . . . . . . . . . . .
$
Year Ended September 30,
2020
2019
% Variance
% of
Revenue
839.9
589.6
1,429.5
58.8% $
41.2%
100.0% $
851.1
593.3
1,444.4
% of
Revenue
58.9%
41.1%
100.0%
(1.3)%
(0.6)%
(1.0)%
Revenues from product sales decreased $11.2 million, or 1.3% from the prior year. This decrease in product sales
was primarily due to the divestiture of the Memcor product line of $44.4 million in the current year. Aftermarket product
revenues declined $40.7 million in the current year and was related to the divestiture of the Memcor product line as well
as site closures and delays due to COVID-19. The aftermarket revenue decrease was offset by an increase in capital revenues
of $29.5 million. This increase was primarily related to projects in the microelectronics end market as well as $15.7 million
related to the acquisitions of ATG UV and Frontier.
Revenues from services decreased $3.7 million, or 0.6% from the prior year. This decrease was driven by the
impact of COVID-19 shut-downs and delays, primarily in refining and oil and gas end markets, as well as the timing of
completion of certain large projects in the prior year. This decrease was partially offset by price realization related to
established service contracts.
Cost of Sales and Gross Margin-Total gross margin increased to 31.5% in the year ended September 30, 2020
from 29.5% in the prior year. The following table provides the change in cost of product sales and cost of services,
respectively, along with related gross margins:
Cost of product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Year Ended September 30,
2020
2019
Gross
Margin %
(588.3)
(391.4)
(979.7)
30.0% $
33.6%
31.5% $
(615.1)
(403.3)
(1,018.4)
Gross
Margin %
27.7%
32.0%
29.5%
The gross margin for product sales increased 2.3% from the prior year. The increase in gross margin was primarily
driven by costs incurred in the prior year of $8.2 million related to restructuring and product rationalization, that did not
reoccur in the current year.
Gross margin from services increased 1.6% from the prior year. This increase is mainly driven by price realization
recognized in revenue as well as continued focus on labor productivity even as previous increases in revenue volumes were
offset in the current period.
Operating Expenses-Operating expenses decreased $29.3 million, or 7.9%, to $342.0 million in year ended
September 30, 2020 from $371.3 million in the prior year. The decrease is mainly due to favorable change in foreign currency
66
translation on intercompany loans of $20.1 million along with a decrease in share-based compensation expense of $9.5
million. In addition, the divestiture of the Memcor product line resulted in a decrease of $7.5 million of operating expenses
in the current year. This decrease was partially offset by increased costs of $10.2 million of employment and benefit expenses
and increased costs of $7.6 million related to the addition of operating expenses as a result of the ATG UV and Frontier
acquisitions, mainly due to amortization expense on purchased intangibles. The remaining decrease is due to various efforts
taken by the Company to reduce costs across various areas in response to COVID-19 uncertainties, such as reduced travel
and consulting costs.
A discussion of operating expenses by category is as follows:
Research and Development Expense-Research and development expense decreased $2.1 million, or 13.7%, to
$13.2 million in the year ended September 30, 2020 from $15.3 million in the prior year due to the Companys
continued efforts to reduce spending, offset partially by increased expenses by the addition of the Frontier
acquisition.
Sales and Marketing Expense-Sales and marketing expense decreased $2.7 million, or 1.9%, to $136.2 million
in the year ended September 30, 2020 from $138.9 million in the prior year mainly due to a reduction in sales and
marketing expenses related to the divestiture of the Memcor product line in the current year, as well as a reduction
in certain marketing initiatives and travel related expenses, offset by increased costs for salaries and incentive
compensation and the addition of the Frontier acquisition.
General and Administrative Expense-General and administrative expense decreased $24.5 million, or 11.3%,
to $192.6 million in the year ended September 30, 2020 from $217.1 million in the prior year. This decrease is
primarily due to:
favorable change in foreign currency translation on the intercompany loans of $19.6 million
reduction in share-based compensation expense of $9.2 million
reduction in consulting fees of $4.4 million
reduction in travel expenses of $4.3 million
reduction in benefits of $3.7 million
The above factors were partially offset by:
increased employee related costs of $8.8 million
increased costs of $4.3 million related to the Frontier acquisition
costs of $1.8 million incurred related to the secondary public offering of shares of common stock
held by certain shareholders of the Company
restructuring costs of $1.9 million following the sale of the Memcor product line
Other Operating Income, Net-Other operating income, net increased $55.6 million, to income of $60.6 million
in the year ended September 30, 2020 from income of $5.0 million in the prior year. The increase is mainly due to the net
pre-tax benefit of $57.7 million on sale of the Memcor product line net of $8.3 million of discretionary compensation
payments to employees in connection with the transaction and $2.1 million in transaction costs incurred in the current year.
Interest Expense-Interest expense decreased $12.0 million, or 20.5%, to $46.6 million in the year ended
September 30, 2020 from $58.6 million in the prior year. The decrease in interest expense was primarily driven by a reduction
in LIBOR year over year in addition to a $100.0 million debt repayment that occurred in the current year, partially offset
by a write-off of deferred financing fees related to the debt paydown and interest expense associated with additional
equipment financings.
67
Income Tax Expense-Income tax expense was $7.4 million for the year ended September 30, 2020, compared to
expense of $9.6 million in the prior year. The decrease in expense was primarily the result of the favorable impact on deferred
tax liabilities related to indefinite lived intangibles, a portion of which were reversed in relation to the sale of the Memcor
product line.
Net Income (loss) -Net income increased by $122.9 million, or 1,445.9%, to net income of $114.4 million for the
year ended September 30, 2020 from a net loss of $8.5 million in the prior year. This increase was primarily due to the sale
of the Memcor product line, which resulted in a gain on sale of $68.1 million, less amounts paid for discretionary bonuses
of $8.3 million and transaction costs of $2.1 million. The resulting net pre-tax benefit was $57.7 million. In addition to the
net benefit of the sale, we saw operational efficiencies and a favorable change in foreign currency translation resulting in
a net gain of $20.8 million. Finally, interest expense and income tax expense decreased by $12.0 million and $2.2 million,
respectively.
Adjusted EBITDA-Adjusted EBITDAis a non-GAAPfinancial measure.Adjusted EBITDAincreased $4.6 million,
or 2.0%, to $239.6 million for the year ended September 30, 2020 from $235.0 million for the prior year. The increase in
Adjusted EBITDA as compared to the prior year period was primarily driven by operational efficiencies.
68
Segment Results
Revenues
Integrated Solutions and Services . . . . . . . . . . . $
Applied Product Technologies. . . . . . . . . . . . . .
Total Consolidated . . . . . . . . . . . . . . . . . . . . . $
Operating Profit
Integrated Solutions and Services . . . . . . . . . . . $
Applied Product Technologies. . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consolidated . . . . . . . . . . . . . . . . . . . . . $
EBITDA
Integrated Solutions and Services . . . . . . . . . . . $
Applied Product Technologies. . . . . . . . . . . . . .
Corporate and unallocated costs . . . . . . . . . . . .
Total Consolidated . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2020
2019
% of
Revenue
% of
Revenue
% Variance
944.2
485.3
1,429.5
66.1 % $
33.9 %
100.0 % $
910.8
533.6
1,444.4
145.7
134.3
(111.6)
168.4
213.1
148.5
(85.9)
275.7
10.2% $
9.4 %
(7.8)%
11.8% $
14.9 % $
10.4 %
(6.0)%
19.3 % $
148.6
69.4
(158.3)
59.7
205.8
87.1
(135.0)
157.9
63.1 %
36.9 %
100.0 %
10.3%
4.8 %
(11.0)%
4.1%
14.2 %
6.0 %
(9.3)%
10.9 %
3.7 %
(9.1)%
(1.0)%
(2.0)%
93.5 %
(29.5)%
182.1 %
3.5 %
70.5 %
(36.4)%
74.6 %
Adjusted EBITDA on a segment basis is defined as earnings before interest, taxes, 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:
Year Ended September 30,
2020
2019
Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and related business transformation costs (a) .
Transaction costs (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal fees (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (gains) losses and expenses (d). . . . . . . . . . . . . . . . . . .
Segment Adjusted EBITDA (e) . . . . . . . . . . . . . . . . . . . . . . . $
Integrated
Solutions
and Services
145.7
Applied
Product
Technologies
134.3
$
Integrated
Solutions
and Services
148.6
$
Applied
Product
Technologies
69.4
$
67.4
213.1
0.6
213.7
$
14.2
148.5
9.7
(0.5)
(58.5)
99.2
57.2
205.8
0.5
0.5
0.1
$
206.9
$
17.7
87.1
1.1
0.7
0.6
10.4
99.9
(a)
(b)
Represents costs and expenses in connection with restructuring initiatives distinct to our Integrated Solutions and
Services and Applied Product Technologies segments, respectively, incurred in 2020 and 2019. Such expenses
are primarily composed of severance and relocation costs.
Represents costs associated with a change in the current estimate of certain acquisitions achieving their earn-out
targets, which resulted in a (decrease) increase to the fair valued amount of the earn-out recorded upon acquisition
in 2020 and 2019, distinct to our Integrated Solutions and Services and Applied Product Technologies segments.
69
(c)
(d)
Represents warranty costs associated with the settlement of a legacy warranty claim in 2019, distinct to our Applied
Product Technologies segment.
Other (gains) and losses and expenses as discussed above in How We Assess the Performance of Our Business-
Adjusted EBITDA distinct to our Integrated Solutions and Services and Applied Product Technologies segments
include the following:
(In millions)
Net pre-tax benefit on sale of the Memcor product
Year Ended September 30,
2020
2019
Integrated
Solutions
and Services
Applied
Product
Technologies
Integrated
Solutions
and Services
Applied
Product
Technologies
line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Gain on sale of property . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remediation of manufacturing defects. . . . . . . . . . . . . . . . . .
Product rationalization in electro-chlorination
business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses related to maintaining non-operational business
locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
(57.7) $
(1.5)
0.7
(58.5) $
$
0.1
0.1
(0.4)
2.1
3.7
5.0
$
10.4
(e)
For the definition of Adjusted EBITDA and a reconciliation to net income (loss), its most directly comparable
financial measure presented in accordance with GAAP, see How We Assess the Performance of Our Business-
Adjusted EBITDA. Immaterial rounding differences may be present in the tables above.
Integrated Solutions and Services
Revenues in the Integrated Solutions and Services segment increased $33.4 million, or 3.7%, to $944.2 million in
the year ended September 30, 2020 from $910.8 million in the prior year, driven primarily by stronger capital growth of
$38.3 million, inclusive of acquisitions, primarily related to projects in the microelectronics end market. Our recent
investment in Frontier resulted in an increase of $4.9 million of revenue. These increases were offset by a reduction in
aftermarket revenue of $3.7 million and a reduction in service revenue of $1.2 million. The segment also saw an
unfavorable foreign currency translation impact of $0.7 million.
Operating profit in the Integrated Solutions and Services segment decreased $2.9 million, or 2.0%, to $145.7
million in the year ended September 30, 2020 from $148.6 million in the prior year. Segment profitability improved $20.9
million in the period primarily driven by higher organic revenue volume, augmented by improved pricing, which was
70
partially offset by $6.0 million of operational variances in the year related to lower service volumes and productivity due
to customer shutdowns and enhanced safety protocols. The current period negative impacts were partially mitigated by $2.9
million of cost containment measures implemented in response to the uncertainties of COVID-19. Profitability in the current
year was also favorably impacted by the non-recurrence of $0.5 million of charges related to the achievement of earn-out
targets associated with the Pure Water acquisition. Profitability was also impacted by increased employment and benefit
expenses of $11.0 million. Additional negative drivers to profitability included $10.2 million from higher depreciation and
amortization.
EBITDA in the Integrated Solutions and Services segment increased $7.3 million, or 3.5%, to $213.1 million in
the year ended September 30, 2020 from $205.8 million in the prior year.
Applied Product Technologies
Revenues in the Applied Product Technologies segment decreased by $48.3 million, or 9.1%, to $485.3 million in
the year ended September 30, 2020 from $533.6 million in the prior year. The divestiture of the Memcor product line resulted
in a reduction in revenue of $51.2 million in the current period. This reduction was partially offset by increased revenues
from the acquisition of ATG UV of $10.8 million. Additionally, revenues were down by $11.5 million in the Americas
predominantly due to COVID-19 slowdown and delays. The segment also saw an unfavorable foreign currency translation
impact of $1.1 million. These declines were partially offset by revenue growth of $3.2 million and $1.5 million in the Asia
Pacific and EMEA regions respectively.
71
Operating profit in the Applied Product Technologies segment increased $64.9 million, or 93.5%, to $134.3 million
in the year ended September 30, 2020 from $69.4 million in the prior year. The increase was mainly due to the net pre-tax
benefit on the sale of the Memcor product line of $57.7 million, net of $8.3 million of discretionary compensation payments
to employees in connection with the transaction and $2.1 million in transaction costs incurred. In addition, revenue volume
and operational variances increased operating profit by $2.1 million, which is comprised of favorable operational variances
of $7.1 million, as well as product mix augmented by improved pricing, partially offset by volume, netting to $2.1 million.
These increases were partially offset by a net reduction in operating profit of $5.5 million related to the divestiture of the
Memcor product line and the acquisition of ATG UV as well as increased inflation and employee related costs of $1.6
million. The increase in operating profit was also due to lower depreciation of $3.5 million. Further increases were due to
net reduction in nonrecurring costs of $1.7 million related to:
Reduction in costs incurred by the Company of $4.9 million related to the write-off of inventory in the
prior year associated with product rationalization and facility consolidation;
A $3.6 million reduction in costs incurred by the Company from a settlement with a third-party vendor
associated with remediation of manufacturing defects caused by the vendor;
Reductions in costs of $1.4 million related to the achievement of earn-out targets associated with certain
acquisitions;
Reductions in product rationalization costs of $3.0 million related to charges incurred by the Company
in its electro-chlorination business;
A gain on sale recorded in the prior year of $0.4 million which did not reoccur in the current year;
Increases in restructuring charges of $8.0 million primarily due to costs incurred following the sale of the
Memcor product line; and
Release of an acquisition related contingency due to the passage of time in the prior year for $2.8 million.
Operating profit was also reduced by foreign currency of $0.1 million.
EBITDA in the Applied Product Technologies segment increased $61.4 million, or 70.5%, to $148.5 million in
the year ended September 30, 2020 from $87.1 million in the prior year.
72
For a discussion of the results of operations for the years ended September 30, 2019 and September 30, 2018 refer
to the Results of Operations included in Item 7. in the Companys 10-K filed with the SEC on November 25, 2019.
Liquidity and Capital Resources
Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its
business operations, including working capital needs, debt service, acquisitions, other commitments and contractual
obligations. We consider liquidity in terms of cash flows from operations and their sufficiency to fund our operating and
investing activities.
Our principal sources of liquidity are our cash generated by operating activities and borrowings under our $125.0
million Revolving Credit Facility. Historically, we have financed our operations primarily from cash generated from
operations and increased equipment financings. Our primary cash needs are for day to day operations, to pay interest and
principal on our indebtedness, to fund working capital requirements and to make capital expenditures.
As part of our ongoing efforts to improve our cash flow and related liquidity, we work with suppliers to optimize
our terms and conditions, including occasional extensions of payment terms. We also facilitate a voluntary supply chain
finance program (the Finance Program) to provide certain of our suppliers with the opportunity to sell receivables due
from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. A third
party administers the Finance Program; our responsibility is limited to making payment on the terms originally negotiated
with our supplier, regardless of whether the supplier sells its receivable to a financial institution. We do not enter into
agreements with any of the participating financial institutions in connection with the Finance Program. The range of payment
terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the Finance Program.
The September 30 year to date amounts settled through the Finance Program and paid to participating financial institutions
were $38.9 million, and $8.6 million in fiscal 2020, and fiscal 2019, respectively. A downgrade in our credit rating or changes
in the financial markets could limit the financial institutions willingness to commit to participation in the Finance Program.
We expect to continue to finance our liquidity requirements through internally generated funds and borrowings
under our Revolving Credit Facility. We believe that our projected cash flows generated from operations, together with
borrowings under our Revolving Credit Facility are sufficient to fund our principal debt payments, interest expense, our
working capital needs and our expected capital expenditures for the next twelve months. Our capital expenditures for the
years ended September 30, 2020 and 2019 were $88.5 million and $88.9 million, respectively. However, our budgeted
capital expenditures can vary from period to period based on the nature of capital intensive project awards. We may draw
on our Revolving Credit Facility from time to time to fund or partially fund an acquisition.
As of September 30, 2020, we had total indebtedness of $885.5 million, including $819.3 million of borrowings
under the Term Loan Facility, no borrowings under our Revolving Credit Facility, $63.9 million in borrowings related to
equipment financings, $0.6 million of notes payable related to certain equipment related contracts and $1.7 million related
to a mortgage. We also had $13.0 million of letters of credit issued under our Revolving Credit Facility and an additional
$52 thousand of letters of credit issued under a separate uncommitted facility as of September 30, 2020.
Our senior secured credit facilities contain a number of covenants imposing certain restrictions on our business.
These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential
business opportunities as they arise. The restrictions these covenants place on our business operations, include limitations
on our or our subsidiaries ability to:
incur or guarantee additional indebtedness;
make certain investments;
pay dividends or make distributions on our capital stock;
sell assets, including capital stock of restricted subsidiaries;
agree to payment restrictions affecting our restricted subsidiaries;
73
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
enter into transactions with our affiliates;
incur liens; or
designate any of our subsidiaries as unrestricted subsidiaries.
We are a holding company and do not conduct any business operations of our own. As a result, our ability to pay
cash dividends on our common stock, if any, is dependent upon cash dividends and distributions and other transfers from
our operating subsidiaries. Under the terms of our senior secured credit facilities, our operating subsidiaries are currently
limited in their ability to pay cash dividends to us, and we expect these limitations to continue in the future under the terms
of any future credit agreement or any future debt or preferred equity securities of ours or of our subsidiaries.
In addition, our Revolving Credit Facility, but not the First Lien Term Loan, contains a financial covenant which
requires us to comply with the maximum first lien net leverage ratio of 5.55 to 1.00 as of the last day of any quarter on
which the aggregate amount of revolving loans and letters of credit outstanding under the Revolving Credit Facility (net of
cash collateralized letters of credit and undrawn outstanding letters of credit in an amount of up to 50% of the Revolving
Credit Facility) exceeds 25% of the total commitments thereunder.
As of September 30, 2020 and 2019, we were in compliance with the covenants contained in the senior secured
credit facilities.
Our indebtedness could adversely affect our ability to raise additional capital, limit our ability to react to changes
in the economy or our industry, expose us to interest rate risk and prevent us from meeting our obligations. See Item 1A,
Risk Factors-Our substantial indebtedness could adversely affect our financial condition and limit our ability to raise
additional capital to fund our operations.
Cash Flows
The following table summarizes the changes to our cash flows for the periods presented:
(In millions)
Statement of Cash Flows Data
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents classified as held for sale . . . . . . . . . . . . . . . . . . . .
Change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2020
2019
2018
158.4
$
12.0
(89.5)
2.2
83.1
$
125.2
(94.5)
5.7
(1.6)
(7.3)
27.5
$
81.0
(207.0)
150.6
(1.5)
$
23.1
Operating Activities
Cash flows from operating activities can fluctuate significantly from period to period as working capital needs
and the timing of payments for restructuring activities and other items impact reported cash flows.
Net cash provided by operating activities increased to $158.4 million in the year ended September 30, 2020 from
$125.2 million in the year ended September 30, 2019.
74
Operating cash flows in the year ended September 30, 2020 reflect an increase in net income of $122.9 million
from the year ended September 30, 2019, primarily driven by the sale of the Memcor product line.
The add back of non cash charges increased operating cash flows by $45.3 million for the year ended September
30, 2020 as compared to an increase to operating cash flows of $132.5 million for the year ended September
30, 2019, resulting in an overall reduction of $87.2 million. This reduction in the current year was primarily
driven by the adjustment for gain on sale of business, as well as decreased share-based compensation expenses
and foreign currency gains, offset by an increase in depreciation and amortization expense.
The aggregate of receivables, inventories, contract assets, accounts payable and contract billings provided
$23.1 million in operating cash flows in the year ended September 30, 2020 compared to $7.8 million in the
prior year. The amount of cash flow generated from or used by the above mentioned accounts depends upon
how effectively we manage our cash conversion cycle, which is a representation of the number of days that
elapse from the date of purchase of raw materials and components to the collection of cash from customers.
Our cash conversion cycle can be significantly impacted by the timing of collections and payments in a period.
Income taxes provided $0.6 million for the year end September 30, 2020, as compared to using $3.6 million
during the year ended September 30, 2019, resulting in an increase to cash flows of $4.2 million.
The aggregate of prepaid expense and other assets and other non current assets and liabilities provided $17.8
million in operating cash flows in the year ended September 30, 2020 compared to the providing of $21.8
million in operating cash flows in the prior year.
Accrued expenses and other liabilities provided $3.4 million in operating cash flows in the year ended
September 30, 2020 compared to a use of $9.2 million in the prior year.
Investing Activities
Net cash provided by investing activities increased $106.5 million to $12.0 million in the year ended September 30,
2020 from net cash used in investing activities of $94.5 million in the year ended September 30, 2019. This increase was
largely driven by proceeds from the sale of the Memcor product line in fiscal 2020, partially offset by higher cash outflow
associated with the Frontier and Aquapure acquisitions that occurred in fiscal 2020. Other activity related to purchase of
capital or intangible assets remained relatively consistent with the prior fiscal year.
75
Financing Activities
Net cash used in financing activities increased $95.2 million to $89.5 million in the year ended September 30,
2020 from net cash provided by financing activities of $5.7 million in the year ended September 30, 2019. This additional
amount of cash used in financing activities for year ended September 30, 2020 was primarily due to the $100 million debt
payment, which was offset by cash received from the issuance of common stock in connection with the exercise of stock
options. In addition, there was an increase in the issuance of debt and higher borrowings under the credit facility and other
financing arrangements that occurred in 2019.
Seasonality
Our business may exhibit seasonality resulting from our customersincreasing demand for our products and services
during the spring and summer months as compared to the fall and winter months. For example, our business servicing
municipal customers experiences increased demand for our odor control product lines and services in the warmer months
which, together with other factors, typically results in improved performance in the second half of our fiscal year. Inclement
weather, such as hurricanes, droughts and floods, can also drive increased demand for our products and services. As a result,
our results from operations may vary from period to period.
Seasonal trends historically displayed by our business could be impacted by the COVID-19 pandemic, and past
performance should not be considered indicative of future results. For example, decreased customer demand resulting from
the economic slowdown caused by the pandemic and the measures taken to control its spread could negate the seasonal
factors that have historically resulted in improved performance in the second half of our fiscal year.
Off Balance Sheet Arrangements
As of September 30, 2020 and 2019, we had letters of credit totaling $13.0 million outstanding under our credit
arrangements. In addition, as of September 30, 2020 and 2019, we had surety bonds totaling $153.0 million and $144.7
million, respectively, outstanding under our credit arrangements. The longest maturity date of the letters of credit and surety
bonds in effect as of September 30, 2020 was March 20, 2030.
76
Contractual Obligations
We enter into long term obligations and commitments in the normal course of business, primarily debt obligations
and non cancelable operating leases. As of September 30, 2020, our contractual cash obligations over the next several
periods were as follows:
(In millions)
Total
Less than
1 year
1 to
3 years
3 to
5 years
More than
5 years
. . . . . . . . . . . . . $
885.5
$
16.5
$
33.8
$
804.3
$
30.9
obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease commitments (b) . . . . . . . . . . .
Finance lease commitments (c) . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
117.5
56.7
41.3
1,101.0
$
27.4
14.6
12.9
71.4
53.1
21.5
18.6
32.9
12.9
8.7
4.1
7.7
1.1
$
127.0
$
858.8
$
43.8
(a)
(b)
(c)
The amounts shown in this table do not include any net reductions for deferred financing fees. The amounts for
current and long-term debt shown on the Consolidated Balance Sheets are net of deferred financing fees.
We occupy certain facilities and operate certain equipment and vehicles under non cancelable lease arrangements.
Lease agreements may contain lease escalation clauses and purchase and renewal options. We recognize scheduled
lease escalation clauses over the course of the applicable lease term on a straight line basis.
We lease certain equipment classified as finance leases. The leased equipment is depreciated on a straight line
basis over the life of the lease and is included in depreciation expense.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and
assumptions about future events that affect amounts reported in our Consolidated Financial Statements and related notes,
as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Management
evaluates its accounting policies, estimates and judgments on an on going basis. Management bases its estimates and
judgments on historical experience, current trends and various other factors that are believed to be relevant at the time
Consolidated Financial Statements are prepared. Actual results may differ from these estimates under different assumptions
and conditions.
Management evaluated the development and selection of its critical accounting policies and estimates and believes
that the following involve a higher degree of judgment, complexity or uncertainty and are most significant to reporting our
results of operations and financial position, and are therefore discussed as critical. The following critical accounting policies
reflect the significant estimates and judgments used in the preparation of our Consolidated Financial Statements. Other than
the adoption of ASU No. 2016-02, Leases (Topic 842), in the first quarter of fiscal 2020, we have not made any material
changes to our accounting policies or methodologies during the current year. More information on all of our significant
accounting policies can be found in Note 2, Summary of Significant Accounting Policies in Part II, Item 8 of this Annual
Report.
Acquisitions and Purchase Price Allocation
We record acquisitions using the purchase method of accounting in accordance with ASC 805, Business
Combinations, which requires that the assets acquired and liabilities assumed, including contingent consideration, be
recorded at their respective fair values at the acquisition date. The excess of the purchase price over the estimated fair values
of the net tangible and intangible assets acquired is recorded as goodwill. The application of the purchase method of
accounting requires management to make significant estimates and assumptions in the determination of the fair value of
assets acquired and liabilities assumed, in order to properly allocate purchase price consideration. These assumptions and
77
estimates include a market participants use of the asset and the appropriate discount rates for a market participant. Our
estimates are based on historical experience, information obtained from the management of the acquired companies and
with the assistance of independent third-party appraisal firms. Significant assumptions and estimates include quoted market
prices, carrying values, and expected future cash flows, which includes consideration of future growth rates and margins,
attrition rates, future changes in technology and brand awareness, loyalty, and the appropriate weighted-average cost of
capital and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and
unanticipated events and circumstances may occur which could affect the accuracy or validity of estimates used in purchase
accounting. The purchase price allocation recorded in a business combination may change during the measurement period,
which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing
at the acquisition date becomes available.
We record contingent consideration arrangements at fair value on a recurring basis as earn-outs related to
acquisitions. The fair value of earn-outs related to acquisitions is based on significant unobservable inputs including the
achievement of certain performance metrics. Significant changes in these inputs would result in corresponding increases
or decreases in the fair value of the earn-out each period until the related contingency has been resolved. Changes in the
fair value of the contingent consideration obligations can result from adjustments in the probability of achieving future
development steps, sales targets and profitability and are recorded in General and administrative expenses in the Consolidated
Statements of Operations.
Goodwill Impairment Review
We review goodwill to determine potential impairment annually during the fourth quarter of our fiscal year, or
more frequently if events and circumstances indicate that the asset might be impaired. Impairment testing for goodwill is
performed at a reporting unit level. A reporting unit is defined as an operating segment or one level below the operating
segment. We have determined that we have three reporting units.
The fair values of reporting units are determined using a combination of two methods, one utilizing market revenue
and earnings multiples derived from stocks of companies that are engaged in the same or similar lines of business and that
are actively traded on a free and open market applied to the corresponding measure of our reporting units financial
performance (the market approach - guideline public company (GPC) method), and the other derived from discounted
cash flow models with estimated cash flows based on internal forecasts of revenues and expenses over a specified period
plus a terminal value (the income approach discounted cash flows (DCF) method). In estimating the fair value of the
reporting unit utilizing a DCF valuation technique, we incorporate our judgment and estimates of future cash flows, future
revenue and gross profit growth rates, terminal value amount, capital expenditures and applicable weighted average cost
of capital used to discount these estimated cash flows. The estimates and projections used in the estimate of fair value are
consistent with our current budget and long range plans, including anticipated change in market conditions, industry trends,
growth rates and planned capital expenditures, among other considerations.
We believe these two approaches are appropriate valuation techniques and we generally weight the two resulting
values equally as an estimate of a reporting unit's fair value for the purposes of our impairment testing. However, we may
weigh one value more heavily than the other when conditions merit doing so. If market conditions change compared to
those used in our market approach, or if actual future results of operations fall below the projections used in the DCF method,
our goodwill could become impaired in the future. As a result of our goodwill impairment assessment, we have concluded
that none of our goodwill was impaired as of September 30, 2020, and we do not believe the risk of impairment is significant
at this time.
Impairment of Long Lived Assets
Long lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset
group may not be recoverable. Conditions that may indicate impairment include, but are not limited to, a significant adverse
change in customer demand or business climate that could affect the value of an asset based on indicators of reduced profits
or losses generated by the asset or asset group, a product recall or an adverse action by a regulator, such as a successful
challenge of patent rights.
78
When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is
less than the carrying value of the asset or asset group. Fair value of long-lived assets are determined using an appraised
value (obtained with the assistance of independent third-party appraisal firms) or using an income approach, specifically
the discounted cash flow method. Starting with a forecast of the expected future net cash flows associated with an asset or
group of assets, we then apply an asset-specific discount rate to arrive at a net present value amount. There were no material
impairments of long-lived assets recorded in the current year.
We amortize long-lived assets with finite lives over their estimated useful lives on a straight line basis. This
amortization methodology best matches the pattern of economic benefit that is expected from definite lived assets.
Revenue Recognition
For sales of aftermarket parts or products with a low level of customization and engineering time, the Company
recognizes revenues at the time risks and rewards of ownership pass, which is generally when products are shipped or
delivered to the customer as the Company has no obligation for installation. The Company considers shipping and handling
services to be fulfillment activities and as such they do not represent separate performance obligations for revenue
recognition. Sales of service arrangements are recognized as the services are performed.
For certain arrangements where there is significant customization to the product and for long-term construction-
type sales contracts, revenue may be recognized over time as performance is completed. In these instances, revenue is
recognized using a measure of progress that applies an input method based on costs incurred in relation to total estimated
costs at completion (the percentage-of-completion method). These arrangements include large water treatment projects,
systems and solutions for municipal and industrial applications. The nature of the contracts is generally fixed price with
milestone billings. In order for revenue to be recognized over a period of time, the product must have no alternative use
and the Company must have an enforceable right to payment for the performance completed to date, including a normal
profit margin, in the event of termination for convenience. If these two criteria are not met, revenues from these contracts
will not be recognized until construction is complete. Contract costs include all direct materials, labor, subcontractors costs
and indirect costs related to contract performance. We believe this is the most accurate measure of contract performance
because it directly measures the value of the goods and services transferred to the customer.
The percentage-of-completion method of revenue recognition requires us to prepare estimates of cost to complete
for contracts in progress. Due to the nature of the work performed on many of our performance obligations, the estimates
of total revenue and cost at completion is complex, subject to many variables and may require significant judgment. In
making such estimates, judgments are required to evaluate contingencies such as weather, potential variances in schedule
and the cost of materials, labor cost and productivity, the impact of change orders, liability claims, contract disputes and
achievement of contractual performance standards. As a significant change in one or more of these estimates could affect
the profitability of our contracts, we routinely review and update our significant contract estimates through a disciplined
project review process in which management reviews the progress and execution of our performance obligations and
estimates at completion. Contract revenues and cost estimates are reviewed and revised monthly and the cumulative effect
of such adjustments are recognized in current operations. Such changes in contract estimates can result in the recognition
of revenue in a current period for performance obligations which were satisfied or partially satisfied in a prior period.
Changes in contract estimates may also result in the reversal of previously recognized revenue if the current estimate differs
from the previous estimate. The amount of such adjustments have not been material.
For contracts with multiple performance obligations, we allocate the transaction price to each performance
obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. In cases
where we do not provide the distinct good or service on a standalone basis, the primary method used to estimate standalone
selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a
performance obligation and then add an appropriate margin for that distinct good or service. Our contracts are sometimes
modified for changes in contract specifications and requirements. Judgment is required to determine if such modifications
result in goods or services that are distinct from the existing contract. For customized products and long-term construction
type contracts, most contract modifications are for goods and services that are not distinct due to the significant integration
provided in the context of the contract and are accounted for as if they were part of the original contract on a cumulative
catch-up basis. We account for contract modifications prospectively when it results in the promise to deliver additional
79
goods and services that are distinct and the increase in price of the contract is for the same amount as the stand-alone selling
price of the additional goods or services included in the modification.
Our contracts sometimes contain variable consideration in the form of incentive fees, performance bonuses, award
fees, liquidated damages or penalties. Other contract provisions also give rise to variable consideration such as claims and
unpriced change orders that may either increase or decrease the transaction price. We estimate the amount of variable
consideration at the most likely amount we expect to be entitled. Variable consideration is included in the transaction price
when it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty
associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether
to include such amounts in the transaction price are based largely on our assessment of legal enforceability, anticipated
performance, and any other information (historical, current or forecasted) that is reasonably available to us. Variable
consideration associated with claims and unapproved change orders is included in the transaction price only to the extent
of costs incurred.
Product Warranties
Accruals for estimated expenses related to warranties are made at the time products are sold and are recorded as
a component of cost of product sales in the Consolidated Statements of Operations in our Consolidated Financial Statements
included elsewhere in this Annual Report. The estimated warranty obligation is based on product warranty terms offered
to customers, ongoing product failure rates, material usage and service delivery costs expected to be incurred in correcting
a product failure, as well as specific obligations for known failures and other currently available evidence. We assess the
adequacy of the recorded warranty liabilities on a regular basis and adjust amounts as necessary.
Deferred Taxes, Valuation Allowances, and Tax Contingencies
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been
recognized in our Consolidated Financial Statements or tax returns. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that included the enactment date. We record a valuation allowance to reduce certain deferred tax assets to amounts
that are more-likely-than-not to be realized within a reasonable period of time. The factors used to assess the likelihood of
realization include our forecast of future taxable income exclusive of reversing temporary differences and carryforwards,
future reversals of existing taxable temporary differences and available tax planning strategies that could be implemented
to realize the net deferred tax assets.
We consider both positive and negative evidence when evaluating the need for a valuation allowance on our deferred
tax assets in accordance with ASC 740, Income Taxes. Available evidence includes historical financial information
supplemented by currently available information about future years. Generally, historical financial information is more
objectively verifiable than projections of future income and is therefore given more weight in our assessment. We consider
cumulative losses in the most recent twelve quarters to be significant negative evidence that is difficult to overcome in
considering whether a valuation allowance is required. Conversely, we consider a cumulative income position over the most
recent twelve quarters, to be significant positive evidence that a valuation allowance may not be required.
Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. Income tax positions
that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting
period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not
threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met.
Uncertain tax positions are reviewed each balance sheet date. We recognize potential interest and penalties related to
unrecognized tax benefits in income tax expense.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies in Item 8, included in this Annual Report for a complete
discussion of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.
80
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We have market risk exposure arising from changes in interest rates on our senior secured credit facilities, which
bear interest at rates that are benchmarked against LIBOR. Based on our overall interest rate exposure to variable rate debt
outstanding as of September 30, 2020, a 1% increase or decrease in interest rates would decrease or increase income (loss)
before income taxes by approximately $8.2 million. By comparison, a 1% increase or decrease in interest rates would have
decreased or increased income (loss) before income taxes by approximately $9.3 million as of September 30, 2019 based
on our overall interest rate exposure to variable rate debt outstanding as of that date.
In May 2020, the Company entered into an interest rate swap to mitigate risks associated with variable rate debt.
The interest rate swap has a five year term to hedge the variability of interest payments on the first $500 million of the
Companys senior secured debt and fixes the LIBOR rate on this portion of the senior secured debt at 0.55%.
Impact of Inflation and Tariffs
Our results of operations and financial condition are presented based on historical cost. Our financial results can
be expected to be directly impacted by substantial increases in costs due to commodity cost increases, general inflation and
tariffs, which could lead to a reduction in our revenues as well as decreased margins, as increased costs may not be able to
be passed on to customers. We cannot provide any assurance that our results of operations and financial condition will not
be materially impacted by inflation in the future. The Company engages in activities to adjust pricing practices with customers
to attempt to mitigate the inflationary cost impact incurred. Additionally, while we believe that we have experienced supply
chain disruptions that were influenced by tariffs, we have managed restrictions in supply from domestic suppliers, delays
in shipments or disruptions associated with finding and qualifying alternate suppliers in order to maintain our ability to
fulfill customer requirements.
Foreign Currency Risk
We have global operations and therefore enter into transactions denominated in various foreign currencies. While
we believe we are not susceptible to any material cash impact on our results of operations caused by fluctuations in exchange
rates because our operations are primarily conducted in the United States (U.S.), if we expand our foreign operations in
the future, substantial increases or decreases in the value of the U.S. dollar relative to these other currencies could have a
significant impact on our results of operations.
To mitigate cross-currency transaction risk, we analyze significant exposures where we have receipts or payments
in a currency other than the functional currency of our operations, and from time to time we may strategically enter into
short-term foreign currency forward contracts to lock in some or all of the cash flows associated with these transactions.
We also are subject to currency translation risk associated with converting our foreign operations financial statements into
U.S. dollars. We use short-term foreign currency forward contracts and swaps to mitigate the impact of foreign exchange
fluctuations on consolidated earnings. We use foreign currency derivative contracts in order to manage the effect of exchange
fluctuations on forecasted sales, purchases, acquisitions, inventory, capital expenditures and certain intercompany
transactions that are denominated in foreign currencies. We do not use derivative financial instruments for trading or
speculative purposes.
Additionally, we are subject to foreign exchange translation risk due to changes in the value of foreign currencies
in relation to our reporting currency, the U.S. Dollar. At this time the Companys translation risk is primarily concentrated
in the exchange rate between the U.S. Dollar and the Euro due to intercompany loans denominated in Euro used to facilitate
the capital requirements of our non-U.S. subsidiaries. As the U.S. Dollar strengthens against the Euro, income will generally
be negatively impacted, and as the U.S. Dollar weakens, income will generally be positively impacted. At this time these
are non-cash impacts. We manage our worldwide cash requirements in accordance with availability in multiple jurisdictions
and effectiveness with which those funds can be accessed. As a result, we may access cash from among international
subsidiaries and the U.S. when it is cost effective to do so. We continually review our domestic and foreign cash profile,
expected future cash generation and investment opportunities and reassess whether there is a need to repatriate funds held
81
internationally to support our U.S. operations. Accordingly, we do not expect translation risk to have a material economic
impact on our financial positions or results of operations.
82
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY FINANCIAL INFORMATION
Evoqua Water Technologies Corp.
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of September 30, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended September 30, 2020, 2019 and 2018 . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended September 30, 2020, 2019
and 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Equity for the Years Ended September 30, 2020, 2019 and 2018 . . . . . . . .
Consolidated Statements of Changes in Cash Flow for the Years Ended September 30, 2020, 2019 and
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84
88
89
90
91
92
Supplemental Disclosure of Cash Flow Information for the Years Ended September 30, 2020, 2019 and
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Audited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule I Parent Company Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93
94
143
83
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Evoqua Water Technologies Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Evoqua Water Technologies Corp. (the Company) as of
September 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in
equity and changes in cash flows for each of the three years in the period ended September 30, 2020, and the related notes and
the financial statement schedule listed in the Index at Item 15(a)1 to the consolidated financial statements (collectively referred
to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at September 30, 2020 and 2019, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 2020, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Companys internal control over financial reporting as of September 30, 2020, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated November 20, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in the paragraph under the caption Accounting Pronouncements Recently Adopted described in Note 2 to the
consolidated financial statements, effective October 1, 2019, the Company changed its method of accounting for leases due to
the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842).
Basis for Opinion
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion
on the Companys financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
84
Revenue recognition - contract cost estimates
Description of
the Matter
As explained in Notes 2 and 4 to the consolidated financial statements, when there is significant
customization to the products associated with large water treatment projects for municipal and industrial
applications, the Company recognizes revenue as performance is completed, using a measure of progress
based on costs incurred in relation to estimated costs at completion. Because these estimates are subject to
change during the performance of the contract, significant changes in estimates could have a material effect
on the Companys results of operations.
Auditing the total cost estimates for projects where there is significant customization requires complex
auditor judgment because of the significant management judgment necessary to develop the estimated total
materials and labor costs at completion due to the size, uniqueness of and identified risks for each contract.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant
internal controls over the Companys process relating to the determination of cost estimates for projects
involving significant customer customization. For example, we evaluated the design and tested the operating
effectiveness of controls over managements review of the assumptions and data utilized to estimate costs
to complete and the accumulation of actual costs incurred.
To test the total cost estimation for projects, our audit procedures included, among others, obtaining an
understanding of the contract, assessing managements initial total cost estimate, including the materials
and labor inputs for a sample of projects, as well as testing the detail of updates made to cost estimates. We
involved our specialists with engineering, construction management and project controls experience to assist
with analyzing cost estimates, including managements evaluation of contract clauses and inputs used in
cost calculations and to assess the measurement of project completion by performing a virtual site inspection
for an in-progress contract to assess estimates of project progress. Further, we tested cost accumulation for
a sample of projects through performing virtual site inspections to assess estimates of project progress, which
included performing inquiries of project managers and controllers, as well as through agreement to contract
summary data and testing of a sample of costs incurred by comparing amounts recorded to source documents
and contracts. We also performed a retrospective review of managements cost estimates for a sample of
completed contracts by comparing initial estimates with the actual historical data to assess managements
ability to estimate.
/s/ Ernst & Young LLP
We have served as the Companys auditor since 2013.
Pittsburgh, Pennsylvania
November 20, 2020
85
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Evoqua Water Technologies Corp.
Opinion on Internal Control over Financial Reporting
We have audited Evoqua Water Technologies Corp.s internal control over financial reporting as of September 30, 2020, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Evoqua Water Technologies Corp. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on the
COSO criteria.
As indicated in the accompanying Managements Annual Report on Internal Control Over Financial Reporting, managements
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls
of Frontier and Aquapure, which are included in the 2020 consolidated financial statements of the Company and constituted
1.2% and 3.7% of total and net assets, respectively, as of September 30, 2020 and 0.4% and (2.5%) of revenues and net income,
respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include
an evaluation of the internal control over financial reporting of Frontier and Aquapure.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of September 30, 2020 and 2019, the related consolidated
statements of operations, comprehensive income (loss), changes in equity and changes in cash flows for each of the three years
in the period ended September 30, 2020, and the related notes and the financial statement schedule listed in the Index at Item
15(a)1 to the consolidated financial statements and our report dated November 20, 2020 expressed an unqualified opinion
thereon.
Basis for Opinion
The Companys management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the financial statements.
86
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
November 20, 2020
87
Evoqua Water Technologies Corp.
Consolidated Balance Sheets
(In thousands)
September 30,
2020
September 30,
2019
ASSETS
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, net of valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
LIABILITIES AND EQUITY
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of debt, net of deferred financing fees . . . . . . . . . . . . . . . . . . . . . . . .
Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligation under operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Commitments and Contingent Liabilities (Note 22)
Shareholders equity
Common stock, par value $0.01: authorized 1,000,000 shares; issued 119,486
shares, outstanding 117,291 at September 30, 2020; issued 116,008, outstanding
114,344 shares at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock: 2,195 shares at September 30, 2020 and 1,664 shares at September
30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Evoqua Water Technologies Corp. equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total liabilities and shareholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
695,712
193,001
260,479
142,379
80,759
18,715
379
364,461
397,205
309,967
3,639
45,965
27,509
1,844,458
349,555
153,890
14,339
26,259
6,115
143,389
5,563
1,012,840
861,695
1,724
37,796
98,456
13,169
1,362,395
$
$
$
$
$
637,293
109,881
257,585
137,164
73,467
21,940
37,256
333,584
392,890
314,767
2,790
25,715
30,809
1,737,848
322,221
144,247
13,418
39,051
4,922
101,839
4,536
14,208
1,049,805
951,599
2,332
78,661
13,548
3,665
1,372,026
1,189
1,154
(2,837)
564,928
(62,664)
(20,472)
480,144
1,919
482,063
1,844,458
$
$
$
(2,837)
552,422
(174,976)
(13,004)
362,759
3,063
365,822
1,737,848
See accompanying notes to these Consolidated Financial Statements
88
Evoqua Water Technologies Corp.
Consolidated Statements of Operations
(In thousands except per share data)
Year Ended September 30,
2020
839,857
$
2019
851,161
593,280
$
2018
802,302
537,239
$ 1,444,441
(615,171)
(403,308)
Sales and marketing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue from product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Revenue from services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
589,599
Revenue from product sales and services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,429,456
Cost of product sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(588,264)
(391,389)
$ 1,339,541
(582,606)
Cost of services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(352,202)
Cost of product sales and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (979,653) $(1,018,479) $ (934,808)
404,733
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
General and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(193,816)
(136,009)
Research and development expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,877)
Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (341,962) $ (371,249) $ (345,702)
Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,406
(591)
66,846
(57,580)
9,266
(1,382)
7,884
1,749
Other operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before interest expense and income taxes . . . . . . . . . . . . . . . . . . . . $
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,613
(654)
59,672
(58,556)
1,116
(9,587)
(8,471) $
1,052
61,662
(1,055)
168,448
(46,682)
121,766
(7,371)
114,395
746
425,962
(217,013)
(138,936)
(15,300)
449,803
(192,597)
(136,167)
(13,198)
. . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
Net income (loss) attributable to Evoqua Water Technologies
Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Basic income (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted income (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
113,649
0.97
0.94
$
$
$
(9,523) $
(0.08) $
(0.08) $
6,135
0.05
0.05
See accompanying notes to these Consolidated Financial Statements
89
Evoqua Water Technologies Corp.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Year Ended September 30,
2020
2019
2018
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 114,395
Other comprehensive (loss) income
$
(8,471) $
7,884
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized derivative (loss) gain on cash flow hedges, net of tax. . . . . . . . . .
Change in pension liability, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
. . . . .
(2,830)
(4,717)
79
(7,468) $
(746)
1,507
74
(5,568)
(3,987) $
(1,052)
(3,473)
(21)
466
(3,028)
(1,749)
Comprehensive income (loss) attributable to Evoqua Water Technologies
Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 106,181
$ (13,510) $
3,107
See accompanying notes to these Consolidated Financial Statements
90
Balance at September
30, 2017 . . . . . . . . . .
Equity based
compensation
expense. . . . . . . . .
Shares of common
stock issued in
initial public
offering, net of
offering costs . . . .
Shares withheld
related to net
share settlement
(including tax
withholdings) . . . .
Stock repurchases . . .
Dividends paid to
interest . . . . . . . . .
Net income . . . . . . . .
Other comprehensive
loss . . . . . . . . . . . .
Balance at September
30, 2018 . . . . . . . . . .
Cumulative effect of
adoption of new
accounting
standards . . . . . . .
Equity based
compensation
expense. . . . . . . . .
Issuance of common
stock . . . . . . . . . . .
Shares withheld
related to net
share settlement
(including tax
withholdings) . . . .
Dividends paid to
non-controlling
interest . . . . . . . . .
Net (loss) income . . .
Other comprehensive
loss . . . . . . . . . . . .
Balance at September
30, 2019 . . . . . . . . . .
Cumulative effect of
adoption of new
accounting
standards . . . . . . .
Equity based
compensation
expense. . . . . . . . .
Issuance of common
stock, net . . . . . . .
Dividends paid to
non-controlling
interest . . . . . . . . .
Divestiture of
Memcor product
line . . . . . . . . . . . .
Net income . . . . . . . .
Other comprehensive
loss . . . . . . . . . . . .
Balance at September
30, 2020 . . . . . . . . . .
Evoqua Water Technologies Corp.
Consolidated Statements of Changes in Equity
(In thousands)
Common Stock
Treasury Stock
Additional
Shares
Cost
Shares
Cost
Capital
Retained
Deficit
Accumulated
Other
Comprehensive
Loss
Interest
Total
105,359
$ 1,054
410
$ (2,607) $ 388,986
$ (170,006) $
(5,989) $
5,137
$ 216,575
15,742
8,333
83
137,522
1,324
8
659
18
(230)
(8,815)
6,135
$ 15,742
$ 137,605
$
(8,807)
$
(230)
(3,725) $
(3,725)
1,749
$
7,884
(3,028)
$
(3,028)
115,016
$ 1,145
1,087
$ (2,837) $ 533,435
$ (163,871) $
(9,017) $
3,161
$ 362,016
116,008
$ 1,154
1,664
$ (2,837) $ 552,422
$ (174,976) $
(13,004) $
3,063
$ 365,822
(3,987)
$
(3,987)
108
884
9
577
3,478
35
531
(1,582)
19,903
363
(1,279)
10,509
18,892
(16,895)
(9,523)
113,649
(1,337)
$
(1,582)
$ 19,903
$
363
$
(1,270)
(1,150) $
(1,150)
1,052
$
(8,471)
$
(1,337)
$ 10,509
$ 18,927
(1,890) $
(1,890)
$ (16,895)
746
$ 114,395
(7,468)
$
(7,468)
119,486
$ 1,189
2,195
$ (2,837) $ 564,928
$
(62,664) $
(20,472) $
1,919
$ 482,063
See accompanying notes to these Consolidated Financial Statements
91
Evoqua Water Technologies Corp.
Consolidated Statements of Changes in Cash Flows
(In thousands)
Operating activities
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Reconciliation of net income (loss) to cash flows provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt related costs (includes $1,795, $0 and $5,575 write off of
deferred financing fees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange (gains) losses on intercompany loans and other non-
cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaids and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Investing activities
Purchase of property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Purchase of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of business, net of cash of $12,117, $0, and $0 . . . . . . . . . . . . .
Acquisitions, net of cash received of $0, $2,073, and $27 . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . $
Financing activities
Issuance of debt, net of deferred issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Borrowings under credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of finance lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of earn-out related to previous acquisitions . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes paid related to net share settlements of share-based compensation awards . .
Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for interest rate cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . . $
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents classified as held for sale . . . . . . . . . . . . . . . . . . . . . . . . .
Change in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash and cash equivalents
Year Ended September 30,
2020
2019
2018
114,395
$
(8,471) $
7,884
107,268
98,236
85,860
4,026
(1,234)
10,509
950
(68,051)
2,612
1,948
19,903
(932)
8,073
(6,232)
15,742
(6,750)
(8,202)
10,713
5,766
(6,844)
(7,604)
(4,136)
2,088
8,017
3,410
(12,556)
592
15,730
158,358
$
(88,456) $
(6,529)
1,191
118,894
(13,108)
11,992
$
$
21,959
2,597
(117,131)
(13,441)
(470)
18,927
(1,890)
(89,449) $
2,219
83,120
$
(13,235)
(1,469)
(23,827)
9,447
9,408
(9,159)
21,311
(3,651)
12,362
125,196
$
(88,869) $
(6,426)
3,636
(2,873)
(94,532) $
38,381
292,825
(307,809)
(12,900)
(461)
363
(1,270)
(2,235)
(1,150)
5,744
(1,601)
(7,291)
27,516
$
$
$
$
(3,139)
(12,051)
(3,544)
(3,773)
24,945
(22,851)
(9,254)
2,777
(2,436)
81,017
(80,713)
(1,950)
21,641
430
(146,443)
(207,035)
155,270
129,000
(242,470)
(10,474)
(5,528)
137,605
(8,807)
(230)
(3,725)
150,641
(1,512)
23,111
59,254
82,365
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
109,881
193,001
$
82,365
109,881
See accompanying notes to these Consolidated Financial Statements
92
Evoqua Water Technologies Corp.
Supplemental Disclosure of Cash Flow Information
(In thousands)
Supplemental disclosure of cash flow information
Cash paid for taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
8,427
38,680
$
$
10,340
52,786
$
$
4,450
43,596
Year Ended September 30,
2019
2018
2020
18,640
$
$
$
$
$
1,000
1,570
10,595
Accrued earn-out related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Finance lease transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating lease transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Option and Purchase Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Landlord incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
204
12,600
23,727
7,739
$
$
$
$
$
See accompanying notes to these Consolidated Financial Statements
93
Evoqua Water Technologies Corp.
Notes to Audited Consolidated Financial Statements
(In thousands)
1. Description of the Company and Basis of Presentation
Background
Evoqua Water Technologies Corp. (referred to herein as the Company or EWT) was incorporated on October
7, 2013. On January 15, 2014, Evoqua Water Technologies Corp., acquired through its wholly owned entities, EWT Holdings
II Corp. and EWT Holdings III Corp. (a/k/a Evoqua Water Technologies), all of the outstanding shares of Siemens Water
Technologies, a group of legal entity businesses formerly owned by Siemens AG (Siemens). The stock purchase closed
on January 15, 2014 and was effective January 16, 2014 (the Acquisition). The stock purchase price, net of cash received,
was approximately $730,577. On November 6, 2017, the Company completed its initial public offering (IPO), pursuant
to which an aggregate of 27,777 shares of common stock were sold, of which 8,333 were sold by the Company and 19,444
were sold by the selling shareholders, with a par value of $0.01 per share. After underwriting discounts and commissions
and other expenses, the Company received net proceeds from the IPO of approximately $137,605. The Company used a
portion of these proceeds to repay $104,936 of indebtedness (including accrued and unpaid interest) under EWT IIIs senior
secured first lien term loan facility and the remainder for general corporate purposes. The Company did not receive any
proceeds from the sale of shares by the selling shareholders. On November 7, 2017, the selling shareholders sold an additional
4,167 shares of common stock as a result of the exercise in full by the underwriters of an option to purchase additional
shares.
On March 19, 2018, the Company completed a secondary public offering, pursuant to which 17,500 shares of
common stock were sold by certain selling shareholders. On March 21, 2018, the selling shareholders sold an additional
2,625 shares of common stock as a result of the exercise in full by the underwriters of an option to purchase additional
shares. On March 10, 2020 and August 10, 2020, the Company completed additional secondary public offerings, pursuant
to which 13,000 and 9,200 shares of common stock were sold by certain selling shareholders, respectively. The Company
did not receive any proceeds from the sale of shares by the selling shareholders in any of these secondary public offerings.
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 multi national corporation with operations in the United
States (U.S.), Canada, the United Kingdom (UK), the Netherlands, Germany, Australia, the Peoples Republic of China,
Singapore, the Republic of Korea 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 Consolidated Financial Statements have been prepared in accordance with accounting principles
generally accepted in the U.S. (GAAP) from the accounting records of the Company, and reflect the consolidated financial
position and results of operations for the fiscal years ended September 30, 2020, 2019 and 2018. Unless otherwise specified,
references in this section to a year refer to its fiscal year. All intercompany transactions have been eliminated. Unless
otherwise specified, all dollar amounts in this section are referred to in thousands. Certain prior period amounts have been
reclassified to conform to the current period presentation.
94
2. Summary of Significant Accounting Policies
Fiscal Year
The Companys fiscal year ends on September 30.
Use of Estimates
The Consolidated Financial Statements have been prepared in conformity with GAAP and require management
to make estimates and assumptions. These assumptions affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the audited Consolidated Financial Statements and the reported amounts
of revenue and expenses during the reporting period. Estimates and assumptions are used for, but not limited to: (i) revenue
recognition; (ii) allowance for doubtful accounts; (iii) inventory valuation, asset valuations, impairment, and recoverability
assessments; (iv) depreciable lives of assets; (v) useful lives of intangible assets; (vi) income tax reserves and valuation
allowances; and (vii) product warranty and litigation reserves. Estimates are revised as additional information becomes
available. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents are liquid investments with an original maturity of three or fewer months when purchased.
Accounts Receivable
Receivables are primarily comprised of uncollected amounts owed to the Company from transactions with
customers and are presented net of allowances for doubtful accounts. Allowances are estimated based on historical write offs
and the economic status of customers. The Company considers a receivable delinquent if it is unpaid after the term of the
related invoice has expired. Write offs are recorded at the time all collection efforts have been exhausted.
Inventories
Inventories are stated at the lower of cost or net realizable value, where cost is generally determined on the basis
of an average or first in, first out (FIFO) method. Production costs comprise direct material and labor and applicable
manufacturing overheads, including depreciation charges. The Company regularly reviews inventory quantities on hand
and writes off excess or obsolete inventory based on estimated forecasts of product demand and production requirements.
Manufacturing operations recognize cost of product sales using standard costing rates with overhead absorption which
generally approximates actual cost.
Property, Plant, and Equipment
Property, plant, and equipment is valued at cost less accumulated depreciation. Depreciation expense is recognized
using the straight line method. Useful lives are reviewed annually and, if expectations differ from previous estimates,
adjusted accordingly. Estimated useful lives for major classes of depreciable assets are as follows:
Asset Class
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated Useful Life
3 to 20 years
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10 to 40 years
Leasehold improvements are depreciated over the shorter of their estimated useful life or the term of the lease.
Costs related to maintenance and repairs that do not extend the assets useful life are expensed as incurred.
Acquisitions
Acquisitions are recorded using the purchase method of accounting. The purchase price of acquisitions is allocated
to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair value at the acquisition
date. The excess of the acquisition price over those estimated fair values is recorded as goodwill. Changes to the acquisition
date preliminary fair values prior to the expiration of the measurement period, a period not to exceed 12 months from date
95
of acquisition, are recorded as an adjustment to the associated goodwill. Contingent consideration resulting from acquisitions
is recorded at its estimated fair value on the acquisition date. These obligations are revalued during each subsequent reporting
period and changes in the fair value of the contingent consideration obligations can result from adjustments in the probability
of achieving future development steps, sales targets and profitability and are recorded in General and administrative expenses
in the Consolidated Statements of Operations. Acquisition-related expenses and restructuring costs, if any, are recognized
separately from the business combination and are expensed as incurred.
Goodwill and Other Intangible Assets
Goodwill represents purchase consideration paid in a business combination that exceeds the value assigned to the
net assets of acquired businesses. Other intangible assets consist of customer related intangibles, proprietary technology,
software, trademarks and other intangible assets. The Company amortizes intangible assets with definite useful lives on a
straight line basis over their respective estimated economic lives which range from 1 to 26 years.
The Company reviews goodwill to determine potential impairment annually during the fourth quarter of its fiscal
year, or more frequently if events and circumstances indicate that the asset might be impaired. Impairment testing for
goodwill is performed at a reporting unit level and the Company has determined that it has three reporting units. The
quantitative impairment testing utilizes both a market (guideline public company) and income (discounted cash flows)
method for determining fair value. In estimating the fair value of the reporting unit utilizing a discounted cash flow (DCF)
valuation technique, the Company incorporates its judgment and estimates of future cash flows, future revenue and gross
profit growth rates, terminal value amount, capital expenditures and applicable weighted average cost of capital used to
discount these estimated cash flows. The estimates and projections used in the estimate of fair value are consistent with the
Companys current budget and long range plans, including anticipated change in market conditions, industry trend, growth
rates and planned capital expenditures, among other considerations.
Impairment of Long Lived Assets
Long lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset
group may not be recoverable. Recoverability of the asset or asset group is measured by comparison of its carrying amount
to undiscounted future net cash flows the asset or asset group is expected to generate. If the carrying amount of an asset or
asset group is not recoverable, the Company recognizes an impairment loss based on the excess of the carrying amount of
the asset or asset group over its respective fair value which is generally determined as the present value of estimated future
cash flows or as the appraised value.
Assets Held for Sale
Assets and liabilities (the disposal group) are classified as held for sale when all of the following criteria are
met: (i) the Company commits to a plan to sell the disposal group; (ii) it is unlikely the disposal plan will be significantly
modified or discontinued; (iii) the disposal group is available for immediate sale in its present condition; (iv) actions required
to complete the sale of the disposal group have been initiated; (v) the sale of the asset is probable and the completed sale
is expected to occur within one year; and (vi) the disposal group is actively being marketed for sale at a price that is reasonable
given its current market value. Upon classification as held for sale, such assets are no longer depreciated or depleted, and
a measurement for impairment is performed to determine if there is any excess of carrying value over fair value less costs
to sell. Subsequent changes to estimated fair value less the cost to sell will impact the measurement of assets held for sale
if the fair value is determined to be less than the carrying value of the assets.
Debt Issuance Costs and Debt Discounts
Debt issuance costs are capitalized and amortized over the contractual term of the underlying debt using the straight
line method which approximates the effective interest method. Debt discounts and lender arrangement fees deducted from
the proceeds have been included as a component of the carrying value of debt and are being amortized to interest expense
using the effective interest method.
In 2019, the Company entered into an interest rate cap to mitigate risks associated with the Companys variable
rate debt. The Company paid $2,235 as a premium for the interest rate cap, which was being amortized to interest expense
96
over its term of three years. The Company terminated the interest rate cap in May 2020, and as a result wrote off the remaining
unamortized premium of $1,118 to interest expense. No additional fees were incurred. The Company recorded $496 and
$621 of premium amortization to interest expense during the years ended September 30, 2020 and 2019, respectively. See
Note 12, Derivative Financial Instruments for further details.
Amortization of debt issuance costs and debt discounts/premiums included in interest expense were $1,735, $1,991
and $2,498 for the years ended September 30, 2020, 2019 and 2018, respectively.
In February 2020, the Company entered into Amendment No. 7 to the Credit Agreement, and as a result incurred
$760 of fees which were recorded as deferred financing fees on the Consolidated Balance Sheets.
In January 2020, the Company utilized $100,000 of the proceeds from the sale of the Memcor product line to repay
a portion of the Companys First Lien Term Loans. As a result of the prepayment, the Company wrote off $1,795 of deferred
financing fees during the three months ended March 31, 2020.
In July 2018, the Company wrote off $2,581 of deferred financing fees and incurred and expensed an additional
$1,346 of fees related to the sixth amendment of its First Lien Term Facility in which an additional $150,000 was borrowed.
In November 2017, the Company wrote off $1,844 of deferred financing fees related to a $100,000 prepayment
of debt, then subsequently wrote off another $1,150 of fees in December of 2017 due to the refinancing of its First Lien
Term Loan. The Company incurred another $2,131 of fees as a result of the December refinancing.
Revenue Recognition
The Company adopted Topic 606, Revenue from Contracts with Customers on October 1, 2018, and recognizes
sales of products and services based on the five-step analysis of transactions as provided in Topic 606 which requires an
entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for such goods or services.
For sales of aftermarket parts or products with a low level of customization and engineering time, the Company
recognizes revenues at the time risks and rewards of ownership pass, which is generally when products are shipped or
delivered to the customer as the Company has no obligation for installation. Sales of short term service arrangements are
recognized as the services are performed, and sales of long term service arrangements are typically recognized on a
straight line basis over the life of the agreement.
For certain arrangements where there is significant customization to the product, the Company recognizes revenue
either over time or at a point in time. These products include large capital water treatment projects, systems and solutions
for municipal and industrial applications. The nature of the contracts is generally fixed price with milestone billings. The
Company recognizes revenue over time if the product has no alternative use and the Company has an enforceable right to
payment for the performance completed to date, including a normal profit margin, in the event of termination for convenience.
If these two criteria are not met, revenues from these contracts will not be recognized until construction is complete. Contract
revenues and cost estimates are reviewed and revised at least quarterly at a minimum and the cumulative effect of such
adjustments are recognized in current operations. The amount of such adjustments have not been material. See Note 4,
Revenue for further details.
Product Warranties
Accruals for estimated expenses related to warranties are made at the time products are sold and are recorded as
a component of Cost of product sales in the Consolidated Statements of Operations. The estimated warranty obligation is
based on product warranty terms offered to customers, ongoing product failure rates, material usage and service delivery
costs expected to be incurred in correcting a product failure, as well as specific obligations for known failures and other
currently available evidence. The Company assesses the adequacy of the recorded warranty liabilities on a regular basis
and adjusts amounts as necessary.
97
Leases
The Company accounts for leases in accordance with ASC Topic No. 842, Leases, adopted as of October 1, 2019
(Topic 842). Please see the Accounting Pronouncements Recently Adopted section below for information regarding this
adoption. See Note 21, Leases for further details.
Lessee Accounting
The Company leases office space, buildings, vehicles, forklifts, computers, copiers and other assets under non-
cancelable operating and finance leases. The Company determines whether an arrangement is or contains a lease at the
inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an
identified asset and the Company has the right to control the asset. If the arrangement contains a lease, the Company
recognizes a right-of-use (ROU) asset and an operating lease liability as of the lease commencement date. Operating lease
assets and finance lease assets are included in Operating lease right-of-use assets, net and Property, plant, and equipment,
net, respectively, on the Consolidated Balance Sheets. The corresponding operating lease liabilities are included in Accrued
expenses and other liabilities and Obligation under operating leases on the Consolidated Balance Sheets. The corresponding
finance lease liabilities are included in Accrued expenses and other liabilities and Other non current liabilities on the
Consolidated Balance Sheets.
Lessor Accounting
The Company generates revenue through the lease of its water treatment equipment and systems to customers. In
certain instances, the Company enters into a contract with a customer but must construct the underlying asset prior to its
lease. At the time of contract inception, the Company determines if an arrangement is or contains a lease. These contracts
generally contain both lease and non-lease components, including installation, maintenance and monitoring services of the
Company-owned equipment, in addition to sale of certain constructed assets. In situations where arrangements contain
multiple elements, contract consideration is allocated based on relative standalone selling price. Lease components
associated with underlying assets that have an alternative use are classified as operating leases with revenue recognized
over time throughout the lease term. Lease components associated with underlying assets that have no alternative are
classified as sales-type leases, with point in time revenue recognition at the on-set of the lease, or classified as financing
transactions, with over time revenue recognition at the on-set of the construction of the underlying assets. In order for a
component to be separate, the customer would be able to benefit from the right of use of the component separately or with
other resources readily available to the customer and the right of the use is not highly dependent or highly interrelated with
the other rights to use the other underlying assets or components.
Shipping and Handling Cost
Shipping and handling costs are included as a component of Cost of product sales.
Derivative Financial Instruments
The Companys risk-management strategy uses derivative financial instruments to manage interest rate risk and
foreign currency exchange rate risk. The Companys objective in using interest rate derivatives is to add stability to interest
expense and manage its exposure to interest rate movements. To accomplish this objective, in May 2020, the Company
entered into an interest rate swap which has been designated as a cash flow hedge. The Company uses foreign currency
derivative contracts in order to manage the effect of exchange fluctuations on forecasted sales and purchases that are
denominated in foreign currencies. To mitigate the impact of foreign exchange rate risk, the Company entered into a series
of forward contracts designated as cash flow hedges. The Company does not enter into derivatives for trading or speculative
purposes. The Company accounts for derivatives and hedging activities in accordance with ASC Topic No. 815, Derivatives
and Hedging (Topic No. 815). The Company recognizes all derivatives on the balance sheet at fair value. Changes in the
fair values of derivatives that are not designated as hedges are recognized in earnings. If the derivative is designated and
qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives are either offset
against the change in the hedged assets or liabilities through earnings or recognized in Accumulated other comprehensive
income (loss), net of tax (AOCI) until the hedged item is recognized in earnings.
98
Income Taxes
The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are provided
against deferred tax assets when it is deemed more likely than not that some portion or all of the deferred tax asset will not
be realized within a reasonable time period. The Company assesses tax positions using a two step process. A tax position
is recognized if it meets a more likely than not threshold, and is measured at the largest amount of benefit that is greater
than 50% percent of being realized. Uncertain tax positions are reviewed each balance sheet date.
Foreign Currency Translation and Transactions
The functional currency for the international subsidiaries is the local currency. Assets and liabilities are translated
into U.S. dollars using current rates of exchange, with the resulting translation adjustments recorded in Accumulated other
comprehensive loss, net of tax within shareholders equity. Revenues and expenses are translated at the weighted average
exchange rate for the period, with the resulting translation adjustments recorded in the Consolidated Statements of Operations.
Foreign currency translation (gains) losses, mainly related to intercompany loans, which aggregated ($8,216),
$12,599 and $7,018 for the years ended September 30, 2020, 2019 and 2018, respectively, are primarily included in General
and administrative expenses in the Consolidated Statements of Operations.
Research and Development Costs
Research and development costs are expensed as incurred. The Company recorded $13,198, $15,300 and $15,877
of costs for the years ended September 30, 2020, 2019 and 2018, respectively.
Equity based Compensation
The Company measures the cost of awards of equity instruments to employees based on the grant date fair value
of the award. The grant date fair value of a non-qualified stock option is determined using the Black Scholes model. The
fair value of restricted stock unit awards is determined using the closing price of the Companys common stock on date of
grant. Compensation costs resulting from equity-based payment transactions are recognized primarily within General and
administrative expenses, at fair value over the requisite vesting period on a straight-line basis.
Earnings (Loss) Per Share
Basic earnings (loss) per common share is computed based on the weighted average number of shares of common
stock outstanding during the period. Diluted earnings per common share is computed based on the weighted average number
of shares of common stock, plus the effect of diluted common shares outstanding during the period using the treasury stock
method. Diluted potential common shares include outstanding stock options.
Retirement Benefits
The Company applies ASC Topic 715, CompensationRetirement Benefits, which requires the recognition in
pension obligations and accumulated other comprehensive income of actuarial gains or losses, prior service costs or credits
and transition assets or obligations that have previously been deferred. The determination of retirement benefit pension
obligations and associated costs requires the use of actuarial computations to estimate participant plan benefits to which
the employees will be entitled. The significant assumptions primarily relate to discount rates, expected long term rates of
return on plan assets, rate of future compensation increases, mortality, years of service, and other factors. The Company
develops each assumption using relevant experience in conjunction with market related data for each individual country in
which such plans exist. All actuarial assumptions are reviewed annually with third party consultants and adjusted as
necessary. For the recognition of net periodic postretirement cost, the calculation of the expected return on plan assets is
generally derived by applying the expected long term rate of return on the market related value of plan assets. The fair value
of plan assets is determined based on actual market prices or estimated fair value at the measurement date.
99
Variable Interest Entities
Treated Water Outsourcing (TWO) is a joint venture between the Company and Nalco Water, an Ecolab company,
in which the Company holds a 50% partnership interest. The Company is obligated to absorb all risk of loss up to 100%
of the joint venture partners equity. As such, the Company fully consolidates TWO as a variable interest entity (VIE)
under ASC 810, Consolidation. The Company has not provided additional financial support to this entity which it is not
contractually required to provide, and the Company does not have the ability to use the assets of TWO to settle obligations
of the Companys other subsidiaries.
The following provides a summary of TWOs balance sheet as of September 30, 2020 and 2019, and summarized
financial information for the years ended September 30, 2020, 2019 and 2018.
Current assets (includes cash of $2,088 and $3,903) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,016
$
1,145
2,206
(1,324)
6,324
2,186
2,206
3
(2,388)
September 30,
2020
September 30,
2019
Year Ended September 30,
2020
2019
2018
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,944
(4,519)
1,425
$
$
10,633
(8,732)
1,901
$
$
15,526
(12,996)
2,530
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 Frontiers economic performance. As the
agreement to purchase the remaining interest was determined to be financing due to the mandatory Purchase Right, as per
ASC Topic 480, Distinguishing Liabilities From Equity, the Company recognized a liability for the remaining 40% interest.
Additionally, the Company fully consolidates Frontier as a VIE under ASC Topic No. 810, Consolidation. See Note 3,
Acquisitions and Divestitures for further discussion of the Frontier acquisition.
The following provides a summary of Frontiers balance sheet as of September 30, 2020, and summarized financial
information for the fiscal year ended September 30, 2020.
Current assets (includes cash of $1,675) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,024
3,159
1,798
9,918
(3,692)
September 30,
2020
100
Year Ended
September 30,
2020
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,365
(8,219)
(2,854)
Recent Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted
In March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04, Reference Rate Reform
(Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional expedients
and exceptions for contracts, hedging relationships and other transactions that reference LIBOR or another reference rate
expected to be discontinued because of reference rate reform, if certain criteria are met. ASU 2020-04 is effective immediately
and expires on December 21, 2022. The ASU allows eligible contracts that are modified to be accounted for as a continuation
of those contracts, permits companies to preserve their hedging 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. The Company
is currently assessing the impact of adoption on the Companys Consolidated Financial Statements and related disclosures.
In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, which
includes several amendments to clarify, conform or improve the Codification and make it easier to apply by eliminating
inconsistencies and providing clarifications. The ASU includes seven different issues that describe the areas of improvement
and the related amendments, which have various effective dates. The Company adopted this standard on October 1, 2020
but noted that this adoption did not have an impact on its Consolidated Financial Statements.
In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments
Credit Losses which clarifies that receivables from operating leases are accounted for using the lease guidance and not
as financial instruments. ASU 2018-19 will be effective for the Company for the quarter ending December 31, 2020, with
early adoptions permitted. The Company adopted this standard on October 1, 2020 but noted that this adoption did not have
an impact on its Consolidated Financial Statements
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808) Clarifying the
Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between collaborative arrangement
participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer
in the context of a unit of account. In addition, unit-of-account guidance in Topic 808 was aligned with the guidance in
Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part
of the arrangement is within the scope of Topic 606. ASU 2018-18 should be applied retrospectively to the date of initial
adoption of Topic 606 and is effective for the Company for the quarter ending December 31, 2020, with early adoption
permitted. The Company adopted this standard on October 1, 2020 but noted that this adoption did not have an impact on
its Consolidated Financial Statements
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Subtopic 820): Disclosure Framework
Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on
fair value measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of
significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of
measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the
initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective
date. ASU 2018-14 will be effective for the Company for the quarter ending December 31, 2020, with early adoption
permitted. The Company is currently assessing the impact of adoption on the Companys disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments, amended in November 2019 (ASU 2019-11 and 2019-10), which requires entities
to use a new forward-looking expected loss model that reflects expected credit losses, including credit losses related to
trade receivables, and requires consideration of a broader range of reasonable and supportable information to inform credit
101
loss estimates which generally will result in the earlier recognition of allowances for losses. The Company adopted this
standard on October 1, 2020 but noted that this adoption did not have an impact on its Consolidated Financial Statements.
Accounting Pronouncements Recently Adopted
The Company adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as
of October 1, 2019, which simplifies the accounting for income taxes by removing certain exceptions and by clarifying and
amending existing guidance in order to improve consistent application of and simplify GAAP for other areas of Topic 740.
This adoption did not have an impact on the Companys Consolidated Financial Statements.
The Company adopted ASU 2018 07, CompensationStock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting, as of October 1, 2019. ASU 2018-07 expands the scope of Topic 718 to
include share-based payment transactions for acquiring goods and services from nonemployees. This adoption did not have
an impact on the Companys Consolidated Financial Statements.
The Company adopted ASU 2017 12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities, as of October 1, 2019. ASU 2017-12 expands and refines hedge accounting for both nonfinancial
and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the
hedged item in the financial statements and also made certain targeted improvements to simplify the application of hedge
accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge
effectiveness. This adoption did not have a material impact on the Companys Consolidated Financial Statements.
The Company adopted ASU 2016-02, Leases (Topic 842), including associated ASUs related to Topic 842, as of
October 1, 2019. ASU No. 2016-02 requires recognition of operating leases as lease assets and liabilities on the balance
sheet, and disclosure of key information about leasing arrangements. Amendments to the standard were issued by the FASB
in January, July and December 2018, and March 2019 including certain practical expedients, an amendment that provides
an additional and optional transition method to adopt the standard at the adoption date and recognize a cumulative-effect
adjustment to the opening balance of retained earnings in the period of adoption and certain narrow-scope improvements
for lessors. The Company adopted this standard using a modified retrospective approach, applying the new standard to all
leases existing at the date of initial adoption and the Company elected to apply the transition requirements at the October
1, 2019 effective date rather than the beginning of the earliest comparative period presented. As a result, the Company
recorded a cumulative effect adjustment in the period of adoption, and prior periods were not restated and continue to be
reported in accordance with historic accounting under ASC Topic No. 840. In addition, the Company has elected the package
of practical expedients permitted under the transition guidance which does not require reassessment of prior conclusions
related to contracts containing a lease, lease classification and initial direct lease costs. As an accounting policy election,
the Company elected to exclude short-term leases (term of 12 months or less) from the balance sheet and accounts for non-
lease and lease components separately for all asset classes. The following table summarizes the impact of adoption to the
Consolidated Balance Sheet as of October 1, 2019:
102
As Reported
September 30,
2019
Impact of
Adoption of
ASU 2016-02
Updated
October 1,
2019
Assets
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets, net. . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligation under operating leases. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders' equity
21,940
$
637,293
333,584
1,737,848
101,839
322,221
78,661
1,049,805
1,372,026
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Evoqua Water Technologies Corp. equity . . . . . . . . . . . . . . .
Total shareholder's equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . $
(174,976)
362,759
365,822
1,737,848
$
(73) $
(73)
2,812
42,073
44,812
13,596
13,596
29,308
3,245
32,553
46,149
(1,337)
(1,337)
(1,337)
44,812
21,867
637,220
336,396
42,073
1,782,660
115,435
335,817
29,308
81,906
1,082,358
1,418,175
(176,313)
361,422
364,485
$
1,782,660
3. Acquisitions and Divestitures
Acquisitions support the Companys 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 a key opportunity within its
overall growth strategy.
2020 Acquisitions
On September 3, 2020, the Company acquired the assets of privately held Aquapure Technologies of Cincinnati
(Aquapure), a Hamilton, Ohio based water service and equipment company. Aquapure serves the commercial and light
industrial markets and provides customers with a variety of water treatment products and services, including deionization,
reverse osmosis, softeners and filtration systems. Aquapure is part of the Integrated Solutions and Services segment.
On October 1, 2019, the Company acquired a 60% investment position in San Diego-based Frontier Water Systems,
LLC (Frontier) for a purchase price of $10,885, which is net of working capital adjustments. Frontier is a pioneer in the
development of patented, engineered equipment packages for high-rate treatment and removal of selenium, nitrate and other
metals from complex water systems. During the year September 30, 2020, the Company incurred approximately $591 in
acquisition costs, which are included in General and administrative expenses. Frontier is part of the Integrated Solutions
and Services segment.
103
The Company has entered into an agreement to purchase the remaining 40% interest in Frontier on or prior to
March 30, 2024. This agreement (a) gives 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
may be exercised 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 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 value of the Option was determined to be $506 using a Black Scholes model, and was included within Accrued
expenses and other liabilities on the Consolidated Balance Sheets.
The value of the Purchase Right was determined to be $6,661, and was included within Other non current liabilities
on the Consolidated Balance Sheets, based upon the enterprise value of Frontier upon the acquisition date as per ASC Topic
480, Distinguishing Liabilities From Equity. Pursuant to ASC Topic 480, the Company determined that this should be
recorded as a liability and should be recognized at the fair value at the time of inception, adjusted for any consideration or
unstated rights or privileges. The liability will be subsequently measured at an amount that would be paid on the reporting
date with any change in value from the previous reporting date recognized as interest cost.
The opening balance sheet for Frontier is summarized as follows:
Current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Liabilities related to Option and Purchase Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,186
2,963
1,798
11,571
19,518
(7,167)
(1,466)
10,885
2020 Divestitures
On December 31, 2019, the Company completed the previously-announced sale of the Memcor product line to
DuPont de Nemours, Inc. (DuPont). The aggregate purchase price paid by DuPont in the Transaction was $110,000 in
cash, subject to certain adjustments. Following adjustments for cash and net working capital, gross proceeds paid by DuPont
were $131,011. During the year September 30, 2020, the Company recognized a $57,700 net pre-tax benefit on the sale of
the Memcor product line, net of $8,300 of discretionary compensation payments to employees in connection with the
transaction and $2,100 in transaction costs incurred. The Company utilized $100,000 of the proceeds from the transaction
to repay a portion of the Companys First Lien Term Loans in January 2020.
104
The following represents the carrying amounts of assets and liabilities, by major class, classified as held for sale
on the Consolidated Balance Sheets at September 30, 2019:
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2019 Acquisitions
7,291
9,603
6,456
13,025
881
37,256
14,827
14,911
1,024
47
30,809
68,065
5,646
1,302
3,264
3,996
14,208
1,594
2,071
3,665
17,873
On May 25, 2019, the Company acquired all of the issued and outstanding equity securities of ATG UV Technology
Limited (ATG UV), a leading manufacturer of ultraviolet (UV) light disinfection systems used in a wide range of
municipal, aquatics and industrial applications, for £5,500 ($6,931) paid in cash at closing. During the year ended
September 30, 2019, the Company incurred approximately $193 in acquisition costs, which are included in General and
administrative expenses. ATG UV, based in Wigan, UK, is the exclusive technology supplier to Evoquas ETS-UVTM product
line in North America and the acquisition expands Evoquas reach, allowing the Company to serve customers globally. ATG
UV is part of the Applied Product Technologies segment.
The opening balance sheet for ATG UV is summarized as follows:
Current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6,296
362
1,738
2,277
10,673
(3,742)
6,931
105
4. Revenue
Revenue Recognition
The Company recognizes sales of products and services based on the five-step analysis of transactions as provided
in Topic 606. For all contracts with customers, the Company first identifies the contract which usually is established when
the customers purchase order is accepted or acknowledged. Next the Company identifies the performance obligations in
the contract. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The
Company then determines the transaction price in the arrangement and allocates the transaction price to each performance
obligation identified in the contract. The Companys allocation of the transaction price to the performance obligations are
based on the relative standalone selling prices for the goods and services contained in a particular performance obligation.
The transaction price is adjusted for the Companys estimate of variable consideration which may include discounts if the
Company would fail to meet certain performance requirements, volume discounts or early payment discounts. To estimate
variable consideration, the Company utilizes historical experience and known terms. Variable consideration in contracts for
the years ended September 30, 2020 and 2019 was insignificant.
For sales of aftermarket parts or products with a low level of customization and engineering time, the Company
recognizes revenues at the time risks and rewards of ownership pass, which is generally when products are shipped or
delivered to the customer as the Company has no obligation for installation. The Company considers shipping and handling
services to be fulfillment activities and as such they do not represent separate performance obligations for revenue
recognition. Sales of service arrangements are recognized as the services are performed.
For certain arrangements where there is significant customization to the product and for long-term construction-
type sales contracts, revenue may be recognized over time. In these instances, revenue is recognized using a measure of
progress that applies an input method based on costs incurred in relation to total estimated costs. These arrangements include
large capital water treatment projects, systems and solutions for municipal and industrial applications. The nature of the
contracts is generally fixed price with milestone billings. In order for revenue to be recognized over a period of time, the
product must have no alternative use and the Company must have an enforceable right to payment for the performance
completed to date, including a normal profit margin, in the event of termination for convenience. If these two criteria are
not met, revenues from these contracts will not be recognized until construction is complete. Contract revenues and cost
estimates are reviewed and revised quarterly at a minimum and the cumulative effect of such adjustments are recognized
in current operations. The amount of such adjustments have not been material.
The Company has made accounting policy elections to exclude all taxes by governmental authorities from the
measurement of the transaction price and that long-term construction-type sales contracts, or those contracts for products
with significant customization that the total contract price is less than $100 will be recorded at the point in time when the
construction is complete.
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 of approximately $165,563 at September 30, 2020. 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 months.
The recording of assets recognized from the costs to obtain and fulfill customer contracts primarily relate to the
deferral of sales commissions. The Companys costs incurred to obtain or fulfill a contract with a customer are classified
as non-current assets and amortized to expense over the period of benefit of the related revenue. These costs are recorded
within Cost of product sales and services. The amount of contract costs was insignificant at September 30, 2020.
106
The Company offers standard warranties that generally do not represent a separate performance obligation. In
certain instances, a warranty is obtained separately from the original equipment sale or the warranty provides incremental
services and as such is treated as a separate performance obligation.
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 revenues:
Revenue from contracts with customers recognized under Topic 606. . . . . . . . . . . . . $
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2020
1,279,772
149,684
1,429,456
$
$
2019
1,309,303
135,138
1,444,441
(1)
Other revenue relates to revenue recognized from Topic 842 (previously Topic 840), Leases, mainly
attributable to long term rentals.
Information regarding revenues disaggregated by source of revenue and segment is as follows:
2020
Applied
Product
Technologies
335,227
$
128,051
21,996
Year Ended September 30,
2019
Total
592,755
247,102
589,599
$
$
$
Integrated
Solutions and
Services
$
219,289
Applied
Product
Technologies
344,097
$
122,719
568,826
165,056
24,454
Total
563,386
287,775
593,280
$
$
$
Integrated
Solutions and
Services
257,528
119,051
567,603
944,182
$
485,274
$ 1,429,456
$
910,834
$
533,607
$ 1,444,441
Revenue from capital projects . . $
Revenue from aftermarket . . . . .
Revenue from service . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . $
Information regarding revenues disaggregated by geographic area is as follows:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Contract Balances
Year Ended September 30,
2020
1,164,634
108,139
$
2019
1,147,649
102,998
77,253
65,223
14,207
90,273
80,083
23,438
1,429,456
$
1,444,441
The Company performs its obligations under a contract with a customer by transferring products and/or services
in exchange for consideration from the customer. The Company receives payments from customers based on a billing
schedule as established in its contracts.
107
Contract assets relate to costs incurred to perform in advance of scheduled billings. Contract liabilities relate to
payments received in advance of performance under the contracts. Change in contract assets and liabilities are due to the
Companys performance under the contract.
The tables below provides a roll-forward of contract assets and contract liabilities balances for the periods presented:
Contract assets (a)
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cumulative effect of adoption of new accounting standards . . . . . . . . . . . . . . . . . . . . .
Recognized in current period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassified to accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts related to sale of the Memcor product line . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2020
2019
73,467
$
69,147
347,660
(342,371)
2,710
(707)
80,759
$
(6,106)
325,289
(302,055)
(13,025)
217
73,467
(a)
Excludes receivable balances which are disclosed on the Consolidated Balance Sheets.
Contract Liabilities
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cumulative effect of adoption of new accounting standards . . . . . . . . . . . . . . . . . . . . .
Recognized in current period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts in beginning balance reclassified to revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
Current period amounts reclassified to revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts related to sale of the Memcor product line . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2020
2019
39,051
$
322,595
(39,100)
(295,085)
(700)
(502)
26,259
$
17,652
1,773
319,722
(20,754)
(276,002)
(1,302)
(2,038)
39,051
5. Fair Value Measurements
As of September 30, 2020 and 2019, the fair values of cash and cash equivalents, accounts receivable and accounts
payable approximate carrying values due to the short maturity of these items.
The Company measures the fair value of pension plan assets and liabilities, deferred compensation and plan assets
and liabilities on a recurring basis pursuant to ASC Topic 820. ASC Topic 820 establishes a three tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments
in markets that are not active; and model derived valuations whose inputs are observable or whose significant
value driver is observable.
Level 3: Unobservable inputs in which little or no market data is available, therefore requiring an entity to develop
its own assumptions.
The following table presents the Companys financial assets and liabilities at fair value. The fair values related to
the pension assets are determined using net asset value (NAV) as a practical expedient, or by information categorized in
108
the fair value hierarchy level based on the inputs used to determine fair value. The reported carrying amounts of deferred
compensation assets and liabilities and debt approximate their fair values. The Company uses interest rates and other
relevant information generated by market transactions involving similar instruments to fair value these assets and liabilities,
therefore all are classified as Level 2 within the valuation hierarchy. For the years ended September 30, 2020 and 2019,
there were no transfers between Level 1 and 2 of the fair value hierarchy.
109
Quoted Market
Prices in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Net Asset Value
As of September 30, 2020
Assets:
Pension plan
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Government Securities . . . . . . . . . . . . . . . . . . . . . . . . .
Liability Driven Investment . . . . . . . . . . . . . . . . . . . . .
Guernsey Unit Trust . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Absolute Return . . . . . . . . . . . . . . . . . . . . . . . .
$
4,924
3,604
1,881
2,060
$
15,061
$
Deferred compensation plan assets
Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency forward contracts . . . . . . . . . . . . . . . .
Liabilities:
Pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation plan liabilities . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency forward contracts . . . . . . . . . . . . . . . .
Earn-outs related to acquisitions. . . . . . . . . . . . . . . . . . .
Option and Purchase Right . . . . . . . . . . . . . . . . . . . . . . .
As of September 30, 2019
Assets:
Pension plan
55
19,804
140
(47,389)
(21,439)
(872,441)
(4,669)
(47)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Government Securities . . . . . . . . . . . . . . . . . . . . . . . . .
Liability Driven Investment . . . . . . . . . . . . . . . . . . . . .
Guernsey Unit Trust . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Absolute Return . . . . . . . . . . . . . . . . . . . . . . . .
$
4,703
3,261
997
1,957
$
14,607
$
Deferred compensation plan assets
Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency forward contracts . . . . . . . . . . . . . . . .
Liabilities:
Pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation plan liabilities . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency forward contracts . . . . . . . . . . . . . . . .
Earn-outs related to acquisitions. . . . . . . . . . . . . . . . . . .
16
18,684
19
278
(42,948)
(21,318)
(979,357)
(154)
(295)
(7,739)
(1,545)
The pension plan assets and liabilities and deferred compensation assets and liabilities are included in other non-
current assets and other non-current liabilities on the Consolidated Balance Sheets at September 30, 2020 and 2019.
110
The Company records contingent consideration arrangements at fair value on a recurring basis and the associated
balances presented as of September 30, 2020 and 2019 are earn-outs related to acquisitions. See Note 3, Acquisitions and
Divestitures for further discussion regarding the earn-outs recorded for specific acquisitions. The fair value of earn-outs
related to acquisitions is based on significant unobservable inputs including the achievement of certain performance metrics.
Significant changes in these inputs would result in corresponding increases or decreases in the fair value of the earn-out
each period until the related contingency has been resolved. Changes in the fair value of the contingent consideration
obligations can result from adjustments in the probability of achieving future development steps, sales targets and profitability
and are recorded in General and administrative expenses in the Consolidated Statements of Operations.
A rollforward of the activity in the Companys fair value of earn-outs related to acquisitions is as follows:
Current
Portion (1)
Long-term
Portion (2)
Total
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value increase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
770
(1,650)
212
1,283
(4)
611
204
(187)
(333)
295
$
1,146
$
(212)
934
$
(934)
$
$
$
1,916
(1,650)
1,283
(4)
1,545
204
(187)
(1,267)
295
(1)
(2)
Included in Accrued expenses and other liabilities on the Consolidated Balance Sheets.
Included in Other non current liabilities on the Consolidated Balance Sheets.
Pursuant to the acquisition of Frontier, the Company recorded a liability for the Option and Purchase Right to
purchase the remaining 40% interest. The fair value of the options is based upon significant unobservable inputs including
future earnings and other market factors. Significant changes in these inputs would result in corresponding increases or
decreases in the fair value of the options each period until the purchase of the remaining 40% interest has occurred. Changes
in the fair value can result from earnings achieved over the passage of time and will be recorded in Interest expense in the
Consolidated Statements of Operations. As of September 30, 2020, $0 is included in Accrued expenses and other liabilities
related to the Option and $7,739 related to the Purchase Right is included in Other non current liabilities on the Consolidated
Balance Sheets.
6. Accounts Receivable
Accounts receivable are summarized as follows:
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Allowance for Doubtful Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
September 30,
2020
264,536
(4,057)
260,479
$
September 30,
2019
262,491
(4,906)
257,585
$
111
The movement in the allowance for doubtful accounts was as follows:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Charged to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(4,906) $
(537)
1,277
109
(4,057) $
(4,199) $
(788)
39
42
(4,906) $
(3,494)
(1,832)
1,387
(260)
(4,199)
Year Ended September 30,
2019
2020
2018
7. Inventories
The major classes of inventory, net are as follows:
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods and products held for resale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs of unbilled projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves for excess and obsolete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
78,319
$
15,654
56,435
3,438
(11,467)
142,379
$
75,223
14,741
58,223
2,347
(13,370)
137,164
September 30,
2020
September 30,
2019
The following is the activity in the reserves for excess and obsolete inventory:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions charged to expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2019
2020
2018
(13,370) $
(310)
2,197
16
(11,467) $
(9,313) $
(5,754)
1,541
156
(13,370) $
(10,599)
(419)
104
1,601
(9,313)
8. Property, Plant, and Equipment
Property, plant, and equipment consists of the following:
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Rental equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
112
September 30,
2020
357,650
September 30,
2019
316,390
$
221,953
70,245
48,325
698,173
(333,712)
364,461
$
$
172,534
64,165
40,599
593,688
(260,104)
333,584
The Company entered into secured financing agreements that require providing a security interest in specified
equipment. As of September 30, 2020 and September 30, 2019, the gross and net amounts of those assets are as follows:
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . $
Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . .
$
September 30, 2020
September 30, 2019
Gross
Net
Gross
Net
63,305
8,098
71,403
$
$
52,620
8,098
60,718
$
$
48,288
2,531
50,819
$
$
42,162
2,531
44,693
Depreciation expense and maintenance and repairs expense for the years ended September 30, 2020, 2019 and
2018 were as follows:
Depreciation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Maintenance and repair expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
73,002
20,303
$
$
66,031
23,861
$
$
59,017
23,343
Year Ended September 30,
2019
2020
2018
9. Goodwill
Changes in the carrying amount of goodwill are as follows:
Integrated
Solutions and
Services
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Business combinations and divestitures . . . . . . . . . . . . . . . . . . . . . . . . .
Measurement period adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill reclassified to assets held for sale . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Business combinations and divestitures . . . . . . . . . . . . . . . . . . . . . . . . .
Measurement period adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
224,370
(1,937)
(420)
222,013
2,723
(355)
224,381
Applied
Product
Technologies
$
186,976
$
$
1,738
$
63
(14,911) $
(2,989) $
$
(405) $
$
298
170,877
$
2,054
$
172,824
$
$
Total
411,346
1,738
(1,874)
(14,911)
(3,409)
392,890
2,318
298
1,699
397,205
As of September 30, 2020 and 2019, $153,004 and $151,880, respectively, of goodwill is deductible for tax
purposes.
The Company reviewed the recoverability of the carrying value of goodwill of its reporting units. As the fair value
of the Companys reporting units was determined to be in excess of the carrying values at July 1, 2020 and 2019, no further
analysis was performed. The Company has concluded that none of the goodwill was impaired as of September 30, 2020,
and there are no indicators of impairment through September 30, 2020.
113
10. Other Intangible Assets
Intangible assets consist of the following:
Amortizing intangible assets
Customer related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proprietary technology . . . . . . . . . . . . . . . . . . . . . . . . .
Trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total amortizing intangible assets . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortizing intangible assets
Customer related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proprietary technology . . . . . . . . . . . . . . . . . . . . . . . . .
Trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total amortizing intangible assets . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated
Life
(years)
7 - 10
5 - 15
1
3
Estimated
Life
(years)
10
10 - 15
1
3
September 30, 2020
Carrying
Amount
Accumulated
Amortization
Net
292,316
61,990
27,114
82,181
39,010
502,611
34,207
536,818
$
$
$
(83,486) $
(30,886) $
(9,142) $
(82,181) $
(21,156) $
(226,851) $
$
(226,851) $
208,830
31,104
17,972
17,854
275,760
34,207
309,967
September 30, 2019
Carrying
Amount
Accumulated
Amortization
Net
290,407
50,725
26,432
81,834
22,868
472,266
34,207
506,473
$
$
$
(64,548) $
(24,187) $
(6,245) $
(81,834) $
(14,892) $
(191,706) $
$
(191,706) $
225,859
26,538
20,187
7,976
280,560
34,207
314,767
$
$
$
$
$
$
The Companys indefinite-lived intangible asset relate to Federal hazardous waste treatment management permits
obtained for locations operated by the Integrated Solutions and Services segment. The permits are considered perpetually
renewable. The Company performs an indefinite-lived intangible asset impairment analysis on an annual basis during the
fourth quarter of the year and whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. The Company assessed the carrying value of the permits at the Integrated Solutions and Services segment as
of July 1, 2020 using a quantitative analysis outlined in ASU No. 2012-02 to determine whether the existence of events or
circumstances would lead to the conclusion that it is more likely than not that the fair values of the permits are less than the
carrying amounts. Events and circumstances considered in this review included macroeconomic conditions, new
competition, financial performance of the entities which utilizes the permits and other financial and non-financial events.
Based on these factors, the Company concluded the fair value of the permits were not more likely than not less than the
carrying amounts.
114
For the amortizing intangible assets, the remaining weighted-average amortization period at September 30,
2020 was as follows:
Customer-related intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proprietary technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregate net intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years
10
5
7
3
7
Intangible asset amortization was $34,266, $32,205 and $26,843 for the years ended September 30, 2020, 2019
and 2018, respectively. The estimated future amortization expense is as follows:
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
34,469
34,241
30,728
24,505
19,940
131,877
275,760
11. Debt
Long term debt consists of the following:
First Lien Term Loan, due December 20, 2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Equipment Financing, due September 30, 2023 to July 5, 2029, interest rates ranging
September 30,
2020
819,276
September 30,
2019
928,753
$
from 3.59% to 8.07%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes Payable, due July 31, 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage, due June 30, 2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less unamortized discount and lender fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
63,918
611
1,665
885,470
(9,436)
876,034
(14,339)
861,695
$
$
$
45,960
807
1,635
977,155
(12,138)
965,017
(13,418)
951,599
Term Facilities and Revolving Credit Facility
On January 15, 2014, EWT Holdings III Corp. (EWT III), an indirect wholly-owned subsidiary of the Company,
entered into a First Lien Credit Agreement and Second Lien Credit Agreement (the Credit Agreements or, after the
prepayment and termination of the Second Lien Credit Agreement, the First Lien Credit Agreement or Credit Agreement)
among EWT III, EWT Holdings II Corp., the lenders party thereto and Credit Suisse AG as administrative agent and collateral
agent. The First Lien Credit Agreement provided for a seven-year term loan facility, and the Second Lien Credit Agreement
provided for an eight-year term loan facility. The term loan facilities originally consisted of the First Lien Term Loan and
Second Lien Term Loan in aggregate principal amounts of $505,000 and $75,000, respectively. The First Lien Credit
Agreement also made available to the Company a $75,000 revolving credit facility (the Revolver), which provided for a
115
letter of credit sub-facility up to $35,000. During the year ended September 30, 2018, certain subsidiaries of the Company
entered into two amendments to the Credit Agreement which provided for, among other things, the refinancing of the
Existing Term Loans with the proceeds of refinancing term loans, extension of the maturity date to December 20, 2024, the
reduction in the interest rate spreads on the Term Loan borrowing to 3.00% and an additional $150,000 borrowed in
incremental term loans. In addition, the revolving credit commitment and letters of credit sublimit were increased
to $125,000 and $45,000, respectively. The other terms of the Existing Credit Agreement, including rates, remain generally
the same. As a result of the incremental borrowings, quarterly principal payments increased to $2,369. At September 30,
2019, the interest rate on borrowings was 5.11%, comprised of 2.11% LIBOR plus the 3.00% spread.
In January 2020, the Company utilized $100,000 of the proceeds from the sale of the Memcor product line to repay
a portion of the Companys First Lien Term Loans. As a result of the prepayment, the Company wrote off $1,795 of deferred
financing fees during the three months ended March 31, 2020. On February 18, 2020, EWT III entered into Amendment
No. 7 (the Amendment), among EWT III, as the borrower, EWT Holdings II Corp, as parent guarantor, the subsidiary
guarantors party thereto, the financial institutions party thereto, and Credit Suisse AG, as administrative agent and collateral
agent, relating to the Credit Agreement. As a result of the Amendment, the Company incurred $760 of fees which were
recorded as deferred financing fees on the Consolidated Balance Sheets. Prior to the Amendment, First Lien Term Loans
in an aggregate principal amount of approximately $826,000 (the Existing Term Loans) were outstanding under the Credit
Agreement. Pursuant to the Amendment, the Existing Term Loans were refinanced. Additionally, the Amendment amended
the Credit Agreement to, among other things:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
reduce the interest rate spread applicable to term loans based on LIBOR from (A) 2.75% to 2.50% per annum
during any period during which EWT III maintains a public corporate family rating better than or equal to B1 from
Moodys and B+ from S&P, in each case with a stable outlook (a Ratings Condition Period), and (B) 3.00% to
2.75% per annum for any period other than a Ratings Condition Period;
reduce the interest rate spread applicable to term loans based on the Base Rate from (A) 1.75% to 1.50% per annum
during any Ratings Condition Period and (B) 2.00% to 1.75% per annum during any period other than a Ratings
Condition Period;
remove the 1.00% floor for term loans based on LIBOR and the 2.00% floor for term loans based on the Base
Rate;
schedule existing indebtedness and investments, allowing EWT III and its subsidiaries to incur incremental
indebtedness and make incremental investments under the applicable baskets;
increase the generally permitted investments basket; and
extend the 1.00% prepayment premium for refinancing in connection with certain repricing transactions through
August 18, 2020.
The Company makes quarterly principal payments of $2,369. At September 30, 2020, the interest rate on borrowings
was 2.91%, comprised of 0.16% LIBOR plus the 2.75% spread.
Total deferred fees related to the First Lien Term Loan are $9,436 and $12,138, net of amortization, as of
September 30, 2020 and September 30, 2019, respectively. These fees are included as a contra liability to debt on the
Consolidated Balance Sheets.
116
The following summarizes the Companys outstanding borrowings under the Revolver and outstanding letters of
credit as of September 30, 2020 and September 30, 2019, respectively.
Borrowing availability under the Revolver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Outstanding borrowings under the Revolver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding letters of credit under the Revolver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unused amounts under the Revolver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
September 30,
2020
125,000
12,963
112,037
Additional letters of credit under a separate arrangement. . . . . . . . . . . . . . . . . . . . . . . . . $
52
September 30,
2019
$
$
$
125,000
12,956
112,044
204
The First Lien Credit Agreement contains limitations on incremental borrowings, is subject to leverage ratios and
allows for optional prepayments. Under certain circumstances, the Company may be required to remit excess cash flows
as defined based upon exceeding certain leverage ratios. The Company did not exceed such ratios during the year ended
September 30, 2020, does not anticipate exceeding such ratios during the year ending September 30, 2021, and therefore
does not anticipate any additional repayments during the year ending September 30, 2021.
Repayment Schedule
Aggregate maturities of all long term debt, including current portion of long term debt and excluding finance
lease obligations as of September 30, 2020, are presented below:
Year Ended September 30,
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
16,451
16,763
17,043
15,500
788,844
30,869
885,470
12. Derivative Financial Instruments
Interest Rate Risk Management
The Company is subject to market risk exposure arising from changes in interest rates on the senior secured credit
facilities, which bear interest at rates that are indexed against LIBOR. The Companys objectives in using interest rate
derivatives are to add stability to interest expense and to mitigate its exposure to rising interest rates. To accomplish these
objectives, the Company entered into an interest rate swap during the third quarter of fiscal 2020 to mitigate risks associated
with its variable rate debt. The interest rate swap is effective June 30, 2020, has a term of five years to hedge the variability
of interest payments on the first $500,000 of the Companys senior secured debt and fixes the LIBOR rate on this portion
of the senior secured debt at 0.55%. The interest rate swap has been designated as a cash flow hedge and unrealized gains
or losses, net of income tax, are recorded as a component of Accumulated other comprehensive loss on the Consolidated
Balance Sheets. As interest payments are made, the realized gain or loss on the payments are recorded in Interest expense
on the Consolidated Statements of Operations.
In addition, the Company entered into an interest rate cap, designated as a cash flow hedge, to mitigate risks
associated with variable rate debt effective November 28, 2018. The Company terminated the interest rate cap during the
third quarter of 2020. The LIBOR interest rate cap covered a notional amount of $600,000 of the Companys senior secured
117
debt, was effective for a period of three years and had a strike rate of 3.5%. Interest rate caps designated as cash flow hedges
involve the receipt of stipulated amounts from a counterparty if interest rates rise above the strike rate defined in the contract.
The premium paid for the interest rate cap was $2,235 and was being amortized to interest expense over its three-year term
using the caplet method. As a result of the termination, the derivative was de-designated from hedge accounting and the
Company wrote off the remaining unamortized premium of $1,118 to interest expense. No additional fees were incurred.
The unamortized premium was $1,614 at September 30, 2019, of which $745 was included in Prepaid and other current
assets and the remaining $869 was included in Other non current assets. The Company recorded $496 and $621 of premium
amortization to interest expense during the years ended September 30, 2020 and 2019, respectively.
Foreign Currency Risk Management
The Companys functional currency is the U.S. dollar. By operating internationally, the Company is subject to
foreign currency risk from transactions denominated in currencies other than the U.S. dollar (foreign currencies). To
mitigate cross-currency transaction risk, the Company analyzes significant exposures where it has receipts or payments in
a currency other than the functional currency of its operations, and from time to time may strategically enter into short-term
foreign currency forward contracts to lock in some or all of the cash flows associated with these transactions. The Company
is also subject to currency translation risk associated with converting the foreign operations financial results into U.S.
dollars. The Company uses foreign currency derivative contracts in order to manage the effect of exchange fluctuations on
forecasted sales and purchases that are denominated in foreign currencies. To mitigate the impact of foreign exchange rate
risk, the Company entered into a series of forward contracts designated as cash flow hedges. As of September 30, 2020, the
notional amount of the forward contracts held to sell foreign currencies was $5,542.
Credit Risk Management
The counterparties to the Companys derivative contracts are highly rated financial institutions. The Company
regularly reviews the creditworthiness of its financial counterparties and does not expect to incur a significant failure of
any counterparties to perform under any agreements. The Company is not subject to any obligations to post collateral under
derivative instrument contracts. The Company records all derivative instruments on a gross basis in the Consolidated Balance
Sheets. Accordingly, there are no offsetting amounts that net assets against liabilities.
Derivatives Designated as Cash Flow Hedges
The Company accounts for derivatives and hedging activities in accordance with ASC Topic No. 815, Derivatives
and Hedging (Topic No. 815). As required by Topic No. 815, the Company records all derivatives on the balance sheet at
fair value and adjusts to market on a quarterly basis. The Companys interest rate cap is valued based on readily observable
market inputs, such as quotations on interest rates and LIBOR yield curves at the reporting date. The Companys foreign
currency forward contracts are valued based on quoted forward foreign exchange prices and spot rates at the reporting date.
For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in AOCI
to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects
earnings. To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are
immediately recognized in earnings in the Consolidated Statements of Operations. The Company recorded no hedge
ineffectiveness during the year ended September 30, 2020. The Company does not use derivative financial instruments for
trading or speculative purposes.
The following represents the fair value recorded for derivatives designated as cash flow hedges for the periods
presented:
Balance Sheet Location
Asset Derivatives
September 30,
2020
September 30,
2019
Interest rate cap . . . . . . . . . . . . . . . . . . . . . . . Prepaid and other current assets
Foreign currency forward contracts . . . . . . . . Prepaid and other current assets
$
$
$
133
$
19
269
118
Interest rate swap . . . . . . . . . . . . . . . . . . . . . .
Foreign currency forward contracts . . . . . . . .
Balance Sheet Location
Accrued expenses and other current
liabilities
Accrued expenses and other current
liabilities
Liability Derivative
September 30,
2020
September 30,
2019
$
$
4,669
47
$
$
154
The following represents the amount of (loss) gain recognized in AOCI (net of tax) during the periods presented:
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest rate cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency forward contracts . . . . . . . . . . . . . . . . . . . . . . . . .
$
Year Ended September 30,
2020
2019
2018
(5,155) $
(19)
(201)
(5,375) $
$
19
(443)
(424) $
(118)
(118)
The following represents the amount of (loss) gain reclassified from AOCI into earnings (effective portion) during
the periods presented:
Foreign currency forward contracts
Foreign currency forward contracts
Foreign currency forward contracts
Foreign currency forward contracts
Location of (Loss) Gain
Cost of product sales and
services
General and administrative
expense
Selling and marketing
expense
Research and development
expense
Interest rate swap
Interest expense
Year Ended September 30,
2020
2019
2018
(8) $
(309) $
(76)
(192)
28
(486)
(658) $
82
(271)
(498) $
18
(39)
(97)
$
$
Based on the fair value amounts of the Companys cash flow hedges at September 30, 2020, the Company expects
that approximately $97 of pre-tax net gains will be reclassified from AOCI into earnings during the next twelve months.
The amount ultimately realized, however, will differ as exchange rates vary and the underlying contracts settle.
Derivatives Not Designated as Cash Flow Hedges
The following represents the fair value recorded for derivatives not designated as cash flow hedges for the periods
presented:
Foreign currency forward contracts
Balance Sheet Location
Prepaid and other current assets
Asset Derivative
September 30,
2020
September 30,
2019
$
7
$
9
119
13. Product Warranties
The Company accrues warranty obligations associated with certain products as revenue is recognized. Provisions
for the warranty obligations are based upon historical experience of costs incurred for such obligations, adjusted for
site specific risk factors and as necessary, for current conditions and factors. There are significant uncertainties and judgments
involved in estimating warranty obligations, including changing product designs, differences in customer installation
processes and future claims experience which may vary from historical claims experience.
A reconciliation of the activity related to the accrued warranty, including both the current and long term portions,
is as follows:
Current Product Warranties
Non-Current Product Warranties
Year Ended September 30,
Year Ended September 30,
Balance at beginning of the period . . . . . $
Warranty provision for sales . . . . . . . .
Settlement of warranty claims . . . . . . .
Foreign currency translation and other
Amounts related to sale of the
Memcor product line . . . . . . . . . . . .
Balance at end of the period . . . . . . . . . . $
14. Restructuring and Related Charges
2020
2019
4,922
$
8,907
$
4,738
(4,890)
550
795
6,115
$
5,745
(6,529)
63
(3,264)
4,922
2018
11,164
4,930
(6,836)
(351)
2020
2019
2018
$
2,332
$
3,360
$
6,110
701
(1,170)
(274)
1,915
(999)
(350)
654
(3,132)
(272)
135
$
8,907
$
1,724
$
(1,594)
2,332
$
3,360
To better align its resources with its growth strategies and reduce the cost structure, the Company commits to
restructuring plans as necessary. The Company has undertaken various restructuring initiatives, including the wind-down
of the Companys operations in Italy, restructuring of the Companys operations in Australia, consolidation of functional
support structures on a global basis, and consolidation of the Singaporean research and development center.
Beginning in the second quarter of fiscal 2020, and following the sale of the Memcor product line, the Company
undertook activities to reduce the cost structure and rationalize location footprint. The Company currently expects to incur
approximately $3,000 to $5,000 of costs through the remainder of fiscal 2021 related to these initiatives.
On October 30, 2018, the Company announced a transition from a three-segment structure to a two-segment
operating model designed to better serve the needs of customers worldwide. This new structure was effective October 1,
2018 and combined the Municipal services business with the former Industrial segment into a new segment, Integrated
Solutions and Services, a group entirely focused on engaging directly with end users. The former Products segment and
Municipal products businesses have been combined into a new segment, Applied Product Technologies, which is focused
on developing product platforms to be sold primarily through third party channels. The Company currently expects to incur
approximately $1,000 of cash costs through fiscal 2021 as a result of this transition related to other non-employee related
business optimizations.
During the year ended September 30, 2017, the Company initiated a Voluntary Separation Plan (VSP) that
continued throughout the year ended September 30, 2018 and concluded during the six months ended March 31, 2018. The
VSPplan included severance payments to employees as a result of streamlining business operations for efficiency, elimination
of redundancies, and reorganizing business processes.
120
The table below sets forth the amounts accrued for the restructuring components and related activity:
Balance at beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restructuring charges following the sale of the Memcor product line .
Restructuring charges related to two-segment realignment . . . . . . . . .
Restructuring charges related to other initiatives (including VSP) . . . .
Release of prior reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2020
2019
2018
655
$
710
$
3,542
8,274
2,092
1,867
(98)
(2,461)
(9,367)
8
970
$
11,090
2,444
(541)
(12,966)
(82)
655
11,085
(663)
(13,280)
26
$
710
The balances for accrued restructuring liabilities at September 30, 2020 and 2019, are recorded in Accrued expenses
and other liabilities on the Consolidated Balance Sheets. Restructuring charges represent severance charges, inventory write-
offs and consulting fees.
The table below sets forth the location of amounts recorded above on the Consolidated Statements of Operations:
Year Ended September 30,
2020
2019
2018
Cost of product sales and services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
General and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,305
$
6,257
$
3,053
305
23
449
5,531
1,082
123
3,897
4,775
908
606
236
$
12,135
$
12,993
$
10,422
The Company continues to evaluate restructuring activities that may result in additional charges in the future.
15. Employee Benefit Plans
Defined Benefit Plans
The Company maintains multiple employee benefit plans.
Certain of the Companys employees in the UK were participants in a Siemens defined benefit plan established
for employees of a UK-based operation acquired by Siemens in 2004. The plan was frozen with respect to future service
credits for active employees, however the benefit formula recognized future compensation increases. The Company agreed
to establish a replacement defined benefit plan, with the assets of the Siemens scheme transferring to the new scheme on
April 1, 2015.
The Companys employees in Germany also participate in a defined benefit plan. Assets equaling the plans
accumulated benefit obligation were transferred to a German defined benefit plan sponsored by the Company upon the
acquisition of EWT from Siemens. The German entity also sponsors a defined benefit plan for a small group of employees
located in France.
121
The changes in projected benefit obligations, plan assets and the funded status of the UK and German defined
benefit plans as of and for the years ended September 30, 2020 and 2019, respectively, are as follows:
Change in projected benefit obligation
Projected benefit obligation at prior year measurement date . . . . . . . . . . . . . . . . . . . . . . . $
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid from company assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projected benefit obligation at measurement date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Change in plan assets
Fair value of assets at prior year measurement date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of assets at measurement date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Funded status and amount recognized in assets and liabilities . . . . . . . . . . . . . . . . . . . . . . $
Amount recognized in assets and liabilities
2020
2019
42,948
1,125
492
5
(173)
2,992
47,389
$
$
25,525
205
(60)
255
1,605
$
27,530
(19,859) $
35,541
898
699
8,056
(139)
113
(2,220)
42,948
24,583
2,269
(48)
175
(1,454)
25,525
(17,423)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
2,831
(22,690) $
2,655
(20,078)
Amount recognized in accumulated other comprehensive loss, before taxes
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
11,235
$
11,251
The following table provides summary information for the German plan where the projected benefit obligation
and accumulated benefit obligation are in excess of plan assets:
Projected benefit obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
47,389
25,489
27,530
$
$
$
42,948
22,469
25,525
September 30,
2020
September 30,
2019
The weighted average assumptions in the following table represent the rates used to develop the actuarial present
value of the projected benefit obligation for the year indicated as well as net periodic pension cost for the following year.
The discount rate is based on settling the obligation with high grade, high yield corporate bonds, and the rate of compensation
increase is based upon actual experience. The expected return on assets is based on historical performance as well as expected
future rates of return on plan assets considering the current investment portfolio mix and the long term investment strategy.
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Salary scale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension increases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
0.80% - 1.97%
1.98% - 2.40%
2.25% - 4.44%
1.00% - 2.99%
2019
0.80% - 1.97%
0.90% - 1.98%
2.25% - 4.44%
1.00% - 3.38%
122
The Plan trustees for the UK and German pension plans have established investment policies and strategies. The
UK Pension Committee established and implemented a liability driven investment approach to take advantage of, and
seeking to protect, its well funded status. The current German investment strategy is to maintain cash reserves.
Through a trust arrangement, the German plan assets are held in cash at a German bank.
The actual overall asset allocation for the UK pension plan as compared to the investment policy goals as of
September 30, 2020 was as follows by asset category:
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.5%
76.5%
%
%
70%
%
2020 Actual
2020 Target
Pension expense for the German and UK plans were as follows:
Year Ended September 30,
2020
2019
2018
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension expense for defined benefit plans . . . . . . . . . . . . . . . . . . . . . . . . $
1,125
$
492
(387)
1,006
$
898
699
(440)
371
2,236
$
1,528
$
933
742
(470)
299
1,504
The components of pension expense, other than the service cost component which is included in General and
administrative expense, are included in the line item Other operating expense in the Consolidated Statements of Operations.
Benefits expected to be paid to participants of the plans are as follows:
Year Ended September 30,
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Five years thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
380
542
515
613
716
6,249
9,015
Defined Contribution Plans
The Company maintains a defined contribution 401(k) plan, which covers all U.S.-based employees who meet
minimum age and length of service requirements. Plan participants can elect to defer pre-tax compensation through payroll
deductions. These deferrals are regulated under Section 401(k) of the Internal Revenue Code. The Company matches 100%
of eligible participants deferrals that do not exceed 6% of their pay (subject to limitations imposed by the Internal Revenue
Code). The Companys matching contributions were $14,243, $14,533 and $12,955 for the years ended September 30, 2020,
2019 and 2018, respectively.
Employees in the UK and Germany also participate in a defined contribution plan maintained by the Company.
For the years ended September 30, 2020, 2019 and 2018, contributions made to the Companys plan in the UK and Germany
were $1,021, $796 and $707, respectively.
123
Deferred Compensation
On April 1, 2014, the Company adopted a non-qualified deferred compensation plan for certain highly compensated
employees. The Plan matches on a dollar-for-dollar basis, up to the first 6% of a participantspay. The Companys obligation
under the plan represents an unsecured promise to pay benefits in the future. In the event of bankruptcy or insolvency of
the Company, assets of the plan would be available to satisfy the claims of general creditors. To increase the security of the
participants deferred compensation plan benefits, the Company has established and funded a grantor trust (known as a
rabbi trust). The rabbi trust is specifically designed so that assets are available to pay plan benefits to participants in the
event the Company is unwilling or unable to pay the plan benefits for any reason other than bankruptcy or insolvency. As
a result, the Company is prevented from withdrawing or accessing assets for corporate needs. Plan participants choose to
receive a return on their account balances equal to the return on the various investment options. The rabbi trust assets are
primarily invested in mutual funds and insurance contracts of which the rabbi trust is the owner and beneficiary.
Health Benefit Plan
The Company maintains a qualified employee health benefit plan in the U.S. and is self funded by the Company
with respect to claims up to a certain amount. The plan requires contributions from eligible employees and their dependents.
16. Income Taxes
For financial reporting purposes, income (loss) before income taxes includes the following components:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
81,276
40,490
121,766
$
$
(9,140) $
10,256
1,116
$
(8,613)
17,879
9,266
Year Ended September 30,
2019
2018
2020
The components of income tax (expense) benefit were as follows:
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Year Ended September 30,
2019
2018
2020
$
(591)
(8,014)
(8,605) $
115
401
718
1,234
$
(7,371) $
$
(400)
(7,239)
(7,639) $
(3,597)
196
1,453
(1,948) $
(9,587) $
(911)
(6,703)
(7,614)
6,311
(209)
130
6,232
(1,382)
For the years ended September 30, 2020 and September 30, 2019, the U.S. federal statutory rate was 21.0% and
for the year ended September 30, 2018, the U.S. federal statutory rate was 24.5% a blended rate based upon the number of
days in fiscal 2018 that the company was taxed at the former statutory rate of 35.0% and the number of days that it was
taxed at the new rate of 21.0%.
124
A reconciliation of income tax (expense) benefit and the amount computed by applying the applicable statutory
rate to income from operations before income taxes was as follows:
Year Ended September 30,
2020
2019
2018
Income tax (expense) benefit at the federal statutory rate of 21% . . . . . . $
State and local income taxes, net of federal tax benefit . . . . . . . . . . . . . .
Foreign tax rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meals and entertainment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. tax on foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible legal expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other nondeductible expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of tax rate changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation in excess of accounting . . . . . . . . . . . . . . . . .
Non-taxable gain on sale of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return-to-provision adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net benefit of foreign R&D expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction related contingent liabilities. . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent liabilities - warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign withholding taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible exchange gain or loss. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued tax adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefits of other comprehensive income . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(25,571) $
(74)
(1,129)
(1,032)
(760)
(8,438)
(479)
286
19,013
4,931
4,789
516
(466)
18
143
491
(6)
397
(7,371) $
(234) $
(204)
(1,471)
(1,073)
(953)
(1,421)
(112)
(223)
(548)
(3,886)
475
(655)
221
191
(58)
93
369
(587)
2,016
(1,348)
(154)
(25)
(9,587) $
(2,270)
(1,053)
(2,389)
(1,489)
(853)
(553)
(47)
3,626
(4,218)
5,156
1,131
449
428
336
89
275
(1,382)
Annual Tax (Expense) Benefit
For the year ended September 30, 2020, actual tax expense differed from tax expense based on the U.S. federal
statutory tax rate principally due to; the impact of the gain on the sale of the Memcor product line, which did not generate
significant tax expense due to the combination of the U.S. valuation allowance and favorable foreign tax regimes; U.S.
income not attracting net tax due to the valuation allowance; and the favorable impact of the reversal of a portion of the
deferred tax liabilities related to indefinite lived intangibles.
For the year ended September 30, 2020, the Company provided tax expense of $7,371 as compared to expense of
$9,587 for the fiscal year ended September 30, 2019. The decrease in expense was primarily the result of the favorable
impact on deferred tax liabilities related to indefinite lived intangibles, a portion of which were reversed in relation to the
sale of the Memcor product line.
For the year ended September 30, 2019, the Company provided tax expense of $9,587 as compared to expense of
$1,382 in the fiscal year ended September 30, 2018. This increase in expense was primarily the result of the favorable impact
included in the prior year of the reduction of the U.S. federal tax rate, which required the remeasurement of U.S. deferred
125
tax liabilities associated with indefinite lived intangible assets, and the favorable impact of acquisitions for which the
acquired deferred tax liabilities generated a reduction in the amount of valuation allowance required against the Companys
existing U.S. and state deferred tax assets.
Significant components of deferred tax assets and liabilities were as follows:
September 30,
2020
September 30,
2019
Deferred Tax Assets
Receivable allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Reserves and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory valuation and other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized foreign exchange gains (losses), including related hedges . . . . . . . . . . . . .
Other deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disallowed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets less valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred Tax Liabilities
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
856
24,141
4,617
1,592
5,332
3,474
29,407
69,419
(23,298)
46,121
$
$
$
(6,579)
(32,136)
(15,509)
(1,427)
(55,651) $
(9,530) $
1,018
24,473
4,989
2,569
6,730
897
7,096
49,786
97,558
(41,084)
56,474
(9,801)
(38,293)
(15,720)
(3,418)
(67,232)
(10,758)
Accounting standards require that deferred tax assets be reduced by a valuation allowance if, based on all available
evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized
in future periods. This assessment requires significant judgment, and in making this evaluation, the Company considers all
available positive and negative evidence, including the potential to carryback net operating losses and credits, the future
reversal of certain taxable temporary differences, actual and forecasted results, and tax planning strategies that are both
prudent and feasible. A significant piece of objective evidence evaluated was the cumulative income or loss incurred over
the three year period ended September 30, 2020. The Company was in a three-year cumulative loss at September 30, 2019
but is no longer in a three-year cumulative loss position at September 30, 2020, primarily due to the sale of the Memcor
business. Emerging from a three-year cumulative loss is positive evidence. However, the Company believes the favorable
evidence of the first year not in a three-year cumulative loss is outweighed by the significant global economic uncertainty
due to the COVID-19 health crisis.
After considering all available evidence, both positive and negative, management determined that a valuation
allowance was necessary in certain jurisdictions. As of September 30, 2020, the company maintains a full valuation
allowance against its deferred tax assets (excluding certain deferred tax liabilities including those related to indefinite lived
intangibles) in the U.S., Germany, and the UK. A partial valuation allowance is maintained in the Netherlands related to
deferred tax assets generated prior to the Magneto acquisition as well as certain credits that are not expected to be realized.
126
A reconciliation of the valuation allowance on deferred tax assets is as follows:
Year Ended September 30,
2019
2018
2020
Valuation allowance beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . $
Change in assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current year operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions / Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
41,084
$
1,650
(19,856)
3,012
(2,592)
23,298
$
36,683
(865)
3,495
2,254
(483)
41,084
$
48,573
(1,435)
71
(10,526)
36,683
$
The Company does not anticipate that it will dispose any of its foreign subsidiaries in the foreseeable future and
as such has not recorded a U.S. deferred tax asset where the tax basis exceeds the financial reporting basis of these investments.
Additionally, the Company has not provided a U.S. deferred tax liability on the excess of financial reporting over tax basis
of its investments.
As of September 30, 2020, 2019 and 2018, undistributed earnings of non-U.S. affiliates were approximately
$53,766, $49,480 and $36,879, respectively, which are considered to be indefinitely reinvested. Upon distribution of these
earnings the Company may be subject to U.S. income taxes and foreign withholding taxes. The amount of taxes that may
be payable on remittance of these earnings is dependent on the tax laws and profile of the Company at that time and the
availability of foreign tax credits in the year in which such earnings are remitted. Therefore, it is not practicable to estimate
the amount of taxes that may be payable when these earnings are remitted in the future.
The Company utilizes the more-likely-than-not standard in recognizing a tax benefit in its financial statements.
For the years ended September 30, 2020, 2019, 2018 and the Company had unrecognized tax benefits of $1,050, $1,075,
and $0 respectively.
The following is a reconciliation of the Companys total gross unrecognized tax benefits:
Balance as of beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Tax positions related to the current year
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax positions related to prior years
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expiration of statutes of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2020
2019
2018
1,075
$
$
(25)
1,075
1,050
$
1,075
$
At September 30, 2020, 2019, and 2018, the Company had $1,288, $1,170, and $0 classified as a current liability
respectively. The amount of unrecognized tax benefits is not expected to change significantly during the next 12 months.
At September 30, 2020, 2019, and 2018, if the Companys tax positions are sustained by the taxing authorities in favor of
the Company, the amount that would affect the Companys effective tax rate was approximately $1,288, $1,170, and $0
respectively.
The Company classifies interest expense and, if applicable, penalties which could be assessed related to
unrecognized tax benefits as component of income tax (expense) benefit. For the years ended September 30, 2020, 2019,
and 2018 the Company recognized approximately $(143), $(95), and $0 of gross interest and penalties, respectively.
127
Tax attributes available to reduce future taxable income begin to expire as follows:
Federal net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign net operating loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign net operating loss (Germany, Singapore, and the UK) . . . . . . . . . . . . . .
September 30,
2020
105,828
66,206
1,770
18,467
First year of Expiration
September 30, 2035
September 30, 2019
September 30, 2023
Indefinite
During the fourth quarter of the year ending September 30, 2020 the Company undertook a secondary offering.
As a result of that offering, the Company experienced an ownership change for purposes of I.R.C. Section 382. There was
no impact to current or deferred tax expense resulting from the ownership change for the year ending September 30, 2020.
The Company is subject to audit in the U.S. as well as various states and foreign jurisdictions. The following table
summarizes the Companys earliest open tax years by major jurisdiction as of September 30, 2020:
Jurisdiction
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Open Tax Years
2017-2020
2016-2020
2016-2020
2015-2019
2016-2020
2015-2020
2016-2020
2018-2020
Effects of the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (the Tax Act) introduced new provisions that were effective January 1, 2018 and changed
how certain provisions are calculated beginning with the year ended September 30, 2018. These provisions included
additional limitations on the deduction of certain expenses, a limitation on the current deductibility of net interest expense
in excess of 30% of adjusted taxable income, a limitation on the use of net operating losses generated after fiscal 2018 to
80% taxable income, and an incremental tax (base erosion anti-abuse tax or BEAT) on excessive amounts paid to foreign
related parties. These new provisions did not have a material impact to the Companys tax expense. Amounts recorded
where accounting is complete principally related to the reduction of the U.S. Corporate income tax rate to 21% which
resulted in the Company reporting income tax benefit of $3,641 to remeasure deferred tax liabilities associated with indefinite
lived intangible assets that will reverse at the new 21% rate. Absent this deferred tax liability, the Company is in a net
deferred tax asset position that is fully offset by a valuation allowance. Though the tax effected net deferred tax asset changed,
the movement was offset by movement in the valuation allowance with a net tax effect of $0.
The Tax Act also created a provision known as GILTI that imposes a tax on certain earnings of foreign subsidiaries.
The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore, has no provided any
deferred tax impacts of GILTI in its Consolidated Financial Statements for the year ended September 30, 2018.
17. Share-Based Compensation
The Company designs equity compensation plans to attract and retain employees while also aligning employees
interests with the interests of the Companys shareholders. In addition, members of the Companys Board of Directors (the
Board) participate in equity compensation plans in connection with their service on the Companys Board.
The Company established the Evoqua Water Technologies Corp. Stock Option Plan (the Stock Option Plan)
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shortly after the acquisition date of January 16, 2014. The plan allows certain management employees and the Board to
purchase shares in Evoqua Water Technologies Corp. Under the Stock Option Plan, the number of shares available for
award was 11,083. As of September 30, 2020, there were approximately 2,149 shares available for future grants, however,
the Company does not currently intend to make additional grants under the Stock Option Plan.
In connection with the IPO, the Board adopted and the Companys shareholders approved the Evoqua Water
Technologies Corp. 2017 Equity Incentive Plan (or the Equity Incentive Plan), under which equity awards may be granted
in the form of options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalent rights, share
awards and performance-based awards (including performance share units and performance-based restricted stock). Upon
adoption of the Equity Incentive Plan, 5,100 shares of common stock of the Company were reserved for issuance thereunder.
On February 18, 2020, the Companys shareholders approved the amendment and restatement of the Equity Incentive Plan
in order to increase the number of shares of common stock reserved for issuance thereunder by 5,000 shares and incorporate
other changes. As of September 30, 2020, there were approximately 6,025 shares available for grants under the Equity
Incentive Plan.
In addition to the establishment of the Equity Incentive Plan, in connection with the IPO, the Company entered
into RSU agreements with each of the executive officers and certain other key members of management. Pursuant to the
RSU agreements, recipients received, in the aggregate 1,197 stock-settled RSUs, the aggregate value of which equals
$25,000. The RSUs vested and settled in full upon the second anniversary of the IPO on November 2, 2019, resulting in
the issuance of 1,158 shares, 419 of which were deposited into treasury in satisfaction of withholding tax obligations resulting
from the vesting of the RSUs.
Option awards are granted at various times during the year, vest ratably at 25% per year, and are exercisable at the
time of vesting. The options granted have a contractual term of ten years.
A summary of the stock option activity for the years ended September 30, 2020 and 2019 is presented below:
Options
Weighted Average
Exercise Price/
Share
(In thousands, except per share amounts)
Outstanding at September 30, 2018. . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled. . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at September 30, 2019. . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled. . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at September 30, 2020. . . . . . . .
Options exercisable at September 30, 2020 .
Options vested and expected to vest at
September 30, 2020 . . . . . . . . . . . . . . . . . . . .
8,973
1,114
(930)
(511)
(27)
8,619
823
$
$
(1,834) $
(172) $
(6)
7,430
5,264
7,382
$
$
$
7.57
12.74
5.22
12.43
20.88
8.15
23.52
5.62
15.54
20.60
10.30
6.96
Weighted Average
Remaining
Contractual Term
6.9 years
Aggregate
Intrinsic Value
6.3 years
$
80,826
5.9 years
4.9 years
$
$
$
83,152
75,130
83,042
10.23
5.9 years
The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise
price of the options of the date of exercise) during the year ended September 30, 2020 was $27,973. During the year ended
September 30, 2020, $18,927 was received from the exercise of stock options. The remaining stock options exercised during
the year ended September 30, 2020 were effected through a cashless net exercise.
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A summary of the status of the Company's nonvested stock options as of and for the years ended September 30,
2020, 2019 and 2018 is presented below.
(In thousands, except per share
amounts)
Nonvested at beginning of
period . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . .
Nonvested at end of period . .
2020
2019
2018
Weighted
Average Grant
Date Fair
Value/Share
Shares
Weighted
Average Grant
Date Fair
Value/Share
Shares
Weighted
Average Grant
Date Fair
Value/Share
Shares
2,379
823
$
$
(864) $
(172) $
2,166
$
4.96
6.06
4.52
4.94
5.56
3,335
$
1,114
$
(1,559) $
(511) $
$
2,379
4.11
3.87
2.61
4.38
4.96
4,300
$
1,380
$
(2,180) $
(165) $
$
3,335
1.36
7.91
1.20
3.27
4.11
The total fair value of options vested during the year was $3,906, $4,064 and $2,623 for the years ended
September 30, 2020, 2019 and 2018, respectively.
Restricted Stock Units
The following is a summary of the RSU activity for the years ended September 30, 2020 and 2019. On November
2, 2019, 1,158 stock-settled RSUs vested, resulting in the issuance of 739 shares of common stock to the grantees and 419
shares of common stock to treasury to satisfy withholding tax obligations.
Outstanding at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and expected to vest at September 30, 2020. . . . . . . . . . . . . . . . . . . . .
Expense Measurement and Recognition
Shares
Weighted Average
Grant Date Fair
Value/Share
1,213
$
$
883
(24) $
(70) $
$
2,002
$
394
(1,555) $
(91) $
$
750
729
$
20.88
12.69
20.75
15.84
17.45
23.05
18.79
15.35
17.86
17.79
The Company recognizes share-based compensation for all current award grants and, in future periods, will
recognize compensation costs for the unvested portion of previous award grants based on grant date fair values. Total share-
based compensation expense was $10,535 during the year ended September 30, 2020, of which $10,509 was non-cash.
Share-based compensation expense was $19,903 and $15,742 during the years ended September 30, 2019 and 2018,
respectively.
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Reported non-cash share-based compensation expense was classified on the Consolidated Statements of Operations
as shown in the following table:
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Year Ended September 30,
2019
2018
2020
91
10,418
10,509
$
$
142
19,761
19,903
$
$
80
15,662
15,742
The unrecognized compensation expense related to stock options and RSUs was $8,815 and $10,445, respectively
at September 30, 2020, and is expected to be recognized over a weighted average period of 2.3 years and 2.6 years,
respectively.
The Company has little historic data with respect to estimates of expected employee behaviors related to option
exercises and forfeitures. As a result, in addition to Company data, the Company has used historic data from public disclosures
of comparable companies which the Company believes to be representative of its own expected employee behaviors.
The Company estimates the fair value of each stock option award on the grant date using the Black-Scholes valuation
model incorporating the assumptions noted in the following table. Option valuation models require the input of highly
subjective assumptions, and changes in assumptions used can materially affect the fair value estimate.
Option valuation assumptions for options granted are as follows:
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in years). . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk free rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grant date fair value per share of options granted . . . . . . .
2020
24.2% - 77.1%
5.4 - 6.0
0.2% - 1.7%
Year Ended September 30,
2019
26.3% - 30.0 %
5.6 - 6.0
1.5% - 2.6%
2018
23.5% - 34.3%
6.0 - 6.1
2.5% - 2.8%
$5.33 - $8.56
$3.14 - $7.06
$5.58 - $7.96
The risk free interest rate is based on the U.S. treasury security rate in effect as of the date of grant. As the Company
has little history with respect to volatility of share prices the expected volatility is not based on realized volatility. The
Company, as permitted under ASC 718, has identified guideline public companies who are participants in the Companys
markets. The Company obtained share price trading data from the guideline companies and based their estimate of expected
volatility on the implied volatility of the guideline companies in addition to the Companys own implied volatility. As the
guideline companies are comparable in most significant respects, the Company believes they represent an appropriate basis
for estimating expected volatility.
Employee Stock Purchase Plan
Effective October 1, 2018, the Company implemented an employee stock purchase plan (ESPP) which allows
employees to purchase shares of the Companys stock at 85% of the lower of the fair market value on the first day of the
applicable offering period or on the last business day of a six-month purchase period within the offering period. These
purchases are offered twice throughout each fiscal year, and were paid by employees through payroll deductions over the
respective six month purchase period, at which point the stock was be transferred to the employees. On December 21, 2018,
the Company registered 11,297 shares of common stock, par value $0.01 per share, of which 5,000 are available for future
issuance under the ESPP. During the years ended September 30, 2020 and 2019, the Company incurred compensation
expense of $392 and $400 respectively, primarily in salaries and wages in respect of the ESPP, representing the fair value
of the discounted price of the shares. These amounts are included in the total share-based compensation expense above.
During the years ended September 30, 2020 and 2019, 58 shares and 46 shares, respectively, were issued under the ESPP
plan.
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18. Other Comprehensive Loss
The components of accumulated other comprehensive loss were:
Foreign currency translation loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Pension benefit plans, net of tax benefit of $839 and $776. . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized derivative (loss) gain on cash flow hedges, net of tax expense of $135 and
$135 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(5,535) $
(10,396)
(2,705)
(10,475)
(4,541)
(20,472) $
176
(13,004)
September 30,
2020
September 30,
2019
The gains (losses) in accumulated other comprehensive loss by component, net of tax, for the years ended
September 30, 2020, 2019 and 2018 are as follows:
Foreign
currency
translation
Pension
plans
Cash flow
Hedges
Balance at September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive (loss) income before reclassifications . . . . . . . . .
Amounts (loss) reclassified from accumulated other comprehensive
loss into earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss) before reclassifications . . . . . . . . .
Amounts (loss) reclassified from accumulated other comprehensive
loss into earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive loss before reclassifications . . . . . . . . . . . . . . . . .
Amounts (loss) reclassified from accumulated other comprehensive
loss into earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(739) $
(3,473)
(5,373) $
167
(4,212) $
1,507
(2,705) $
(2,830)
299
(4,907) $
(5,939)
371
(10,475) $
(927)
(5,535) $
1,006
(10,396) $
123
(118)
97
102
(424)
498
176
(5,375)
658
(4,541)
Amounts reclassified out of other comprehensive loss related to the amortization of actuarial losses are included
in pension expense. Refer to Note 12, Derivative Financial Instruments for the location in the Consolidated Statements
of Operations of amounts reclassified out of other comprehensive loss related to cash flow hedges.
19. Concentration of Credit Risk
The Companys cash and cash equivalents and accounts receivable are potentially subject to concentration of credit
risk. Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality.
Accounts receivable are derived from revenue earned from customers located in the U.S. and internationally and generally
do not require collateral. The Companys trade receivables do not represent a significant concentration of credit risk at
September 30, 2020 and 2019 due to the wide variety of customers and markets into which products are sold and their
dispersion across geographic areas. The Company does perform ongoing credit evaluations of its customers and maintains
an allowance for potential credit losses on trade receivables. As of and for the years ended September 30, 2020, 2019 and
2018, no customer accounted for more than 10% of net sales or net accounts receivable.
The Company operates predominantly in ten countries worldwide and provides a wide range of proven product
brands and advanced water and wastewater treatment technologies, mobile and emergency water supply solutions and
service contract options through its Integrated Solutions and Services and Applied Product Technologies segments. The
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Company is a multi-national business but its sales and operations are primarily in the U.S. Sales to unaffiliated customers
are based on the Company locations that maintain the customer relationship and transacts the external sale.
The following tables set forth external net revenue, net of intercompany eliminations, and net asset information
by region:
Sales to external customers
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,164,634
Rest of World. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
264,822
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,429,456
$ 1,147,649
296,792
$ 1,444,441
$ 1,067,636
271,905
$ 1,339,541
Year Ended September 30,
2019
2018
2020
September 30,
2020
September 30,
2019
Net Assets
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Rest of World. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Long Lived Assets
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Rest of World. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
408,330
73,733
482,063
347,832
16,629
364,461
$
$
$
$
324,887
40,935
365,822
304,088
29,496
333,584
20. Related Party Transactions
During the years ended September 30, 2020, 2019 and 2018, the Company reimbursed AEA Investors LP (AEA),
the Companys private equity sponsor, for normal and customary expenses incurred by AEA on behalf of the Company.
The Company notes that these related-party transactions have not been significant in the years ended September 30, 2020,
2019, and 2018.
21. Leases
Lessee Accounting
As discussed in Note 2, Summary of Significant Accounting Policies the Company adopted ASU 2016-02 on
October 1, 2019. ASU 2016-02 requires a lessee to recognize assets and liabilities on the balance sheet for all leases, with
the result being the recognition of a right-of-use (ROU) asset and a corresponding lease liability. The lease liability is
equal to the present value of the minimum lease payments for the term of the lease using the discount rate determined at
lease commencement and including any optional renewal periods that were determined to be reasonably certain to be
exercised. The ROU asset is equal to the initial measurement of the lease liability plus any lease payments made to the
lessor at or before the commencement date and any unamortized initial indirect costs incurred by the lessee, less any
unamortized lease incentives received. ROU assets are periodically reviewed for impairment whenever events or changes
in circumstances arise. During the year ended September 30, 2020, the Company incurred no impairment charges on ROU
assets.
The discount rate utilized in calculating the lease liability is the rate implicit in the lease, if known, otherwise, the
incremental borrowing rate (IBR) for the expected lease term is used. Generally, the Company cannot determine the
133
interest rate implicit in the lease. The Companys IBR approximates the rate the Company would have to pay on a
collateralized basis to borrow an amount equal to the lease payments under similar terms.
The Company occupies certain facilities and operates certain equipment and vehicles under non cancelable lease
arrangements. Lease agreements may contain lease escalation clauses and purchase and renewal options. At the inception
of a contract, the Company determines whether the arrangement is or contains a lease. A lease is determined to exist if there
is an identified asset, the Company has the right to obtain substantially all of the economic benefits from the use of the
identified asset and the right to direct the use of the asset. Once a lease is determined to exist, the Company determines the
lease classification at lease commencement. Leases are classified as operating or finance leases based on specific criteria.
Operating lease expense is recognized on a straight-line basis on the Consolidated Statements of Operations. Finance lease
expense have front-loaded expense recognition that is recognized as depreciation expense and interest expense on the
Consolidated Statements of Operations. On the Consolidated Statements of Changes in Cash Flows, payments for operating
leases are included in operating activities and payments for finance leases are included in financing activity, with the interest
component included in operating activities.
The Companys real estate leases often include options to extend the lease term; however, the Company has not
included the renewal options in the ROU asset and lease liability because the likelihood of renewal was not reasonably
certain. In addition, the Company has leases that include variable lease payments, for items such as maintenance or other
operating expenses, which are expensed as incurred as variable lease expense.
Adoption of ASU 2016-02, Leases (Topic 842)
The Company applied Topic 842 to all existing leases at October 1, 2019 using the modified retrospective approach.
As a result, prior period amounts have not been adjusted and continue to be reported in accordance with the Companys
historical accounting under Topic 840. The Company has elected the following package of practical expedients which
exempts the Company from having to reassess: (i) whether expired or existing contracts contain a lease, (ii) the lease
classification for expired or existing leases, and (iii) initial direct costs for existing leases. In addition, the Company elected
to separate lease and non-lease components for all asset classes, did not elect to use hindsight to determine the lease term
and made an accounting policy election for short-term leases which does not require the capitalization of leases with terms
of 12 months or less.
As a result of adoption of Topic 842 on October 1, 2019, the Company recognized $42,073 of ROU assets related
to operating leases in Operating lease right-of-use assets, net and $42,904 of corresponding lease liabilities, of which $13,596
is included in Accrued expenses and other liabilities and $29,308 is included in Obligation under operating leases on the
Consolidated Balance Sheets. The difference is attributable to deferred rent balance as of September 30, 2019 that reduced
the ROU asset balance on October 1, 2019, of which $73 was removed from Prepaid and other current assets and the
remainder was recognized in Retained deficit on the Consolidated Balance Sheets. In addition, the Company recorded an
ROU asset related to finance leases in Property, plant, and equipment, net of $2,812 and $3,245 in corresponding lease
liabilities included in Other non current liabilities on the Consolidated Balance Sheets, with the difference recognized in
Retained deficit. See Note 2, Summary of SignificantAccounting Policies for further information on the impact of adoption.
134
The following represents the components of lease cost for the year ended September 30, 2020 and other information
for both operating and finance leases for the year ended September 30, 2020:
Year Ended
September 30,
2020
Lease cost
Finance lease cost:
Amortization of ROU assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest on lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term lease cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable lease cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sublease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
13,738
1,981
16,052
4,970
(56)
36,685
Total lease cost for operating leases was $20,088 and $18,864 for the years ended September 30, 2019 and 2018,
respectively.
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating cash flows from operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Financing cash flows from finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
ROU assets obtained in exchange for new finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
ROU assets obtained in exchange for new operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
ROU asset remeasurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average remaining lease term - finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average remaining lease term - operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average discount rate - finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average discount rate - operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,968
16,034
13,459
14,934
8,456
(960)
3.9 years
5.2 years
4.6%
4.2%
The following table reconciles future minimum undiscounted rental commitments for operating leases to operating
lease liabilities record on the Consolidated Balance Sheet as of September 30, 2020:
Fiscal Year
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total undiscounted lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Present value adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less current installments of obligations under operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations under operating leases, excluding current installments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
14,624
11,914
9,622
7,259
5,616
7,704
56,739
(6,176)
50,563
12,767
37,796
135
The gross and net carrying values of the equipment under finance leases as of September 30, 2020 and September 30,
2019 was as follows:
Gross carrying amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
89,254
36,577
$
$
69,760
36,337
September 30,
2020
September 30,
2019
The following table reconciles future minimum undiscounted rental commitments for finance leases to the finance
lease liabilities recorded on the Consolidated Balance Sheet as of September 30, 2020:
Fiscal Year
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total undiscounted lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Present value adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less current installments of obligations under finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations under finance leases, excluding current installments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
12,944
10,603
8,003
5,601
3,060
1,115
41,326
(3,694)
37,632
11,362
26,270
The current installments of obligations under finance leases are included in Accrued expenses and other liabilities.
Obligations under finance leases, excluding current installments, are included in Other non-current liabilities.
Lessor Accounting
The Company is a lessor to multiple parties. In certain instances, the Company enters into a contract with a customer
but must construct the underlying asset prior to its lease. At the time of contract inception, the Company determines if an
arrangement is or contains a lease. These contracts generally contain both lease and non-lease components, including
installation, maintenance and monitoring services of the Company owned equipment, in addition to sale of certain constructed
assets. In situations where arrangements contain multiple elements, contract consideration is allocated based on relative
standalone selling price. Lease components associated with underlying assets that have an alternative use are classified as
operating leases with revenue recognized over time throughout the lease term, within Revenue from services on the
Consolidated Statements of Operations. Lease components associated with underlying assets that have no alternative use
are classified as sales-type leases, with point in time revenue recognition at the on-set of the lease. or classified as financing
transactions, with over time revenue recognition at the on-set of the construction of the underlying assets. In order for a
component to be separate, the customer would be able to benefit from the right of use of the component separately or with
other resources readily available to the customer and the right of the use is not highly dependent or highly interrelated with
the other rights to use the other underlying assets or components.
136
As of September 30, 2020, future minimum lease payments receivable under operating leases are as follows:
Fiscal year
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Future minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
109,312
62,618
44,686
30,827
25,097
155,564
428,104
22. Commitments and Contingencies
Guarantees
From time to time, the Company is required to provide letters of credit, bank guarantees, or surety bonds in support
of its commitments and as part of the terms and conditions on water treatment projects. In addition, the Company is required
to provide letters of credit or surety bonds to the department of environmental protection or equivalent in some states in
order to maintain its licenses to handle toxic substances at certain of its water treatment facilities.
These financial instruments typically expire after all Company commitments have been met, a period typically
ranging from twelve months to ten years, or more in some circumstances. The letters of credit, bank guarantees, or surety
bonds are arranged through major banks or insurance companies. In the case of surety bonds, the Company generally
indemnifies the issuer for all costs incurred if a claim is made against the bond.
The following summarizes the Companys outstanding letters of credit and surety bonds as of September 30, 2020
and September 30, 2019, respectively.
September 30,
2020
September 30,
2019
Revolving credit capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Letters of credit outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remaining revolving credit capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Surety capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Surety issuances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remaining surety available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
45,000
12,963
32,037
230,000
152,990
77,010
$
$
$
$
45,000
12,956
32,044
220,000
144,717
75,283
The longest maturity date of letters of credit and surety bonds in effect as of September 30, 2020 was March 20,
2030.
Litigation
From time to time, as a normal incident of the nature and kind of business in which the Company is engaged,
various claims or charges are asserted and litigation commenced against it arising from or related to: product liability;
personal injury; trademarks, trade secrets or other intellectual property; labor and employee disputes; commercial or
contractual disputes; breach of warranty; or environmental matters. Claimed amounts may be substantial but may not bear
any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. While it is
not feasible to predict the outcome of these matters with certainty, and some lawsuits, claims or proceedings may be disposed
137
or decided unfavorably, the Company does not expect that any asserted or un-asserted legal claims or proceedings,
individually or in the aggregate, will have a material adverse effect on the results of operations, or financial condition.
23. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following:
September 30,
2020
September 30,
2019
Salaries, wages and other benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Obligation under operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligation under finance leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third party commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes, other than income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions for litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earn-outs related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
67,766
12,767
11,362
9,270
5,316
3,954
2,580
970
295
29,109
143,389
$
$
35,206
17,859
11,394
5,215
4,895
1,533
655
611
24,471
101,839
24. Business Segments
The Companys reportable operating segments are defined as components of an enterprise about which separate
financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision
making group, in deciding how to allocate resources to an individual segment and in assessing performance. The key factors
used to identify these reportable operating segments are the organization and alignment of the Companys internal operations,
the nature of the products and services, and customer type.
The Company has two reportable operating segments, Integrated Solutions and Services and Applied Product
Technologies. The business segments are described as follows:
Integrated Solutions and Services is a group entirely focused on engaging directly with end users through direct
sales with a market vertical focus. Integrated Solutions and Services provides tailored services and solutions in collaboration
with the 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), full-scale outsourcing of operations and maintenance, and municipal
services, including odor and corrosion control services.
Applied Product Technologies is focused on developing product platforms to be sold primarily through third party
channels. This segment primarily engages in indirect sales through independent sales representatives, distributors and
aftermarket channels. Applied Product Technologies 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.
The Company evaluates its business segments operating results based on earnings before interest, taxes,
depreciation and amortization, and certain other charges that are specific to the activities of the respective segments. Corporate
activities include general corporate expenses, elimination of intersegment transactions, interest income and expense and
138
certain other charges. Certain other charges include restructuring and other business transformation charges that have been
undertaken to align and reposition the Company to the current reporting structure, acquisition related costs (including
transaction costs, certain integration costs and recognition of backlog intangible assets recorded in purchase accounting)
and share-based compensation charges.
Since certain administrative costs and other operating expenses have not been allocated to business segments, the
results in the below table are not necessarily a measure computed in accordance with generally accepted accounting principles
and may not be comparable to other companies.
The tables below provide segment information for the periods presented and a reconciliation to total consolidated
information:
139
Year Ended September 30,
2020
2019
2018
Total sales
Integrated Solutions and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
954,542
559,635
Applied Product Technologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,514,177
$
919,985
631,332
$ 1,551,317
$
844,851
579,291
$ 1,424,142
Intersegment sales
Integrated Solutions and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Applied Product Technologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total intersegment sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
10,360
74,361
84,721
$
$
9,151
97,725
106,876
$
$
9,217
75,384
84,601
Sales to external customers
944,182
Integrated Solutions and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Applied Product Technologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
485,274
Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,429,456
$
910,834
533,607
$ 1,444,441
$
835,634
503,907
$ 1,339,541
Income (loss) from operations
Integrated Solutions and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Applied Product Technologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Depreciation and amortization
Integrated Solutions and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Applied Product Technologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Integrated Solutions and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Applied Product Technologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
145,655
134,258
(111,465)
168,448
(46,682)
121,766
(7,371)
114,395
67,489
14,226
25,553
107,268
75,551
6,237
6,668
88,456
$
$
$
$
$
$
$
$
$
148,593
69,377
(158,298)
59,672
(58,556)
1,116
(9,587)
(8,471) $
$
$
57,217
17,675
23,344
98,236
73,656
7,589
7,624
88,869
$
$
$
$
138,043
71,948
(143,145)
66,846
(57,580)
9,266
(1,382)
7,884
48,781
16,734
20,345
85,860
58,464
11,501
10,748
80,713
September 30,
2020
September 30,
2019
Assets
Integrated Solutions and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Applied Product Technologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
410,450
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,844,458
Goodwill
835,307
$
762,707
598,701
657,879
317,262
$ 1,737,848
Integrated Solutions and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Applied Product Technologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
224,381
172,824
397,205
$
$
222,013
170,877
392,890
140
25. Earnings Per Share
The following table sets forth the computation of basic and diluted income from continuing operations per common
share:
(In thousands, except per share data)
Numerator:
Year Ended September 30,
2020
2019
2018
Net income (loss) attributable to Evoqua Water Technologies
Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
113,649
$
(9,523) $
6,135
Denominator:
Denominator for basic net income per common shareweighted
average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
116,721
114,703
113,944
Effect of dilutive securities:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,342
6,221
Denominator for diluted net loss per common shareadjusted weighted
average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic income (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted income (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . . $
121,063
114,703
120,165
0.97
0.94
$
$
(0.08) $
(0.08) $
0.05
0.05
Since the Company was in a net loss position for the year ended September 30, 2019, there was no difference
between the number of shares used to calculate basic and diluted loss per share. Because of their anti-dilutive effect, 2,512
common share equivalents, comprised of employee stock options, have been excluded from the diluted EPS calculation for
the year ended September 30, 2020.
141
December 31,
2019
346,105
March 31,
2020
351,663
$
June 30,
2020
347,827
$
September 30,
2020
383,861
$
105,715
(13,583)
(2,603)
53,506
53,145
0.46
0.44
111,206
(13,252)
7
7,910
7,812
0.07
0.06
March 31,
2019
348,628
$
$
$
88,730
(14,443)
4,514
(16,288)
(16,730)
(0.15) $
(0.15) $
95,611
(14,474)
4,579
1,573
1,384
0.01
0.01
110,234
(10,485)
(740)
21,841
122,648
(9,362)
(4,035)
31,138
21,384
31,308
0.18
0.18
$
$
0.26
0.26
June 30,
2019
360,343
September 30,
2019
412,468
$
111,294
(14,842)
(7,959)
4,290
4,135
0.04
0.03
$
$
130,327
(14,797)
(10,721)
1,954
1,688
0.01
0.01
$
$
$
$
$
December 31,
2018
323,002
26. Quarterly Financial Data
(Unaudited, in thousands, except per share data)
Three months ended
Revenue from product sales and services . . . . . . . . . . . . $
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit. . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Evoqua Water Technologies,
Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basis earnings per common share . . . . . . . . . . . . . . . . . . $
Diluted earnings per common share . . . . . . . . . . . . . . . . $
Three months ended
Revenue from product sales and services . . . . . . . . . . . . $
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (expense). . . . . . . . . . . . . . . . . . . . . .
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income attributable to Evoqua Water
Technologies, Corp . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basis (loss) earnings per common share . . . . . . . . . . . . . $
Diluted (loss) earnings per common share . . . . . . . . . . . $
27. Subsequent Events
None.
142
Evoqua Water Technologies Corp.
Supplementary Financial Information
SCHEDULE I-Evoqua Water Technologies Corp.
(Parent company only)
Condensed Consolidated Balance Sheets
(In thousands)
September 30,
2020
September 30,
2019
ASSETS
Current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Due from affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
LIABILITIES AND EQUITY
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
10,871
5,821
4,972
78
489,745
500,616
$
$
335
121
214
385,175
385,510
$
9,747
9,747
Common stock, par value $0.01: authorized 1,000,000 shares; issued 119,486 shares,
outstanding 117,291 at September 30, 2020; issued 116,008, outstanding 114,344 shares
at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock: 2,195 shares at September 30, 2020 and 1,664 shares at September 30,
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total liabilities and shareholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,189
1,154
(2,837)
564,928
(62,664)
500,616
500,616
$
$
(2,837)
552,422
(174,976)
375,763
385,510
143
SCHEDULE I-Evoqua Water Technologies Corp.
(Parent company only)
Condensed Statements of Operations
(In thousands)
Year Ended September 30,
2019
2018
2020
Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
General and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
16
(476)
114,109
113,649
113,649
$
$
73
(303)
(9,293)
(9,523)
(9,523) $
78
(2,142)
8,199
6,135
6,135
144
SCHEDULE 1-Evoqua Water Technologies Corp.
Condensed Statements of Changes in Cash Flows
(Parent company only)
(In thousands)
Operating activities
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net income (loss) to net cash used in
operating activities
Year Ended September 30,
2019
2018
2020
113,649
$
(9,523) $
6,135
Net (income) loss of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange gains on intercompany loans . . . . . . . . . . .
Changes in assets and liabilities
(114,109)
(15)
9,293
1,343
(161)
952
(8,199)
8,812
(61)
$
6,687
(3,990)
(9,747)
160
(24)
(14,076) $
$
$
$
$
(140,999)
(140,999)
18,927
18,927
4,851
121
4,972
$
$
$
$
$
363
137,605
(230)
(1,270)
(907) $
$
45
(8,807)
128,568
(5,744)
76
121
$
5,820
76
Due from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaids and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by operating activities . . . . . . . . . . . . . . . . . $
Investing activities
Contributed capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Financing activities
Proceeds from issuance of common stock. . . . . . . . . . . . . . . . . . . . . . . . . $
Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes paid related to net share settlements of share-based compensation
awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . $
Change in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash and cash equivalents
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
145
SCHEDULE I-Evoqua Water Technologies Corp.
(Parent company only)
Notes to Financial Statements
(In thousands)
1. Basis of Presentation
Basis of Presentation
In the parent company only financial statements, the Companys investment in subsidiaries is stated at cost plus
equity in undistributed earnings of subsidiaries. The Companys share of net income (loss) of its consolidated subsidiaries
is included in consolidated income (loss) using the equity method. The parent company only financial statements should
be read in conjunction with the Companys consolidated financial statements.
2. Guarantees and Restrictions
As of September 30, 2020, EWT Holdings III, Corp., a subsidiary of the Company, had $819,276 collectively of
debt outstanding under the First Lien Term Loan. Under the terms of the credit agreements governing the Companys senior
secured credit facilities, EWT Holdings II, Corp. has guaranteed the payment of all principal and interest. In the event of a
default under our senior secured credit facilities, certain of the Companys subsidiaries will be directly liable to the debt
holders. As of September 30, 2020, the Term Loan Facility had a maturity date of December 20, 2024. The credit agreements
governing the Companys senior secured credit facilities also include restrictions on the ability of the Company and its
subsidiaries to (i) incur additional indebtedness and liens in connection therewith; (ii) pay dividends and make certain other
restricted payments; (iii) effect mergers or consolidations; (iv) enter into transactions with affiliates; (v) sell or dispose of
property or assets; and (vi) engage in unrelated lines of business.
3. Dividends from Subsidiaries
There were no cash dividends paid to Evoqua Water Technologies Corp. from the Companys consolidated
subsidiaries of each of the periods ended September 30, 2020, 2019 and 2018.
146
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In accordance with Securities Exchange Act Rules 13a-15(e) and 15d-15(e), our management, under the
supervision of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures were effective as of September 30, 2020.
Managements Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for
the Company. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the
Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the companys principal
executive and principal financial officers and effected by the companys board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures
that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company;
and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
During the year ended September 30, 2020, the Company completed two acquisitions including its acquisition of
a 60% investment position in Frontier on October 1, 2019 and of Aquapure on September 3, 2020. These acquisitions
represented 0.4% of the Companys consolidated total revenues and 1.2% of the Companys consolidated total assets as of
September 30, 2020. Management did not include Frontier or Aquapure when conducting its assessment of the effectiveness
of the Companys internal control over financial reporting as of September 30, 2020.
Management assessed the effectiveness of the Companys internal control over financial reporting as of
September 30, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (COSO) in Internal Control-Integrated Framework.
Management has concluded that the Companys internal control over financial reporting was effective as of September 30,
2020.
Management has concluded that our consolidated financial statements included in this Form 10-K fairly represent,
in all material respects, the financial position, results of operations and cash flows as of, and for, the periods presented in
this Form 10-K, in conformity with U.S. generally accepted accounting principles. Ernst & Young LLP has issued an
attestation report on the effectiveness of our internal control over financial reporting and an unqualified opinion on our
financial statements, which is included in Item 8 of this Form 10-K.
147
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the year ended
September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
None.
148
Item 10. Directors, Executive Officers and Corporate Governance
Part III
The information required by this Item is set forth under the headings Our Board of Directors, Corporate
Governance and Board Matters, Our Executive Officers and Security Ownership of Certain Beneficial Owners and
Management in the Companys Proxy Statement, which will be filed with the SEC within 120 days after September 30,
2020, and is incorporated herein by reference.
Evoqua has adopted a code of ethics applicable to all of our directors, officers (including our principal executive
officer, principal financial officer and principal accounting officer) and employees, known as the Code of Ethics and Business
Conduct. The Code of Ethics and Business Conduct is available on our website at https://aqua.evoqua.com/governance/
governance-documents/default.aspx. In the event that we amend or waive certain provisions of the Code of Ethics and
Business Conduct applicable to our principal executive officer, principal financial officer or principal accounting officer
that requires disclosure under applicable SEC rules, we will disclose the same on our website.
Item 11. Executive Compensation
The information required by this Item is set forth under the headings Director Compensation, Executive
Compensation and Corporate Governance and Board Matters-Compensation Committee Interlocks and Insider
Participation in the Companys Proxy Statement, which will be filed with the SEC within 120 days after September 30,
2020, and is incorporated herein by reference. The information incorporated herein by reference to the section Report of
the Compensation Committee of the Board under the heading Executive Compensation is deemed furnished hereunder.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is set forth under the headings Security Ownership of Certain Beneficial
Owners and Management and Securities Authorized for Issuance under Equity Compensation Plans in the Companys
Proxy Statement, which will be filed with the SEC within 120 days after September 30, 2020, and is incorporated herein
by reference.
Item 13. Certain Relationships and Related Party Transactions and Director Independence
The information required by this Item is set forth under the headings Corporate Governance and Board Matters-
Director Independence and Certain Relationships and Related Party Transactions in the Companys Proxy Statement,
which will be filed with the SEC within 120 days after September 30, 2020, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item is set forth under the headings Independent Registered Public Accounting
Firms Fees and Services and Policy on Audit Committee Pre-Approval of Audit and Non-Audit Related Services of
Independent Auditors in the Companys Proxy Statement, which will be filed with the SEC within 120 days after
September 30, 2020, and is incorporated herein by reference.
149
Part IV
Item 15. Exhibits, Financial Statement Schedules
(a) 1.
Financial Statements:
The following items are included in Part II, Item 8:
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of September 30, 2020 and 2019. . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended September 30, 2020, 2019 and
2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended
September 30, 2020, 2019 and 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Equity for the Years Ended September 30, 2020,
2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Cash Flow for the Years Ended September 30,
2020, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental Disclosure of Cash Flow Information for the Years Ended September 30,
2020, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Audited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule I Parent Company Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Managements Report to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
84
88
89
90
91
92
93
94
143
147
2.
Schedules. An index of exhibits and schedules is included below. Schedules other than those listed below have
been omitted from this Annual Report because they are not required, are not applicable or the required information is included
in the financial statements or the notes thereto in Part II, Item 8.
3.
Exhibits:
The following exhibits are filed or furnished as a part of this report:
Exhibit
No.
2.1
2.2
3.1
3.2
Exhibit Description
Purchase and Sale Agreement by and among Evoqua Water Technologies LLC, WTG Holdings Cooperatief U.A.,
Evoqua Water Technologies Limited, Evoqua Water Technologies Pte. Ltd., Evoqua Water Technologies Ltd.,
Evoqua Water Technologies (Shanghai) Co. Ltd., WTG Holdco Australia (Memcor) Pty. Ltd., Evoqua Water
Technologies Membrane Systems Pty. Ltd. and DuPont de Nemours, Inc., dated October 1, 2019 (incorporated by
reference to Exhibit 2.1 to the Registrants Form 8-K filed on October 3, 2019 (File No. 001-38272)).
Amendment to Purchase and Sale Agreement, by and among Evoqua Water Technologies LLC, WTG Holdings
Cooperatief U.A., Evoqua Water Technologies Limited, Evoqua Water Technologies Pte. Ltd., Evoqua Water
Technologies Ltd., Evoqua Water Technologies (Shanghai) Co. Ltd., WTG Holdco Australia (Memcor) Pty. Ltd.,
Evoqua Water Technologies Membrane Systems Pty. Ltd. and DuPont de Nemours, Inc., dated December 18, 2019
(incorporated by reference to Exhibit 2.1 to the Registrants Form 8-K filed on December 20, 2019 (File No.
001-38272)).
Amended and Restated Certificate of Incorporation of Evoqua Water Technologies Corp. (incorporated by reference
to Exhibit 3.1 to Amendment No. 2 to the Registrants Registration Statement on Form S-1 filed on October 17, 2017
(File No. 333-220785)).
Third Amended and Restated Bylaws of Evoqua Water Technologies Corp. (incorporated by reference to Exhibit 3.2
to Amendment No. 2 to the Registrants Registration Statement on Form S-1 filed on October 17, 2017 (File No.
333-220785)).
150
Specimen Common Stock Certificate of Evoqua Water Technologies Corp. (incorporated by reference to Exhibit 4.1
to Amendment No. 2 to the Registrants Registration Statement on Form S-1 filed on October 17, 2017 (File No.
333-220785)).
* Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
First Lien Credit Agreement, among EWT Holdings III Corp., as the borrower, EWT Holdings II Corp., as the parent
guarantor, the financial institutions party thereto as lenders, Credit Suisse AG, as administrative agent and Credit
Suisse AG, as collateral agent, dated January 15, 2014 (incorporated by reference to Exhibit 10.1 to Amendment No.
1 to the Registrants Registration Statement on Form S-1 filed on October 11, 2017 (File No. 333-220785)).
Incremental Term Facility Amendment No. 1, among EWT Holdings III Corp., as the borrower, EWT Holdings II
Corp., as the parent guarantor, EWT Holdings II Corp.s indirect wholly-owned subsidiaries party thereto as
guarantors, the financial institutions party thereto as lenders, Credit Suisse AG, as administrative agent and Credit
Suisse AG, as collateral agent, dated April 15, 2016 (incorporated by reference to Exhibit 10.2 to Amendment No. 1
to the Registrants Registration Statement on Form S-1 filed on October 11, 2017 (File No. 333-220785)).
Amendment No. 2, among EWT Holdings III Corp., as the borrower, EWT Holdings II Corp., as the parent
guarantor, EWT Holdings II Corp.s indirect wholly-owned subsidiaries party thereto as guarantors, the financial
institutions party thereto as lenders, Credit Suisse AG, as administrative agent and Credit Suisse AG, as collateral
agent, dated October 28, 2016 (incorporated by reference to Exhibit 10.3 to Amendment No. 1 to the Registrants
Registration Statement on Form S-1 filed on October 11, 2017 (File No. 333-220785)).
Amendment No. 3, among EWT Holdings III Corp., as the borrower, EWT Holdings II Corp., as the parent
guarantor, EWT Holdings II Corp.s indirect wholly-owned subsidiaries party thereto as guarantors, the financial
institutions party thereto as lenders, Credit Suisse AG, as administrative agent and Credit Suisse AG, as collateral
agent, dated March 6, 2017 (incorporated by reference to Exhibit 10.4 to Amendment No. 1 to the Registrants
Registration Statement on Form S-1 filed on October 11, 2017 (File No. 333-220785)).
Amendment No. 4, among EWT Holdings III Corp., as the borrower, EWT Holdings II Corp., as the parent
guarantor, EWT Holdings II Corp.s indirect wholly-owned subsidiaries party thereto as guarantors, the financial
institutions party thereto as lenders, Credit Suisse AG, as administrative agent and Credit Suisse AG, as collateral
agent, dated August 8, 2017 (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Registrants
Registration Statement on Form S-1 filed on October 11, 2017 (File No. 333-220785)).
Amendment No. 5, among EWT Holdings III Corp., as borrower, EWT Holdings II Corp., as parent guarantor, the
subsidiary guarantors party thereto, the financial institutions party thereto, as lenders, and Credit Suisse AG, as
administrative agent and collateral agent, dated December 20, 2017 (incorporated by reference to Exhibit 10.1 to the
Registrants Form 8-K filed on December 20, 2017 (File No. 001-38272)).
Amendment No. 6, among EWT Holdings III Corp., as borrower, EWT Holdings II Corp., as parent guarantor, the
subsidiary guarantors party thereto, the financial institutions party thereto, as lenders, and Credit Suisse AG, as
administrative agent and collateral agent, dated July 26, 2018 (incorporated by reference to Exhibit 10.1 to the
Registrants Form 8-K filed on August 1, 2018 (File No. 001-38272)).
Amendment No. 7, among EWT Holdings III Corp., as borrower, EWT Holdings II Corp., as parent guarantor, the
subsidiary guarantors party thereto, the financial institutions party thereto, as lenders, and Credit Suisse AG, as
administrative agent and collateral agent, dated February 18, 2020 (incorporated by reference to Exhibit 10.1 to the
Registrants Form 8-K filed on February 24, 2020 (File No. 001-38272)).
Second Amended and Restated Stockholders Agreement, among EWT Holdings I Corp., AEA Investors Fund V LP,
AEA Investors Fund V-A LP, AEA Investors Fund V-B LP, AEA Investors Participant Fund V LP, AEA Investors QP
Participant Fund V LP and the additional investors party thereto, dated December 11, 2014 (incorporated by
reference to Exhibit 10.6 to Amendment No. 2 to the Registrants Registration Statement on Form S-1 filed on
October 17, 2017 (File No. 333-220785)).
Second Amended and Restated Registration Rights Agreement, among Evoqua Water Technologies Corp., AEA
Investors Fund V LP, AEA Investors Fund V-A LP, AEA Investors Fund V-B LP, AEA Investors Participant Fund V
LP, AEA Investors QP Participant Fund V LP and the additional investors party thereto, dated October 16, 2017
(incorporated by reference to Exhibit 10.7 to Amendment No. 2 to the Registrants Registration Statement on Form
S-1 filed on October 17, 2017 (File No. 333-220785)).
Amendment No. 1 to the Second Amended and Restated Registration Rights Agreement, among Evoqua Water
Technologies Corp., AEA Investors Fund V LP, AEA Investors Fund V-A LP, AEA Investors Fund V-B LP, AEA
Investors Participant Fund V LP, AEA Investors QP Participant Fund V LP and the additional investors party thereto,
dated November 22, 2019 (incorporated by reference to Exhibit 10.10 to the Registrants Form 10-K filed on
November 25, 2019 (File No. 001-38272)).
Management Agreement, among WTG Holdings I Corp., WTG Holdings III Corp. and AEA Investors LP, dated
January 7, 2014 (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the Registrants Registration
Statement on Form S-1 filed on October 11, 2017 (File No. 333-220785)).
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Employment Agreement, by and between Ronald Keating and the Company, dated September 8, 2014 (incorporated
by reference to Exhibit 10.9 to Amendment No. 2 to the Registrants Registration Statement on Form S-1 filed on
October 17, 2017 (File No. 333-220785)).
10.13
151
Amendment, dated September 6, 2017, to Employment Agreement, by and between Ronald Keating and the
Company, dated September 8, 2014 (incorporated by reference to Exhibit 10.10 to Amendment No. 2 to the
Registrants Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)).
Amended & Restated Employment Agreement, by and between Ronald Keating and the Company, dated November
25, 2019 (incorporated by reference to Exhibit 10.14 to the Registrants Form 10-K filed on November 25, 2019
(File No. 001-38272)).
Employment Agreement, by and between Benedict J. Stas and the Company, dated February 26, 2015 (incorporated
by reference to Exhibit 10.11 to Amendment No. 2 to the Registrants Registration Statement on Form S-1 filed on
October 17, 2017 (File No. 333-220785)).
Amended and Restated Amendment, dated October 13, 2017, to Employment Agreement, by and between Benedict
J. Stas and the Company, dated February 26, 2015 (incorporated by reference to Exhibit 10.12 to Amendment No. 2
to the Registrants Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)).
Amended & Restated Employment Agreement, by and between Benedict J. Stas and the Company, dated November
25, 2019 (incorporated by reference to Exhibit 10.17 to the Registrants Form 10-K filed on November 25, 2019
(File No. 001-38272)).
Employment Agreement, by and between Rodney Aulick and the Company, dated April 14, 2014 (incorporated by
reference to Exhibit 10.15 to Amendment No. 2 to the Registrants Registration Statement on Form S-1 filed on
October 17, 2017 (File No. 333-220785)).
Amendment, dated September 6, 2017, to Employment Agreement, by and between Rodney Aulick and the
Company, dated April 14, 2014 (incorporated by reference to Exhibit 10.16 to Amendment No. 2 to the Registrants
Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)).
EWT Holdings I Corp. Stock Option Plan (incorporated by reference to Exhibit 10.17 to Amendment No. 2 to the
Registrants Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)).
Employment Agreement, by and between Anthony Webster and the Company, dated January 20, 2016 (incorporated
by reference to Exhibit 10.22 to Amendment No. 2 to the Registrants Registration Statement on Form S-1 filed on
October 17, 2017 (File No. 333-220785)).
Amended and Restated Amendment, dated October 13, 2017, to Employment Agreement, by and between Anthony
Webster and the Company, dated January 20, 2016 (incorporated by reference to Exhibit 10.23 to Amendment No. 2
to the Registrants Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)).
Bonus Agreement, by and between Anthony Webster and the Company, dated March 1, 2016 (incorporated by
reference to Exhibit 10.24 to Amendment No. 2 to the Registrants Registration Statement on Form S-1 filed on
October 17, 2017 (File No. 333-220785)).
Employment Agreement, by and between Vincent Grieco and the Company, dated September 6, 2017 (incorporated
by reference to Exhibit 10.27 to Amendment No. 2 to the Registrants Registration Statement on Form S-1 filed on
October 17, 2017 (File No. 333-220785)).
Employment Agreement, by and between James M. Kohosek and the Company, dated September 6, 2017
(incorporated by reference to Exhibit 10.28 to Amendment No. 2 to the Registrants Registration Statement on Form
S-1 filed on October 17, 2017 (File No. 333-220785)).
Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.29 to Amendment No. 2 to
the Registrants Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)).
Form of 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.30 to Amendment No. 2 to the
Registrants Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)).
Form of 2017 Annual Incentive Plan (incorporated by reference to Exhibit 10.31 to Amendment No. 2 to the
Registrants Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)).
Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.32 to Amendment No. 2 to the
Registrants Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)).
Employment Agreement, by and between Snehal Desai and the Company, dated January 15, 2018 (incorporated by
reference to Exhibit 10.33 to the Registrants Registration Statement on Form S-1 filed on March 12, 2018 (File No.
333-223583)).
Employment Agreement, by and between Hervé Fages and the Company, dated January 31, 2019 (incorporated by
reference to Exhibit 10.31 to the Registrants Form 10-K filed on November 25, 2019 (File No. 001-38272)).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.33 to Amendment No. 2 to the
Registrants Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)).
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
Form of Nonqualified Stock Option Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive
Plan (incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on April 4, 2018 (File No.
001-38272)).
10.34
152
Form of Restricted Stock Unit Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan
(Employee Form) (incorporated by reference to Exhibit 10.2 to the Registrants Form 8-K filed on April 4, 2018 (File
No. 001-38272)).
Form of Amendment to Employment Agreement (incorporated by reference to Exhibit 10.1 to the Registrants Form
8-K filed on June 22, 2018 (File No. 001-38272)).
Evoqua Water Technologies Corp. Non-Employee Directors Deferred Compensation Policy (effective February 26,
2018) (incorporated by reference to Exhibit 10.40 to the Registrants Form 10-K filed on December 11, 2018 (File
No. 001-38272)).
Evoqua Water Technologies Corp. Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.3 to the
Registrants Registration Statement on Form S-8 filed on December 21, 2018 (File No. 333-228988)).
Form of Nonqualified Stock Option Award Agreement under Evoqua Water Technologies Corp. 2017 Equity
Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrants Form 10-Q filed on May 10, 2019 (File
No. 001-38272)).
Form of Restricted Stock Unit Award Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive
Plan (incorporated by reference to Exhibit 10.2 to the Registrants Form 10-Q filed on May 10, 2019 (File No.
001-38272)).
Form of Restricted Stock Unit Award Agreement under the Evoqua Water Technologies Corp. 2017 Equity Incentive
Plan (RSUs Received in Connection with AIP Payment) (incorporated by reference to Exhibit 10.1 to the
Registrants Form 10-Q filed on August 6, 2019 (File No. 001-38272)).
Amended and Restated Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Registrants Form 10-Q filed on May 6, 2020 (File No. 001-38272)).
* List of subsidiaries of Evoqua Water Technologies Corp.
* Consent of Ernst & Young.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the
Securities Exchange Act of 1934, as amended.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the
Securities Exchange Act of 1934, as amended.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
*
*
**
**
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
21.1
23.1
31.1
31.2
32.1
32.2
101.INS
*
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
101.SCH *
Inline XBRL Taxonomy Extension Schema Document.
101.CAL *
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF *
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB *
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE *
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101).
*
Indicates a management contract or compensatory plan or arrangement.
Filed herewith.
**
Furnished herewith.
153
Item 16. Form 10-K Summary
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
EVOQUA WATER TECHNOLOGIES CORP.
November 20, 2020
/s/ RONALD C. KEATING
By:
Ronald C. Keating
Chief Executive Officer (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Ronald C. Keating
Ronald C. Keating
/s/ Benedict J. Stas
Benedict J. Stas
/s/ Martin Lamb
Martin Lamb
/s/ Nick Bhambri
Nick Bhambri
/s/ Gary Cappeline
Gary Cappeline
/s/ Lisa Glatch
Lisa Glatch
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Date
November 20, 2020
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
November 20, 2020
Chairman of the Board and Director
November 20, 2020
Director
November 20, 2020
Director
November 20, 2020
Director
November 20, 2020
154
/s/ Judd Gregg
Judd Gregg
/s/ Brian R. Hoesterey
Brian R. Hoesterey
/s/ Vinay Kumar
Vinay Kumar
/s/ Lynn C. Swann
Lynn C. Swann
/s/ Peter M. Wilver
Peter M. Wilver
Director
November 20, 2020
Director
November 20, 2020
Director
November 20, 2020
Director
November 20, 2020
Director
November 20, 2020
155
*As noted on a prior page, organic revenue is a non-GAAP metric. For a reconciliation of the GAAP reported
revenue change, see table below.
FY20 Net Sales Growth % Change
GAAP Reported
Currency
Acquisitions/
Divestitures
Organic
Evoqua Water Technologies
(1.0)%
(0.1)%
(2.5)%
Integrated Solutions and Services
3.7%
(0.1)%
0.6%
1.5%
3.2%
Applied Product Technologies
(9.1)%
(0.2)%
(7.6)%
(1.3)%
CORPORATE
INFORMATION
CORPORATE HEADQUARTERS
210 Sixth Avenue
Suite 3300
Pittsburgh, PA 15222 USA
+1-724-772-0044
evoqua.com
STOCK LISTING
Evoqua Water Technologies Corporation common
stock is listed on the New York Stock Exchange under
the symbol AQUA
ANNUAL MEETING
OF SHAREHOLDERS
February 16, 2021, 1:00 p.m. (Eastern Time)
Virtual Meeting
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
TRANSFER AGENT & REGISTRAR
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219 USA
1-800-937-5449
help@astfinancial.com
astfinancial.com
SHAREHOLDER INFORMATION
Our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on
Form 8-K, proxy statements and statements
of changes in beneficial ownership and
amendments to those reports are available for
free on our investors relations website at
aqua.evoqua.com.
To obtain copies of these reports, you may
email, call or write us:
Attention: Investor Relations
Evoqua Water Technologies
210 Sixth Avenue
Suite 3300
Pittsburgh, PA 15222 USA
+1-724-772-0044
ir@evoqua.com
We webcast our earnings calls and certain
events we participate in or host with members
of the investment community on our investor
relations website. Additionally, we provide
notifications of news or announcements
regarding our financial performance,
including SEC filings, investor events, press
and earnings releases, as part of our investor
relations website. Investors and others can
receive notifications of new information
posted on our investor relations website in
real time by subscribing to email alerts. We
also make certain corporate governance
documents available on our investor relations
website, including our corporate governance
guidelines, board committee charters, code
of conduct and ethics, as well as certain
company policies.
BOARD OF DIRECTORS
LEADERSHIP TEAM
As of December 1, 2020
Nick Bhambri
Gary Cappeline
Lisa Glatch
Judd Gregg
Brian Hoesterey
Ron Keating, CEO
Vinay Kumar
Martin Lamb, Chairman
Lynn Swann
Peter Wilver
Ron Keating
President, CEO and Director
Ben Stas
Executive Vice President,
CFO and Treasurer
Rodney Aulick
Executive Vice President,
Integrated Solutions and
Services Segment President
Hervé Fages
Executive Vice President,
Applied Product Technologies
Segment President
Snehal Desai
Executive Vice President,
Chief Growth Officer
Vince Grieco
Executive Vice President,
General Counsel and Secretary
Jim Kohosek
Executive Vice President,
Chief Administrative Officer
Anthony Webster
Executive Vice President,
Chief Human Resources Officer
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210 Sixth Avenue
Suite 3300
Pittsburgh PA 15222 USA
+1-724-772-0044
evoqua.com
All trademarks are those of respective owners.
© 2020 Evoqua Water Technologies LLC. All rights reserved.
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