PITTSBURGH--(BUSINESS WIRE)--Evoqua Water Technologies Corp. (NYSE:AQUA) today reported results for its third quarter of fiscal 2018.

Revenues for the third quarter of fiscal 2018 were $342.5 million, an increase of $31.3 million or 10.1% as compared to the third quarter of the prior year. Revenue growth was led by an increase in the Industrial segment related to capital projects in the power market, remediation projects and revenues from recently acquired businesses. Additionally, the Products segment delivered year-over-year growth through volume increases across multiple divisions and the benefit of foreign exchange. This growth was somewhat offset by a decline in Municipal segment revenues related to large retrofit project revenues recognized in the third quarter of the prior year and the timing of aftermarket activity.

Net income for the quarter was $1.0 million, a decline of $(0.8) million year-over-year. Diluted EPS for the quarter was $0.01 per share on 119.0 million weighted average shares outstanding. Net income includes $8.8 million of non-cash foreign currency loss from intra-company loans, versus a prior year non-cash foreign currency gain of $7.1 million.

Adjusted EBITDA was $58.0 million in the third quarter of fiscal 2018, an increase of $2.9 million or 5.2% year-over-year. The improvement in Adjusted EBITDA was driven by the increase in revenues and related profit.

“Through the quarter we experienced strong order book and broad-based revenue growth in the Industrial capital business and across most divisions in the Products segment, enhanced by our ongoing merger and acquisition efforts,” said Ron Keating, Evoqua CEO. “Inflationary impacts and price realization materialized essentially as we expected. We continue to see strong capital project growth, which presents attractive service and aftermarket follow-on opportunities in the future. Our opportunity pipeline and order book continues to outpace revenues and supports the achievement of our expectations.”

Mr. Keating continued, “Evoqua continues to invest in strengthening our position as the solutions provider of choice for capital, service and aftermarket opportunities in water treatment. Key vertical markets are trending positively and we are seeing more customers looking to outsource their water treatment systems, which supports the national roll out of our IoT enabled Water One® Assurance platform in September. The recent addition of ProAct Services also provides significant capabilities and broadens our portfolio of water service offerings into the Industrial markets, further strengthening our position as a leading provider of outsourced water solutions. For 2018, we continue to expect revenues to be in the range of $1.34 billion and $1.37 billion and Adjusted EBITDA to be in the range of $235.0 million and $245.0 million.”

Third Quarter Segment Results

The Company has three reportable segments - Industrial, Municipal and Products.

Industrial

The Industrial segment combines equipment and services to improve operational reliability and environmental compliance for heavy and light industry, commercial and institutional markets. Their customers span industries including hydrocarbon processing, chemical processing, power, food and beverage, life sciences, health services and microelectronics.

Revenues in the Industrial segment increased $27.6 million, or 17.9%, to $182.3 million in the third quarter of fiscal 2018 as compared to $154.7 million in the same period in the prior year -

• Capital revenues increased $17.2 million, primarily in the power market and with remediation projects.
• Service revenues were down slightly due to temporary down-time from the redeployment of mobile treatment assets to new locations resulting from the completion of a large remediation project.
• Acquisitions contributed $11.1 million of revenue from the additions of ADI, Noble and Pure Water.

Operating profit in the Industrial segment decreased $(1.2) million, or (4.5)%, to $24.4 million in the third quarter of fiscal 2018 from $25.6 million in the same period of the prior year -

• $6.4 million of profit was driven by revenue volume, net of product mix, as well as price realization and contributions from acquisitions.
• Based on the positive performance of the Noble and ADI acquisitions, the Company recognized an additional charge of $(2.6) million related to the full achievement of earn-out targets established during the respective acquisitions.
• Negative temporary absorption, productivity and inflation impacted profit by $(2.8) million, primarily driven by mobile fleet redeployment, system upgrades related to our Service branch technologies, higher commodity costs, and general inflation and other miscellaneous cost impacts.
• Profitability was also offset by $(2.2) million related to higher depreciation and amortization driven by capital investment in service assets and the acquisitions mentioned above.

Adjusted EBITDA increased $3.6 million, or 10.5%, to $38.4 million in the three months ended June 30, 2018 as compared to $34.8 million in the three months ended June 30, 2017. The increase in Adjusted EBITDA resulted from the same factors which impacted operating profit, less the change in depreciation and amortization, and also excludes the charge of $(2.6) million related to the achievement of earn-out targets associated with the Noble and ADI acquisitions that was discrete to the Industrial segment. There were no comparable charges incurred in the same period of the prior year that would impact Adjusted EBITDA for the Industrial segment.

Municipal

The Municipal segment helps engineers and municipalities meet new demands for plant performance through market-leading equipment, solutions and services backed by trusted brands and over 100 years of applications experience. The segment’s customers include waste water and drinking water collection and distribution systems and utility operators. The segment’s services include odor and corrosion control services.

Municipal revenues decreased by $(4.2) million, or (5.8)%, to $68.5 million for the third quarter of fiscal 2018, as compared to $72.7 million for the comparable period in the prior year -

• Large retrofit project revenues decreased $(3.7) million and aftermarket revenues declined by $(1.3) million as compared to the same period, driven by timing of projects year over year.
• Service revenue experienced growth of $0.8 million.

Operating profit in the Municipal segment increased $2.1 million, or 20.2%, to $12.7 million for the third quarter of fiscal 2018 from $10.6 million for the same period in the prior year -

• $7.0 million of gain was recognized from the sale of land at our Windsor, Australia location.
• Operating profit decreased by $(5.0) million as a result of the lower aftermarket sales volume, as well as the mix shift to capital projects.

Adjusted EBITDA decreased ($4.3) million, or (34.2)%, to $8.3 million in the three months ended June 30, 2018 as compared to $12.6 million in the three months ended June 30, 2017. Adjusted EBITDA performance was driven by the same factors which impacted operating profit, less the change from depreciation and amortization, and also excludes the $7.0 million gain on sale of land at our Windsor, Australia location as well as a charge of $(0.8) million for restructuring and realignment costs incurred during the period that was discrete to the Municipal segment. There were no comparable charges incurred in the same period of the prior year that would impact Adjusted EBITDA for the Municipal segment.

Products

The Products segment has distinct business operating units, each built on well-known brands and technologies that are sold globally through multiple sales and aftermarket channels. Additionally, the Products segment also offers industrial, municipal and commercial users improved operational reliability and environmental compliance. The segment’s customers include original equipment manufacturers, regional and global distributors, engineering, procurement and contracting customers, and end users in the industrial, municipal and commercial industries.

Products revenues increased $8.0 million, or 9.5%, to $91.7 million in the third quarter of fiscal 2018 from $83.7 million in the comparable period of the prior year -

• Growth of $3.4 million in revenues across the segment, comprised of contributions from four of the five divisions.
• Acquisitions contributed $2.1 million from the additions of Olson and Pacific Ozone.
• The positive impact of foreign currency was $2.5 million, primarily related to transactions denominated in euro and pound sterling.

Operating profit in the Products segment increased $1.6 million, or 8.4%, to $20.7 million for the third quarter of fiscal 2018 as compared to $19.1 million in the prior year period -

• Overall increased volume and mix of product offerings as well as operational efficiency and the impact of foreign currency and recent acquisitions delivered $2.8 million of operating profit.
• Profitability was offset by $(1.2) million of increased depreciation and amortization, mainly related to increased amortization associated with the acquisitions.

Adjusted EBITDA increased $4.7 million, or 22.2%, to $25.9 million in the three months ended June 30, 2018 as compared to $21.2 million in the three months ended June 30, 2017. The increase in Adjusted EBITDA resulted from the same factors which impacted operating profit, less the change in depreciation and amortization, and also excludes a $(1.6) million charge related to remediation of a manufacturing defect caused by a third party vendor as well as a charge of $(0.3) million for restructuring and realignment costs incurred during the period that was discrete to the Products segment. There were no comparable charges incurred in the same period of the prior year that would impact Adjusted EBITDA for the Products segment.

Third Quarter 2018 Earnings Call and Webcast

The Company will hold its third quarter earnings conference call Tuesday, August 7, at 10:00 a.m. E.T. The live audio webcast and presentation slides for the call will be accessible via Evoqua's Investor Relations website, . The link to the webcast replay as well as the presentation slides will also be posted on Evoqua's Investor Relations website.

About Evoqua Water Technologies

Evoqua Water Technologies is a leading provider of mission critical water treatment solutions, offering services, systems and technologies to support its customers’ full water lifecycle needs. Evoqua Water Technologies 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, Evoqua operates 160 locations in eight countries and, with over 200,000 installations and 87 service branches, holds leading positions in the North American industrial, commercial and municipal water treatment markets, serving more than 38,000 customers worldwide.

Adjusted EBITDA

We use the non-GAAP financial measure “Adjusted EBITDA” in evaluating our past performance and future prospects. Adjusted EBITDA is defined as net income (loss) before interest expense, income tax expense (benefit) and depreciation and amortization, adjusted for the impact of certain other items, including restructuring and related business transformation costs, purchase accounting adjustment costs, non-cash stock based compensation, sponsor fees, transaction costs and other gains, losses and expenses.

Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business. We present Adjusted EBITDA, which is not a recognized financial measure under GAAP, because we believe it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Further, we believe it is helpful in highlighting trends in our operating results, because it excludes, among other things, certain results of decisions that are outside the control of management, while other measures can differ significantly depending on long term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. Management uses Adjusted EBITDA to supplement GAAP measures of performance as follows:

• to assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance;
• in our management incentive compensation which is based in part on components of Adjusted EBITDA;
• in certain calculations under our senior secured credit facilities, which use components of Adjusted EBITDA.
• to evaluate the effectiveness of our business strategies;
• to make budgeting decisions; and
• to compare our performance against that of other peer companies using similar measures.

In addition to the above, our chief operating decision maker uses EBITDA and Adjusted EBITDA of each reportable segment to evaluate the operating performance of such segments. EBITDA and Adjusted EBITDA of the reportable segments does not include certain charges that are presented within Corporate activities. These charges include certain restructuring and other business transformation charges that have been incurred to align and reposition the Company to the current reporting structure, acquisition related costs (including transaction costs, integration costs and recognition of backlog intangible assets recorded in purchase accounting) and stock-based compensation charges.

You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. In addition, in evaluating Adjusted EBITDA, you should be aware that in the future, we may incur expenses similar to the adjustments in the presentation of Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non- recurring items. In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

The following is a reconciliation of our net income (loss) to Adjusted EBITDA (unaudited, amounts in thousands):

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Adjusted EBITDA on a segment basis is defined as earnings before interest expense, income tax expense (benefit) and depreciation and amortization, adjusted for the impact of certain other items that have been reflected at the segment level. The following is a reconciliation of our segment operating profit to Adjusted EBITDA:

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This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All of these forward-looking statements are based on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements, or could affect our share price. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include among other things, general global economic and business conditions; our ability to execute projects in a timely manner; our ability to accurately predict the timing of contract awards; material and other cost inflation and our ability to mitigate the impact of inflation by increasing selling prices and improving our productivity efficiencies; our ability to compete successfully in our markets; our ability to continue to develop or acquire new products, services and solutions and adapt our business to meet the demands of our customers, comply with changes to government regulations and achieve market acceptance with acceptable margins; our ability to implement our growth strategy, including acquisitions and our ability to identify suitable acquisition targets; our ability to operate or integrate any acquired businesses, assets or product lines profitably or otherwise successfully implement our growth strategy; delays in enactment or repeals of environmental laws and regulations; the potential for us to become subject to claims relating to handling, storage, release or disposal of hazardous materials; risks associated with product defects and unanticipated or improper use of our products; the potential for us to incur liabilities to customers as a result of warranty claims of failure to meet performance guarantees; our ability to meet our customers’ safety standards or the potential for adverse publicity affecting our reputation as a result of incidents such as workplace accidents, mechanical failures, spills, uncontrolled discharges, damage to customer or third-party property or the transmission of contaminants or diseases; litigation, regulatory or enforcement actions and reputational risk as a result of the nature of our business or our participation in large-scale projects; seasonality of sales and weather conditions; risks related to government customers, including potential challenges to our government contracts or our eligibility to serve government customers; the potential for our contracts with federal, state and local governments to be terminated or adversely modified prior to completion; risks related to foreign, federal, state and local environmental, health and safety laws and regulations and the costs associated therewith; risks associated with international sales and operations, including our operations in China; our ability to adequately protect our intellectual property from third-party infringement; our increasing dependence on the continuous and reliable operation of our information technology systems; risks related to our substantial indebtedness; our need for a significant amount of cash, which depends on many factors beyond our control; AEA’s influence over us; and other factors to be described in the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, as filed with the SEC December 4, 2017, in the "Management's Discussion and Analysis of Financial Condition and Results of Operation" section in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2018, and in other periodic reports we file with the SEC. Additionally, any forward looking statements made in this press release speak only as of the date of this release. We undertake no obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements made herein, whether as a result of new information, future events or otherwise. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to the date of this release.