E
V
O
Q
U
A
W
A
T
E
R
T
E
C
H
N
O
L
O
G
I
E
S
2
0
2
1
A
n
n
u
a
l
R
e
p
o
r
t
2021
ANNUAL REPORT
©2021 Evoqua Water Technologies LLC. All rights reserved.
Transforming Water.
Enriching Life.®
As a leading provider of
mission-critical water and
wastewater treatment solutions,
our employees are united by a
common purpose:
2021
Highlights
Business
resiliency
Organic revenue
growth
Navigated
supply chain
constraints
Positive
price/cost
Strong backlog
growth
Established ESG
targets
Favorable
regulatory
tailwinds
Strengthened
balance sheet
Our
Performance
Year Ended September 30
Dollars in millions except for EPS and percentages 2019 2020
Revenue
Gross profit
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
2021
1,464.4
457.4
24.8%
250.9
51.7
0.42
$
$
$
$
$
REVENUE
BY TYPE
Products
Services
REVENUE
BY SEGMENT
Integrated Solutions
and Services
Applied Product
Technologies
41%
REVENUE
59%
Dollars in millions
ADJUSTED
EBITDA*
Dollars in millions
$1,464.4
2021
2020
$250.9
$1,429.5
$239.6
66%
2019
34%
$1,444.4
$235.0
*Adjusted EBITDA is a non-GAAP financial measure. For more information and a reconciliation to net income, the most directly comparable GAAP financial measure, please see
Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Reconciliations” in our 10-K for the fiscal year ended September 30,
2021, included with this Annual Report.
Fellow Shareholders,
At Evoqua, we are committed to our purpose of
transforming water and enriching the lives of our
customers and their communities. Each day, we
work hard to ensure that our customers operate
sustainably, helping them mitigate climate and water
risks by delivering connected, robust technologies
that provide healthy and safe water resources.
I am very proud of the team’s accomplishments
as we have navigated an unprecedented two-year
period of managing the impacts of the COVID-19
pandemic. Our business strategy has proven
resilient, despite inflationary pressures, supply chain
constraints, and restricted availability of skilled
workers. We have successfully navigated through
a very dynamic period, prioritizing the health
and safety of our employees while significantly
strengthening our balance sheet and realizing
growth across capital and service revenues. We have
continued to invest in serving our customers more
effectively, tackling complex water challenges, and
delivering sustainable and digitally enabled solutions
that our customers value, as evidenced by our
growing backlog.
Overall, the company’s resiliency is shown through
our results for the fiscal year ended September 30,
2021. Revenues were $1.46 billion, an increase of 2.4%
compared to the prior year, and adjusted EBITDA
was $250.9 million, an increase of 4.7% compared to
the prior year.
STRENGTHENING OUR STRATEGY
The Integrated Solutions and Services (ISS) segment
provides application-specific solutions and full
lifecycle services for critical water and wastewater
applications across a diversified set of attractive
vertical markets, primarily in North America. The ISS
segment is focused on growth through deploying
outsourced water solutions and digitally-enabled
capabilities that deliver steady, stable, and profitable
revenues.
The Applied Product Technologies (APT) segment
sells differentiated and scalable products and
technologies to a diverse set of water treatment
system integrators and end-users globally, as
stand-alone offerings or components in integrated
solutions. We expect to drive organic growth in our
APT segment by pursuing market share gains in core
markets, domestically and internationally, and by
developing new innovative offerings that further our
portfolio of sustainable products.
We are committed to
maintaining a technology-
driven, customer-centric
culture and offering a broad
portfolio of sustainable water
treatment products, services,
and solutions.
Emerging contaminants, including PFAS, continue
to drive complexity in global water treatment. The
recent passage of the U.S. Infrastructure Investment
and Jobs Act includes significant funding for clean
water initiatives, as well as requirements to set
maximum contaminant levels for PFOA and PFOS
in drinking water. We are well-positioned with the
expertise and proven solutions to help combat
these water challenges, creating meaningful growth
opportunities in the future.
GROWTH THROUGH TUCK-IN ACQUISITIONS
As a complement to our organic growth initiatives,
we continue to pursue accretive tuck-in acquisitions
to add new technologies, expand further into
attractive geographic regions, and further penetrate
targeted end markets. Executing on this strategy
in fiscal 2021, we completed the acquisition of
Ultrapure & Industrial Services, LLC’s industrial
water business, further strengthening our service
capabilities. We also acquired Water Consulting
Specialists, Inc., enhancing our portfolio of high-
purity water systems and enabling the company to
expand in key industrial markets. We have an active
M&A pipeline and expect to supplement our organic
growth initiatives in the coming year.
ACCELERATING OUR SUSTAINABILITY JOURNEY
As a water technology company, we play a key
role in helping our customers build sustainable
water systems. We are committed to maintaining
a technology-driven, customer-centric culture and
offering a broad portfolio of sustainable water
treatment products, services, and solutions.
Continuing on our sustainability journey, we are
looking inward to identify actions to reduce our
environmental footprint to further protect our
communities and planet. With that, we have set bold
goals to mitigate the impact of our operations on
climate change. First, to address water risks related
to climate change, we have adopted a goal of
reusing more water than we withdraw from source
by 2035. As part of our path toward achieving this
goal, we intend to create water management plans
for our facilities to increase efficiency in water
usage and to implement additional water recycling
and reuse initiatives, utilizing our own technology.
Second, over the next two years, we plan to use
the science-based target setting methodology to
evaluate our scope 1, 2, and 3 emissions, which will
enable us to develop greenhouse gas emission
reduction targets in line with the Paris Agreement’s
1.5°C pathway. We view the development of
reduction targets as an important next step on
our journey towards reaching the goal of net-zero
greenhouse gas emissions by 2050. To incentivize
our attainment of these goals, the company has
also implemented environmental and safety metrics
into our employee annual compensation program
beginning this fiscal year.
In October, we opened our new Sustainability and
Innovation Hub in Pittsburgh, Pennsylvania, which
will help accelerate our ability to develop cutting-
edge and sustainable water treatment technologies.
The Hub will focus on elevating Evoqua’s connected,
digital technologies, enhancing our waste-to-value
treatment systems, and further developing solutions
to address emerging contaminants, including PFAS.
The collaborative workspace is designed to provide
strategic and timely technical capabilities, illustrating
our commitment to delivering excellence to our
customers.
As we look ahead, our sales pipeline remains robust,
and demand is strong across most of our end
markets. We are fortunate to have a team of the
best and the brightest in the industry dedicated to
our company’s success. We are focused on what lies
ahead, delivering sustainable water solutions to our
customers while driving profitable growth.
Thank you for your support and commitment as we
continue to build on our success - Transforming
Water. Enriching Life.®
Sincerely,
RON C. KEATING
PRESIDENT, CHIEF EXECUTIVE OFFICER,
MEMBER OF THE BOARD OF DIRECTORS
With sustainability as a
core value, we believe a
sustainable future for all
is possible today.
Ron C. Keating, CEO
Sustainability:
Our Commitment to
Today and Tomorrow
Overview
Water and climate risk and emerging
contaminants in water are growing concerns
around the world, impacting individuals,
enterprises, and governments. Safe and
available water is critical to overall human
health and well-being; however, today, certain
sources estimate that approximately 2.3 billion
people live in water-scarce areas1, and that
by 2030, water scarcity could displace 700
million people.2 When considering the global
economic landscape, few industries can thrive
without a stable water supply, whether it is
used to power the enterprise, required to feed
its supply chain, or instrumental in creating a
product itself. At Evoqua, we work daily to build
a more sustainable, healthy, and safe water
system by providing water treatment solutions
to communities, companies, and organizations
worldwide.
Sustainable
Development Goals
Evoqua is dedicated to developing and delivering sustainable solutions that help
customers and communities protect the world’s most valuable resource — water. Our
broad portfolio of innovative products and services are aligned with the Sustainable
Development Goals (SDGs), helping our customers solve their most complex water
and wastewater treatment challenges while creating a more sustainable future.
1World Data Lab, https://www.worldwater.io
2UN Water Facts, https://www.un.org/sustainabledevelopment/wp-content/uploads/2019/07/E_Infographic_06.pdf
*The use of the SDG logos or icons does not imply the endorsement of the United Nations. Learn more at https://www.un.org/sustainabledevelopment
For more information, download our 2020 Sustainability Report
evoqua.com/sustainability
Our
Handprint
Evoqua transforms
approximately
100 billion
gallons of water
every day with our
products and services.
This is over 4.5 times the
amount of water flowing over
Niagara Falls every single day.
Evoqua opened a state-of-the-
art Sustainability and
Innovation Hub
in October in Pittsburgh,
Pennsylvania dedicated to
the training and development
of next-generation treatment
solutions.
Our
Footprint
By 2035, Evoqua’s
facilities will seek
to recycle and
reuse more water
than withdrawn.
Evoqua plans to set
science-based targets
by 2023, with a goal of
reaching net-zero
greenhouse gas
emissions by 2050.
Commencing in fiscal year 2022,
environmental and
safety metrics will be
incorporated into our employee
annual compensation program, and
performance share units measured
on select performance metrics will
be introduced into our long-term
compensation strategy.
Evoqua was recognized on the Clean200
and SDG2000 list for our ability to make
the world more sustainable.
Food &
Beverage
Government
Healthcare
Manufacturing
Microelectronics
Municipal
Pharmaceutical
Power
Refining &
Chemicals
Integrated Solutions
and Services
Overview
Our Integrated Solutions and Services (ISS)
segment provides application-specific solutions
and full lifecycle services for critical water and
wastewater applications across a diversified set of
attractive vertical markets. Key offerings include
outsourced water service contracts, capital systems
and related recurring aftermarket services, parts and
consumables, and emergency services to enable
recycle and reuse, improve operational reliability
and performance, and promote environmental
compliance.
Outsourced Water and
Digital Enablement
Evoqua’s digital water management solutions
uniquely combine our water expertise, extensive
installation base, proactive service, proven technology,
and data intelligence to continually improve our
customers’ water operation management. Our remote
monitoring capabilities enable us to optimize our
routine service calls through predictive analytics
to provide customers with a more reliable, cost-
efficient water solution. We offer water on-demand
services, mobile solutions, and smart water systems
that leverage our extensive branch network,
technical personnel, and technology portfolio.
With our extensive service network, our
customers are supported by our broad
application and process expertise and
what we believe to be the
largest integrated
industrial service network
in North America.
Revenue Growth
Year-Over-Year
1.7%
2021 Segment
Revenue
$959.9M
Emerging Contaminants
Emerging contaminants, including PFAS, selenium,
and microplastics, can be found in rivers, lakes,
streams, aquifers, and wells, impacting drinking
water and process water. The chemical bonds of
these contaminants can take decades to break down,
driving complexities in water treatment and affecting
the health and safety of our water supply. Evoqua is
a single-source solutions provider for contaminant
removal. Our service network, combined with our
comprehensive water treatment solutions portfolio
and extensive mobile fleet, favorably positions
Evoqua to help solve these water challenges.
Sustainable Water
Management
Evoqua’s sustainable water and wastewater
technologies are helping industrial processors
worldwide recover on-site resources to
become more environmentally responsible.
Our water reuse and recycling solutions help
customers lower freshwater costs, reduce
wastewater flows, and improve their overall
water footprint, making their operations more
sustainable. 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.
Applied Product
Technologies
Overview
Our Applied Product Technologies (APT)
segment provides highly-differentiated
and scalable products that can be used
stand-alone or as components in integrated
solutions to a diverse set of system integrators
and end-users. Key offerings within this
segment include filtration and separation,
disinfection, wastewater treatment, and
anodes used across municipal, industrial, and
aquatics markets worldwide.
Aquaculture
Aquatics
Commercial
Food &
Beverage
Microelectronics
Municipal
Pharmaceutical
Power
Renewable
Energy
Enabling Renewable
Energy Opportunities
Globally, offshore wind is fast becoming a leading
source of renewable energy. It is critical that
the technology powering offshore plants meets
performance requirements and addresses the changing
operational needs of these complex environments.
For the direct current required to make the wind farm
operationally efficient, high-voltage direct current
(HVDC) technology is utilized. HVDC transmission
systems are housed on platforms in the sea, making
them subject to ever-changing weather conditions
and temperature extremes. Evoqua’s Chloropac®
electrochlorination units are used to keep the HVDC
technology cooled and prevent marine growth fouling,
facilitating continuous operation and energy generation.
Revenue Growth
Year-Over-Year
4.0%
2021 Segment
Revenue
$504.5M
Tackling Relevant, Complex
Sustainability Issues
Consumer focus on health and wellness, coupled with
sustainability advocacy, is contributing to the demand
for sustainable food supplies. Aquaculture is one of
the fastest-growing markets across Europe and Asia
Pacific, and the cultivation process requires controlled
water conditions to maximize production safely and
healthily. Evoqua has a full suite of solutions, including
our VAF filters, Pacific Ozone® generators, and UV
systems, which help keep the water clean, producing
healthier stock and increasing yields.
Digital Innovation to
Drive Growth and Efficiency
The modern workforce demands a more holistic, innovative,
and data-driven experience, and the need for connected
solutions is driving growth in many markets, including data
centers and microelectronics. Both require pure water to
ensure efficient and continuous operation. In particular, the
microelectronics industry is continuously evolving, which
requires Evoqua to keep pace with industry-leading
innovation. We continue to develop solutions
to ensure ultrapure water meets the
performance needs of semiconductor
manufacturers. Our IONPURE®
VNX Ultra product evolves our
industry-leading, high-quality
electrodionization (EDI) platform
to produce ultrapure water for the
industry, facilitating high output
and production.
Our
Commitments
PURPOSE
VISION
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
• We respect our employees, business
partners and environment
Sustainable
Our commitment to
today and tomorrow
• We transform water for our customers,
communities and planet
• We embrace inclusion and diversity
as a primary catalyst for innovation
• We are stewards of environmental
health through our actions and conduct
Customers
The foundation of
our success
• We are responsive and reliable
• We provide high quality solutions
• We add value as a trusted partner
Performance
Deliver on 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, offering a broad portfolio
of products, services, and expertise to support
industrial, municipal, and recreational customers
who value water. Evoqua has worked to protect
water, the environment, and its employees for
more than 100 years, earning a reputation for
quality, safety, and reliability around the world.
Headquartered in Pittsburgh, Pennsylvania, the
company operates in more than 150 locations
across 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.®
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 2021
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to _________
Commission file number: 001-38272
EVOQUA WATER TECHNOLOGIES CORP.
(Exact name of registrant as specified in its charter)
Delaware
(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)
Registrant’s telephone number, including area code: (724) 772-0044
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 ☒
Non-accelerated filer ☐
Accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s 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, 2021, the last business day of the
registrant’s most recently completed second fiscal quarter, was approximately $3.1 billion.
There were 120,587,273 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of October 31,
2021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement (the “Proxy Statement”) for its annual meeting of shareholders to
be held in February 2022, 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 Fiscal Year Ended September 30, 2021
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 9C
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
[Reserved]
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
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
3
13
26
26
27
28
29
31
32
58
60
122
122
123
123
124
124
124
124
124
125
129
[THIS PAGE INTENTIONALLY LEFT BLANK]
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 of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You can
generally identify forward-looking statements by our use of forward-looking terminology such as “aim,” “anticipate,”
“assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “plan,” “progress,”
“potential,” “predict,” “projection,” “seek,” “should,” “will” or “would” or the negative thereof or other variations
thereon or comparable terminology. In particular, statements about the markets in which we operate, including growth of
our various markets, our expectations, beliefs, plans, strategies, objectives, prospects, assumptions, or future events or
performance, statements regarding our restructuring actions and expected restructuring charges and cost savings,
statements regarding our cash requirements, working capital needs and expected capital expenditures, statements
regarding our expectations for fiscal 2022, customer demand, supply chain challenges, material availability, price/cost,
labor shortages, inflation, and general macroeconomic conditions, and statements related to the COVID-19 pandemic and
its ongoing impact on our business contained in this Annual Report are forward-looking statements.
All of these forward-looking statements are based on our current expectations, assumptions, estimates, and projections.
While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking
statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our
control. These and other important factors, including those discussed in Part I, Item 1, “Business,” Part I, Item 1A, “Risk
Factors,” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” of this Annual Report may cause our actual results, performance or achievements to differ materially from
any future results, performance, or achievements expressed or implied by these forward-looking statements, or could
affect our share price. Some of the factors that could cause actual results to differ materially from those expressed or
implied by the forward-looking statements include, among other things:
•
•
general global economic and business conditions, including the impacts of the COVID-19 pandemic;
our ability to execute projects on budget and on schedule;
• material, freight, and labor inflation, commodity availability constraints, and disruptions in global supply
chains and transportation services;
•
•
•
•
•
•
•
•
•
•
the potential for us to incur liabilities to customers as a result of warranty claims or failure to meet
performance guarantees;
our ability to meet our own and our customers’ safety standards;
failure to effectively treat emerging contaminants;
our ability to continue to develop or acquire new products, services and solutions that allow us to compete
successfully in our markets;
our ability to implement our growth strategy, including acquisitions, and our ability to identify suitable
acquisition targets;
our ability to operate or integrate any acquired businesses, assets or product lines profitably;
our ability to achieve the expected benefits of our restructuring actions;
delays in enactment or repeals of environmental laws and regulations;
the potential for us to become subject to claims relating to handling, storage, release or disposal of
hazardous materials;
our ability to retain our senior management, skilled technical, engineering, sales, and other key personnel
and to attract and retain key talent in increasingly competitive labor markets;
•
•
•
•
•
•
•
•
•
risks associated with international sales and operations;
our ability to adequately protect our intellectual property from third-party infringement;
risks related to our contracts with federal, state, and local governments, including risk of termination or
modification prior to completion;
risks associated with product defects and unanticipated or improper use of our products;
our ability to accurately predict the timing of contract awards;
risks related to our substantial indebtedness;
our increasing dependence on the continuous and reliable operation of our information technology systems;
risks related to foreign, federal, state and local environmental, health and safety laws and other applicable
laws and regulations and the costs associated therewith; and
other risks and uncertainties, including those listed under Part I, 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
Company Overview
Evoqua Water Technologies Corp. (referred to herein as “the Company,” “Evoqua,” “we,” “us,” or “our”) was
incorporated on October 7, 2013. On January 15, 2014, Evoqua acquired the Water Technologies business unit formerly
owned by Siemens AG (“Siemens”). On November 6, 2017, we completed our initial public offering (“IPO”), and our
common stock began trading on the New York Stock Exchange (the “NYSE”) on November 2, 2017 under the ticker
symbol “AQUA.”
We are a leading provider of mission-critical water and wastewater treatment solutions, offering a broad portfolio of
products, services, and expertise to support customers across various end markets. We are headquartered in Pittsburgh,
Pennsylvania, with locations across ten countries. We have a comprehensive portfolio of differentiated, proprietary
technologies offered under market-leading and well-established brands. Our core technologies are primarily focused on
removing impurities from water, rather than neutralizing them through the addition of chemicals. 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.
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, including use as process water in manufacturing, power generation and other industrial applications, use as
ingredient water in the production of food, beverage, and other goods, use in laboratory testing, use by commercial
aquatic facilities, and to produce safe drinking water. After the water is used it is considered effluent water, and we treat
it to remove impurities so that it can be discharged safely back into the environment or reused for industrial, commercial,
or municipal applications.
3
We target attractive global end markets that utilize and treat water as a critical part of their operations or production
processes, including general manufacturing, healthcare, pharmaceuticals, biotech, power, microelectronics, chemical
processing, food and beverage, municipal drinking water and wastewater, aquatics, refining and marine end markets.
While a decline in general global and economic conditions could adversely affect us, our business is highly diversified
across these key end markets, and we believe that no single end market drives the overall results of our business.
4
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 called Applied Product Technologies (“APT”) focused on sales
primarily through indirect channels.
Our ISS segment provides application-specific solutions and full lifecycle services for critical water and wastewater
applications across numerous end markets. Our APT segment provides highly differentiated and scalable water and
wastewater products and technologies as stand-alone offerings or components in integrated solutions. The chart below
reflects revenue by segment for the year ended September 30, 2021:
APT
34%
ISS
66%
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, 2021.
Integrated
Solutions and
Services
Applied
Product
Technologies
Provides application-specific solutions and full lifecycle services across numerous end markets
Overview
North America focused; extensive service branch footprint and fleet of mobile response
equipment
Channel Direct sales, organized geographically and by end market
Outsourced water services, including digitally connected Water One® service platform
Key
Offerings
Overview
Capital equipment for process water and wastewater treatment; related service and aftermarket
consumables
Preventative maintenance service contracts; emergency response services
Municipal services, including odor and corrosion control services and drinking water treatment
systems
Provides highly differentiated and scalable products and technologies
Global geographic reach serving North America, EMEA, and Asia Pacific
Channel Primarily indirect sales through our ISS segment, OEMs, system integrators, sales
representatives, regional distributors, and engineering firms
Filtration and separation
Disinfection
Wastewater technologies
Key
Offerings
Anode and electrochlorination technology
5
Integrated Solutions and Services Segment
Our ISS segment provides application-specific solutions and full lifecycle services to treat process water, utility water
and wastewater for customers in end markets including general manufacturing, healthcare, pharmaceuticals, biotech,
ISS also provides odor and corrosion
power, microelectronics, chemical processing, food and beverage, and refining.
control services and drinking water treatment systems for municipalities. ISS offers customers outsourced water service
contracts, capital systems and related recurring aftermarket services, parts and consumables, and emergency services.
Our outsourced water service contracts include short-term service deionization contracts, averaging one to two years in
duration, longer-term build-own-operate contracts, averaging eight to ten years in duration, and event driven mobile fleet
deployments, including a growing portfolio of digitally connected technologies encompassed in our Water One® service
platform. Key capital and related aftermarket service and product offerings include filtration, reverse osmosis, ion
exchange and continuous deionization.
ISS supports service and aftermarket sales through what we believe to be the largest integrated industrial service branch
network in North America, which is comprised of certified technicians and our extensive fleet of mobile reverse osmosis
and deionization water treatment systems. This is complemented by our digitally connected Water One® service
platform, which 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.
ISS partners with customers 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 ecommerce platform. ISS
primarily targets four broad categories of customers, principally based on their end markets and main applications.
•
Light Industry - Offerings include our digitally connected, usage-based Water One® deionized water
service, preventative maintenance service contracts,
integrated process and wastewater systems,
aftermarket consumables, and spare parts.
• 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, aftermarket consumables, and spare parts.
Environmental Solutions - Offerings include activated carbon, wastewater ion exchange, hydrostatic
water testing, degassing services, and groundwater remediation solutions.
•
• Municipal Services - Offerings include odor and corrosion control and disinfection capabilities,
including digitally connected, 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.
6
Applied Product Technologies Segment
Our APT segment sells differentiated and scalable products and technologies to a diverse set of water treatment system
integrators and end users globally. The portfolio of technologies offered by APT includes filtration, separation,
disinfection, wastewater treatment, electrochlorination, and anode offerings.
APT sells these products and technologies as stand-alone offerings and components in integrated solutions both through
our ISS segment and to a global customer base comprised of OEMs, system integrators, regional distributors,
engineering firms and various other end users that we reach through multiple established sales and aftermarket channels.
APT targets customers principally based on their end markets and primary application.
• Advanced Filtration and Separation – Offerings include VAF self-cleaning filters, Ionpure®
electrodeionization systems, Vortisand® filtration systems, filter presses and related consumables and
aftermarket products, targeting customers in the microelectronics, pharmaceutical and power end
markets.
• Disinfection – Offerings include a wide range of chemical and non-chemical disinfection technologies,
including low and medium pressure ultraviolet (UV), ozone, onsite hypochlorite generation, chlorine
and chlorine dioxide systems, targeting municipal drinking water, industrial, light manufacturing,
commercial, and aquatics customers worldwide.
• Wastewater Technologies - Offerings include advanced biological treatment, clarification, filtration,
nutrient removal, biosolid, and field-erected biological wastewater treatment plant solutions. We also
provide aftermarket and retrofit solutions to our extensive installed base. We sell primarily through a
network of municipal sales representatives across the U.S.
•
• Aquatics - Offerings include our Defender® regenerative media filters, sand filters, analyzers,
controllers and related accessories, targeting commercial aquatics designers, municipal and recreational
pools and leisure facilities, fountains, water features, and recreational waterparks.
Electrochlorination – Offerings include onsite sodium hypochlorite generating systems for maritime,
oil and gas, power and military customers, maritime growth prevention systems used on military and
commercial ships and in offshore oil and gas applications, and anodes used in mining, chemical
processing, light industrial, microelectronics, metal finishing, electroplating, and swimming pool
chlorination applications.
Customers
Our customers span a diverse range of end markets, including general manufacturing, healthcare, pharmaceuticals,
biotech, power, microelectronics, chemical processing, food and beverage, municipal drinking water and wastewater,
aquatics, refining and marine end markets. We sell directly to end users in these end markets and also to intermediaries,
such as OEMs, system integrators, regional distributors, and engineering firms. Our business is not dependent on any
single customer or end market. During the year ended September 30, 2021, no single customer accounted for more than
1.3% of our revenue, and our top ten customers accounted for approximately 7.4% of our revenue.
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.
7
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 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.
Seasonality
Our business may exhibit seasonality resulting from our customers’ increasing 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 and extreme weather
events, such as hurricanes, winter storms, droughts, and floods, can also have varying impacts on our business. Certain
events may cause customer shutdowns that prevent or defer our performance of services or sale of equipment, while
other events may drive increased demand for our products and services, particularly emergency response services. As a
result, our results from operations may vary from period to period.
Sales and Marketing
Our ISS segment markets its offerings through a 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
key end markets served by our ISS segment are general manufacturing, healthcare, pharmaceuticals, biotech, power,
microelectronics, chemical processing, food and beverage, and refining. As of September 30, 2021, our ISS segment
included approximately 350 employees in sales and marketing roles and a services network of approximately 950
employees in field service and application engineering roles.
Our APT segment markets its offerings primarily through indirect channels to serve the global market or through our ISS
segment’s sales organization as part of broader solutions. APT maintains relationships with OEMs, system integrators,
sales representatives, regional distributors, engineering firms, and various other end users through our direct technical
sales force to drive adoption of our offerings. APT maintains a comprehensive municipal representative network in the
U.S., providing us with an opportunity to influence specifications and the basis of design for new treatment facilities. As
of September 30, 2021, we had active relationships with more than 240 distributors and sales representatives.
Growth Opportunities
We believe the global water market is well positioned to grow, supported by a variety of anticipated secular trends that
will drive demand for clean water across a multitude of industrial, commercial, and municipal applications. These secular
trends include water and climate risk, health and safety, connectivity and overall economic growth. Less predictable
water availability and increased water scarcity are among the anticipated effects of climate change. Accessing water
from current sources is becoming increasingly challenging, so the development of non-traditional sources of water and
recycle and reuse technologies will be required.
The supply of clean water could be further impacted by factors including aging water infrastructure within North
America and increased levels of water stress from seasonal rainfall, inadequate water storage options or treatment
technologies. As global consumption patterns evolve and water shortages persist, we expect 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 closed-loop solutions that allow
recycling and reuse of effluent water for certain applications. In order to position the company to meet this demand, key
elements of our growth strategy include:
8
Provide a higher value-add service-based business model to our customers. Many of our customers require water that
meets a particular specification to facilitate the operation of their own businesses. Our goal is to provide reliable water
treatment solutions by combining our products and technologies with our extensive service and distribution capabilities,
enabling our customers to outsource their water treatment needs to us and focus on their core businesses. Our outsourced
water offerings are high value add solutions utilizing our owned assets to generate service revenue. An example is our
Water One® service platform, which uses digitally connected remote monitoring technology to provide customers with
predictive and proactive service, usage-based pricing, and simplified billing.
Drive margin expansion and cash flow improvements through continued focus on strategic pricing, operational
excellence, execution and cost savings initiatives. During the year ended September 30, 2021, we deployed a more
robust strategic pricing program to focus on efficient and effective price increase implementation with the objective of
ensuring more immediate recovery of increased supply chain costs and capturing appropriate value for our innovations.
Dedicated resources and systems have been put in place to institutionalize these practices. In parallel, we 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 continuing supply chain improvement program to consolidate and manage global spending,
our improved logistics and transportation management program, capturing benefits of our Water One® service 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.
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, may 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.
Continue to evaluate and pursue accretive acquisitions to add new technologies, attractive geographic regions and
end markets. As a complement to our organic growth initiatives, we view acquisitions as a key element of our overall
growth strategy. We target acquisitions that we believe 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.
During the year ended September 30, 2021, we completed the following acquisitions:
• On December 17, 2020, we acquired the industrial water business of Ultrapure & Industrial Services,
LLC (“Ultrapure”) for $8.7 million cash paid at closing. On April 1, 2021, we paid an additional $0.3
million as a result of net working capital adjustments. Ultrapure, based out of Texas, provides
customers across multiple end markets with a variety of water treatment products and services,
including service deionization, reverse osmosis, UV, and ozonation. Ultrapure will strengthen our
service capabilities in the Houston and Dallas markets and is a part of our ISS segment.
• On April 1, 2021, we acquired the assets of Water Consulting Specialists, Inc (“WCSI”) for $12.0
million cash paid at closing. WCSI is a leader in the design, manufacturing, and service of industrial
high-purity water treatment systems. The acquisition strengthens our portfolio of high-purity water
9
treatment systems and provides the opportunity to further expand its digitally enabled solutions and
services in key industrial markets. WCSI is a part of our ISS segment.
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 for commercialization. We also partner with leading
universities, research centers and other outside agencies to explore potential developments.
As of September 30, 2021, our global research, development, and engineering footprint included seven facilities located
in the U.S., the United Kingdom, the Netherlands, Germany and India, staffed with managers, scientists, researchers,
engineers, and technicians. In October 2021, we opened a new Sustainability and Innovation Hub in Pittsburgh,
Pennsylvania. This 18,000 square-foot facility houses a hands-on demonstration and training area, a pilot testing
environment, and a laboratory to grow our analytical and feasibility study capacity. We expect this facility to advance
our research and development capabilities and enable further development of sustainable water treatment technologies.
Our total expected investment in this facility is approximately $5.6 million, of which $3.5 million has been recognized as
of September 30, 2021.
Intellectual Property
Our intellectual property and proprietary rights are important to our business, but we do not believe our business as a
whole to be materially dependent on any single patent, trade secret or trademark. As of September 30, 2021, we have
approximately 1,600 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 and reliability, pricing of products and services, ability to provide
service and support, 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 customers and the effectiveness of distribution channels. Within each of our segments
and the various businesses that comprise them, we compete with a variety of companies, but we do not consider any
single company to be a key competitor to our business as a whole.
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, 2021, our
backlog was approximately $275.6 million.
Human Capital Resources
We believe our talent within the organization is key to our long-term success. Our human capital management
philosophy and objectives focus on creating a high-performance culture in which employees are highly enabled,
empowered, and accountable to deliver results. As of September 30, 2021, we had approximately 4,000 employees. Of
these employees, approximately 59% were full-time salaried staff and the remaining employees consisted of a mix of
full-time and part-time hourly workers. Approximately 75% of our employees work in our U.S. operations and
approximately 25% work in foreign operations. None of our facilities in the U.S. or Canada are covered by collective
10
bargaining agreements. As is common in Germany and the Netherlands, our employee populations there are represented
by works councils.
The health, safety and well-being of our employees is our top priority. Fostering a safe working environment is critical
to our ability to attract and retain talent and to earn and keep the trust of our customers.
In order to do so, our
Environmental, Health and Safety team conducts monthly safety reviews at the executive level, reviews each recordable
accident with our CEO and leadership team, conducts quarterly reviews with our Board of Directors, routinely reviews
key performance indicators, and conducts regular facility audits. Every employee is empowered to stop work when they
have a concern or see the potential for injury. Throughout the COVID-19 pandemic, we have remained focused on
protecting the health, safety and well-being of our employees and managing the business to preserve our workforce. We
have implemented safety plans and protocols following guidance from the Centers for Disease Control, World Health
Organization, and other federal, state, local and international regulations, and we continue to evolve our corporate and
site-specific crisis management teams to actively manage and ensure compliance with these plans and protocols.
We are currently operating in an extremely challenging talent market. Market hiring surges, increased attrition and
shifting work expectations have significantly impacted the attraction and retention of talent, creating a hyper-competitive
global marketplace. We understand that our long-term success will require a differentiated, targeted approach to talent
attraction and retention. In response to these challenges, we took a number of actions in 2021 in an effort to enhance our
ability to attract and retain diverse talent.
• We learned through employee surveys, stay interviews, and exit survey data that career development and
recognition were two key factors that might influence our employees to consider leaving the organization. In
response, we developed six enterprise-wide career paths designed to help employees in certain roles establish
career development plans. We also put in place processes to advance our internal talent placements, ensuring
cross-segment and cross-functional
to help
employees achieve the objectives of their development plans. We plan to launch a global recognition program
in 2022 to ensure the accomplishments of our employees are better acknowledged.
talent moves are occurring across the organization,
internal
• We recently launched workstreams in two key focus areas: total compensation, with a deeper focus on sign-on
and referral bonuses, and branding and advertising within the talent market, with a heightened focus on
Inclusion and Diversity and Sustainability.
• We launched our flexible work approach that balances the benefits of working remotely with the experience of
working on-site.
Our Inclusion & Diversity (ID) strategy is also critical to our long-term success, and we continuously strive to improve
the diversity of our workforce through inclusive practices and actions. Through our ID action plan, we launched a
Business Resource Group called the Evoqua Inclusion Network (EIN) in September 2021, which is tasked with
identifying action opportunities that promote inclusion and minimize unconscious bias. Specific actions taken to date
include the dissemination to all global employees of an unconscious bias learning program, enhancement of our benefits
offerings with our flexible work approach, updating our internal and external branding materials focusing on ID, and
implementing recruiting strategies to better attract diversity, such as blind resumes and diverse interview panels.
We are working to improve gender diversity at all levels of the business through our ID strategy and action plan. As of
September 30, 2021, women make up approximately 20% of our global employee population and approximately 15% of
our leadership roles, defined as director level and above. In 2021, we saw an increase of approximately 23% in gender
diversity in leadership roles within the organization, and we have seen an increase of approximately 95% in gender
diversity in leadership roles from September 30, 2018 to September 30, 2021.
We embrace inclusion and diversity 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, including three of the four directors that have joined our Board since our initial public offering.
11
Government Regulation and Environmental Matters
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, anti-money laundering, import and export compliance, antitrust, data security and
privacy, employment, workplace safety, product safety, public health and safety, environmental compliance, intellectual
property,
transportation, zoning, and fire codes. Our policies mandate compliance with all applicable laws and
regulations, and we operate our business in accordance with standards and procedures designed to comply with these
laws and regulations.
The geographic breadth of our facilities and the nature of our operations subject our operations and products to extensive
environmental, health and safety laws, regulations, and permits, domestically and internationally, at national, state, and
local levels throughout the world. Such laws, regulations and permits relate to, among other things, air emissions, potable
and non-potable water and wastewater treatment, wastewater discharge, the generation, handling, storage, use, transport,
treatment and disposal of non-hazardous and hazardous materials and 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, and they could increase our cost of producing certain products or make certain products obsolete or less
attractive in the marketplace. 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, 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.
Many of the customers that we serve are subject to the same or similar environmental, health and safety laws and
regulations. Compliance with these laws by our customers could result in increased or decreased demand for our
products and services.
Specific laws and regulations that may affect our operations or demand for our products and services include, among
others, the following.
•
•
•
The federal Clean Water Act (the “CWA”) and comparable state, local and foreign laws that regulate the
discharge of pollutants into streams and other waters. These laws may limit the quantity of pollutants in water
discharges and require persons to apply for and obtain permits and conduct sampling and monitoring, and in
some cases, treat the water. Changes in limits on the quantity of pollutants and the types of pollutants under the
CWA and comparable state, local or foreign laws could affect demand for our products or services or create
liability for us as the result of contamination in water we treat.
The federal Safe Drinking Water Act (the “SDWA”) and comparable state, local and foreign laws that set
standards for drinking water quality and protect sources of public drinking water. The U.S. Environmental
Protection Agency (the “EPA”) has issued standards for microorganisms, disinfectants, disinfection byproducts,
inorganic chemicals, organic chemicals, and radionuclides. Changes in the SDWA or comparable state, local or
foreign standards, including the addition of newly-regulated contaminants, could affect demand for our products
and services and/or result in the obsolescence of our products or lead to an interruption or suspension of our
operations. Additionally, 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 Resource Conservation and Recovery Act (“RCRA”) and comparable state, local and foreign laws that
regulate substances designated as hazardous waste. Our operations involve the generation, handling, storage,
use, transport, treatment and disposal of non-hazardous and hazardous materials and wastes. Changes in
12
materials covered or treatment, storage, and disposal requirements under RCRA and comparable state, local or
foreign standards could result in increased operating costs or require additional investment in our covered
facilities.
•
•
The Comprehensive, Environmental Response, Compensation, and Liability Act (“CERCLA”) and comparable
state, local and foreign laws. The Company has been subject to claims under CERCLA, which can impose joint
and several liability on “potentially responsible parties” for costs of investigation and remediation and for
natural resource damages, without regard to fault or the legality of the original conduct, on certain classes of
persons with respect to the release into the environment of specified substances, including, under CERCLA,
those designated as “hazardous substances.”
The Toxic Substances Control Act (the “TSCA”), the Federal Insecticide, Fungicide and Rodenticide Act (the
“FIFRA”), and comparable state, local and foreign laws that regulate the manufacture and/or distribution of
certain chemical substances and/or disinfection equipment. These laws may require ongoing submissions to the
EPA or state environmental agencies, including, but not limited to, information on the chemistry and toxicology
of the chemical substance or products, registrations, notification, and other requirements before such products
can be manufactured, distributed, or sold. Changes in these laws could affect demand for our products and
services, increase our cost of operations, result in the obsolescence of our products or lead to an interruption or
suspension of our operations.
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.
Available Information
Our internet address is www.evoqua.com. 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 Reports 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 free of charge through the “Investors” section of our
website. These materials are generally made available on our website 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.
We intend to make future announcements regarding Company developments and financial performance on the
“Investors” section of our website, www.evoqua.com, as well as through press releases, filings with the SEC, conference
calls, and webcasts.
Item 1A. Risk Factors
The following risks and uncertainties could materially adversely affect our business, financial condition, results of
operations or prospects. Although the risks are organized by headings and each risk is described separately, many of the
risks are interrelated. While we believe we have identified and discussed below the key risk factors affecting our
business, there may be additional risks and uncertainties that are not presently known or that are not currently believed
to be significant that may adversely affect our business, financial condition, results of operations or prospects in the
future. 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.
13
Business and Operational Risks
The COVID-19 pandemic has adversely affected, and may continue to adversely affect, our business, financial
condition, results of operations and prospects.
The COVID-19 pandemic, the resulting global economic slowdown, and the reopening of global economies that has
followed have created a number of macroeconomic challenges that have impacted our business, including volatility and
uncertainty in business planning, disruptions in global supply chains, material, freight and labor inflation, shortages of
and delays in obtaining certain materials and component parts, and labor shortages. To date, the pandemic has
negatively impacted sales volume across our business, due primarily to customer site access restrictions, temporary
customer site closures, and temporary delays in annual maintenance activities by customers in certain end markets.
Further, certain of our customers have restricted access to their sites such that only our vaccinated employees may enter
such sites, which may delay our timely provision of services to them.
The COVID-19 pandemic has also heightened risks associated with our operations. Our service technicians enter high-
risk areas such as hospitals and testing laboratories, putting them at greater risk of exposure to the virus. An outbreak
among our service technician population or an 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 business,
financial condition, results of operations and prospects. Additionally, a large number of our employees continue to work
remotely, resulting in increased cyber-security risk.
Further, the Occupational Safety and Health Administration, acting at the direction of the President of the United States,
published a Temporary Emergency Standard requiring certain companies to vaccinate their employees or test those who
are not vaccinated at least once per week. This could impact employee retention or increase our costs of operation. If we
are unable to respond to and manage the impact of these events, our business and results of operations may be adversely
affected. Additionally, if we are unable to comply with these requirements, we could face enforcement actions or
financial penalties.
The duration and severity of the pandemic remain uncertain and cannot be predicted. If COVID-19 and its variants
continue to spread, or if the duration of the disruptions caused by the pandemic is further 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 pandemic’s impact on the global economy and on certain markets that we serve. COVID-19 and future
public health crises and pandemics 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. The impact of the COVID-19
pandemic may also have the effect of heightening many of the other risks and uncertainties described in this “Risk
Factors” section.
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, health and 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. Many of these
projects require us to contract with engineering, procurement, and construction firms (“EPCs”). If an EPC that we have
commissioned to build a new project defaults or fails to fulfill its contractual obligations, we could face significant
delays, cost overruns and liabilities. 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.
14
Our business could be adversely affected by material, freight, and labor inflation and other manufacturing and
operating cost increases and commodity availability constraints.
Certain commodities and materials used in our operations, including, but not limited to, steel, caustic, carbon, calcium
nitrate, and iridium, are subject to significant price fluctuations. Volatility in the market price and availability of these
materials has a direct impact on the cost of operating our business. Our operating costs are also impacted by fluctuations
in the cost of energy and related utilities, freight, and labor. We have experienced material, freight, and labor cost
increases, and we have taken actions to mitigate the impact of these cost increases through price increases, cost savings
projects, and sourcing decisions, as well as through strategic productivity improvements. If we are unable to offset these
In addition, many of our
cost increases, it will adversely impact our gross profit, gross margin and operating profit.
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 have a material adverse effect on our business, financial condition,
results of operations or prospects.
Reliance on third party shipping companies may impact our ability to execute projects on time and within budget.
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. Factors beyond our control, many of which have been caused or exacerbated by the
COVID-19 pandemic, including labor shortages and capacity constraints in the transportation industry, container
shortages, port congestion, disruptions to the national and international transportation infrastructure, fuel shortages, and
transportation cost increases (such as increases in fuel costs or port fees), have impacted and could further impact our
ability to execute projects or ship products to our customers on time and within budget, which could harm our reputation
and have a material adverse effect on our business, financial condition, results of operations and prospects. Generally, we
have been able to pass on the majority of shipping and related charges to our customers, but there can be no assurance
that we will be able to do so into the future. Failure to do so may adversely impact our gross profit and gross margin.
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 water 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 customer’s 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.
Our inability to meet our own and our customers’ safety standards 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. Risks arising from unsafe products or unsafe performance by our
employees include, 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. Workplace accidents or
near-accidents, product-related accidents, or the failure to follow our own or our customers’ safety policies could damage
our reputation or our customers’ perception of our safety record, which could have a material 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.
15
Failure to effectively treat emerging contaminants could result in material liabilities.
A number of emerging contaminants might be found in water that we treat, including PFAS, PFOA, selenium, micro-
plastics, hazardous chemicals, or pathogens that may cause a number of illnesses, including cholera, typhoid fever,
cancer, 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 be present in water treated using our
systems or products. In applications where treated water enters the human body, illness and death may result if
contaminants or pathogens are not eliminated during the treatment process. In particular, 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. 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 that allow us to compete successfully in our markets.
We offer our products, services, and solutions in highly competitive markets. Our future growth depends upon our ability
to (i) identify emerging 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 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 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.
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 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.
Acquisitions require significant time and attention from management and other key personnel, which may result in
attention being diverted from the operation of our existing business. Other risks associated with our acquisition strategy
include ineffective integration of an acquisition, as further described below, inaccurately estimating a target’s financial
condition or risk profile, failure to achieve planned synergies, litigation relating to an acquisition, failure to receive
required regulatory approvals or such approvals being delayed or restrictively conditional, 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 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.
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. Risks associated with integration of an acquisition include failure of an acquired business
to perform to our expectations, our failure to integrate it appropriately and on a timely basis, our failure to realize
anticipated synergies and cost savings, our failure to preserve the customer relationships and retain key employees of an
16
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. 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, which may materially adversely
affect us.
We have taken a number of restructuring actions in recent years in an effort to better serve the needs of our customers
worldwide, achieve cost savings and operational efficiencies, and position ourselves for improved long-term growth and
profitability. Achieving the expected cost savings and efficiencies 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, which may cause us to incur additional restructuring
charges. These types of initiatives could yield unintended consequences such as distraction of our management and
employees, business disruption and unforeseen costs, 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, results of operations, and prospects.
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 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 costs and experience delays in our business due to our efforts 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, including RCRA and CERCLA, 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. 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. 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.
17
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 liquidity 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.
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 attract and retain talent, specifically in senior management
and skilled technical, engineering, sales, project management and other key roles. Macroeconomic conditions,
specifically labor shortages, increased competition for employees and wage inflation, could have a material impact on
our ability to attract and retain talent, our turnover rate, and the cost of operating our business. If we are unable to attract
and retain sufficient talent, minimize employee turnover, or manage wage inflation, it could have a material adverse
effect on our business, financial condition, results of operations or prospects.
Wastewater operations may result in contamination or pose other significant risks that could cause us to incur
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.
Weather conditions, climate change, and legislation or regulations addressing climate change may adversely impact
our business, financial condition, results of operations and prospects.
The physical impacts of climate change are highly uncertain and vary depending on geographical location, but could
include changing temperatures, droughts, water shortages, wildfires, changes in weather and rainfall patterns, changes in
sea levels, and changing storm patterns and intensities. These impacts present several potential challenges to water and
wastewater service providers, such as potential degradation of water quality and changes in demand for water services,
particularly during periods of increased precipitation, flooding, or water shortages.
Inclement weather and extreme
weather events may have varying impacts on our business. Certain events may disrupt the operations of our customers,
creating customer shutdowns that prevent or defer our performance of services or sale of equipment, while other events
may drive increased demand for our products and services, particularly emergency response services, which may create
volatility in our financial results. Additionally, these events may disrupt our own operations and the operations of our
suppliers, including the operation of manufacturing plants, the transportation of raw materials from our suppliers, and the
transportation of products to our customers, any of which may increase our costs, reduce our productivity and adversely
affect our business, financial condition, results of operations and prospects.
Additionally, concern over climate change may result in new or increased legal and regulatory requirements to reduce or
mitigate the effects of climate change, including limitations on greenhouse gas emissions, which could increase our costs
or require additional investments in our facilities and equipment. New legislation and regulatory requirements may also
impact our customers and suppliers, which could affect demand for our products or our ability to source key materials.
In addition, our customers and suppliers may impose their own requirements with respect to climate change and
greenhouse gas emissions. Any failure to comply with those requirements may also affect demand for our products or
our ability to source key materials. Any failure to achieve our own goals with respect to reducing our impact on the
environment, or any perception of a failure to act responsibly with respect to the environment or to effectively respond to
regulatory requirements concerning climate change, can lead to adverse publicity, resulting in an adverse effect on our
business or damage to our reputation.
18
Our business 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 tariffs and other trade restrictions, import and export requirements, foreign taxation policies,
limitations on our ability to repatriate funds, unanticipated regulatory changes, geopolitical risks, political instability,
currency fluctuations, varying levels of protection of intellectual property, difficulty enforcing agreements, disruptions in
global supply chains, labor disruptions, and potential violations of anti-corruption laws.
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 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.
We currently have operations and source and manufacture certain of our materials and products for global distribution
from third-party suppliers and manufacturers in the People’s Republic of China. Operating in China exposes us to
political, legal, and economic risks. Our ability to operate in China may be adversely affected by changes in U.S. and
Chinese relations, laws and regulations, such as those related to, among other things, taxation, import and export tariffs,
environmental regulations, energy use, 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. 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.
If we do not adequately protect our intellectual property, or if third parties infringe our intellectual property rights or
claim that we are infringing 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 or invalidated. 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. 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 subcontractors 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, reprogram, or replace our or our customers’
products, subcomponents, software, or systems, or recast 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
19
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.
Our contracts with federal, state, and local governments involve unique risks and may be terminated or adversely
modified prior to completion, which could adversely affect our business.
We derive, and expect to continue to derive in the future, a portion of our revenue from government customers, including
municipalities. Sales to governments and related entities present unique risks, including potential disruption due to
appropriation and spending patterns, delays in the adoption of new technologies due to political, fiscal or bureaucratic
long purchase and payment cycles, competitive bidding requirements,
processes, delays in approving budgets,
qualification requirements, extensive specification development and price negotiations, milestone requirements and the
potential unenforceability of limitations on liability or other contractual provisions. Government contracts may contain
provisions not typically found in commercial contracts, including provisions permitting the government to terminate for
convenience, reduce scope and potential future revenue, modify certain terms and conditions of existing contracts,
suspend performance, 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. Exercise of any of
these rights could cause us to recognize lower revenue or margin than anticipated under our government contracts.
Additionally, 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.
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.
Product defects and unanticipated or improper use of our products could adversely affect our business, reputation,
and financial statements.
Manufacturing or design defects in our products or unanticipated or improper use of our products by our customers 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 or 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. Customers’ failure 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.
20
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 also utilize approximately 840 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 subject us to investigations,
require us to perform remediation, or result in us being 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.
Financial and Credit-Related Risks
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 could 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, 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.
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, 2021, we had total indebtedness of $754.9 million,
including $473.8 million of borrowings under our term loan facility, $37.3 million borrowings under our revolving credit
facility, $150.1 million of borrowings related to our Securitization facility which includes $0.1 million of accrued
interest, $93.4 million in borrowings related to equipment financings, and $0.4 million of notes payable related to certain
equipment related contracts. We also had $10.1 million of letters of credit issued under our $350.0 million revolving
credit facility. We cannot provide any assurance that our business will generate sufficient cash flow from operations in
amounts sufficient to enable us to fund our debt service obligations and other liquidity needs. Our inability to generate
sufficient cash flow to satisfy our debt obligations could materially adversely affect our business, financial condition,
results of operations, or prospects.
21
Our high level of indebtedness could, among other things, limit our ability to obtain additional financing in the future,
reduce the amount of cash available for working capital, capital expenditures and other business needs, increase our
vulnerability to adverse changes in the economy, expose us to greater interest rate risk, restrict us from making strategic
acquisitions, force us to make non-strategic divestitures, place us at a disadvantage compared to less leveraged
competitors, and increase our costs of borrowing. Any one of these impacts 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.
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 $473.8 million outstanding as of September 30, 2021) and that our revolving credit facility was fully
drawn, each 0.125% change in interest rates would result in an approximate change of $1.0 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 of five years to hedge the variability of interest payments on the first $500.0 million of the
Company’s senior secured debt and provides for a fixed rate of 0.61%.
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 on or repurchase our outstanding capital stock,
prepay certain indebtedness, create certain liens, divest certain assets, make certain investments, 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 12.5% 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 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.
22
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 end markets, as demand for infrastructure and municipal products
and projects generally 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. Our operating results and financial
condition could be materially and adversely affected by severe weather, natural disasters, or other environmental factors.
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 of September 30,
2021, the net carrying value of our goodwill and other indefinite-lived intangible assets totaled approximately $441.6
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 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.
Our ability to use our net operating loss carryforwards may be limited.
As of September 30, 2021, we had approximately $297.1 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 maintain
a full valuation allowance against these NOLs.
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 bonds to secure our performance on certain projects or, in some cases, as a pre-requisite to submit a bid on a
potential project. 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.
Information Technology and Cybersecurity Risks
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 various aspects of the operation of our business,
inventory management, project
including customer
management, human resource management, billing, and accounting. We also rely on digitally connected systems for
monitoring and operation of certain of our water treatment installations. Many of our products, services and solutions
relationship management, customer
service, purchasing,
23
depend on the integrity of our information technology systems, including our remote monitoring and data analytics
features and our automated control solutions. These systems are inherently susceptible a number of threats, including, but
not limited to, viruses, ransomware, malware, malicious codes, hacking, phishing, denial of service actions, human error,
network failures, electronic loss of data, and other electronic security breaches. Although we have experienced attempts
by external parties to access our networks and systems, these attempts have not resulted in any material breaches,
disruptions, or loss of information to date. A successful cyber-attack may result in the loss or compromise of customer,
financial or operational data, theft of intellectual property, disruption of billing, collections or normal field service
activities, disruption of data analytics and electronic monitoring and control of operational systems, loss of revenue,
ransomware payments, remediation costs related to lost, stolen, or compromised data, repairs to infrastructure, physical
systems or data processing systems, increased cybersecurity protection costs, or violation of U.S. and international
privacy laws, which may result in litigation. Any of these occurrences could harm our reputation or have a material
adverse effect on our business, financial condition, results of operation and prospects.
We have adopted measures to mitigate potential risks associated with information technology disruptions and
cybersecurity threats; however, there is no assurance that these measures will prevent cyber-attacks or security breaches.
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. 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.
Our Water One® services are provided using remote monitoring technology that is connected to the “Internet of
Things” (IoT), which is inherently susceptible to cyber-attacks and outages. A successful attack may result in
inappropriate access to our or our customers’ information or systems or cause our products to function improperly. We
have experienced outages due to disruptions in service by cellular providers. Although these outages have not had a
material impact on our business to date, if outages occur with greater frequency or for extended durations, it could
adversely affect our ability to monitor our assets, which could harm our reputation or result in a loss of revenue, failure
to fulfill contractual obligations and additional costs to repair damages.
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, employees,
operations and financial performance. 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 Water One® 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
24
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.
Legal and Regulatory Risks
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
25
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.
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 require 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.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of September 30, 2021, we operated 156 locations located in the United States, Canada, the United Kingdom, the
Netherlands, Germany, Australia, China, Singapore, India, and Korea, including 11 manufacturing facilities, 7 research
and development facilities, and 91 service branches. We own 20 of these properties and lease the remaining
136 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.
26
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 Company’s 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 asserted claims pursuant
to the Exchange Act and the Securities Act against the Company, members of the Company’s board of directors, senior
management, a former executive, AEA Investors LP (“AEA”), and the underwriters of the Company’s IPO and
secondary public offering. The amended complaint alleged that the defendants violated federal securities laws by issuing
false, misleading, and/or omissive disclosures concerning the Company’s integration of acquired companies, the
Company’s reduction-in-force, and the Company’s financial results of operations. The lawsuit sought 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 Exchange Act. The claims that
remained were those brought under the Securities Act. The Company filed an answer denying the material allegations of
the complaint, the parties engaged in discovery, and lead plaintiffs filed a motion for class certification in December
2020.
On June 1, 2021, following mediation, the parties filed a stipulation agreeing to settle the Securities Litigation, subject to
Court approval, for $16.65 million, all of which was paid by insurance. On November 1, 2021, the Court granted final
approval of the settlement and entered a judgment dismissing the Securities Litigation.
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. The complaint names as defendants the Company’s Chief Executive Officer and Chief Financial Officer, as
well as members of the Company’s 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 Company’s 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 Company’s corporate governance and
internal procedures.
In July 2020, a different purported shareholder of the Company filed a second shareholder derivative lawsuit ostensibly
on behalf of the Company in the same court, 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 consolidated the Torgersen and Hyams cases under the caption In re Evoqua Water
Technologies Corp. Derivative Litigation (the “Derivative Litigation”). The Derivative Litigation was stayed in June
2019 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 Derivative Litigation. Although no lawsuit was filed by this purported
shareholder, the shareholder agreed to stay matters on terms similar to what was agreed in the Derivative Litigation.
On July 28, 2021, following mediation, the parties signed an agreement, subject to Court approval, to settle the
Derivative Litigation and the stockholder demand for non-cash consideration, including certain enhancements to
27
corporate governance practices and internal procedures. On November 2, 2021, the Court granted final approval of the
settlement and entered a judgment dismissing the Derivative Litigation.
In October 2020, the Company learned that the SEC and the United States Attorney’s Office for the District of
Massachusetts are investigating whether financial misstatements were made in the Company’s 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.
28
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
Market Information
The Company’s common stock is traded on the New York Stock Exchange under the symbol “AQUA.”
As of October 31, 2021, there were 40 holders of record of the Company’s common stock, which does not reflect
individual holders of shares held beneficially or 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 fiscal years ended September 30, 2021, 2020 or 2019. 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 Company’s indebtedness contains restrictions on the Company’s activities,
including paying dividends on its capital stock. See Note 12, “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 Company’s board of
directors and will depend on a number of factors, including future earnings, capital requirements, financial and market
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.
29
Stock Performance Graph
The following graph shows a comparison of cumulative total return to holders of shares of Evoqua’s common stock
against the cumulative total return of the S&P Mid Cap 400 Index and the S&P Mid Cap 400 / Utility Index, which the
Company selected as comparator indices for fiscal 2021, as well the S&P Small Cap 600 Index and the S&P Small Cap
600 / Utilities Index, which the Company used as comparator indices for fiscal 2020, from market close on November 2,
2017 (the first day of trading of our common stock) through September 30, 2021. The Company changed its comparator
indices for fiscal 2021 to select indices that include companies whose equity securities are of comparable market
capitalization, given the increase in the Company’s market capitalization as compared to fiscal 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, 2021, 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 material” or be deemed “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.
$200
$180
$160
$140
$120
$100
$80
$60
11/2/2017
9/30/2018
9/30/2019
9/30/2020
9/30/2021
AQUA
S&P Small Cap 600
S&P Small Cap 600 / Utilities
S&P Mid Cap 400
S&P Mid Cap 400 / Utilities
11/2/2017
9/30/2018
9/30/2019
9/30/2020
9/30/2021
AQUA . . . . . . . . . . . . . . . . . . . . . . . . . . . $
S&P Small Cap 600 . . . . . . . . . . . . . . . . . $
S&P Small Cap 600 / Utilities . . . . . . . . . $
S&P Mid Cap 400 . . . . . . . . . . . . . . . . . . $
S&P Mid Cap 400 / Utilities . . . . . . . . . . $
100 $
100 $
100 $
100 $
100 $
85 $
117 $
100 $
110 $
103 $
82 $
105 $
113 $
106 $
117 $
102 $
94 $
85 $
102 $
84 $
180
147
102
144
99
30
Item 6.
[Reserved]
31
Item 7. Management’s 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 Part II, 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 Part I, 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.,” “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: 2021
relates to the fiscal year ended September 30, 2021, 2020 relates to the fiscal year ended September 30, 2020, and 2019
relates to the fiscal year ended September 30, 2019.
Overview and Background
We are a leading provider of mission-critical water and wastewater treatment solutions, offering a broad portfolio of
products, services, and expertise to support customers across various end markets. We are headquartered in Pittsburgh,
Pennsylvania, with locations across ten countries. We have a comprehensive portfolio of differentiated, proprietary
technologies offered under market-leading and well-established brands. Our core technologies are primarily focused on
removing impurities from water, rather than neutralizing them through the addition of chemicals.
Our solutions are designed to provide our customers with the quantity and quality of water necessary to meet their unique
specifications. We enable our customers to achieve lower costs through greater uptime, throughput and efficiency in their
operations while supporting their regulatory compliance and environmental sustainability requirements. We deliver and
maintain these mission critical solutions through our extensive North American service network, assuring our customers
continuous uptime with 91 service branches as of September 30, 2021. We have certified Evoqua Service Technicians
within approximately a two-hour drive from more than 90% of our industrial North American customers’ sites. In
addition, we sell our products and technologies internationally through direct and indirect sales channels. We have
worked to protect water, the environment, and our employees for more than 100 years. As a result, we have earned a
reputation for quality, safety, and reliability around the world. Our employees are united by a common purpose:
Transforming water. Enriching life.®
Our vision “to be the world’s first choice for water solutions” and our values of “integrity, customers, sustainable, and
performance” foster a culture that is focused on establishing a workforce that is enabled, empowered and accountable,
creating a highly dynamic work environment.
We serve our customers through the following two segments:
•
•
Integrated Solutions and Services segment, which provides application-specific solutions and full
lifecycle services for critical water and wastewater applications across numerous end markets, including
outsourced water service contracts, capital systems and related recurring aftermarket services, parts and
consumables, and emergency services to enable recycle and reuse, improve operational reliability and
performance, and promote environmental compliance; and
Applied Product Technologies segment, which provides highly differentiated and scalable water and
wastewater products and technologies as stand-alone offerings or components in integrated solutions to a
diverse set of system integrators and end-users globally.
32
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 these reportable operating segments are
the organization and alignment of our internal operations, the nature of the products and services and customer type.
For the years ended September 30, 2021 and 2020, our segments accounted for the following percentage of our revenue:
Integrated Solutions and Services segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applied Product Technologies segment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021
2020
65.5 %
34.5 %
66.1 %
33.9 %
Recent Developments, Key Factors, and Trends Affecting Our Business and Financial Statements
The following recent developments have affected our business and operating results during the year ended September 30,
2021:
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 throughout the duration of the pandemic to protect our employees, including implementation of remote
working practices where possible and enhanced safety procedures for employees on site at our facilities and our
customers’ facilities. These measures have resulted in additional incremental costs and reductions in service productivity
over the course of the pandemic, although neither had a material adverse effect on our results of operations for fiscal
2021.
To date, the pandemic has negatively impacted sales volume across our business, due primarily to customer site access
restrictions, temporary customer site closures, and temporary delays in annual maintenance activities by customers in
certain end markets, although we started to see sales volume rebound in certain end markets during the second half of
fiscal 2021, as further discussed below in the discussion of our results of operations. The implementation of vaccine
mandates in fiscal 2022 may further increase costs and delay our performance of services for our customers or our
internal business operations due to customer site access restrictions and labor shortages. Additionally, in the second half
of fiscal 2021 we experienced increases in certain discretionary costs that were the subject of cost reduction actions
earlier in the pandemic, particularly employee travel expenses. We have continued to focus on collecting outstanding
customer account balances, and, through September 30, 2021, we have not experienced any deterioration in collections
from our customers. We continue to evaluate the impact of the pandemic on our business and the potential effects of
recent spikes in COVID-19 cases in certain regions, as well as challenges created by the macroeconomic conditions
associated with the reopening of global economies, including inflation and availability constraints, which are discussed
in more detail below.
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 Part I, Item 1A. “Risk Factors-The COVID-19 pandemic has
adversely affected, and may continue to adversely affect, our business, financial condition, results of operations and
prospects.”
Inflation and material availability. Material, freight, and labor inflation resulted in increased costs in fiscal 2021, and
we expect this trend will continue in fiscal 2022. Although we have offset a portion of these increased costs through
price increases and operational efficiencies to date, there can be no assurance that we will be able to continue to do so. 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 in
future periods. Additionally, supply chain disruptions and labor shortages have restricted and could further restrict
availability of certain commodities and materials, which may result in delays in our execution of projects in fiscal 2022
and negatively impact revenues. We have taken and continue to take strategic actions focused on mitigating the impact of
these challenges. Although these factors did not have a material adverse effect on our results of operations for fiscal
2021, if sustained, they could have a material adverse effect on our results of operations going forward.
Acquisitions and divestitures. On April 1, 2021, we acquired the assets of Water Consulting Specialists, Inc. (“WCSI”)
for $12.0 million cash paid at closing. In addition, we recorded a liability of $0.8 million at closing associated with an
earn-out related to the WCSI acquisition, which was subsequently revalued to $0.2 million and is included in Accrued
33
expenses and other liabilities on the Consolidated Balance Sheets. During the year ended September 30, 2021, we
received cash of $21 thousand from the seller as a result of net working capital adjustments. WCSI is a leader in the
design, manufacturing, and service of industrial high-purity water treatment systems. The acquisition strengthens the
Company’s portfolio of high-purity water treatment systems and provides the opportunity to further expand its digitally
enabled solutions and services in key industrial markets. WCSI is a part of the Integrated Solutions and Services
segment. During the year ended September 30, 2021, the Company incurred approximately $0.1 million in acquisition
costs, which are included in General and administrative expense on the Consolidated Statements of Operations.
On March 1, 2021, we completed the divestiture of the Lange containment system, geomembrane, and geosynthetic liner
product line (the “Lange Product Line”) for $0.9 million in cash at closing. The Lange Product Line was a part of the
Integrated Solutions and Services segment. During the year ended September 30, 2021, the Company recognized a loss
of $0.2 million on the divestiture.
On December 17, 2020, we acquired the industrial water business of Ultrapure & Industrial Services, LLC (“Ultrapure”)
for $8.7 million cash paid at closing. On April 1, 2021, we paid an additional $0.3 million as a result of net working
capital adjustments. Ultrapure, based out of Texas, provides customers across multiple end markets with a variety of
water treatment products and services, including service deionization, reverse osmosis, UV, and ozonation. Ultrapure
will strengthen the Company’s service capabilities in the Houston and Dallas markets and is a part of the Integrated
Solutions and Services segment. During the year ended September 30, 2021, the Company incurred approximately $0.2
million in acquisition costs, which are included in General and administrative expense on the Consolidated Statements of
Operations.
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 December 31, 2019, we completed the sale of the Memcor ® product line to DuPont de Nemours, Inc. (Memcor ® is
a trademark of Rohm & Haas Electronic Materials Singapore Pte. Ltd.). 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 in the year ended
September 30, 2020.
On October 1, 2019, we acquired a 60% investment position in San Diego-based Frontier Water Systems, LLC
(“Frontier”), which included an agreement to acquire the remaining 40% interest in Frontier on or prior to March 30,
2024. This agreement gave holders of the remaining 40% interest in Frontier (the “Minority Owners”) the right to sell to
Evoqua up to approximately 10% of the outstanding equity in Frontier at a predetermined price, which right was
exercisable by the Minority Owners between January 1, 2021 and February 28, 2021 (the “Option”). The Minority
Owners exercised the Option, and on April 8, 2021, the Company completed the purchase of an additional 8% of the
outstanding equity in Frontier for approximately $1.5 million. As a result, the Company’s ownership position in Frontier
increased to 68%. During the year ended September 30, 2021, the Company recorded an increase in the fair value of the
Purchase Right liability for $2.1 million, which was recorded to Interest expense on the Consolidated Statements of
Operations. As of September 30, 2021, $8.3 million is included in Other non-current liabilities related to the Purchase
Right on the Consolidated Balance Sheets.
Debt refinancing. On April 1, 2021, we completed the refinancing of the term loan (the “2014 Term Loan”) outstanding
under our First Lien Credit Agreement dated January 15, 2014 (as modified, amended or supplemented from time to
time, the “2014 Credit Agreement”), among EWT Holdings III Corp. (“EWT III”), EWT Holdings II Corp. (“EWT II”),
the lenders party thereto and Credit Suisse AG as administrative agent and collateral agent. On April 1, 2021, EWT III
entered into a Credit Agreement (the “2021 Credit Agreement”) among EWT III, as borrower, EWT II, as parent
guarantor, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and
collateral agent, and ING Capital, LLC, as sustainability coordinator, which provides for (i) a senior secured term loan
facility relating to a term loan (the “2021 Term Loan”) in the amount of $475.0 million maturing on April 1, 2028, and
34
(ii) a multi-currency senior secured revolving credit facility in an aggregate principal amount not to exceed the U.S.
dollar equivalent of $350.0 million (the “2021 Revolving Credit Facility”) maturing on April 1, 2026.
On April 1, 2021, Evoqua Finance LLC (“Evoqua Finance”) entered into an accounts receivable securitization program
(the “Receivables Securitization Program”) consisting of, among other agreements, (i) a Receivables Financing
Agreement (the “Receivables Financing Agreement”) among Evoqua Finance, as the borrower, the lenders from time to
time party thereto (the “Receivables Financing Lenders”), PNC Bank, National Association (“PNC Bank”), as
administrative agent, Evoqua Water Technologies LLC (“EWT LLC”), an indirect wholly-owned subsidiary of the
Company, as initial servicer, and PNC Capital Markets LLC (“PNC Markets”), as structuring agent, pursuant to which
the lenders have made available to Evoqua Finance a receivables finance facility (the “Securitization Facility”) in an
amount up to $150.0 million maturing on April 1, 2024, and (ii) a Sale and Contribution Agreement (the “Sale
Agreement”) among Evoqua Finance, as purchaser, EWT LLC, as initial servicer and as an originator, and Neptune
Benson, Inc., an indirectly wholly-owned subsidiary of the Company, as an originator (together with EWT LLC, the
“Originators”).
On April 1, 2021, we borrowed $475.0 million under the 2021 Term Loan, $105.0 million under the 2021 Revolving
Credit Facility and $142.2 million under the Securitization Facility. The net proceeds of these facilities, together with
cash on hand, were used to repay all outstanding indebtedness under our 2014 Credit Agreement, in an aggregate
principal amount of approximately $814.5 million. The reduction in the outstanding principal amount of our term loan of
approximately $340.0 million was funded by draws on the 2021 Revolving Credit Facility, the Securitization Facility and
$100.0 million of cash on hand. In addition to extending the maturities of our term loan and previous revolving credit
facility, the refinancing reduced our weighted average cash borrowing cost and improved liquidity. See “Liquidity and
Capital Resources” below for additional information. On September 30, 2021, the Company had $473.8 million
outstanding under the 2021 Term Loan, $37.3 million outstanding on the 2021 Revolving Credit Facility, and $150.1
million outstanding under the Securitization Facility, which includes $0.1 million of accrued interest.
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 consolidated business are revenue, gross profit,
gross margin, and net income (loss). Management utilizes these financial measures prepared in accordance with
accounting principles generally accepted in the United States (“GAAP”) when reviewing the Company’s performance
and making financial, operational, and strategic decisions, and believes they are useful metrics for investors that help
with performance comparability period over period. In addition, we consider certain non-GAAP financial measures such
as adjusted EBITDA and organic revenue, as described more fully below. We evaluate our business segments’ operating
results based on revenue, income from operations (“operating profit”) and adjusted EBITDA on a segment basis. We
believe these financial measures are helpful in understanding and evaluating the segments’ core operating results and
facilitates comparison of our performance on a consistent basis period over period.
Revenue and Organic Revenue
Our revenue is a function of sales volumes and selling prices. We report revenue by segment and by source which
includes revenue from product sales (capital projects and aftermarket) and revenue from service. Revenue is used by
management to evaluate the performance of our business. Organic revenue, which is a non-GAAP financial measure, is
defined as revenue excluding the impact of foreign currency translation and inorganic revenue. Inorganic revenue
represents the impact from acquisitions and divestitures during the first 12 months following the closing of the
acquisition or divestiture. Divestitures include sales of insignificant portions of our business that did not meet the criteria
for classification as a discontinued operation. We exclude the effect of foreign currency translation from organic sales
because foreign currency translation is not under management’s control, is subject to volatility and can obscure
underlying business trends. We exclude the effect of acquisitions and divestitures because they can obscure underlying
business trends and make comparisons of long-term performance difficult between the Company and its peers due to the
varying nature, size, and number of transactions from period to period. Management believes that reporting organic
revenue provides useful information to investors by helping identify underlying growth trends in our core business and
facilitating easier comparisons of our revenue performance with prior and future periods and to our peers. See “Non-
GAAP Reconciliations” in this Item 7 for a reconciliation of organic revenue to revenue.
35
Adjusted EBITDA
Adjusted EBITDA, which is a non-GAAP financial measure, is one of the primary metrics used by management to
evaluate the strength and financial performance of our core 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
including restructuring and related business transformation costs, share-based compensation,
certain other items,
transaction costs, and other gains, losses, and expenses that we believe do not directly reflect our underlying business
operations. We present adjusted EBITDA because we believe it is frequently used by analysts, investors, and other
interested parties to evaluate and compare operating performance and value companies within our industry. Further, we
believe it is helpful in highlighting trends in our operating results and provides greater clarity and comparability period
over period 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. In addition, adjusted EBITDA
highlights true business performance by removing the impact of certain items that management believes do not directly
reflect our underlying operations and provides investors with greater visibility into the ongoing drivers of our business
performance.
Management uses adjusted EBITDA to supplement GAAP measures of performance as follows:
•
•
•
•
•
•
to assist investors and analysts in comparing our operating performance across reporting periods on a
consistent basis by excluding items that we do not believe are indicative of our core operating performance;
in our management incentive compensation, which is based in part on components of adjusted EBITDA;
in certain calculations under our senior secured credit facilities, which use components of adjusted
EBITDA;
to evaluate the effectiveness of our business strategies;
to make budgeting decisions; and
to compare our performance against that of other peer companies using similar measures.
In addition to the above, our chief operating decision maker uses adjusted EBITDA of each reportable operating segment
to evaluate the operating performance of such segments. Adjusted EBITDA on a segment basis is defined as earnings
before depreciation and amortization, adjusted for the impact of certain other items that have been reflected at the
segment level. Adjusted EBITDA of the reportable operating segments do 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 and integration costs) and share-based compensation charges.
Adjusted EBITDA should not be considered a substitute for, or superior to, financial measures prepared in accordance
with GAAP. The financial results prepared in accordance with GAAP and the reconciliations from these results should
be carefully evaluated. See “Non-GAAP Reconciliations” in this Item 7 for a reconciliation of adjusted EBITDA to net
income. 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, other
companies in our industry or across different industries may calculate adjusted EBITDA differently.
Basis of Presentation
The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the
fiscal years ended September 30, 2021 and 2020. For a discussion of changes from the fiscal year ended September 30,
2020 to the fiscal year ended September 30, 2019, refer to Management’s Discussion and Analysis of Financial
Condition and Results of Operation in Part II, Item 7 of our Annual Report on Form 10-K for the year ended September
30, 2020 (filed November 20, 2020).
36
Results of Operations
The following tables summarize key components of our results of operations for the periods indicated:
(In millions, except per share amounts)
Year Ended September 30,
2021
2020
% of
Revenue
% of
Revenue
%
Variance
Revenue from product sales and services . . . . . . . . . $
1,464.4
100.0 % $
1,429.5
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . $
. . . . . . . . . . . . . . . . . . . $
Other operating income, net
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income before income taxes . . . . . . . . . . . . . . . . . . . $
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
. $
Net income attributable to non-controlling interest
Net income attributable to Evoqua Water
Technologies Corp. . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
457.4
(363.0)
4.9
(37.5)
61.8
(10.1)
51.7
0.2
51.5
119.6
122.9
0.43
0.42
31.2 % $
449.8
(24.8)% $
(342.0)
0.3 % $
(2.6)% $
4.2 % $
(0.7)% $
3.5 % $
— % $
60.6
(46.6)
121.8
(7.4)
114.4
0.8
100.0 %
31.5 %
(23.9)%
4.2 %
(3.3)%
8.5 %
(0.5)%
8.0 %
0.1 %
2.4 %
1.7 %
6.1 %
(91.9)%
(19.5)%
(49.3)%
36.5 %
(54.8)%
(75.0)%
3.5 % $
113.6
7.9 %
(54.7)%
116.7
121.1
0.97
0.94
239.6
16.8 %
4.7 %
$
$
$
Other financial data:
Adjusted EBITDA(1)
. . . . . . . . . . . . . . . . . . . . . . . . . $
250.9
17.1%
(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 “Non-GAAP Reconciliations” in this Item 7.
37
Years Ended September 30, 2021 and September 30, 2020
Consolidated Results
Revenue-Revenue increased $34.9 million, or 2.4%, to $1,464.4 million in the year ended September 30, 2021, from
$1,429.5 million in the prior year. Revenue from product sales increased $21.1 million, or 2.5%, to $861.0 million in the
year ended September 30, 2021, from $839.9 million in the prior year. Revenue from services increased $13.8 million, or
2.3%, to $603.4 million in the year ended September 30, 2021, from $589.6 million in the prior year.
The following table provides the change in revenue by offering and the change in revenue by driver during the years
ended September 30, 2021 and 2020:
Year Ended September 30,
2021
2020
% of
Revenue
% of
Revenue
(In millions)
Revenue from product sales:
Capital . . . . . . . . . . . . . . . . . . . . . .
Aftermarket . . . . . . . . . . . . . . . . . .
Revenue from services . . . . . . . . . . .
$
$
861.0
616.0
245.0
603.4
1,464.4
58.8 % $
42.1 %
16.7 %
41.2 %
100.0 % $
839.9
592.7
247.2
589.6
1,429.5
58.8 % $
41.5 %
17.3 %
41.2 %
100.0 % $
$ Variance % Variance
2.5 %
3.9 %
(0.9)%
2.3 %
2.4 %
21.1
23.3
(2.2)
13.8
34.9
Year Ended September 30,
2021
2020
% of
Revenue
% of
Revenue
(In millions)
Organic . . . . . . . . . . . . . . . . . . . . . . . $
Inorganic . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . .
$
1,436.4
9.9
18.1
1,464.4
98.1 % $
0.7 %
1.2 %
100.0 % $
1,413.3
16.2
n/a
1,429.5
98.9 % $
1.1 %
n/a
100.0 % $
$ Variance % Variance
1.6 %
(0.4)%
1.3 %
2.4 %
23.1
(6.3)
18.1
34.9
The increase in organic revenue was driven by higher sales volume, primarily in product sales in the Asia Pacific region
across multiple product lines and the EMEA region primarily in the electrochlorination product line, as demand
improved following prior year economic closures, and to a lesser extent, capital revenue in the chemical processing
industry in the second half of the fiscal year. In addition, organic revenue was favorably impacted by higher sales volume
in service and favorable price realization. These increases were partially offset by lower sales volume in capital revenue
related to the timing of completion of prior year projects in the microelectronics end market and lower product sales
volume in the Americas region, due to customer site access challenges and delays, primarily in the first half of fiscal
2021, as a result of the COVID-19 pandemic. Favorable foreign currency translation more than offset the reduction in
revenue due to the prior year divestiture of the Memcor product line.
Revenue in future periods could be negatively impacted by commodity and material availability constraints caused by
global supply chain disruptions, skilled labor shortages, and the timing of projects.
38
Cost of Sales and Gross Margin-Total gross margin decreased to 31.2% in the year ended September 30, 2021, from
31.5% 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:
Year Ended September 30,
2021
2020
Cost of product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(607.6)
(399.4)
$ (1,007.0)
Gross
Margin %
29.4 % $
33.8 %
31.2 % $
(588.3)
(391.4)
(979.7)
Gross
Margin %
30.0 %
33.6 %
31.5 %
Gross margin from product sales decreased by 60 bps to 29.4% in the year ended September 30, 2021, from 30.0% in the
prior year. The decrease in gross margin was primarily driven by product mix, which was influenced by delays and
economic closures related to the COVID-19 pandemic, coupled with higher material, freight, and employment costs
driven by inflation, as well as capital project variances. This was partially offset by positive price realization.
Gross margin from services increased by 20 bps to 33.8% in the year ended September 30, 2021, from 33.6% in the prior
year. This increase is mainly driven by favorable price/cost as well as continued focus on labor productivity.
We expect continued pressure on gross margin in future periods due to material, freight and labor inflation. Although we
expect to continue to partially offset those increasing costs with positive price realization, there can be no assurance that
we will be able to do so.
Operating Expenses-Operating expenses increased $21.0 million, or 6.1%,
September 30, 2021 from $342.0 million in the prior year. Operating expenses are comprised of the following:
to $363.0 million in year ended
Year Ended September 30,
2021
2020
(In millions)
General and administrative expense . . . . . . . . . . . . . . $
Sales and marketing expense . . . . . . . . . . . . . . . . . . .
Research and development expense . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . $
% of Revenue
% of Revenue % Variance
(206.5)
(143.1)
(13.4)
(363.0)
(14.1)% $
(9.8)%
(0.9)%
(24.8)% $
(192.6)
(136.2)
(13.2)
(342.0)
(13.5)%
(9.5)%
(0.9)%
(23.9)%
7.2 %
5.1 %
1.5 %
6.1 %
The increase period over period in operating expenses was primarily due to increased employee related expenses, a
decrease in foreign currency translation gains of $7.7 million from the prior period which is mostly related to
intercompany loans, increased amortization expense due to acquisitions in the current period, and an increase in external
legal fees. These increases were partially offset by efforts taken by the Company to reduce spending across various areas
in response to uncertainties related to the COVID-19 pandemic, such as reduced travel, particularly in the first half of
fiscal 2021. Fluctuations in foreign currency translation and labor inflation could impact operating expenses in future
periods.
Other Operating Income, Net-Other operating income, net, decreased $55.6 million, to $5.0 million in the year ended
September 30, 2021, from $60.6 million in the prior year. The decrease is primarily due to the prior year net pre-tax
benefit on the sale of the Memcor product line of $57.7 million, 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 the year ended September 30, 2021, other operating income, net, includes COVID-19 pandemic subsidies received
from the Canadian government, which are not expected to reoccur in future periods.
39
Interest Expense-Interest expense decreased $9.1 million, or 19.5%, to $37.5 million in the year ended September 30,
2021, from $46.6 million in the prior year. The decrease in interest expense was primarily driven by a $100.0 million
debt prepayment in conjunction with the April 2021 refinancing of our senior credit facility, as well as a reduction in the
interest rate spread and LIBOR year over year. In addition, there was a $100.0 million debt prepayment that occurred in
January 2020. This decrease was partially offset by an additional $3.1 million of fees incurred as a result of the April
2021 refinancing, which also resulted in the write off of $1.3 million of deferred financing fees, and a fair value increase
of $2.1 million in the Purchase Right liability to acquire the remaining share of Frontier.
Income Tax Expense-Income tax expense was $10.1 million for the year ended September 30, 2021, compared to
expense of $7.4 million in the prior year. The increase in tax expense was primarily attributable to an increase in foreign
tax expense due to improved profitability in certain countries and the impact of a one-time state tax adjustment for prior
periods. The increase in expense was partially offset by a one-time tax benefit for the reversal of the valuation allowance
with respect to the Company’s German operating company.
Net Income-Net income decreased by $62.7 million, or 54.8%, to net income of $51.7 million for the year ended
September 30, 2021, from $114.4 million in the prior year, as a result of the variances noted above.
Adjusted EBITDA-Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA increased $11.3 million, or
4.7%, to $250.9 million for the year ended September 30, 2021, from $239.6 million for the prior year, primarily driven
by sales volume and related gross profit. See “Non-GAAP Reconciliations” in this Item 7 for a reconciliation of adjusted
EBITDA to net income.
Segment Results
(In millions)
Revenue
Integrated Solutions and Services . . . . . . . . . . . . . . . $
Applied Product Technologies . . . . . . . . . . . . . . . . . .
Total Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating profit (loss)
Integrated Solutions and Services . . . . . . . . . . . . . . . $
Applied Product Technologies . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjusted EBITDA(1)
Integrated Solutions and Services . . . . . . . . . . . . . . . $
Applied Product Technologies . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2021
2020
% of Total
% of Total % Variance
959.9
504.5
1,464.4
147.3
82.9
(130.9)
99.3
219.3
105.7
(74.1)
250.9
65.5 % $
34.5 %
100.0 % $
944.2
485.3
1,429.5
148.3 % $
83.5 %
(131.8)%
100.0 % $
87.4 % $
42.1 %
(29.5)%
100.0 % $
145.7
134.3
(111.6)
168.4
213.7
99.2
(73.3)
239.6
66.1 %
33.9 %
100.0 %
86.5 %
79.8 %
(66.3)%
100.0 %
89.2 %
41.4 %
(30.6)%
100.0 %
1.7 %
4.0 %
2.4 %
1.1 %
(38.3)%
17.3 %
(41.0)%
2.6 %
6.6 %
1.1 %
4.7 %
(1)
Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of segment adjusted EBITDA to
segment operating profit (loss), its most directly comparable financial measure presented in accordance with
GAAP, see “Non-GAAP Reconciliations” in this, Item 7.
40
Integrated Solutions and Services
Revenue in the Integrated Solutions and Services segment increased $15.7 million, or 1.7%, to $959.9 million in the year
ended September 30, 2021, from $944.2 million in the year ended September 30, 2020. The following tables provide the
change in revenue by offering and the change in revenue by driver during the years ended September 30, 2021 and 2020
for the Integrated Solutions and Services segment:
(In millions)
Revenue from product sales:
Capital . . . . . . . . . . . . . . . . . . . . . .
Aftermarket . . . . . . . . . . . . . . . . . .
Revenue from services . . . . . . . . . . .
Year Ended September 30,
2021
2020
% of
Revenue
39.5 % $
26.1 %
13.4 %
60.5 %
100.0 % $
376.6
257.5
119.1
567.6
944.2
$
$
378.8
250.2
128.6
581.1
959.9
% of
Revenue
39.9 % $
27.3 %
12.6 %
60.1 %
100.0 % $
$ Variance % Variance
0.6 %
(2.8)%
8.0 %
2.4 %
1.7 %
2.2
(7.3)
9.5
13.5
15.7
Year Ended September 30,
2021
2020
% of
Revenue
% of
Revenue
(In millions)
Organic . . . . . . . . . . . . . . . . . . . . . . . $
Inorganic . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . .
$
947.2
9.9
2.8
959.9
98.7 % $
1.0 %
0.3 %
100.0 % $
942.4
1.8
n/a
944.2
99.8 % $
0.2 %
n/a
100.0 % $
$ Variance % Variance
0.5 %
0.9 %
0.3 %
1.7 %
4.8
8.1
2.8
15.7
The increase in organic revenue was driven by higher sales volume, primarily due to growth in service and aftermarket
revenue across a variety of end markets as well as favorable price realization. This was partially offset by a net decline in
capital revenue, related to the timing of completion of projects in the microelectronics end market. Capital revenue saw
volume growth in the second half of the fiscal year, primarily in the chemical processing industry.
Operating profit in the Integrated Solutions and Services segment increased $1.6 million, or 1.1%, to $147.3 million in
the year ended September 30, 2021, from $145.7 million in the year ended September 30, 2020.
)
s
n
o
i
l
l
i
M
(
$
$150
$100
Integrated Solutions and Services Operating Profit
Year Ended September 30, 2021
$145.7
$5.7
$1.9
$147.3
$(3.2)
$(2.0)
$(0.8)
9/30/2020
Revenue &
operational
variances
Travel &
discretionary
spending
Depreciation
&
amortization
Employee
related
expenses
Restructuring
& other non-
recurring
9/30/2021
41
Operating profit was favorably impacted by sales volume and mix, favorable price/cost, reductions in travel and other
discretionary spending as well as COVID-19 pandemic subsidies received from the Canadian government in the current
year. These items were partially offset by lower productivity due to customer shutdowns and enhanced safety protocols
as a result of the COVID-19 pandemic in the first half of fiscal 2021, some challenges filling open positions and
increased operating costs based on changes in allocation methodologies for corporate expenses in the current year.
Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Integrated Solutions and Services
segment increased $5.6 million, or 2.6%, to $219.3 million in the year ended September 30, 2021, compared to $213.7
million in the year ended September 30, 2020. The increase was driven by the same factors that impacted operating
profit, other than the change in depreciation and amortization. Segment adjusted EBITDA also excludes restructuring
and other non-recurring activity. See “Non-GAAP Reconciliations” in this Item 7 for a reconciliation of segment
adjusted EBITDA to segment operating profit.
Applied Product Technologies
Revenue in the Applied Product Technologies segment increased $19.2 million, or 4.0%, to $504.5 million in the year
ended September 30, 2021, from $485.3 million in the year ended September 30, 2020. The following tables provide the
change in revenue by offering and the change in revenue by driver during the years ended September 30, 2021 and 2020
for the Applied Product Technologies segment:
(In millions)
Revenue from product sales:
Capital . . . . . . . . . . . . . . . . . . . . . .
Aftermarket . . . . . . . . . . . . . . . . . .
Revenue from services . . . . . . . . . . .
Year Ended September 30,
2021
2020
% of
Revenue
95.6 % $
72.5 %
23.1 %
4.4 %
100.0 % $
463.3
335.2
128.1
22.0
485.3
$
$
482.2
365.8
116.4
22.3
504.5
% of
Revenue
95.5 % $
69.1 %
26.4 %
4.5 %
100.0 % $
$ Variance % Variance
4.1 %
9.1 %
(9.1)%
1.4 %
4.0 %
18.9
30.6
(11.7)
0.3
19.2
Year Ended September 30,
2021
2020
% of
Revenue
% of
Revenue
(In millions)
Organic . . . . . . . . . . . . . . . . . . . . . . . $
Inorganic . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . .
$
489.2
—
15.3
504.5
97.0 % $
— %
3.0 %
100.0 % $
470.9
14.4
n/a
485.3
97.0 % $
3.0 %
n/a
100.0 % $
$ Variance % Variance
3.8 %
(3.0)%
3.2 %
4.0 %
18.3
(14.4)
15.3
19.2
The increase in organic revenue was driven by sales volume growth from product sales in the Asia Pacific region across
multiple product lines and the EMEA region primarily in our electrochlorination product line, as demand improved
following economic closures that occurred in the prior year due to the COVID-19 pandemic, and to a lesser extent,
favorable pricing. This growth was partially offset by declines across multiple product lines in the Americas region as a
result of continued customer site access challenges and delays. In addition, the divestiture of the Memcor product line
reduced revenue by $14.4 million as compared to the prior year period while foreign currency was favorable by $15.3
million.
42
Operating profit in the Applied Product Technologies segment decreased $51.4 million, or 38.3%, to $82.9 million in the
year ended September 30, 2021, from $134.3 million in the year ended September 30, 2020.
Applied Product Technologies Operating Profit
Year Ended September 30, 2021
$(57.7)
$(5.5)
$(1.2)
$(0.2)
$9.4
$3.8
$82.9
$140
$134.3
)
s
n
o
i
l
l
i
M
(
$
$0
9/30/2020
Gain
on sale
Employee
related
expenses
Memcor
impact
Depreciation
&
amortization
Revenue &
operational
variances
Foreign
currency
9/30/2021
The decline in operating profit was primarily related to the net pre-tax benefit on the sale of the Memcor product line of
$57.7 million recognized in the prior year, which was net of $8.3 million of discretionary compensation payments to
employees in connection with the transaction and $2.1 million in transaction costs incurred. Operating profit was also
impacted by the reduction in sales volume as a result of the sale of the Memcor product line. These declines were
partially offset by favorable revenue and operational variances including organic sales volume, product mix and
favorable price/cost, as well as the benefits of plant consolidation benefits and higher productivity. However, capital
project variances and supply chain challenges unfavorably impacted operating profit.
Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the ### segment increased $6.5 million, or
6.6%,
to $105.7 million in the year ended September 30, 2021, compared to $99.2 million in the year ended
September 30, 2020. The increase was driven by the same factors that impacted operating profit, other than the change in
depreciation and amortization. Segment adjusted EBITDA also excludes other non-recurring activity, including the
$57.7 million gain recognized in the prior year related to the divestiture of the Memcor product line. See “Non-GAAP
Reconciliations” in this Item 7 for a reconciliation of segment adjusted EBITDA to segment operating profit.
Corporate
Operating loss in Corporate increased $19.3 million, or 17.3%, to $130.9 million in the year ended September 30, 2021,
from $111.6 million in the year ended September 30, 2020. The increase period over period was primarily due to
increased expenses associated with share-based compensation and legal matters in the current year as well as a decrease
in foreign currency translation gains from the prior period, most of which was related to intercompany loans. Reductions
in discretionary spending compared to the prior year partially offset these increases.
43
Non-GAAP Reconciliations
The following is a reconciliation of organic revenue to total revenue for the years ended September 30, 2021 and 2020:
Total Revenue
Foreign Currency
Inorganic Revenue(1)
Organic Revenue
Year Ended
September 30,
Year Ended
September 30,
Year Ended
September 30,
Year Ended
September 30,
2020
2021
(In millions)
Evoqua
Water
Technologies $1,429.5 $1,464.4
Integrated
Solutions &
Services . . . .
Applied
Product
Technologies
$944.2
$959.9
$504.5
$485.3
%
Variance
2020
2021
%
Variance
2020
2021
%
Variance
2020
2021
%
Variance
2.4 % n/a
$18.1
1.3 % $16.2
$9.9
(0.4)% $1,413.3 $1,436.4
1.6 %
1.7 % n/a
$2.8
0.3 % $1.8
$9.9
0.9 % $942.4
$947.2
0.5 %
4.0 % n/a
$15.3
3.2 % $14.4
$—
(3.0)% $470.9
$489.2
3.8 %
(1)
Includes acquisition of our interest in Frontier on October 1, 2019, divestiture of the Memcor product line on
December 31, 2019, divestiture of the Lange Product Line on March 1, 2021, acquisition of Aquapure on
September 3, 2020, acquisition of Ultrapure on December 17, 2020 and acquisition of WCSI on April 1, 2021.
The following is a reconciliation of our Net income to adjusted EBITDA. Amounts excluded relate to items that
management believes do not reflect the underlying, ongoing operational performance of the business as a result of their
nature or size and/or are non-recurring and would not be expected to occur as part of our normal business on a regular
basis.
Year Ended September 30,
(In millions)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
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)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other losses (gains) and expenses(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(a)
Restructuring and related business transformation costs
2021
2020
$
$
$
51.7
10.1
37.5
99.3
113.7
213.0
11.3
17.7
1.6
7.3
250.9
$
% Variance
(54.8)%
36.5 %
(19.5)%
(41.0)%
6.0 %
(22.7)%
(35.1)%
68.6 %
(15.8)%
114.4
7.4
46.6
168.4
107.3
275.7
17.4
10.5
1.9
(65.9)
239.6
(111.1)%
4.7 %
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 events of
a similar nature 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:
44
(i)
Certain costs and expenses in connection with various restructuring initiatives, including severance and
other employee-related costs, relocation and facility consolidation costs, and third-party consultant
costs to assist with these initiatives. This includes:
(A)
(B)
(C)
amounts related to the Company’s restructuring initiatives to reduce the cost structure and
rationalize location footprint following the sale of the Memcor product line;
amounts related to the Company’s transition from a three-segment structure to a two-segment
operating model designed to better serve the needs of customers worldwide; and
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,
2021
2020
Post Memcor divestiture restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of product sales and services ("Cost of sales") . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&M expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Two-segment restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Various other initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&M expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5.6
3.5
0.3
1.5
0.3
1.0
0.3
0.7
2.8
1.0
0.1
0.9
0.8
9.4
$
$
$
9.1
6.6
0.2
1.9
0.4
2.1
1.0
1.1
1.0
0.7
0.1
0.2
—
$
12.2
(1)
Of which $9.1 million and $12.1 million for the year ended September 30, 2021 and 2020,
respectively, is reflected in restructuring charges in Note 15, “Restructuring and Related
Charges,” in Part II, Item 8 of this Annual Report.
(ii)
Legal settlement costs and intellectual property related fees, including fees and settlement costs
associated with legacy matters related to product warranty litigation on MEMCOR® products and
certain discontinued products. This includes:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.4
0.6
1.0
$
$
1.5
0.7
2.2
Year Ended September 30,
2021
2020
45
(iii)
Expenses associated with our information technology and functional infrastructure transformation,
including activities to optimize information technology systems and functional
infrastructure
processes. This includes:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.1
0.2
0.3
$
$
0.1
0.9
1.0
(iv)
Costs associated with the secondary public offering of common stock held by certain shareholders of
the Company, as well as costs incurred by us in connection with establishment of our public company
compliance structure and processes, including consultant costs. This includes:
Year Ended September 30,
2021
2020
Year Ended September 30,
2021
2020
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.6
0.6
$
$
2.0
2.0
(b)
Share-based compensation
Adjusted EBITDA is calculated prior to considering share-based compensation expenses related to equity
awards. See Note 18, “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. Integration and restructuring costs associated with a business
combination may occur over several years and include, but are not limited to, consulting fees, legal fees, certain
employee-related costs, facility consolidation and product rationalization costs, and fair value changes
associated with contingent consideration. This includes:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
G&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.7
0.9
1.6
$
$
0.1
1.8
1.9
Year Ended September 30,
2021
2020
46
(d)
Other losses, (gains) and expenses
Adjusted EBITDA is calculated prior to considering certain other significant losses, (gains), and expenses. For
the periods presented such events include the following:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
impact of foreign exchange gains and losses;
net expense reduction 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 electrochlorination business;
amounts related to the prior year sale of the Memcor product line;
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;
legal fees incurred in excess of amounts covered by the Company’s insurance related to the Securities
Litigation and SEC investigation; and
(vii)
loss on divestiture of the Lange Product Line.
Other (gains), losses and expenses include the following for the periods presented below:
Year Ended September 30, 2021
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Total
Other Adjustments
(In millions)
Cost of sales . . . . . . . . . $
G&A expense . . . . . . . .
Other operating
expense . . . . . . . . . . .
0.1
$
— $
(1.8)
—
—
—
Total . . . . . . . . . . . . . . $
(1.7) $
— $
Year Ended September 30, 2020
(In millions)
Cost of sales . . . . . . . . . $
G&A expense . . . . . . . .
Other operating
(income)
(0.2) $
— $
(8.5)
—
—
(1.5)
Total . . . . . . . . . . . . . . $
(8.7) $
(1.5) $
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Total
Other Adjustments
2.4
—
—
2.4
$
$
0.2
—
—
0.2
$
$
0.3
0.2
—
0.5
$
$
— $
— $
5.7
—
5.7
$
—
0.2
0.2
$
3.0
4.1
0.2
7.3
0.7
—
—
0.7
$
$
0.1
0.3
(58.1)
$
(57.7) $
0.8
0.5
—
1.3
$
$
— $
— $
—
—
—
—
1.4
(7.7)
(59.6)
— $
— $
(65.9)
47
We do not present net income on a segment basis because we do not allocate interest expense or income tax benefit
(expense) to our segments, making operating profit the most comparable GAAP metric. The following is a reconciliation
of our segment adjusted EBITDA to segment operating profit, its most directly comparable financial measure presented
in accordance with GAAP:
Year Ended September 30,
2021
2020
$ Variance
% Variance
Integrated
Solutions
and Services
Applied
Product
Technologies
Integrated
Solutions
and Services
Applied
Product
Technologies
Integrated
Solutions
and Services
Applied
Product
Technologies
Integrated
Solutions
and Services
Applied
Product
Technologies
Operating profit . . . $
147.3
$
82.9
$
145.7
$
134.3
$
1.6
$
(51.4)
1.1 %
(38.3)%
67.4
213.1
14.2
148.5
$
3.2
4.8
$
0.2
(51.2)
4.7 %
2.3 %
1.4 %
(34.5)%
Depreciation
and amortization
EBITDA . . . . . .
Restructuring and
related business
transformation
costs (a) . . . . . . . . .
Transaction costs
(b) . . . . . . . . . . . . .
Other (gains) losses
and expenses (c) . .
Segment adjusted
EBITDA . . . . . . . . $
70.6
217.9
1.8
(0.6)
0.2
14.4
97.3
5.9
(0.1)
2.6
0.6
—
—
9.7
(0.5)
(58.5)
1.2
(0.6)
0.2
(3.8)
200.0 %
(39.2)%
0.4
61.1
6.5
n/a
n/a
(80.0)%
(104.4)%
2.6 %
6.6 %
219.3
$
105.7
$
213.7
$
99.2
$
5.6
$
(a)
(b)
(c)
Represents costs and expenses in connection with restructuring initiatives. Such expenses are primarily
composed of severance, relocation, and facility consolidation costs.
Represents costs associated with a change in the current estimate of certain acquisitions achieving their earn-out
targets.
Other losses, (gains) and expenses as discussed above, distinct to our Integrated Solutions and Services and
Applied Product Technologies segments include the following:
Year Ended September 30,
2021
2020
(In millions)
Trailing costs from the sale of the Memcor product line . . . . $
Net pre-tax benefit on sale of the Memcor product line . . . . .
. . . . . . . . . . . . . . . . .
Remediation of manufacturing defects
Product rationalization in electro-chlorination business . . . . .
Loss on divestiture of Lange Product Line . . . . . . . . . . . . . . .
Integrated
Solutions
and Services
Applied
Product
Technologies
0.2
—
—
2.4
—
2.6
— $
—
—
—
0.2
0.2
$
Integrated
Solutions
and Services
$
Applied
Product
Technologies
—
(57.7)
(1.5)
0.7
—
(58.5)
— $
—
—
—
—
— $
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Liquidity and Capital Resources
Liquidity describes the ability of a company to borrow or 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. Our principal sources of liquidity are cash generated by our operating activities, borrowings under the 2021
Revolving Credit Facility and financing arrangements related to capital expenditures for equipment used to provide
services to our customers. Historically, we have financed our operations primarily from these sources. Our primary cash
48
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.
Our ability to fund our capital needs depends on our ongoing ability to generate cash from operations and access to bank
financing and the capital markets. Although the COVID-19 pandemic has not materially impacted our liquidity to date,
we plan to continue to evaluate aspects of our spending, including capital expenditures, discretionary spending, and
strategic investments in fiscal 2022. We have considered the impacts of the COVID-19 pandemic on our liquidity and
capital resources to date, and we do not currently expect it to impact our ability to meet future liquidity needs or affect
our ability to continue to comply with our applicable debt covenants. We believe we are currently well-positioned to
manage our business and have the ability and sufficient capacity to meet our cash requirements by using available cash,
internally generated funds, and borrowing under the 2021 Revolving Credit Facility.
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 occasionally extending payment terms. We also facilitate a voluntary supply chain
finance program (the “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 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 program. The range of payment
terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program. The
amounts settled through the program and paid to participating financial institutions were $42.0 million and $39.7 million
in the year ended September 30, 2021 and 2020, respectively. A downgrade in our credit rating or changes in the
financial markets could limit the financial institutions’ willingness to commit to participating in the program.
We expect to continue to finance our liquidity requirements through internally generated funds, borrowings under our
revolving credit facility and equipment financing arrangements. We believe that our projected cash flows generated
from operations, together with borrowings under the 2021 Revolving Credit Facility and other financing arrangements
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 year ended September 30, 2021 and 2020 were
$75.3 million and $88.5 million, respectively. However, our budgeted capital expenditures can vary from period to
period based on the nature of capital intensive project awards. Our focus on customer outsourced water projects will
continue to be a driver of capital expenditures. From time to time, we may enter into financing arrangements related to
capital expenditures for equipment used to provide services to our customers. During the year ended September 30, 2021
and 2020, we entered into equipment financing arrangements totaling $37.5 million and $23.3 million, respectively. In
addition, we may draw on the 2021 Revolving Credit Facility from time to time to fund or partially fund an acquisition.
As of September 30, 2021, we had total indebtedness of $754.9 million, including $473.8 million of term loan
borrowings under the 2021 Credit Agreement, $37.3 million outstanding under the 2021 Revolving Credit Facility,
$150.1 million outstanding under the Securitization Facility which includes $0.1 million of accrued interest, $93.4
million in borrowings related to equipment financing and $0.4 million of notes payable related to certain equipment
related contracts. We also had $10.1 million of letters of credit issued under our 2021 Revolving Credit Facility as of
September 30, 2021.
As of September 30, 2021 and September 30, 2020, we were in compliance with the covenants contained in the 2021
Credit Agreement, including the 2021 Revolving Credit Facility.
2021 Credit Agreement
On April 1, 2021, EWT III entered into the 2021 Credit Agreement among EWT III, as borrower, EWT II, as parent
guarantor, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and
collateral agent, and ING Capital, LLC, as sustainability coordinator. The 2021 Credit Agreement provides for a multi-
currency senior secured revolving credit facility in an aggregate principal amount not to exceed the U.S. dollar
equivalent of $350.0 million and a discounted senior secured term loan facility relating to a term loan in the amount of
$475.0 million (together, the “Senior Facilities”). The 2021 Credit Agreement also provides for a letter of credit sub-
49
facility not to exceed $60.0 million. On April 1, 2021, EWT III borrowed the full amount of $475.0 million under the
2021 Term Loan and $105.0 under the 2021 Revolving Credit Facility. On September 30, 2021, the Company had
$473.8 million outstanding under the 2021 Term Loan and $37.3 million outstanding on the 2021 Revolving Credit
Facility.
The Senior Facilities are guaranteed by EWT II and certain existing and future direct or indirect wholly-owned domestic
subsidiaries of EWT III (together with EWT III, collectively, the “Loan Parties”), and collateralized by a first lien on
substantially all of the assets of the Loan Parties, with certain exceptions, including: (i) any equity interest in, and any
assets sold to or held by, Evoqua Finance in connection with the Receivables Securitization Program, (ii) any equity
interest in, and any assets sold to or held by, any other special purpose entity that is an indirect subsidiary of the
Company in connection with any other securitization facility permitted under the 2021 Credit Agreement, and (iii) any
real property with a fair market value of $5.0 million or less, when considered individually, or $30.0 million or less when
taken together with all other real property owned by the Loan Parties.
With respect to the 2021 Revolving Credit Facility, EWT III is required to pay a commitment fee based on the daily
unused portion of the 2021 Revolving Credit Facility, as well as certain other fees to the agents and the arrangers under
the Senior Facilities. Subject to the terms of the 2021 Credit Agreement, to the extent not previously paid, any amount
owed under the 2021 Revolving Credit Facility will become due and payable in full on April 1, 2026.
With respect to the 2021 Term Loan, EWT III pays quarterly installments of principal of approximately $1.2 million.
Subject to the terms of the 2021 Credit Agreement, to the extent not previously paid, any amount owed under the 2021
Term Loan become due and payable in full on April 1, 2028.
Amounts outstanding under the Senior Facilities, at EWT III’s option, bear interest at either (i) a Base Rate determined in
accordance with the terms of the 2021 Credit Agreement, (ii) with respect to any amounts denominated in U.S. dollars or
Sterling, a LIBO rate, or replacement thereof, as determined in accordance with the terms of the 2021 Credit Agreement,
or (iii) with respect to amounts denominated in Euros, the EURIBOR rate, or replacement thereof, as determined in
accordance with the terms of the 2021 Credit Agreement. In the case of the 2021 Revolving Credit Facility, an applicable
margin based on the consolidated total leverage of EWT III and its restricted subsidiaries, as calculated in accordance
with the terms of the 2021 Credit Agreement, is added to the interest rate elected by EWT III; provided that the interest
rate may be adjusted if EWT III meets certain metrics for a sustainability price adjustment prior to December 31, 2021.
In the case of the 2021 Term Loan, a fixed applicable margin, calculated in accordance with the terms of the 2021 Credit
Agreement, is added to the interest rate elected by EWT III.
The net proceeds of the Senior Facilities, together with the net proceeds of the Receivables Securitization Program and
cash on hand, were used to repay all outstanding indebtedness, in an aggregate principal amount of approximately $814.5
million, under the 2014 Credit Agreement. The proceeds of the 2021 Revolving Credit Facility may also be used to
finance or refinance the working capital and capital expenditures needs of EWT III and certain of its subsidiaries and for
general corporate purposes.
The 2021 Credit Agreement
to acceleration upon various events of default and contains customary
representations, warranties, affirmative covenants, and negative covenants, each substantially similar to those included in
the Credit Agreement, including, among other things, a springing maximum first lien leverage ratio of 5.55 to 1.00.
is subject
As a result of the refinancing, the Company wrote off approximately $1.3 million of deferred financing fees related to the
2014 Term Loan. In addition, the Company incurred approximately $5.0 million of fees as a result of the refinancing, of
which $1.9 million were recorded as deferred financing fees on the Consolidated Balance Sheets and $3.1 million were
expensed.
Receivables Securitization Program
On April 1, 2021, Evoqua Finance entered into the Receivables Securitization Program consisting of, among other
agreements, (i) the Receivables Financing Agreement among Evoqua Finance, as the borrower, the Receivables
Financing Lenders, PNC Bank, as administrative agent, EWT LLC, as initial servicer, and PNC Markets, as structuring
50
agent, pursuant to which the lenders have made available to Evoqua Finance the Securitization Facility in an amount up
to $150.0 million and (ii) the Sale Agreement among Evoqua Finance, as purchaser, EWT LLC, as initial servicer and as
an originator, and Neptune Benson, Inc., an indirectly wholly-owned subsidiary of the Company, as an originator. Under
the Receivables Securitization Program,
to the Sale Agreement, are required to sell
substantially all of their trade receivables and certain related rights to payment and obligations of the Originators with
respect to such receivables (the “Receivables”) to Evoqua Finance, which, in turn, will obtain loans secured by the
Receivables from the Receivables Financing Lenders pursuant to the Receivables Financing Agreement. On April 1,
2021, Evoqua Finance borrowed $142.2 million under the Securitization Facility. During the second half of 2021,
Evoqua Finance borrowed additional amounts under the Securitization Facility and had $150.1 million outstanding at
September 30, 2021, which includes $0.1 million of accrued interest.
the Originators, pursuant
Pursuant to the Receivables Securitization Program, the aggregate principal amount of the loans made by the Receivables
Financing Lenders will not exceed $150.0 million outstanding, subject to the borrowing base restrictions, unless so
increased under the Receivables Financing Agreement. The Receivables Financing Lenders under the Receivables
Securitization Program receive interest at LIBOR or LMIR as selected by Evoqua Finance. The Receivables Financing
Agreement contains customary LIBOR benchmark replacement language. Additionally, PNC Bank and PNC Markets
will receive certain fees as agents, and EWT LLC will receive a fee as servicer of the Receivables.
The Receivables Securitization Program contains certain customary representations, warranties, affirmative covenants,
and negative covenants, subject to certain cure periods in some cases, including the eligibility of the Receivables being
sold by the Originators and securing the loans made by the Receivables Financing Lenders, as well as customary reserve
requirements, events of default, termination events, and servicer defaults. The Receivables Securitization Program
matures on April 1, 2024. As of September 30, 2021, we were in compliance with the covenants contained in the
Receivables Securitization Program.
51
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, 2021, our contractual cash obligations over the next several
periods were as follows:
(In millions)
Long-term debt obligations(a) . . . . . . . . . . . . . . . $
Interest payments on long-term debt obligations
Operating lease commitments(b) . . . . . . . . . . . . .
Finance lease commitments(c)
. . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total
Less than
1 year
1 to
3 years
3 to
5 years
More than
5 years
$
754.9
124.7
56.3
40.9
976.8
$
14.6
22.2
15.1
13.4
65.3
$
$
179.7
39.7
22.5
19.2
$
34.5
36.1
13.6
7.9
526.1
26.7
5.1
0.4
$
261.1
$
92.1
$
558.3
(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.
Evoqua Water Technologies Corp. is a holding company and does not conduct any business operations of its 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 the 2021 Credit Agreement, 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.
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 Part I, 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 (used in) provided by 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 . . . . . . . . . . . . . . . . . . .
Year Ended September 30,
2021
2020
2019
178.7
$
177.0
$
(97.2)
(130.3)
2.0
—
12.0
(108.1)
2.2
—
125.2
(94.5)
5.7
(1.6)
(7.3)
27.5
Change in cash and cash equivalents
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(46.8) $
83.1
$
52
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 $178.7 million in the year ended September 30, 2021 from $177.0
million in the year ended September 30, 2020.
Operating Cash Flows Year Ended September 30, 2021
$177.0
$85.2
$(62.7)
)
s
n
o
i
l
l
i
M
(
$
$240
$160
$80
$0
$53.6
$178.7
$(4.6)
$(8.4)
$(58.7)
$(2.7)
9/30/2020 Decrease
in
earnings
Add back
of non-
cash
charges
Accounts
payable/
receivable
Inventories Contract
assets/
liabilities
Other
assets
and
liabilities
Cash
income
taxes
9/30/2021
•
•
•
•
•
Operating cash flows in the year ended September 30, 2021 reflect a decrease in net income of $62.7
million from the year ended September 30, 2020, primarily driven by the sale of the Memcor product line.
The add back of non-cash charges increased operating cash flows by $130.5 million for the year ended
September 30, 2021 as compared to an increase to operating cash flows of $45.3 million for the year ended
September 30, 2020, resulting in an increase of $85.2 million. This increase was primarily related to the
gain on sale of the Memcor product line, which was reflected as a reduction of operating cash flows in the
prior year, a decrease in the amount of foreign currency translation gains compared to the prior year, as
well as increased share-based compensation and depreciation and amortization compared to the prior
period. Non-cash changes also include amortization of deferred financing fees, deferred income taxes and
loss on sale of property, plant, and equipment.
The aggregate of receivables, inventories, contract assets, accounts payable and contract billings used $17.5
million in operating cash flows in the year ended September 30, 2021 compared to the providing of $23.1
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.
The aggregate of the remaining assets and liabilities used $18.8 million in operating cash flows in the year
ended September 30, 2021 compared to the providing of $39.9 million in operating cash flows in the prior
year, resulting in a decrease to cash flows of $58.7 million. This decrease was primarily due to an increase
in customer long term receivables and timing of payments associated with large outsourced water contracts.
Income taxes used $2.1 million for the year end September 30, 2021, as compared to the providing of $0.6
million during the prior year.
53
Investing Activities
Net cash used in investing activities decreased $109.2 million to $97.2 million in the year ended September 30, 2021
from net cash provided by investing activities of $12.0 million in the year ended September 30, 2020. This decrease was
largely driven by proceeds from the sale of the Memcor product line during the year ended September 30, 2020, in
addition to higher cash outflow associated with the Ultrapure and WCSI acquisitions in the current year period as
compared to the Frontier acquisition that occurred in the prior period. This decrease was partially offset by lower cash
outflow associated with purchase of capital assets and intangibles compared to the prior period. Other activity related to
proceeds from the sale of property, plant and equipment remained relatively consistent with the prior period.
Financing Activities
Net cash used in financing activities increased $22.2 million to $130.3 million in the year ended September 30, 2021
from net cash provided by financing activities of $108.1 million in the year ended September 30, 2020. The increase in
cash used in financing activities for the year ended September 30, 2021 was primarily due to the debt refinancing
activities that occurred in the current year. This increase was partially offset by an increase in cash received from the
exercise of stock options in the current period and a decrease in taxes paid related to net share settlements of share-based
compensation awards and distribution of dividends to non-controlling interest declined compared to the prior period.
Seasonality
For more information regarding how seasonality may impact our business, results of operations and financial condition,
see Part I, Item 1A. “Risk Factors-Seasonality of sales and weather conditions may adversely affect, or cause volatility
in, our financial results.”
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.
Off-Balance Sheet Arrangements
We had the following outstanding under our credit arrangements at September 30, 2021 and September 30, 2020:
(In millions)
Letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Surety bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
September 30,
2021
September 30,
2020
10.1 $
147.8 $
13.0
153.0
The longest maturity date of the letters of credit and surety bonds in effect as of September 30, 2021 was March 20,
2030.
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.
54
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.
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 Accounting Standards Codification
(“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 estimates include a market participant’s use of the asset and the appropriate
discount rates for a market participant. Our estimates are based on historical experience, information obtained from
members of 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 unit’s 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 revenue 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.
55
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, 2021, 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.
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 is 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 revenue 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 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 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, revenue 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
56
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 revenue 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 has 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
is required to determine if such
modified for changes in contract specifications and requirements.
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 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.
Judgment
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 includes 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.
57
We consider both positive and negative evidence when evaluating the need for a valuation allowance on our deferred tax
information
assets in accordance with ASC 740, Income Taxes. Available evidence includes historical financial
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.
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, 2021, a 1% increase or decrease in interest rates would decrease or increase income
(loss) before income taxes by approximately $6.8 million. By comparison, a 1% increase or decrease in interest rates
would have decreased or increased income (loss) before income taxes by approximately $8.2 million as of September 30,
2020 based on our overall interest rate exposure to variable rate debt outstanding as of that date.
In June 2021, the Company entered into an interest rate swap with an effective date of August 1, 2022 to mitigate risk
associated with a variable rate equipment financing. The interest rate swap provides for a fixed rate of 5.25%, has a
notional amount of $31 million and a term of seven years.
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
Company’s senior secured debt and fixes the LIBOR rate on this portion of the senior secured debt at 0.61%.
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 revenue 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 have experienced supply
chain disruptions, to date we have managed restrictions in material availability, delays in shipments or disruptions
associated with finding and qualifying alternate suppliers in order to maintain our ability to fulfill customer requirements.
58
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 Company’s 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 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. Based on our overall foreign
currency translation risk exposure related to intercompany loans denominated in Euro as of September 30, 2021 and
2020, a 1% increase or decrease in the Euro to U.S. Dollar exchange rate would decrease or increase income (loss)
before income taxes by approximately $1.0 million in both periods.
59
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, 2021 and 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended September 30, 2021, 2020 and 2019 . . . . . . . . .
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended September 30, 2021,
2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61
65
66
67
Consolidated Statements of Changes in Equity for the Years Ended September 30, 2021, 2020 and
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68
Consolidated Statements of Changes in Cash Flow for the Years Ended September 30, 2021, 2020 and
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69
Supplemental Disclosure of Cash Flow Information for the Years Ended September 30, 2021, 2020
and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
Notes to Audited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
Schedule I Parent Company Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
60
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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its
operations and its cash flows for each of the three years in the period ended September 30, 2021, 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 Company’s internal control over financial reporting as of September 30, 2021, 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 17, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s 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.
61
Revenue recognition - contract cost estimates
Description of
the Matter
As explained in Notes 2 and 5 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 Company’s 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 Company’s 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 management’s 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 management’s 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 analyzed cost estimates, including management’s evaluation of contract clauses and inputs used in
cost calculations and assessed the measurement of project completion by performing a physical or virtual
site inspection for a sample of in-progress contracts to assess estimates of project progress. Further, we
tested cost accumulation for a sample of projects through performing physical and 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 management’s cost estimates for a sample of completed contracts by comparing
initial estimates with the actual historical data to assess management’s ability to estimate.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2013.
Pittsburgh, Pennsylvania
November 17, 2021
62
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, 2021,
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, 2021, based on the COSO criteria.
As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting,
management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include
the internal controls of WCSI, which is included in the 2021 consolidated financial statements of the Company and
constituted 0.7% of total assets as of September 30, 2021 and 0.3% of net sales 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 WCSI.
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, 2021 and 2020, 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, 2021, 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 17, 2021 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s 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 Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s 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 company’s 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 company’s 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 company’s assets that could have a material effect on the financial statements.
63
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 17, 2021
64
Evoqua Water Technologies Corp.
Consolidated Balance Sheets
(In thousands)
September 30,
2021
September 30,
2020
ASSETS
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, net of valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
LIABILITIES AND EQUITY
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of debt, net of deferred financing fees and discounts . . . . . . . . . . . . .
Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Long-term debt, net of deferred financing fees and discounts . . . . . . . . . . . . . . . . . . .
Product warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligation under operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Commitments and Contingent Liabilities (Note 22)
Shareholders’ equity
Common stock, par value $0.01: authorized 1,000,000 shares; issued 122,173
shares, outstanding 120,509 at September 30, 2021; issued 119,486 shares,
outstanding 117,291 at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock: 1,664 shares at September 30, 2021 and 2,195 shares at
September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Retained deficit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . .
Total Evoqua Water Technologies Corp. equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
678,458
146,244
277,995
158,503
72,746
21,871
1,099
374,988
407,376
290,075
8,285
45,521
64,188
1,868,891
405,989
164,535
12,775
55,883
8,138
160,367
4,291
880,683
730,430
2,966
37,935
92,909
16,443
1,286,672
$
$
$
$
$
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
1,223
1,189
(2,837)
582,052
(11,182)
11,415
580,671
1,548
582,219
1,868,891
$
$
$
(2,837)
564,928
(62,664)
(20,472)
480,144
1,919
482,063
1,844,458
See accompanying notes to these Consolidated Financial Statements
65
Evoqua Water Technologies Corp.
Consolidated Statements of Operations
(In thousands except per share data)
Revenue from product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Revenue from services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
603,403
Revenue from product sales and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,464,429
Cost of product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(607,693)
2021
861,026
$
2020
839,857
589,599
$
2019
851,161
593,280
$ 1,429,456
$ 1,444,441
(588,264)
(615,171)
Year Ended September 30,
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(403,308)
Cost of product sales and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,007,077) $ (979,653) $(1,018,479)
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
425,962
General and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(391,389)
(399,384)
449,803
457,352
$
$
(192,597)
(217,013)
(206,455)
Sales and marketing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,300)
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (363,010) $ (341,962) $ (371,249)
Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,613
(143,110)
(136,167)
(138,936)
(13,445)
(13,198)
61,662
5,743
Other operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before interest expense and income taxes . . . . . . . . . . . . . . . . . . . $
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income attributable to non-controlling interest . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to Evoqua Water Technologies Corp. . . . . $
Basic income (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted income (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(768)
99,317
(37,575)
61,742
(10,080)
51,662
180
51,482
0.43
0.42
$
$
$
$
$
$
(1,055)
168,448
(46,682)
121,766
(7,371)
114,395
746
113,649
0.97
0.94
$
$
$
$
$
$
(654)
59,672
(58,556)
1,116
(9,587)
(8,471)
1,052
(9,523)
(0.08)
(0.08)
See accompanying notes to these Consolidated Financial Statements
66
Evoqua Water Technologies Corp.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss)
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized derivative gain (loss) on cash flow hedges, net of tax . . . . . . . . .
Change in pension liability, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Comprehensive income attributable to non-controlling interest . . . .
Comprehensive income (loss) attributable to Evoqua Water Technologies
Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2021
51,662
2020
$ 114,395
2019
(8,471)
$
21,672
7,293
2,922
(2,830)
(4,717)
1,507
74
79
(5,568)
31,887
$
(7,468) $
(3,987)
(180)
(746)
(1,052)
83,369
$ 106,181
$ (13,510)
See accompanying notes to these Consolidated Financial Statements
67
Evoqua Water Technologies Corp.
Consolidated Statements of Changes in Equity
(In thousands)
Common Stock
Treasury Stock
Shares
Cost
Shares
Cost
Additional
Paid-in
Capital
Retained
Deficit
Accumulated
Other
Comprehensive
(Loss) Income
Non-controlling
Interest
Total
115,016
$ 1,145
1,087
$ (2,837) $ 533,435
$(163,871) $
(9,017) $
3,161
$ 362,016
—
—
—
—
—
—
108
—
—
884
—
—
—
9
—
—
—
577
—
—
—
—
—
—
—
—
—
—
—
(1,582)
19,903
363
(1,279)
—
—
—
—
—
—
—
(9,523)
—
—
—
—
—
—
—
(3,987)
— $
(1,582)
— $ 19,903
— $
363
— $
(1,270)
(1,150) $
(1,150)
1,052
$
(8,471)
— $
(3,987)
116,008
$ 1,154
1,664
$ (2,837) $ 552,422
$(174,976) $
(13,004) $
3,063
$ 365,822
—
—
3,478
—
—
—
—
—
—
35
—
—
—
—
—
—
531
—
—
—
—
—
—
—
—
—
—
—
—
(1,337)
10,509
18,892
(16,895)
—
—
—
—
—
—
—
113,649
—
—
—
—
—
—
—
(7,468)
— $
(1,337)
— $ 10,509
— $ 18,927
— $ (16,895)
(1,890) $
(1,890)
746
$ 114,395
— $
(7,468)
119,486
$ 1,189
2,195
$ (2,837) $ 564,928
$ (62,664) $
(20,472) $
1,919
$ 482,063
—
2,687
—
—
—
—
34
—
—
—
—
(531)
—
—
—
—
—
—
—
—
15,524
1,600
—
—
—
—
—
—
51,482
—
—
—
—
— $ 15,524
— $
1,634
(551) $
(551)
180
$ 51,662
—
31,887
— $ 31,887
Balance at September 30,
2018 . . . . . . . . . . . . . . . . .
Cumulative effect of
adoption of new
accounting standards . .
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) . . . . . . . .
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 . . . . . . . . . . . . . . . . .
Divestiture of Memcor
product line . . . . . . . . . .
Dividends paid to non-
controlling interest . . . .
Net income . . . . . . . . . . . .
Other comprehensive loss .
Balance at September 30,
2020 . . . . . . . . . . . . . . . . .
Equity based
compensation expense .
Issuance of common stock,
net . . . . . . . . . . . . . . . . .
Dividends paid to non-
controlling interest . . . .
Net income . . . . . . . . . . . .
Other comprehensive
income . . . . . . . . . . . . .
Balance at September 30,
2021 . . . . . . . . . . . . . . . . .
122,173
$ 1,223
1,664
$ (2,837) $ 582,052
$ (11,182) $
11,415
$
1,548
$ 582,219
See accompanying notes to these Consolidated Financial Statements
68
Evoqua Water Technologies Corp.
Consolidated Statements of Changes in Cash Flows
(In thousands)
Operating activities
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Reconciliation of net income to cash flows provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing fees (includes $1,333, $1,795, and $0
write off of deferred financing fees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sale of property, plant, and equipment . . . . . . . . . . . . . . . . . . . .
Loss (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 $0, $12,117, and $0 . . . . . . . . . . . .
Acquisitions, net of cash received $0, $0, and $2,073 . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by 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 .
Cash paid for interest rate cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution to non-controlling interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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,
2021
2020
2019
51,662
$
114,395
$
(8,471)
113,664
107,268
98,236
3,280
(2,363)
15,524
1,287
193
4,026
(1,234)
10,509
950
(68,051)
2,612
1,948
19,903
(932)
—
(1,094)
(8,202)
10,713
(13,281)
(15,985)
8,426
260
9,824
21,881
28,447
(2,091)
(40,929)
178,705
$
(75,293) $
(3,780)
2,041
897
(21,037)
(97,172) $
$
761,915
—
(898,024)
(13,396)
(170)
21,205
(1,323)
—
(551)
(130,344) $
2,054
—
(46,757) $
(6,844)
(7,604)
(4,136)
2,088
8,017
22,078
(12,556)
592
15,730
177,026
$
(88,456) $
(6,529)
1,191
118,894
(13,108)
11,992
$
$
21,959
2,597
(117,131)
(13,441)
(470)
10,091
(9,832)
—
(1,890)
(108,117) $
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
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
193,001
146,244
$
109,881
193,001
$
82,365
109,881
See accompanying notes to these Consolidated Financial Statements
69
Evoqua Water Technologies Corp.
Supplemental Disclosure of Cash Flow Information
(In thousands)
Year Ended September 30,
2020
2019
2021
Supplemental disclosure of cash flow information
Cash paid for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
14,194
26,502
$
$
8,427
38,680
$
$
10,340
52,786
Non-cash investing and financing activities
Accrued earn-out related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . $
Finance lease transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating lease transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Option and Purchase Right
Landlord incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
14,351
12,894
8,305
— $
$
$
$
— $
204
12,600
23,727
7,739
$
$
$
$
— $
—
18,640
—
—
1,000
See accompanying notes to these Consolidated Financial Statements
70
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”) is a holding company and does not
conduct any business operations of its own. The Company was incorporated on October 7, 2013. On January 15, 2014,
the Company acquired, through its wholly owned subsidiaries, EWT Holdings II Corp. (“EWT II”) and EWT Holdings
III Corp. (“EWT III”), the Water Technologies business unit formerly owned by Siemens AG (“Siemens”). On
November 6, 2017, the Company completed its initial public offering (“IPO”).
On December 4, 2020, the Company completed a secondary public offering, pursuant to which 12,000 shares of common
stock were sold by certain selling shareholders. On February 11, 2021, the Company completed an additional secondary
public offering, pursuant to which 16,383 shares of common stock were sold by certain selling shareholders. Upon
completion of these offerings, AEA Investors LP disposed of all of their shares of the Company’s common stock. The
Company did not receive any proceeds from the sale of shares by the selling shareholders in either 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 multinational corporation with operations in the United States
(“U.S.”), Canada, the United Kingdom (“UK”), the Netherlands, Germany, Australia, the People’s Republic of China,
Singapore, 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, 2021, 2020 and 2019. 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 and share amounts in this section are referred to in thousands. Certain
prior period amounts have been reclassified to conform to the current period presentation. The Company’s fiscal year
ends on September 30 of each year and references in this section to a year refer to the Company’s fiscal year. As such,
references to: 2021 relates to the fiscal year ended September 30, 2021, 2020 relates to the fiscal year ended September
30, 2020 and 2019 relates to the fiscal year ended September 30, 2019.
Correction of Immaterial Errors
During the quarter ended March 31, 2021, the Company identified errors related to the reporting of tax remittances
associated with certain equity awards, resulting in a classification error of $18,669 between additional paid in capital and
accumulated other comprehensive loss. Management recorded the correction to additional paid in capital and
accumulated other comprehensive balances during the quarter ended March 31, 2021. Management considered both the
quantitative and qualitative factors within the provisions of SEC Staff Accounting Bulletin No. 99, Materiality, and Staff
Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements. Based on evaluation of the errors, management has concluded that the prior period
71
errors were immaterial to the previously issued financial statements. As a result of that classification error, management
also identified a second, related immaterial classification error for the understatement of net cash provided by operating
cash flows of $18,669 and an overstatement of net cash provided by financing activities of $18,669 for the period from
October 1, 2019 to September 30, 2020. The Company has elected to voluntarily correct the identified immaterial
classification error in the prior period Consolidated Statements of Changes to Cash Flows to enhance comparability. In
doing so, balances in the Consolidated Statements of Changes to Cash Flows included in this Form 10-K have been
adjusted to reflect the voluntary immaterial classification error correction of $18,669 between financing and operating in
the prior period. Future filings that include prior periods will be corrected, as needed, when filed.
The correction of the above classification errors did not have any effect on the Consolidated Statements of Operations in
any of the periods previously presented.
2. Summary of Significant Accounting Policies
Fiscal Year
The Company’s 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 credit losses; (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 reported on the Consolidated Balance Sheets at the outstanding principal amount adjusted for any allowance for
credit losses and any charge offs. The Company provides an allowance for credit losses to reduce trade receivables to
their estimated net realizable value equal to the amount that is expected to be collected. This allowance is estimated
based on historical collection experience, the aging of receivables, specific current and expected future macroeconomic
and market conditions, and assessments of the current creditworthiness and 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. The Company reviews its allowance for credit losses on a quarterly
basis.
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.
72
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated Useful Life
3 to 20 years
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 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 Intangible Assets
Goodwill represents purchase consideration paid in a business combination that exceeds the value assigned to the net
assets of acquired businesses. 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 and indefinite-lived intangible assets 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 for goodwill 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 Company’s current budget and long-range plans,
including anticipated change in market conditions, industry trend, growth rates and planned capital expenditures, among
other considerations.
The impairment test for indefinite-lived intangibles consists of a comparison of the asset’s fair value with its carrying
value. The fair value is calculated using the income approach DCF method. Impairment is determined to exist when the
fair value is less than the carrying value of the assets being tested.
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant, and equipment, purchased intangibles and lease right-of-use assets 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.
73
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.
Debt Issuance Costs and Debt Discounts
Debt issuance costs are capitalized and amortized over the contractual term of the underlying debt using 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.
Revenue Recognition
The Company recognizes sales of products and services based on the five-step analysis of transactions as provided in
Topic 606, Revenue from Contracts with Customers.
For sales of aftermarket parts or products with a low level of customization and engineering time, the Company
recognizes revenue 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 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 and for long-term construction-type
sales contracts, revenue may be recognized over time. 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. Contract revenue 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 has not been
material. 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
Company’s performance under the contract.
taxes by governmental authorities from the
The Company has made accounting policy elections to exclude all
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.
The recording of assets recognized from the costs to obtain and fulfill customer contracts primarily relate to the deferral
of sales commissions. The Company’s 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, 2021.
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.
Variable consideration in contracts for the years ended September 30, 2021 and 2020 was insignificant.
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.
74
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.
Leases
The Company accounts for leases in accordance with ASC Topic No. 842, Leases.
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. Any lease arrangements
with a term of 12 months or less are not recorded on the Consolidated Balance Sheets, and lease costs for these
arrangements are recognized on a straight-line basis over the lease term. Many of the Company’s lease arrangements
provide for an option to exercise one or more renewal terms or to terminate the lease arrangement. The Company
includes these options when the Company is reasonably certain to exercise them in the leased term used to establish the
ROU asset and lease liabilities. 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.
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 Company’s risk-management strategy uses derivative financial instruments to manage interest rate risk, foreign
currency exchange rate risk, equity price risk and commodity price risk. The Company does not enter into derivatives for
trading or speculative purposes.
75
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 Consolidated
Balance Sheets at fair value and adjusts to market on a quarterly basis. Changes in the fair value of derivatives are
recorded in earnings or Accumulated other comprehensive income (loss), net of tax (“AOCI”), based on whether the
instrument is designated and effective as a hedge transaction. Gains and losses on derivative instruments recorded to
AOCI are reclassified to earnings in the period the hedged item affects earnings.
The Company’s interest rate swaps are valued based on readily-observable market inputs, such as quotations on interest
rates and LIBOR yield curves at the reporting date. The Company’s foreign currency forward contracts are valued based
on quoted forward foreign exchange prices and spot rates at the reporting date. The Company’s total return swaps are
valued using closing stock prices at the reporting date.
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 includes the enactment date. Valuation allowances are
provided against deferred tax assets when it is considered 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 has a greater than 50% percent likelihood 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. Revenue 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 ($927), $(8,216) and
$12,599 for the years ended September 30, 2021, 2020 and 2019, 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.
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 grant-
date fair value of restricted stock unit awards is determined using the closing price of the Company’s common stock on
date of grant. As there is a market condition associated with the award, the grant-date fair value of the performance share
units was determined using a Monte Carlo Simulation. 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.
76
Retirement Benefits
The Company applies ASC Topic 715, Compensation—Retirement 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.
Recent Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting, and also issued subsequent amendments to the initial guidance (collectively, “Topic 848”). Topic 848 became
effective immediately and expires on December 21, 2022. Topic 848 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. Topic 848 provides optional expedients and exceptions for contracts, hedging
relationships and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference
rate expected to be discontinued because of reference rate reform if certain criteria are met. The Company is currently
assessing the impact of adoption on the Company’s Consolidated Financial Statements and related disclosures.
Accounting Pronouncements Recently Adopted
The Company adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments on October 1, 2020 (“ASU 2016-13”). ASU 2016-13 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 loss estimates,
which generally will result in the earlier recognition of allowances for losses. The Company adopted ASU 2016-13 using
a modified retrospective approach and determined that there was no cumulative-effect adjustment to its beginning
Retained deficit on the Consolidated Balance Sheets. The adoption of this standard did not have a material impact on the
Company’s Consolidated Financial Statements. See Note 7, “Accounts Receivable” for further details and related
disclosures.
The following accounting pronouncements were adopted by the Company on October 1, 2020, and the adoptions did not
have a material impact on the Company’s Consolidated Financial Statements or disclosures:
Accounting Standards Updates
ASU 2020-03, Codification Improvements to Financial Instruments
ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses
ASU 2018-18, Collaborative Arrangements (Topic 808) Clarifying the Interaction between Topic 808 and Topic 606
ASU 2018-13, Fair Value Measurement (Subtopic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement
77
3. 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 partner’s equity. As such, the Company fully consolidates TWO as a variable interest entity (“VIE”)
under ASC Topic No. 810, Consolidation. The Company has not provided, and is not contractually required to provide,
additional financial support to this entity, and the Company does not have the ability to use the assets of TWO to settle
obligations of the Company’s other subsidiaries.
The following provides a summary of TWO’s balance sheet as of September 30, 2021 and September 30, 2020 and
summarized financial information for the fiscal years ended September 30, 2021, 2020 and 2019.
Current assets (includes cash of $1,380 and $2,088) . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,202
$
Property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
903
2,206
(1,009)
4,016
1,145
2,206
(1,324)
September 30,
2021
September 30,
2020
Year Ended September 30,
2021
2020
2019
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,315
(2,922)
393
$
$
5,944
(4,519)
1,425
$
$
10,633
(8,732)
1,901
On October 1, 2019, the Company acquired a 60% investment position in San Diego-based Frontier Water Systems, LLC
(“Frontier”). The Frontier acquisition is a VIE because it has insufficient equity to finance its activities due to key assets
being assigned to the Company upon acquisition. The Company is the primary beneficiary of Frontier because the
Company has the power to direct the activities that most significantly affect Frontier’s economic performance.
In addition, the Company entered into an agreement to acquire the remaining 40% interest in Frontier on or prior to
March 30, 2024. This agreement (a) gave holders of the remaining 40% interest in Frontier (the “Minority Owners”) the
right to sell to Evoqua up to approximately 10% of the outstanding equity in Frontier at a predetermined price, which
right was exercisable by the Minority Owners between January 1, 2021 and February 28, 2021 (the “Option”), and (b)
obligates the Company to purchase and the Minority Owners to sell all of the Minority Owners’ remaining interest in
Frontier at the fair market value at the time of sale on or prior to March 30, 2024 (the “Purchase Right”). The Purchase
Right may be exercised early by the Minority Owners. The agreement to purchase the remaining interest was determined
to be financing due to the mandatory Purchase Right, as per ASC Topic 480, Distinguishing Liabilities From Equity, and
as such, the Company recognized a liability for the remaining 40% interest. The Minority Owners exercised the Option,
and on April 8, 2021, the Company completed the purchase of an additional 8% of the outstanding equity in Frontier for
approximately $1,490. As a result, the Company’s ownership position in Frontier increased to 68%.
Additionally, the Company fully consolidates Frontier as a VIE under ASC Topic No. 810, Consolidation.
78
The following provides a summary of Frontier’s balance sheet as of September 30, 2021 and September 30, 2020, and
summarized financial information for the fiscal years ended September 30, 2021 and 2020.
Current assets (includes cash of $2,095 and $1,675) . . . . . . . . . . . . . . . . . . . . . . . . . . $
12,495
$
Property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,113
1,798
8,265
(9,425)
4,024
3,159
1,798
9,918
(3,692)
September 30,
2021
September 30,
2020
Year Ended September 30,
2021
2020
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
14,340
$
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14,362)
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(22) $
5,365
(8,219)
(2,854)
4. Acquisitions and Divestitures
Acquisitions support the Company’s strategy of delivering a broad solutions portfolio with robust technology across
multiple geographies and end markets. The Company continues to evaluate potential strategic acquisitions of businesses,
assets and product lines and believes that capex-like, tuck-in acquisitions present a key opportunity within its overall
growth strategy.
2021 Acquisitions
On April 1, 2021, the Company acquired the assets of Water Consulting Specialists, Inc. (“WCSI”) for $12,025 cash paid
at closing. In addition, the Company recorded a liability of $761 at closing associated with an earn-out related to the
WCSI acquisition, which was subsequently revalued to $150 and is included in Accrued expenses and other liabilities on
the Consolidated Balance Sheets. During the year ended September 30, 2021, the Company received cash of $21 from
the seller as a result of net working capital adjustments. WCSI is a leader in the design, manufacturing, and service of
industrial high-purity water treatment systems. The acquisition strengthens the Company’s portfolio of high-purity water
treatment systems and provides the opportunity to further expand its digitally enabled solutions and services in key
industrial markets. WCSI is a part of the Integrated Solutions and Services segment. During the year ended
September 30, 2021, the Company incurred approximately $83 in acquisition costs, which are included in General and
administrative expense on the Consolidated Statements of Operations.
The Company has not finalized the valuations of the acquired assets, assumed liabilities, and identifiable intangible
assets, including goodwill. The preliminary opening balance sheet for WCSI is summarized as follows:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,813
221
4,340
7,336
86
13,796
(1,792)
12,004
79
On December 17, 2020, the Company acquired the industrial water business of Ultrapure & Industrial Services, LLC
(“Ultrapure”) for $8,743 cash paid at closing. On April 1, 2021, the Company paid an additional $290 as a result of net
working capital adjustments. Ultrapure, based out of Texas, provides customers across multiple end markets with a
variety of water treatment products and services, including service deionization, reverse osmosis, UV, and ozonation.
Ultrapure will strengthen the Company’s service capabilities in the Houston and Dallas markets and is a part of the
the Company incurred
Integrated Solutions and Services segment. During the year ended September 30, 2021,
approximately $230 in acquisition costs, which are included in General and administrative expense on the Consolidated
Statements of Operations.
The opening balance sheet for Ultrapure is summarized as follows:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,366
963
2,836
3,751
21
9,937
(904)
9,033
2021 Divestitures
On March 1, 2021, the Company completed the divestiture of the Lange containment system, geomembrane and
geosynthetic liner product line (the “Lange Product Line”) for $897 in cash at closing. The Lange Product Line was a
part of the Integrated Solutions and Services segment. During the year ended September 30, 2021, the Company
recognized a loss of $193 on the divestiture.
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.
The Company entered into an agreement to acquire 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.
80
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. Refer to Note 6,
“Fair Value Measurements” for a discussion of subsequent measurement of the Option and Purchase Right.
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 Company’s First Lien Term Loans in January 2020.
5. Revenue
Disaggregation of Revenue
In accordance with Topic 606, the Company disaggregates revenue from contracts with customers into source of
revenue, reportable operating segment, and geographical regions. The Company determined that disaggregating revenue
into these categories meets the disclosure objective in Topic 606 which is to depict how the nature, amount, timing and
uncertainty of revenue and cash flows are affected by economic factors.
Information regarding the source of revenue:
Revenue from contracts with customers recognized under Topic
606 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other(1)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended September 30,
2021
2020
2019
1,274,096
190,333
1,464,429
$
$
1,279,772 $
1,309,303
149,684
135,138
1,429,456 $
1,444,441
(1)
Other revenue relates to revenue recognized pursuant to ASU 2016-02, Leases (Topic 842), primarily
attributable to long term rentals.
81
Information regarding revenue disaggregated by segment and source of revenue is as follows:
Year Ended September 30,
2021
2020
2019
Integrated Solutions and Services
Revenue from capital projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
250,187
$
257,528
$
Revenue from aftermarket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue from service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Applied Product Technologies
Revenue from capital projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Revenue from aftermarket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue from service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total Revenue
Revenue from capital projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Revenue from aftermarket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Revenue from service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
128,585
581,114
959,886
365,791
116,463
22,289
504,543
615,978
245,048
603,403
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,464,429
119,051
567,603
944,182
335,227
128,051
21,996
485,274
592,755
247,102
589,599
1,429,456
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Information regarding revenue disaggregated by geographic area is as follows:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2021
1,174,474
$
2020
1,164,634 $
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
113,559
113,316
49,952
13,128
108,139
77,253
65,223
14,207
219,289
122,719
568,826
910,834
344,097
165,056
24,454
533,607
563,386
287,775
593,280
1,444,441
2019
1,147,649
102,998
90,273
80,083
23,438
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,464,429
$
1,429,456 $
1,444,441
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 $275,589 at September 30, 2021. This backlog
represents the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or
partially unsatisfied as of the end of the reporting period. The Company estimates that the majority of these performance
obligations will be satisfied within the next twelve to twenty-four months.
82
Contract Balances
The tables below provide a roll-forward of contract assets and contract liabilities balances for the periods presented:
Contract assets(a)
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Recognized in current period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassified to accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts related to sale of the Memcor product line . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended September 30,
2021
2020
80,759
$
316,864
(325,405)
—
528
73,467
347,660
(342,371)
2,710
(707)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
72,746
$
80,759
(a)
Excludes receivable balances which are disclosed on the Consolidated Balance Sheets.
Contract Liabilities
Year Ended September 30,
2021
2020
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
26,259
$
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
349,046
(25,523)
(294,033)
—
134
39,051
322,595
(39,100)
(295,085)
(700)
(502)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
55,883
$
26,259
6. Fair Value Measurements
As of September 30, 2021 and 2020, the fair values of cash and cash equivalents, accounts receivable and accounts
payable approximated 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 simila r 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:Unobservabl e inputs in which little or no market data is available, therefore requiring an entity to
develop its own assumptions.
The following table presents the Company’s 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
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 measure the fair value of these
assets and liabilities, therefore, all are classified as Level 2 within the valuation hierarchy.
83
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, 2021
Assets:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Pension plan
Cash
Global Multi-Asset Fund . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Government Securities
Liability Driven Investment
. . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Guernsey Unit Trust
Global Absolute Return
. . . . . . . . . . . . . . . . . . . . . .
Deferred compensation plan assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency forward contracts . . . . . . . . . . . . . . . .
Liabilities:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plan
Deferred compensation plan liabilities
. . . . . . . . . . .
Total return swaps—deferred compensation . . . . . . . .
Long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency forward contracts . . . . . . . . . . . . . . .
Commodity swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earn-outs related to acquisitions . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Right
As of September 30, 2020
Assets:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Pension plan
Cash
Government Securities
Liability Driven Investment
Guernsey Unit Trust
Global Absolute Return
Deferred compensation plan assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust Assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance
Foreign currency forward contracts . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Liabilities:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plan
. . . . . . . . . . . .
Deferred compensation plan liabilities
Long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency forward contracts . . . . . . . . . . . . . . . .
Earn-outs related to acquisitions . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Option and Purchase Right
84
— $
15,244
5,158
2,793
2,387
2,225
$
831
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,251
17,806
—
—
—
—
—
—
—
—
—
—
—
—
—
3,127
24
(46,013)
(24,382)
(130)
(752,988)
(303)
(102)
(19)
—
—
— $
4,924
3,604
1,881
2,060
$
15,061
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
55
—
—
—
—
—
—
—
—
—
—
19,804
140
(47,389)
(21,439)
(872,441)
(4,669)
(47)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(150)
(8,305)
—
—
—
—
—
—
—
—
—
—
—
—
—
(295)
(7,739)
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, 2021 and 2020. The
unrealized gain on mutual funds was $445 at September 30, 2021.
The Company records contingent consideration arrangements at fair value on a recurring basis and the associated
balances presented as of September 30, 2021 and 2020 are earn-outs related to acquisitions. See Note 4, “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 Company’s fair value of earn-outs related to acquisitions is as follows:
Current
Portion(1)
Long-term
Portion(2)
Total
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
611
$
934
$
1,545
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(187)
204
(333)
295
761
(170)
(736)
$
—
—
(934)
— $
—
—
—
Balance at September 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
150
$
— $
(187)
204
(1,267)
295
761
(170)
(736)
150
(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. The Minority Owners exercised the Option, and on April 8, 2021
the Company completed the purchase of an additional 8% of the outstanding equity in Frontier for approximately $1,490.
During the year ended September 30, 2021, the Company recorded an increase in the fair value of the Purchase Right
liability for $2,056, which was recorded to Interest expense on the Consolidated Statements of Operations. As of
September 30, 2021, $8,305 is included in Other non-current liabilities related to the Purchase Right on the Consolidated
Balance Sheets. As of September 30, 2020, $7,739 is included in Other non-current liabilities related to the Purchase
Right on the Consolidated Balance Sheets.
85
7. Accounts Receivable
Accounts receivable are summarized as follows:
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Allowance for Credit Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2021
282,819
(4,824)
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
277,995
The movement in the allowance for credit losses was as follows:
$
September 30,
2020
264,536
(4,057)
260,479
$
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Charged to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(4,057) $
(1,733)
780
186
(4,824) $
(4,906) $
(537)
1,277
109
(4,057) $
(4,199)
(788)
39
42
(4,906)
Year Ended September 30,
2020
2021
2019
8. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86,469
$
19,842
59,624
2,277
78,319
15,654
56,435
3,438
(9,709)
(11,467)
Inventories, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
158,503
$
142,379
September 30,
2021
September 30,
2020
The following is the activity in the reserves for excess and obsolete inventory:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Change to reserve requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2020
2021
2019
(11,467) $
(13,370) $
265
1,516
(23)
(310)
2,197
16
(9,313)
(5,754)
1,541
156
(9,709) $
(11,467) $
(13,370)
86
9. Property, Plant, and Equipment
Property, plant, and equipment consists of the following:
Machinery and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
September 30,
2021
388,352
Rental equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
246,257
70,048
59,737
$
764,394
(389,406)
Property, plant, and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
374,988
September 30,
2020
357,650
$
221,953
70,245
48,325
698,173
(333,712)
364,461
$
$
The Company entered into secured financing agreements that require providing a security interest
in specified
equipment. As of September 30, 2021 and September 30, 2020, the gross and net amounts of those assets are as follows:
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . $
Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross
89,115
30,504
$
119,619
Net
72,666
30,504
103,170
$
$
$
$
Gross
Net
63,305
8,098
71,403
$
$
52,620
8,098
60,718
September 30, 2021
September 30, 2020
Depreciation expense and maintenance and repairs expense for the years ended September 30, 2021, 2020 and 2019 were
as follows:
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Maintenance and repair expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
10. Goodwill
Changes in the carrying amount of goodwill are as follows:
Year Ended September 30,
2020
2021
76,279
22,354
$
$
73,002
20,303
$
$
2019
66,031
23,861
Integrated
Solutions and
Services
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Business combinations and divestitures . . . . . . . . . . . . . . . . . . . . . . . .
Measurement period adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Business combinations and divestitures . . . . . . . . . . . . . . . . . . . . . . . .
Measurement period adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
222,013
2,723
—
(355)
224,381
10,349
(3,216)
2,316
$
Applied
Product
Technologies
170,877
$
$
(405) $
$
298
$
2,054
$
172,824
— $
— $
722
$
$
Total
392,890
2,318
298
1,699
397,205
10,349
(3,216)
3,038
407,376
Balance at September 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
233,830
$
173,546
As of September 30, 2021 and 2020, $159,730 and $153,004, respectively, of goodwill is deductible for tax purposes.
87
The Company reviewed the recoverability of the carrying value of goodwill of its reporting units. As the fair value of the
Company’s reporting units was determined to be in excess of the carrying values at July 1, 2021 and 2020, no further
analysis was performed. The Company has concluded that none of the goodwill was impaired as of September 30, 2021,
and there are no indicators of impairment through September 30, 2021.
11. Other Intangible Assets
Intangible assets consist of the following:
Amortizing intangible assets
Customer related . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proprietary technology . . . . . . . . . . . . . . . . . . . . . . . . .
Trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total amortizing intangible assets . . . . . . . . . . . . . . . . .
Indefinite-lived intangible assets . . . . . . . . . . . . . . . . .
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortizing intangible assets
Customer related . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proprietary technology . . . . . . . . . . . . . . . . . . . . . . . . .
Trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total amortizing intangible assets . . . . . . . . . . . . . . . . .
Indefinite-lived intangible assets . . . . . . . . . . . . . . . . .
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated
Life
(years)
5 - 26
7 - 10
5 - 15
1
3 - 10
Estimated
Life
(years)
5 - 26
7 - 10
5 - 15
1
3
September 30, 2021
Carrying
Amount
Accumulated
Amortization
Net
$
$
$
$
$
$
300,963
61,692
27,195
82,355
47,903
520,108
34,207
554,315
$
$
$
(101,272) $
(36,921) $
(12,191) $
(82,355) $
(31,501) $
(264,240) $
— $
(264,240) $
199,691
24,771
15,004
—
16,402
255,868
34,207
290,075
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
The Company’s 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, 2021 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.
88
For the amortizing intangible assets, the remaining weighted-average amortization period at September 30, 2021 was as
follows:
Customer-related intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proprietary technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregate net intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years
9
4
6
2
6
Intangible asset amortization was $37,385, $34,266, and $32,205 for the years ended September 30, 2021, 2020 and
2019, respectively. The estimated future amortization expense is as follows:
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
36,702
33,086
27,616
22,703
19,904
115,857
255,868
12. Debt
Long-term debt consists of the following:
September 30,
2021
September 30,
2020
2021 Term Loan, due April 1, 2028(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2021 Revolving Credit Facility, due April 1, 2026(1)
. . . . . . . . . . . . . . . . . . . . . . . . . .
2014 Term Loan, due December 20, 2024(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 Revolving Credit Facility(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitization Facility, due April 1, 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment Financing, due September 30, 2023 to July 5, 2029, interest rates ranging
from 3.13% to 8.07% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes Payable, due July 31, 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage(2)
Total debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less unamortized deferred financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
473,837
$
37,268
—
—
150,061
93,375
402
—
754,943
(11,738)
743,205
(12,775)
730,430
$
—
—
819,276
—
—
63,918
611
1,665
885,470
(9,436)
876,034
(14,339)
861,695
(1)
(2)
On April 1, 2021, the Company paid off the outstanding balance of the 2014 Term Loan (as defined
below) entered into the 2021 Credit Agreement (as defined below) and terminated the 2014 Credit
Agreement (as defined below)
In November 2020, the Company paid off the outstanding balance of the mortgage due June 30, 2028.
89
2014 Credit Agreement
On January 15, 2014, EWT III entered into a First Lien Credit Agreement (as modified, amended or supplemented from
time to time, the “2014 Credit Agreement”) and a Second Lien Credit Agreement among EWT III, EWT II, the lenders
party thereto and Credit Suisse AG as administrative agent and collateral agent. The term loans outstanding under the
Second Lien Credit Agreement were prepaid on October 28, 2016. The 2014 Credit Agreement also made available to
the Company a revolving credit facility (the “2014 Revolving Credit Facility”) of up to $125,000, with a letter of credit
sublimit of up to $45,000. The term loan outstanding under the 2014 Credit Agreement (the “2014 Term Loan”) was
scheduled to mature on December 20, 2024, and the 2014 Revolving Credit Facility was scheduled to mature on
December 20, 2022. As described below, on April 1, 2021, we completed a refinancing of the outstanding 2014 Term
Loan and terminated the 2014 Credit Agreement.
2021 Credit Agreement
On April 1, 2021, EWT III entered into a Credit Agreement (the “2021 Credit Agreement”) among EWT III, as
borrower, EWT II, as parent guarantor, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as
administrative agent and collateral agent, and ING Capital, LLC, as sustainability coordinator. The 2021 Credit
Agreement provides for a multi-currency senior secured revolving credit facility in an aggregate principal amount not to
exceed the U.S. dollar equivalent of $350,000 (the “2021 Revolving Credit Facility”) and a discounted senior secured
term (the “2021 Term Loan”) in the amount of $475,000 (together with the 2021 Revolving Credit Facility, the “Senior
Facilities”). The 2021 Credit Agreement also provides for a letter of credit sub-facility not to exceed $60,000. The
Senior Facilities are guaranteed by EWT II and certain existing and future direct or indirect wholly-owned domestic
subsidiaries of EWT III (together with EWT III, collectively, the “Loan Parties”), and collateralized by a first lien on
substantially all of the assets of the Loan Parties, with certain exceptions. In connection with entering into the 2021
Credit Agreement, on April 1, 2021, EWT III repaid all outstanding indebtedness under the 2014 Credit Agreement and
terminated that facility.
The 2021 Credit Agreement contains customary representations, warranties, affirmative covenants, and negative
covenants, each substantially similar to those included in the 2014 Credit Agreement, including, among other things, a
springing maximum first lien leverage ratio of 5.55 to 1.00. The Company did not exceed this ratio during the year ended
September 30, 2021, does not anticipate exceeding this ratio during the fiscal year ending September 30, 2022, and
therefore does not anticipate any additional repayments during the year ending September 30, 2022.
With respect to the 2021 Revolving Credit Facility, EWT III is required to pay a commitment fee based on the daily
unused portion of the 2021 Revolving Credit Facility, as well as certain other fees to the agents and the arrangers under
the Senior Facilities. Amounts outstanding under the Senior Facilities, at EWT III’s option, bear interest at either (i) a
Base Rate determined in accordance with the terms of the 2021 Credit Agreement, (ii) with respect to any amounts
denominated in U.S. dollars or Sterling, LIBOR, or replacement thereof, as determined in accordance with the terms of
the 2021 Credit Agreement, or (iii) with respect to amounts denominated in Euros, the EURIBOR, or replacement
thereof, as determined in accordance with the terms of the 2021 Credit Agreement. In the case of the 2021 Revolving
Credit Facility, an applicable margin based on the consolidated total leverage of EWT III and its restricted subsidiaries,
as calculated in accordance with the terms of the 2021 Credit Agreement, will be added to the interest rate elected by
EWT III; provided that the interest rate may be adjusted if EWT III meets certain metrics for a sustainability price
adjustment prior to December 31, 2021. In the case of the 2021 Term Loan, a fixed applicable margin, calculated in
accordance with the terms of the 2021 Credit Agreement, will be added to the interest rate elected by EWT III.
On April 1, 2021, EWT III borrowed the full amount of $475,000 under the 2021 Term Loan and $105,000 under the
2021 Revolving Credit Facility. The 2021 Term Loan was issued at a discount of $2,375, which is recorded as a contra-
liability to the carrying amount of debt issued, and is being amortized to interest expense using the effective interest
method. The net proceeds of these borrowings under the Senior Facilities, together with the net proceeds of the
Receivables Securitization Program (as defined below) and cash on hand, were used to repay all outstanding
indebtedness, in an aggregate principal amount of approximately $814,538, under the 2014 Credit Agreement. The
proceeds of the 2021 Revolving Credit Facility may also be used to finance or refinance the working capital and capital
expenditures needs of EWT III and certain of its subsidiaries and for general corporate purposes.
90
The 2021 Term Loan matures on April 1, 2028 and requires quarterly principal payments of $1,188 starting in the fourth
quarter of 2021. Subject to the terms of the 2021 Credit Agreement, to the extent not previously paid, any amount owed
under the 2021 Revolving Credit Facility will become due and payable in full on April 1, 2026.
At September 30, 2021, the Company had (a) $473,837 outstanding under the 2021 Term Loan, which includes $25 of
accrued interest, at an interest rate of 2.63%, comprised of 0.13% LIBOR plus the 2.50% spread, and (b) $37,268
outstanding under the 2021 Revolving Credit Facility, which includes $268 of accrued interest, at an interest rate of
2.38%, comprised of 0.13% LIBOR plus the 2.25% spread.
The following table summarizes the amount of the Company’s outstanding borrowings and outstanding letters of credit
under the 2021 Revolving Credit Facility as of September 30, 2021, and under the 2014 Revolving Credit Facility as of
September 30, 2020.
Borrowing availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Outstanding borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding letters of credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2021
350,000
September 30,
2020
125,000
$
37,000
10,112
—
12,963
Unused amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
302,888
$
112,037
Additional letters of credit under a separate arrangement
. . . . . . . . . . . . . . . . . . . . . . . . $
— $
52
Receivables Securitization Program
On April 1, 2021, Evoqua Finance LLC (“Evoqua Finance”), an indirect wholly-owned subsidiary of the Company,
entered into an accounts receivable securitization program (the “Receivables Securitization Program”) consisting of,
among other agreements, (i) a Receivables Financing Agreement (the “Receivables Financing Agreement”) among
Evoqua Finance, as the borrower, the lenders from time to time party thereto (the “Receivables Financing Lenders”),
PNC Bank, National Association (“PNC Bank”), as administrative agent, Evoqua Water Technologies LLC (“EWT
LLC”), an indirect wholly-owned subsidiary of the Company, as initial servicer, and PNC Capital Markets LLC (“PNC
Markets”), as structuring agent, pursuant to which the lenders have made available to Evoqua Finance a receivables
finance facility (the “Securitization Facility”) in an amount up to $150,000 and (ii) a Sale and Contribution Agreement
(the “Sale Agreement”) among Evoqua Finance, as purchaser, EWT LLC, as initial servicer and as an originator, and
Neptune Benson, Inc., an indirectly wholly-owned subsidiary of the Company, as an originator (together with EWT
LLC, the “Originators”). Under the Receivables Securitization Program, the Originators, pursuant to the Sale Agreement,
are required to sell substantially all of their domestic trade receivables and certain related rights to payment and
obligations of the Originators with respect to such receivables (the “Receivables”) to Evoqua Finance, which, in turn,
will obtain loans secured by the Receivables from the Receivables Financing Lenders pursuant to the Receivables
Financing Agreement. The Receivables underlying any borrowings will continue to be included in Accounts receivable,
net, in the Consolidated Balance Sheets of the Company. On April 1, 2021, Evoqua Finance borrowed $142,200 under
the Securitization Facility. During the year ended September 30, 2021, Evoqua Finance borrowed additional amounts
under the Securitization Facility and had $150,061 outstanding at September 30, 2021, which includes $61 of accrued
interest.
The Receivables Securitization Program contains certain customary representations, warranties, affirmative covenants,
and negative covenants, subject to certain cure periods in some cases, including the eligibility of the Receivables being
sold by the Originators and securing the loans made by the Receivables Financing Lenders, as well as customary reserve
requirements, events of default, termination events, and servicer defaults. The Company was in compliance with all
covenants during the fiscal year ended September 30, 2021, does not anticipate becoming noncompliant during the year
ending September 30, 2022, and therefore does not anticipate any additional repayments during the year ending
September 30, 2022.
91
The Receivables Financing Lenders under the Receivables Securitization Program receive interest at LIBOR or LMIR as
selected by Evoqua Finance. The Receivables Financing Agreement contains customary LIBOR benchmark replacement
language. The interest rate on the Securitization Facility was 1.33% as of September 30, 2021, comprised of 0.08%
LIBOR plus the 1.25% spread. The Receivables Securitization Program matures on April 1, 2024.
Equipment Financings
During the year ended September 30, 2021, the Company completed the following equipment financings:
Date Entered
Due
Interest Rate
at 9/30/2021
Principal
Amount
September 30, 2021
June 30, 2021
June 30, 2021
June 30, 2021
March 31, 2021
March 31, 2021
December 31, 2020
December 30, 2020
September 30, 2028
3.80 % $
June 30, 2028
July 31, 2029(1)
June 30, 2029
March 31, 2028
June 30, 2029
June 30, 2029
December 30, 2027
3.85 %
4.75 %
4.09 %
3.85 %
4.09 %
4.09 %
3.73 %
6,264
1,348
14,238
1,653
3,630
2,559
3,899
3,905
$
37,496
(1)
Represents an advance received from the lender on a multiple draw term loan in which the Company is
making interest only payments through August 1, 2022 based on a 1.00% LIBOR floor plus a 3.75%
spread. The Company entered into an interest rate swap with an effective date of August 1, 2022 to
mitigate risk associated with this variable rate equipment financing, see Note 13, “Derivative Financial
Instruments” for further discussion.
Deferred Financing Fees and Discounts
Deferred financing fees and discounts related to the Company’s long-term debt were included as a contra liability to debt
on the Consolidated Balance Sheets as follows:
September 30,
2021
September 30,
2020
Current portion of deferred financing fees and discounts(1) . . . . . . . . . . . . . . . . . . . . . $
Long-term portion of deferred financing fees and discounts(2) . . . . . . . . . . . . . . . . . . .
Total deferred financing fees and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(1,866) $
(9,872)
(11,738) $
(2,112)
(7,324)
(9,436)
(1)
(2)
Included in Current portion of debt, net of deferred financing fees and discounts on the Consolidated
Balance Sheets.
Included in Long-term debt, net of deferred financing fees and discounts on the Consolidated Balance
Sheets.
As a result of the refinancing on April 1, 2021, the Company wrote off approximately $1,333 of deferred financing fees
related to the 2014 Term Loan. In addition, the Company incurred approximately $4,985 of fees, of which approximately
$1,931 were recorded as deferred financing fees on the Consolidated Balance Sheets and approximately $3,054 were
expensed. During the year ended September 30, 2021, the Company incurred approximately $822 of fees related to the
Receivables Securitization Program and $453 of fees related to an equipment financing which were recorded as deferred
financing fees on the Consolidated Balance Sheets.
92
Amortization of deferred financing fees and discounts included in interest expense were $1,946, $1,735, and $1,991 for
the year ended September 30, 2021, 2020 and 2019, respectively.
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, 2021, are presented below:
Fiscal Year
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
14,641
15,562
164,105
15,647
18,916
526,072
754,943
13. 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 as well as variable rate equipment financings, which bear interest at rates that are indexed against LIBOR. The
Company’s 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, on June 30, 2021, the Company entered into an interest rate swap with an effective date
of August 1, 2022 to mitigate risk associated with a variable rate equipment financing. The interest rate swap provides
for a fixed rate of 5.25%, has a notional amount of $31,000 and a term of seven years. The interest rate swap has been
designated as a cash flow hedge.
On May 22, 2020, the Company entered into an interest rate swap to mitigate risks associated with variable rate debt.
The interest rate swap became effective on June 30, 2020, has a term of five years to hedge the variability of interest
payments on the first $500,000 of the Company’s senior secured debt and fixes LIBOR on this portion of the senior
secured debt at 0.61%. The interest rate swap has been designated as a cash flow hedge.
Foreign Currency Risk Management
The Company’s 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, 2021, the notional amount of the forward contracts was $7,076.
93
Equity Price Risk Management
The Company is exposed to variability in compensation charges related to certain deferred compensation obligations to
employees. Equity price movements affect the compensation expense as certain investments made by the Company’s
employees in the deferred compensation plan are revalued. Although not designated as accounting hedges, the Company
utilizes derivatives such as total return swaps to economically hedge this exposure and offset the related compensation
expense. As of September 30, 2021, the notional amount of the total return swaps was $4,540.
Credit Risk Management
The counterparties to the Company’s 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 following represents the fair value recorded for derivatives designated as cash flow hedges for the periods presented:
Balance Sheet Location
Asset Derivatives
September 30,
2021
September 30,
2020
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . Prepaid and other current assets
$
3,127
$
Foreign currency forward contracts . . . . . . . . Prepaid and other current assets
6
—
133
Interest rate swaps . . . . . . . . . . . . . . . . . . . . .
Foreign currency forward contracts . . . . . . . .
Commodity swaps
Balance Sheet Location
Accrued expenses and other current
liabilities
Accrued expenses and other current
liabilities
Accrued expenses and other current
liabilities
102
19
Liability Derivatives
September 30,
2021
September 30,
2020
$
303
$
4,669
The following represents the amount of (loss) gain recognized in AOCI (net of tax) during the periods presented:
Year Ended September 30,
2021
2020
2019
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,252
$
(5,155) $
Interest rate cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency forward contracts . . . . . . . . . . . . . . . . . . . . . . . . .
Commodity swaps
—
(324)
(19)
(19)
(201)
—
$
4,909
$
(5,375) $
94
47
—
—
19
(443)
—
(424)
The following represents the amount of (loss) gain reclassified from AOCI into earnings during the periods presented:
Location of (Loss) Gain
Cost of product sales and services
General and administrative expense
Selling and marketing expense
Research and development expense
Interest expense
Year Ended September 30,
2021
2020
2019
$
$
(70) $
(4)
(69)
—
(2,241)
(2,384) $
(8) $
(192)
28
—
(486)
(658) $
(309)
82
—
(271)
—
(498)
Based on the fair value amounts of the Company’s cash flow hedges at September 30, 2021, the Company expects that
approximately $71 of pre-tax net losses 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 Hedging Instruments
The following represents the fair value recorded for derivatives not designated as hedges for the periods presented:
Foreign currency forward contracts . . . . . . . . Prepaid and other current assets
$
18
$
7
Balance Sheet Location
Asset Derivatives
September 30,
2021
September 30,
2020
Total return swaps—deferred compensation .
Balance Sheet Location
Accrued expenses and other current
liabilities
Liability Derivatives
September 30,
2021
September 30,
2020
$
130
$
—
The following represents the amount of loss recognized in earnings for derivatives not designated as hedges during the
periods presented:
Location of Loss
General and administrative expense
Year Ended September 30,
2021
2020
2019
$
$
(106) $
(106) $
— $
— $
—
—
95
14. Product Warranties
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,
2021
2020
2019
2021
2020
2019
6,115
$
4,922
$
8,907
$
1,724
$
2,332
$
6,939
(4,720)
(196)
4,738
(4,890)
550
5,745
(6,529)
63
2,065
(830)
7
701
(1,170)
(274)
3,360
1,915
(999)
(350)
—
795
(3,264)
—
135
(1,594)
8,138
$
6,115
$
4,922
$
2,966
$
1,724
$
2,332
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 . . . . . . . . . . $
15. Restructuring and Related Charges
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 undertaking
activities to reduce the cost structure and rationalize location footprint following the sale of the Memcor product line,
transitioning from a three-segment structure to a two-segment operating model designed to better serve the needs of
customers worldwide, and various initiatives within the Integrated Solutions and Services segment to drive efficiency
and effectiveness in certain divisions.
The Company currently expects to incur approximately $400 to $1,400 of costs during fiscal 2022 related to
restructuring charges following the sale of the Memcor product
line. The Company currently expects to incur
approximately $500 of cash costs during fiscal 2022 as a result of its transition to a two-segment operating model related
to other non-employee related business optimizations. The Company currently expects to incur approximately $600 to
$1,000 of costs during fiscal 2022 related to the restructuring within certain divisions of the Integrated Solutions and
Services segment.
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 . . . . . . . . . . . . . . . . .
Release of prior reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2021
2020
2019
970
$
655
$
5,588
1,060
2,830
(329)
(1,340)
(8,484)
9
8,274
2,092
1,867
(98)
(2,461)
(9,367)
8
304
$
970
$
710
—
11,090
2,444
(541)
—
(12,966)
(82)
655
96
The balances for accrued restructuring liabilities at September 30, 2021 and 2020, are recorded in Accrued expenses and
other liabilities on the Consolidated Balance Sheets. Restructuring charges primarily represent severance charges and
other employee costs, fixed asset write-offs and certain relocation expenses. The Company expects to pay the remaining
amounts accrued as of September 30, 2021 during the first half of 2022.
The table below sets forth the location of amounts recorded above on the Consolidated Statements of Operations:
Year Ended September 30,
2021
2020
2019
Cost of product sales and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4,554
$
8,305
$
General and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,199
348
(16)
1,064
3,053
305
23
449
6,257
5,531
1,082
123
—
$
9,149
$
12,135
$
12,993
The Company continues to evaluate restructuring activities that may result in additional charges in the future.
16. Employee Benefit Plans
Defined Benefit Plans
The Company maintains multiple employee benefit plans.
Certain of the Company’s employees in the UK were participants in a Siemen’s 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.
Certain of the Company’s employees in Germany also participate in a defined benefit plan. Assets equaling the plan’s
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.
97
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, 2021 and 2020, respectively, are as follows:
Change in projected benefit obligation
Projected benefit obligation at prior year measurement date . . . . . . . . . . . . . . . . . . . . . . . $
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gains) losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid from company assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amount recognized in accumulated other comprehensive loss, before taxes
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2021
2020
47,389
1,156
482
(2,312)
(738)
36
46,013
27,530
971
(515)
258
394
28,638
$
$
$
42,948
1,125
492
5
(173)
2,992
47,389
25,525
205
(60)
255
1,605
27,530
(17,375) $
(19,859)
$
2,960
(20,335) $
2,831
(22,690)
7,071
$
11,235
The following table provides summary information for the UK and German plans where the projected benefit obligation
is in excess of plan assets:
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
46,013
24,578
28,638
$
$
$
47,389
25,489
27,530
September 30,
2021
September 30,
2020
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Salary scale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021
1.00% - 2.03%
1.97% - 3.50%
2.25% - 4.36%
1.00% - 3.27%
2020
0.80% - 1.97%
1.98% - 2.40%
2.25% - 4.44%
1.00% - 2.99%
98
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 German investment strategy is to close the current funding gap by taking a
risk-balanced growth approach through investing assets in marketable securities.
Through a trust arrangement, the German plan assets are held in a global multi-asset fund.
The actual overall asset allocation for the UK pension plan as compared to the investment policy goals as of
September 30, 2021 was as follows by asset category:
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index-linked gilts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17.8 %
76.0 %
6.2 %
— %
70 %
30 %
2021 Actual
2021 Target
Pension expense for the German and UK plans were as follows:
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension expense for defined benefit plans . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2021
2020
2019
1,156
$
1,125
$
482
(615)
1,042
492
(387)
1006
2,065
$
2,236
$
898
699
(440)
371
1,528
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,
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Five years thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
680
530
606
727
1,001
7,261
10,805
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. Prior to January 1, 2021,
the Company matched 100% of eligible participants’ deferrals that did not exceed 6% of their pay. Effective January 1,
2021, the Company matches 100% of eligible participants’ deferrals that do not exceed 4% of their pay. Also, effective
January 1, 2021, the Company may make a discretionary profit sharing contribution of up to 4% of each plan
participant’s compensation. All such contributions are subject to limitations imposed by the Internal Revenue Code. The
Company’s total contributions were $16,559, $14,243, and $14,533 for the years ended September 30, 2021, 2020 and
2019, respectively.
99
Employees in the UK and Germany also participate in a defined contribution plan maintained by the Company. For the
years ended September 30, 2021, 2020 and 2019, contributions made to the Company’s plan in the UK and Germany
were $919, $1,021, and $796, respectively.
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 participant’s pay. The Company’s
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.
17. Income Taxes
For financial reporting purposes, income (loss) before income taxes includes the following components:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
19,927
41,815
61,742
$
$
81,276
40,490
121,766
$
$
(9,140)
10,256
1,116
Year Ended September 30,
2020
2019
2021
The components of income tax (expense) benefit were as follows:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Current:
Federal
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total income tax (expense) benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Year Ended September 30,
2020
2019
2021
— $
(1,233)
(11,210)
(12,443) $
(2,153)
(630)
5,146
2,363
$
(10,080) $
— $
(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)
For the years ended September 30, 2021, 2020 and 2019, the U.S. federal statutory rate was 21.0%.
100
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,
2021
(12,966) $
2020
(25,571) $
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 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(757)
(3,009)
(588)
(176)
(5,687)
—
(786)
819
854
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,598
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 . . . . . . . . . . . . . . . . . . . . . .
—
(44)
30
—
155
—
—
—
87
27
—
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
363
2019
(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)
(74)
(1,129)
(1,032)
(760)
(8,438)
—
(479)
286
19,013
4,931
4,789
516
(466)
18
143
—
—
—
491
(6)
—
397
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(10,080) $
(7,371) $
(9,587)
Annual Tax (Expense) Benefit
For the year ended September 30, 2021, tax expense was $10,080 as compared to tax expense based on the U.S. statutory
rate of $12,966. The actual tax expense was lower principally due to U.S. income not attracting U.S. tax due to the
valuation allowance against U.S. deferred tax assets and the reversal of the valuation allowance with respect to the
Company’s German operating company. These tax benefits were mostly offset by an increase in foreign tax expense due
to improved profitability in certain jurisdictions with tax rates higher than the U.S. and the impact of a one-time state tax
adjustment for prior periods.
Tax expense increased $2,709 to $10,080 for the year ended September 30, 2021 as compared to $7,371 in the prior year.
The increase in tax expense was primarily attributable to an increase in foreign tax expense due to improved profitability
in certain countries and the impact of a one-time state tax adjustment for prior periods. The increase in expense was
partially offset by a one-time tax benefit for the reversal of the valuation allowance with respect to the Company’s
German operating company.
101
For the year ended September 30, 2020, the Company provided tax expense of $7,371 as compared to expense of $9,587
in 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.
Significant components of deferred tax assets and liabilities were as follows:
September 30,
2021
September 30,
2020
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
885
24,913
3,141
1,977
4,468
2,811
48,605
86,800
(21,299)
65,501
$
$
$
(9,849)
(46,057)
(15,313)
(2,440)
(73,659) $
(8,158) $
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)
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 is the cumulative income
or loss incurred over recent years including the three-year period ended September 30, 2021. The U.S. group was in a
three-year cumulative loss at September 30, 2019 but was no longer in a three-year cumulative loss position at
September 30, 2020, primarily due to the sale of the Memcor business. The Company believes the favorable evidence of
no longer being in a three-year cumulative loss is outweighed by the losses of the U.S. group and the significant global
economic uncertainty due to the COVID-19 health crisis. Our German operations have demonstrated strong profitability
in the most recent three years, are cumulatively profitable, and have fully utilized their net operating loss carryforwards.
After considering all available evidence, both positive and negative, management determined that a valuation allowance
was necessary in certain jurisdictions. As of September 30, 2021, the Company reversed the German valuation
allowance and continues to maintain 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. and the UK. A partial valuation allowance
continues to be maintained in the Netherlands related to a net operating loss generated prior to the Magneto acquisition
as well as certain foreign tax credits.
102
A reconciliation of the valuation allowance on deferred tax assets is as follows:
Year Ended September 30,
2020
2019
2021
Valuation allowance beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . $
23,298
$
41,084
$
36,683
Change in assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current year operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions / Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,140)
7,300
(3,219)
60
1,650
(19,856)
3,012
(2,592)
(865)
3,495
2,254
(483)
Valuation allowance end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
21,299
$
23,298
$
41,084
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, 2021, 2020 and 2019, undistributed earnings of non-U.S. affiliates were approximately $77,709,
$53,766, and $49,480, 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
the Company had unrecognized tax benefits of $1,123, $1,050, and
years ended September 30, 2021, 2020, and 2019,
$1,075 respectively.
The following is a reconciliation of the Company’s total gross unrecognized tax benefits:
Year Ended September 30,
2021
2020
2019
Balance as of beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,050
$
1,075
$
Tax positions related to the current year
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax positions related to prior years
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expiration of statutes of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
73
—
—
—
—
(25)
—
—
—
1,075
—
—
Balance as of end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,123
$
1,050
$
1,075
At September 30, 2021, 2020, and 2019, the Company had $1,599, $1,288, and $1,170 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, 2021, 2020, and 2019, if the Company’s tax positions are sustained by the taxing authorities in favor of
the Company, the amount that would affect the Company’s effective tax rate would be approximately $1,599, $1,288,
and $1,170 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, 2021, 2020, and 2019 the
Company recognized approximately $(238), $(143), and $(95) of gross interest and penalties, respectively.
103
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
$
September 30,
2021
190,386
106,687
2,558
8,107
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 years ending September 30, 2021
and 2020.
The Company may be subject to tax audits in the U.S. as well as various state and foreign jurisdictions. The following
table summarizes the Company’s open years by major jurisdiction as of September 30, 2021:
Jurisdiction
United States
Australia
Canada
China
Germany
Netherlands
Singapore
United Kingdom
18. Share-Based Compensation
Open Tax Years
2018-2021
2017-2021
2017-2021
2016-2021
2017-2021
2016-2021
2017-2021
2019-2021
The Company designs equity compensation plans to attract and retain employees while also aligning employees’
interests with the interests of the Company’s shareholders. In addition, members of the Company’s Board of Directors
(the “Board”) participate in equity compensation plans in connection with their service on the Company’s Board.
The Company established the Evoqua Water Technologies Corp. Stock Option Plan (the “Stock Option Plan”) 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, 2021, there were approximately 2,089 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 Company’s 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 Company’s 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.
On May 18, 2021 (the “Grant Date”), the Compensation Committee of the Board approved and the Company granted
special one-time awards of 234 restricted stock units (“Special RSUs”) and 469 performance share units (“Special
PSUs”), at a target award level, under the Equity Incentive Plan to certain executive officers of the Company. Subject to
the applicable executive officer’s continued employment with the Company and the terms and conditions of the Equity
104
Incentive Plan and the related award agreement, the Special RSUs will vest ratably over a three-year period on each
annual anniversary of the Grant Date, and the Special PSUs will be earned incrementally in three tranches of 25%, 25%,
and 50% after one-, two-, and three-year performance periods, respectively, and will cumulatively be paid, if earned,
after the end of the three-year performance period ending on May 18, 2024, based on the Company’s total stockholder
return (“TSR”) compared to peer water companies, including certain U.S.-listed companies included in the S&P Global
Water Index (the “Peer Companies”). Each tranche of the Special PSUs reflects the right to receive between 50% and
100% of the shares underlying such tranche based on the Company’s TSR as compared to the Peer Companies (“Relative
TSR”) for the applicable performance period. Subject to certain exceptions provided in the award agreements in the
event of death, disability, or change in control, for each tranche, Special PSUs will be earned as follows: 100% if
Relative TSR for the period is at the 80th percentile or above; 50% if Relative TSR for the period is at the 60th
percentile; and 0% if Relative TSR is below the 60th percentile. Linear interpolation will be used to determine the
percentage of each tranche earned when Relative TSR is between the 60th percentile and the 80th percentile for the
applicable performance period. The payout for each tranche of the Special PSUs is capped at 100% even if Relative TSR
exceeds the 80th percentile for the applicable period. If the Company’s TSR is negative for any performance period, the
number of Special PSUs that may vest for the corresponding tranche will be capped at 50% of the amount that otherwise
would have been earned for the period.
As of September 30, 2021, there were approximately 4,340 shares available for grants under the Equity Incentive Plan.
Option awards are granted at various times during the year, generally vest ratably at 25% per year, and are exercisable at
the time of vesting. The options granted have a ten-year contractual term.
A summary of the stock option activity for the years ended September 30, 2021 and 2020 is presented below:
Options
Weighted Average
Exercise Price/
Share
(In thousands, except per share amounts)
Outstanding at September 30, 2019 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at September 30, 2020 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at September 30, 2021 . . . . . . .
Options exercisable at September 30, 2021 .
Options vested and expected to vest at
September 30, 2021 . . . . . . . . . . . . . . . . . . .
8,619
823
(1,834)
(172)
(6)
—
7,430
612
$
$
(2,884) $
(67) $
(1)
—
5,090
3,189
5,047
$
$
$
8.15
23.52
5.62
15.54
20.60
—
10.30
24.78
6.81
21.25
16.63
—
13.87
9.72
Weighted Average
Remaining
Contractual Term
6.3 years
Aggregate
Intrinsic Value
80,826
$
5.9 years
$
83,152
5.9 years
4.6 years
$
$
$
120,611
88,776
119,992
13.79
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, 2021 was $60,370. During the year ended
September 30, 2021, $21,205 was received from the exercise of stock options.
105
A summary of the status of the Company's nonvested stock options as of and for the years ended September 30, 2021,
2020 and 2019 is presented below.
(In thousands, except per share
amounts)
Nonvested at beginning of
period . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . .
Nonvested at end of period . .
1,901
$
2021
2020
2019
Weighted
Average Grant
Date Fair
Value/Share
Shares
Weighted
Average Grant
Date Fair
Value/Share
Shares
Weighted
Average Grant
Date Fair
Value/Share
Shares
2,166
612
$
$
(810) $
(67) $
5.56
9.00
5.48
6.82
6.69
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
The total fair value of options vested during the year was $4,434, $3,906, and $4,064 for the years ended September 30,
2021, 2020 and 2019, respectively.
Restricted Stock Units
The following is a summary of the RSU activity for the years ended September 30, 2021 and 2020.
Outstanding at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled
Outstanding at September 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected to vest at September 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
Weighted Average
Grant Date Fair
Value/Share
2,002
394
$
$
(1,555) $
(91) $
750
731
$
$
(240) $
(25) $
(7) $
1,209
1,165
$
$
17.45
23.05
18.79
15.35
17.86
25.98
17.55
20.31
21.22
22.77
22.67
The following is a summary of the Special PSU activity for the year ended September 30, 2021.
(In thousands, except per share amounts)
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
Nonvested at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected to vest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted Average
Grant Date Fair
Value/Share
469
469
426
$
$
$
16.92
16.92
16.92
106
Expense Measurement and Recognition
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 $17,703 and $10,535 during the year ended September 30, 2021 and 2020, respectively, of
which $15,524 and $10,509 was non-cash, respectively. Share-based compensation expense was $19,903 during the
year ended September 30, 2019.
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,
2020
2019
2021
143
15,381
15,524
$
$
91
10,418
10,509
$
$
142
19,761
19,903
The unrecognized compensation expense related to stock options, RSUs, and Special PSUs was $8,872, $20,177 and
$6,946, respectively at September 30, 2021, and is expected to be recognized over a weighted average period of 2.0
years, 2.2 years, and 2.6 years, respectively.
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) . . . . . . . . . . . . . . . . . . . . . . . . . .
2021
38.3% - 56.7%
—
5.3 - 6.0
Year Ended September 30,
2020
24.2% - 77.1%
—
5.4 - 6.0
Risk free rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.4% - 0.9%
0.2% - 1.7%
Grant date fair value per share of options granted . . . . . . .
$8.12 - $19.76
$5.33 - $8.56
2019
26.3% - 30.0%
—
5.6 - 6.0
1.5% - 2.6%
$3.14 - $7.06
The risk-free interest rate is based on the U.S. treasury security rate in effect as of the date of grant. Beginning in fiscal
year 2021, the Company utilized historical realized volatility for expected volatility which is based on historical stock
prices during a period of time. Prior to fiscal year 2021, the Company had little history with respect to volatility of share
prices, and as such, the expected volatility was not based on realized volatility. The Company, as permitted under ASC
718, had identified guideline public companies who are participants in the Company’s 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 Company’s own implied volatility. As the guideline companies
were comparable in most significant respects, the Company believed they represent an appropriate basis for estimating
expected volatility.
107
The Company estimated the fair value of PSUs on the grant date using a Monte Carlo Simulation incorporating the
assumptions noted in the following table.
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk free rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grant date fair value per share of PSUs granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
September 30,
2021
61.0%
—
3
0.34%
$16.92
The risk-free interest rate is based on the U.S. treasury security rate in effect as of the date of grant. The Company
utilized historical realized volatility for expected volatility which is based on historical stock prices during a period of
time.
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 Company’s 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 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, 2021, 2020 and 2019, the Company incurred
compensation expense of $887, $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, 2021, 2020 and 2019, 182 shares, 58 shares and 46
shares, respectively, were issued under the ESPP plan.
108
19. Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) were:
Foreign currency translation income (loss)
Pension benefit plans, net of tax expense (benefit) of $403 and $(839) . . . . . . . . . . . . . . .
Unrealized derivative gain (loss) on cash flow hedges, net of tax expense of $135 and
$135 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
16,137
(7,474)
(5,535)
(10,396)
2,752
(4,541)
Total accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $
11,415
$
(20,472)
September 30,
2021
September 30,
2020
The (losses) gains in accumulated other comprehensive income (loss) by component, net of tax, for the years ended
September 30, 2021, 2020 and 2019 are as follows:
Foreign
currency
translation
Pension
plans
Cash flow
Hedges
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(4,212) $
(4,907) $
Other comprehensive income (loss) before reclassifications . . . . . . . .
Amounts gains reclassified from accumulated other comprehensive
loss into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,507
(5,939)
—
371
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(2,705) $
(10,475) $
102
(424)
498
176
Other comprehensive loss before reclassifications . . . . . . . . . . . . . . . .
Amounts gains reclassified from accumulated other comprehensive
loss into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,830)
(927)
(5,375)
—
1,006
Balance at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(5,535) $
(10,396) $
Other comprehensive income before reclassifications . . . . . . . . . . . . .
Amounts gains reclassified from accumulated other comprehensive
income (loss) into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,672
—
1,880
1,042
Balance at September 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
16,137
$
(7,474) $
658
(4,541)
4,909
2,384
2,752
Amounts reclassified out of other comprehensive income (loss) related to the amortization of actuarial losses are
included in pension expense. Refer to Note 13, “Derivative Financial Instruments” for the location in the Consolidated
Statements of Operations of amounts reclassified out of other comprehensive income (loss) related to cash flow hedges.
20. Concentration of Credit Risk
The Company’s 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 is derived from revenue earned from customers located in the U.S. and internationally and generally
do not require collateral. The Company’s trade receivables do not represent a significant concentration of credit risk at
September 30, 2021 and 2020 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,
2021, 2020 and 2019, 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
Company is a multi-national business, but its sales and operations are primarily in the U.S. External sales to unaffiliated
customers are transacted with the Company location that maintains the customer relationship.
109
The following tables set forth external net revenue, net of intercompany eliminations, and net asset information by
region:
Sales to external customers
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,174,474
Rest of World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
289,955
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,464,429
Total
$ 1,164,634
264,822
$ 1,429,456
$ 1,147,649
296,792
$ 1,444,441
Year Ended September 30,
2020
2019
2021
September 30,
2021
September 30,
2020
Net Assets
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Rest of World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Long Lived Assets
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Rest of World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
462,883
119,336
582,219
357,597
17,391
374,988
$
$
$
$
408,330
73,733
482,063
347,832
16,629
364,461
21. Leases
Lessee Accounting
The following represents the components of lease cost for the years ended September 30, 2021 and 2020, and other
information for both operating and finance leases for the years ended September 30, 2021 and 2020:
Year Ended September 30,
2021
2020
Lease cost
Finance lease cost:
Amortization of ROU assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
13,572 $
Interest on lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sublease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,793
15,357
2,935
—
(58)
13,738
1,981
16,052
4,970
—
(56)
Total lease cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
33,599 $
36,685
Total lease cost for operating leases was $20,088 for the year ended September 30, 2019.
110
Other information
(Gains)/losses on sale and leaseback transactions, net
Cash paid for amounts included in the measurement of lease liabilities
Year Ended September 30,
2021
2020
$
— $
—
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
1,810
15,758
13,373
14,257
4,839
8,177
3.6 years
4.8 years
4.3 %
4.0 %
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, 2021:
Fiscal Year
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
15,055
12,566
9,945
7,969
5,605
5,056
56,196
(4,945)
51,251
13,316
37,935
The gross and net carrying values of the equipment under finance leases as of September 30, 2021 and September 30,
2020 was as follows:
Gross carrying amount
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
92,247
36,884
$
$
89,254
36,577
September 30,
2021
September 30,
2020
111
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, 2021:
Fiscal Year
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
13,433
10,947
8,349
5,567
2,339
356
40,991
(2,813)
38,178
12,093
26,085
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 following represents the components of lease revenue for the years ended September 30, 2021 and 2020:
Lease revenue: operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
152,435 $
148,703
Lease revenue: sales-type leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,898
981
Total lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
190,333 $
149,684
Year Ended September 30,
2021
2020
As of September 30, 2021, future minimum lease payments receivable under operating leases are as follows:
Fiscal year
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Future minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
157,369
93,292
62,714
47,359
34,804
152,792
548,330
At September 30, 2021, the Company had current and long-term lease receivables of $1,068 and $37,812, respectively,
recorded in Prepaid and other current assets and Other non-current assets, respectively, in the Consolidated Balance
Sheets related to sales-type leases.
112
As of September 30, 2021, the maturities of the Company’s sales type lease receivables are as follows:
Fiscal year
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,068
2,836
2,836
2,836
2,836
26,468
38,880
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 Company’s outstanding letters of credit and surety bonds as of September 30, 2021 and
September 30, 2020, respectively.
September 30,
2021
September 30,
2020
Revolving credit capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Letters of credit outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remaining revolving credit capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Surety capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Surety issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remaining surety available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
60,000
10,112
49,888
250,000
147,845
102,155
$
$
$
$
45,000
12,963
32,037
230,000
152,990
77,010
The longest maturity date of letters of credit and surety bonds in effect as of September 30, 2021 was March 20, 2030.
113
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 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. During the year ended September 30, 2021, the Company reached a proposed settlement of securities litigation
for $16,650 all of which was covered and paid by insurance. See Part I, Item 3, “Legal Proceedings,” for additional
information regarding legal proceedings in which the Company is engaged.
23. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following:
September 30,
2021
September 30,
2020
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of liability derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earn-outs related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
79,110
13,316
12,093
10,031
4,575
3,720
2,938
554
304
150
33,576
160,367
$
$
67,766
12,767
11,362
9,270
5,316
3,954
2,580
4,716
970
295
24,393
143,389
24. Business Segments
The Company’s 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 Company’s 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.
114
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
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 and certain integration costs) 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.
115
The tables below provide segment information for the periods presented and a reconciliation to total consolidated
information:
Year Ended September 30,
2021
2020
2019
Total sales
Integrated Solutions and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
980,852
Applied Product Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
588,080
Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,568,932
$
954,542
559,635
$ 1,514,177
$
919,985
631,332
$ 1,551,317
Intersegment sales
Integrated Solutions and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Applied Product Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total intersegment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
20,966
83,537
104,503
$
$
10,360
74,361
84,721
$
$
9,151
97,725
106,876
Sales to external customers
Integrated Solutions and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
959,886
Applied Product Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
504,543
Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,464,429
$
944,182
485,274
$ 1,429,456
$
910,834
533,607
$ 1,444,441
Income 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
147,251
82,891
(130,825)
99,317
(37,575)
61,742
(10,080)
51,662
70,585
14,423
28,656
113,664
60,407
6,955
7,931
75,293
$
$
$
$
$
$
$
$
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
116
Assets
Integrated Solutions and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Applied Product Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
325,264
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,868,891
Goodwill
September 30,
2021
September 30,
2020
887,265
$
835,307
656,362
598,701
410,450
$ 1,844,458
Integrated Solutions and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Applied Product Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
233,830
173,546
407,376
$
$
224,381
172,824
397,205
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,
2021
2020
2019
Net income (loss) attributable to Evoqua Water Technologies Corp.
. . . $
51,482
$
113,649
$
(9,523)
Denominator:
Denominator for basic net income per common share—weighted
average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
119,575
116,721
114,703
Effect of dilutive securities:
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,368
4,342
—
Denominator for diluted net loss per common share—adjusted weighted
average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic income (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted income (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . . $
122,943
121,063
114,703
0.43
0.42
$
$
0.97
0.94
$
$
(0.08)
(0.08)
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, 1,784 and
2,512 common share equivalents, comprised of employee stock options, have been excluded from the diluted EPS
calculation for the years ended September 30, 2021 and 2020, respectively.
26. Subsequent Events
None.
117
Evoqua Water Technologies Corp.
Supplementary Financial Information
SCHEDULE I-Evoqua Water Technologies Corp.
(Parent company only)
Condensed Consolidated Balance Sheets
(In thousands)
September 30,
2021
September 30,
2020
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
51,777
39,982
11,681
114
517,479
569,256
$
$
10,871
5,821
4,972
78
489,745
500,616
—
— $
—
—
Common stock, par value $0.01: authorized 1,000,000 shares; issued 122,173 shares,
outstanding 120,509 at September 30, 2021; issued 119,486 shares, outstanding
117,291 at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock: 1,664 shares at September 30, 2021 and 2,195 shares at September 30,
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total liabilities and shareholder’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,223
1,189
(2,837)
582,052
(11,182)
569,256
569,256
$
$
(2,837)
564,928
(62,664)
500,616
500,616
118
SCHEDULE I-Evoqua Water Technologies Corp.
(Parent company only)
Condensed Statements of Operations
(In thousands)
Year Ended September 30,
2020
2019
2021
Other operating (expense) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(1,073) $
General and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(426)
52,981
51,482
—
16
$
(476)
114,109
113,649
—
73
(303)
(9,293)
(9,523)
—
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
51,482
$
113,649
$
(9,523)
119
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
Net (income) loss of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange gains on intercompany loans . . . . . . . . . . .
Changes in assets and liabilities
Year Ended September 30,
2020
2019
2021
51,482
$
113,649
$
(9,523)
(52,981)
—
(114,109)
(15)
Due from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaids and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11,638)
—
—
(36)
5,842
(9,747)
160
(24)
9,293
—
—
1,343
—
(161)
952
—
—
(13,173) $
(4,244) $
— $
— $
— $
— $
21,205
$
18,927
$
363
(1,323)
19,882
6,709
(9,832)
9,095
4,851
121
4,972
$
$
$
(1,270)
(907)
45
76
121
$
$
$
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 . . . . . . . . . . . . . . . . . . . . . . . . $
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4,972
11,681
120
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 Company’s investment in subsidiaries is stated at cost plus equity in
undistributed earnings of subsidiaries. The Company’s 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 Company’s consolidated financial statements.
2. Guarantees and Restrictions
On April 1, 2021, EWT Holdings III Corp. (“EWT III”), a subsidiary of the Company, entered into a Credit Agreement
(the “2021 Credit Agreement”) among EWT III, as borrower, EWT Holdings II Corp. (“EWT II”), as parent guarantor,
the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent,
and ING Capital, LLC, as sustainability coordinator. The 2021 Credit Agreement provides for a multi-currency senior
secured revolving credit facility in an aggregate principal amount not to exceed the U.S. dollar equivalent of $350,000
(the “2021 Revolving Credit Facility”) and a discounted senior secured term (the “2021 Term Loan”) in the amount of
$475,000 (together with the 2021 Revolving Credit Facility, the “Senior Facilities”). The Senior Facilities are guaranteed
by EWT II and certain existing and future direct or indirect wholly-owned domestic subsidiaries of EWT III (together
with EWT III, collectively, the “Loan Parties”), and collateralized by a first lien on substantially all of the assets of the
Loan Parties, with certain exceptions. In connection with entering into the 2021 Credit Agreement, on April 1, 2021,
EWT III repaid all outstanding indebtedness under the 2014 Credit Agreement and terminated that facility.
As of September 30, 2021, EWT III had $511,105 collectively of debt outstanding under the Senior Facilities. Under the
terms of the credit agreements governing the Company’s senior secured credit facilities, EWT II has guaranteed the
payment of all principal and interest. In the event of a default under our senior secured credit facilities, certain of the
Company’s subsidiaries will be directly liable to the debt holders. The 2021 Term Loan matures on April 1, 2028.
Subject to the terms of the 2021 Credit Agreement, to the extent not previously paid, any amount owed under the 2021
Revolving Credit Facility will become due and payable in full on April 1, 2026. The credit agreements governing the
Company’s 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 Company’s consolidated subsidiaries
of each of the periods ended September 30, 2021, 2020 and 2019.
121
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 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, 2021.
The Company completed its acquisition of WCSI on April 1, 2021 and has not yet included WCSI in its assessment of
the effectiveness of its internal control over financial reporting. The Company is currently integrating WCSI into its
operations, compliance programs and internal control processes. Accordingly, pursuant to the SEC’s general guidance
that an assessment of a recently acquired business may be omitted from the scope of an assessment in the year of
acquisition, the scope of our assessment of the effectiveness of our disclosure controls and procedures does not include
WCSI. WCSI constituted approximately 0.7% of the Company’s total assets as of September 30, 2021, and
approximately 0.3% of the Company’s net sales for the fiscal year ended September 30, 2021.
Management’s 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
Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal
financial officers and effected by the company’s 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 company’s 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.
The Company completed its acquisition of WCSI on April 1, 2021 and has not yet included WCSI in its assessment of
the effectiveness of its internal control over financial reporting. The Company is currently integrating WCSI into its
operations, compliance programs and internal control processes. Accordingly, pursuant to the SEC’s general guidance
that an assessment of a recently acquired business may be omitted from the scope of an assessment in the year of
acquisition, the scope of our assessment of the effectiveness of our disclosure controls and procedures does not include
WCSI. WCSI constituted approximately 0.7% of the Company’s total assets as of September 30, 2021, and
approximately 0.3% of the Company’s net sales for the fiscal year ended September 30, 2021.
122
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30,
2021. 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 Company’s internal control over financial reporting was effective as of September 30, 2021.
Management has concluded that our consolidated financial statements included in this Annual Report fairly represent, in
all material respects, the financial position, results of operations and cash flows as of, and for, the periods presented in
this Annual Report, in conformity with U.S. generally accepted accounting principles. Ernst & Young LLP, the
registered public accounting firm that audited the financial statements included in this Annual Report, 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 Annual Report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended
September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
123
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,” “Our Executive
Officers,” and “Corporate Governance—Standing Board Committees—Purpose and Function of the Audit Committee”
in the Company’s Proxy Statement, which will be filed with the SEC within 120 days after September 30, 2021 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—Standing Board Committees—Compensation Committee Interlocks and
Insider Participation” in the Company’s Proxy Statement, which will be filed with the SEC within 120 days after
September 30, 2021 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 Company’s Proxy
Statement, which will be filed with the SEC within 120 days after September 30, 2021 and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is set forth under the headings “Board Composition and Board Development-
Director Independence” and “Certain Relationships and Related Party Transactions” in the Company’s Proxy Statement,
which will be filed with the SEC within 120 days after September 30, 2021 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 Firm’s
Fees and Services” in the Company’s Proxy Statement, which will be filed with the SEC within 120 days after
September 30, 2021 and is incorporated herein by reference.
124
Part IV
Item 15. Exhibit and 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, 2021 and 2020 . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended September 30, 2021, 2020 and
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended
September 30, 2021, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Equity for the Years Ended September 30, 2021,
2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Cash Flow for the Years Ended September 30,
2021, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental Disclosure of Cash Flow Information for the Years Ended September 30,
2021, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Audited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule I Parent Company Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Report to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
61
65
66
67
68
69
70
71
118
122
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
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 Registrant’s 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 Registrant’s 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 Registrant’s Registration Statement on Form S-1 filed on October 17, 2017
(File No. 333-220785)).
125
Third Amended and Restated Bylaws of Evoqua Water Technologies Corp. (incorporated by reference to Exhibit 3.2
to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 filed on October 17, 2017 (File No.
333-220785)).
Specimen Common Stock Certificate of Evoqua Water Technologies Corp. (incorporated by reference to Exhibit 4.1
to Amendment No. 2 to the Registrant’s 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 (incorporated by
reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30,
2020 (File No. 001-38272)).
Credit Agreement among EWT Holdings III Corp., as the borrower, EWT Holdings II Corp., as parent guarantor, the
lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent,
and ING Capital, LLC, as sustainability coordinator, dated April 1, 2021 (incorporated by reference to Exhibit 10.1
to the Registrant’s Form 8-K filed on April 1, 2021 (File No. 001-38272)).
Receivables Financing Agreement among Evoqua Finance LLC, as the borrower, the lenders from time to time party
thereto, PNC Bank, National Association, as administrative agent, Evoqua Water Technologies LLC, as initial
servicer, and PNC Capital Markets LLC, as structuring agent, dated April 1, 2021 (incorporated by reference to
Exhibit 10.2 to the Registrant’s Form 8-K filed on April 1, 2021 (File No. 001-38272)).
* First Amendment to the Receivables Financing Agreement among Evoqua Finance LLC, as borrower, Evoqua Water
Technologies LLC, as initial servicer, and PNC Bank, National Association, as lender and administrative agent.
*
Second Amendment to the Receivables Financing Agreement among Evoqua Finance LLC, as borrower, Evoqua
Water Technologies LLC, as initial servicer, and PNC Bank, National Association, as lender and administrative
agent.
Third Amendment to the Receivables Financing Agreement among Evoqua Finance LLC, as borrower, Evoqua
Water Technologies LLC, as initial servicer, and PNC Bank, National Association, as lender and administrative
agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on August 11, 2021 (File No.
001-38272)).
Sale and Contribution Agreement among Evoqua Finance LLC, as the purchaser, Evoqua Water Technologies LLC,
as initial servicer and as an originator, and Neptune Benson, Inc., as an originator, dated April 1, 2021 (incorporated
by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on April 1, 2021 (File No. 001-38272)).
First Amendment to the Sale and Contribution Agreement among Evoqua Finance LLC, as buyer, Evoqua Water
Technologies LLC, as initial servicer and an originator, and Neptune Benson, Inc., as an originator (incorporated by
reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on August 11, 2021 (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 Registrant’s 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 Registrant’s 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 Registrant’s Form 10-K filed on
November 25, 2019 (File No. 001-38272)).
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 Registrant’s Form 10-K filed on November 25, 2019 (File
No. 001-38272)).
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 Registrant’s 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 Registrant’s 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 Registrant’s
Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)).
†
†
†
†
3.2
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
10.13
10.14
126
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
†
†
†
†
EWT Holdings I Corp. Stock Option Plan (incorporated by reference to Exhibit 10.17 to Amendment No. 2 to the
Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s 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
Registrant’s 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 Registrant’s 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 Registrant’s 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
Registrant’s Registration Statement on Form S-1 filed on October 17, 2017 (File No. 333-220785)).
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 Registrant’s Form 8-K filed on April 4, 2018 (File No.
001-38272)).
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 Registrant’s 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 Registrant’s Form
8-K filed on June 22, 2018 (File No. 001-38272)).
Evoqua Water Technologies Corp. Amended and Restated Non-Employee Director Compensation Policy (adopted
August 16, 2021).
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 Registrant’s 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 Registrant’s 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
Registrant’s 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 Registrant’s Form 10-Q filed on May 6, 2020 (File No. 001-38272)).
10.33
†*
Form of Non-Employee Director Restricted Stock Unit Award Agreement under the Evoqua Water Technologies
Corp. 2017 Equity Incentive Plan.
10.34
10.35
†
†
Form of Special Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the
Registrant’s Form 8-K filed on May 19, 2021 (File No. 001-38272)).
Form of Special Performance Share Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the
Registrant’s Form 8-K filed on May 19, 2021 (File No. 001-38272)).
21.1
* List of subsidiaries of Evoqua Water Technologies Corp.
127
23.1
* Consent of Ernst & Young.
31.1
31.2
32.1
32.2
*
*
**
**
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.
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 (formatted as Inline XBRL and contained in Exhibit 10.1)
†
*
Indicates a management contract or compensatory plan or arrangement.
Filed herewith.
**
Furnished herewith.
128
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 17, 2021
/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/ Gary A. Cappeline
Gary A. Cappeline
/s/ Nick Bhambri
Nick Bhambri
/s/ Sherrese Clarke Soares
Sherrese Clarke Soares
/s/ Lisa Glatch
Lisa Glatch
/s/ Judd A. Gregg
Judd A. Gregg
/s/ Brian R. Hoesterey
Brian R. Hoesterey
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Date
November 17, 2021
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
November 17, 2021
Chairman of the Board and Director
November 17, 2021
Director
November 17, 2021
Director
November 17, 2021
Director
November 17, 2021
Director
November 17, 2021
Director
November 17, 2021
129
/s/ Martin J. Lamb
Martin J. Lamb
/s/ Lynn C. Swann
Lynn C. Swann
/s/ Peter M. Wilver
Peter M. Wilver
Director
November 17, 2021
Director
November 17, 2021
Director
November 17, 2021
130
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
Corporate Information
CORPORATE HEADQUARTERS
210 Sixth Avenue
Pittsburgh, PA 15222 USA
+1-724-772-0044
evoqua.com
STOCK LISTING
Evoqua Water Technologies Corp. common stock is
listed on the New York Stock Exchange under the
symbol AQUA.
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 investor relations website at
aqua.evoqua.com.
To obtain copies of these reports, you may
email, call or write us:
ANNUAL MEETING
OF SHAREHOLDERS
February 16, 2022, 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
Attention: Investor Relations
Evoqua Water Technologies
210 Sixth Avenue
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 intend to make future announcements
regarding developments and financial
performance through the investor relations
section of our website, aqua.evoqua.com, as
well as through press releases, filings with
the Securities and Exchange Commission,
conference calls and webcasts. 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
As of December 1, 2021
Gary Cappeline, Board Chairperson
Nick Bhambri
Sherrese Clarke Soares
Lisa Glatch
Judd Gregg
Brian Hoesterey
Ron Keating, CEO
Martin Lamb
Lynn Swann
Peter Wilver
LEADERSHIP TEAM
Ron Keating
President, Chief Executive
Officer and Director
Ben Stas
Executive Vice President,
Chief Financial Officer and
Treasurer
Rodney Aulick
Executive Vice President,
Integrated Solutions and
Services Segment President
Snehal Desai
Executive Vice President,
Chief Growth and Sustainability
Officer
Hervé Fages
Executive Vice President,
Applied Product Technologies
Segment President
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
E
V
O
Q
U
A
W
A
T
E
R
T
E
C
H
N
O
L
O
G
I
E
S
2
0
2
1
A
n
n
u
a
l
R
e
p
o
r
t
210 Sixth Avenue
Pittsburgh PA 15222 USA
+1-724-772-0044
evoqua.com
The printer and paper utilized for this report have been certified by the Forest Stewardship Council® (FSC®), which
promotes environmentally appropriate, socially beneficial and economically viable management of the world’s forests.
This report is printed on paper made from mixed sources of post-consumer recycled fiber.
©2021 Evoqua Water Technologies LLC. All rights reserved.