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FORM 10-K TABLE OF CONTENTS
Item 8. Financial Statements and Supplementary Data

Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K


ý

 

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended September 30, 2017

or

o

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-38272



EVOQUA WATER TECHNOLOGIES CORP.
(Exact name of registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  46-4132761
(I.R.S. Employer
Identification No.)

210 Sixth Avenue
Pittsburgh, Pennsylvania

(Address of principal executive offices)

 

15222
(Zip code)

(724) 772-0044
(Registrant's telephone number, including area code)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class:   Name of each exchange on which registered:
Common Stock, par value $0.01 per share   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 o    No ý

          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 o    No ý

          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 o    No ý

          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes o    No o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

          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 o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

Emerging growth company o

          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. o

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

          The aggregate market value of the common stock of the Registrant held by non-affiliates of the Registrant on November 2, 2017, based upon the closing price of $20.88 of the Registrant's common stock as reported on the New York Stock Exchange, was $1,388,450,010. The Registrant has elected to use November 2, 2017 as the calculation date, which was the initial trading date of the Registrant's common stock on the New York Stock Exchange, because on March 31, 2017 (the last business day of the Registrant's most recently completed second fiscal quarter), the Registrant was a privately held company.

          There were 113,264,709 shares of the registrant's common stock, par value $0.01 per share, outstanding as of November 30, 2017.

   


Table of Contents


FORM 10-K

TABLE OF CONTENTS

 
   
  Page  

PART I

 

Item 1

 

Business

    5  

Item 1A

 

Risk Factors

    22  

Item 1B

 

Unresolved Staff Comments

    52  

Item 2

 

Properties

    52  

Item 3

 

Legal Proceedings

    52  

Item 4

 

Mine Safety Disclosures

    52  

PART II

 

Item 5

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

    53  

Item 6

 

Selected Financial Data

    53  

Item 7

 

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

    56  

Item 7A

 

Quantitative and Qualitative Disclosures About Market Risk

    92  

Item 8

 

Financial Statements and Supplementary Data

    94  

Item 9

 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

    146  

Item 9A

 

Controls and Procedures

    146  

Item 9B

 

Other Information

    146  

PART III

 

Item 10

 

Directors, Executive Officers and Corporate Governance

    147  

Item 11

 

Executive Compensation

    154  

Item 12

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

    168  

Item 13

 

Certain Relationships and Related Party Transactions and Director Independence

    171  

Item 14

 

Principal Accountant Fees and Services

    174  

PART IV

 

Item 15

 

Exhibits

    176  

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BASIS OF PRESENTATION

        On January 15, 2014, Evoqua Water Technologies Corp. (formerly EWT Holdings I Corp.), or the "Successor," acquired, through its wholly-owned entities, EWT Holdings II Corp. and EWT Holdings III Corp., all of the outstanding shares of Siemens Water Technologies (the "Predecessor"), a group of legal entity businesses formerly owned by Siemens Aktiengesellschaft ("Siemens"). This acquisition, which we refer to as the "Acquisition," closed on January 15, 2014 and was effective January 16, 2014. The stock purchase price, net of cash received, was approximately $730.6 million.

        Unless otherwise indicated or the context otherwise requires, all references to "the Company," "Evoqua," "Evoqua Water Technologies Corp.," "EWT Holdings I Corp.," "we," "us," "our" and similar terms mean (1) the Predecessor for periods ending on or prior to January 15, 2014 and (2) the Successor for periods beginning on or after January 16, 2014, in each case together with its consolidated subsidiaries.

        Our fiscal year ends on September 30 of each year. References in this Annual Report on Form 10-K to a fiscal year mean the year in which that fiscal year ends. References in this Annual Report on Form 10-K to: "fiscal 2013" or "FY 2013" relate to the fiscal year ended September 30, 2013, "fiscal 2014" or "FY 2014" relate to the fiscal year ended September 30, 2014, "fiscal 2015" or "FY 2015" relate to the fiscal year ended September 30, 2015, "fiscal 2016" or "FY 2016" relate to the fiscal year ended September 30, 2016 and "fiscal 2017" or "FY 2017" relate to the fiscal year ended September 30, 2017.

        Numerical figures included in this Annual Report on Form 10-K have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them. In addition, we round certain percentages presented in this Annual Report on Form 10-K to the nearest whole number. As a result, figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This Annual Report on Form 10-K contains forward-looking statements that within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). You can generally identify forward-looking statements by our use of forward-looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "projection," "seek," "should," "will" or "would" or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the markets in which we operate, including growth of our various markets, and our expectations, beliefs, plans, strategies, objectives, prospects, assumptions, or future events or performance contained in this Annual Report on Form 10-K in Item 1A, "Risk Factors," Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 1, "Business" are forward-looking statements.

        We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this Annual Report on Form 10-K in Item 1, "Business," Item 1A, "Risk Factors" and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements, or could affect our share price. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:

    general global economic and business conditions;

    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;

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    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;

    risks related to AEA Investors LP's (along with certain of its affiliates, collectively, "AEA") ownership interest in us; and

    other risks and uncertainties, including those listed under Item 1A, "Risk Factors."

        Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this Annual Report on Form 10-K 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 on Form 10-K. 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 on Form 10-K, they may not be predictive of results or developments in future periods.

        Any forward-looking statement that we make in this Annual Report on Form 10-K 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 on Form 10-K.

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PART I

Item 1.    Business

History and Company Overview

        Evoqua Water Technologies is a leading provider of mission critical water treatment solutions, offering services, systems and technologies to support our customers' full water lifecycle needs. With over 200,000 installations worldwide, we hold leading positions in the industrial, commercial and municipal water treatment markets in North America. We offer a comprehensive portfolio of differentiated, proprietary technology solutions sold under a number of market leading and well established brands. We deliver and maintain these mission critical solutions through the largest service network in North America, assuring our customers continuous uptime with 87 branches which are located no further than a two hour drive from more than 90% of our customers' sites.

        Our solutions are designed to provide "worry free water" by ensuring that our customers have access to an uninterrupted quantity and level of quality of water that meets their unique product, process and recycle or reuse specifications. We enable our customers to achieve lower costs through greater uptime, throughput and efficiency in their operations and support their regulatory compliance and environmental sustainability. We have worked to protect water, the environment and our employees for over 100 years. As a result, we have earned a reputation for quality, safety and reliability and are sought out by our customers to solve the full range of their water treatment needs, and maintaining our reputation is critical to the success of our business.

        We provide solutions across the entire water cycle. The water cycle begins with "influent" water, which is sourced from oceans, rivers, lakes, as well as other sources. We treat the influent water so that it can be used for a wide variety of industrial, commercial and municipal applications. In industrial applications, influent water, after it is treated, is used as process water for applications, such as microelectronic production, as an ingredient in the production of food and beverage and other goods and in utility applications including boiler feed water, cooling water and steam condensate. Commercial applications for influent water include laboratory testing and aquatic activities, while municipal applications for influent water include treatment to produce safe drinking water and wastewater that is compliant with applicable regulations. After the water is used it is considered "effluent water," and we

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enable its treatment through the removal of impurities so that it can be discharged safely back into the environment or reused for industrial, commercial or municipal applications.

GRAPHIC

        We have developed a broad set of well established, unique relationships across a highly diverse customer base. In the industrial market we serve over 25,000 customers, including a substantial majority of the industrial companies within the Fortune 500. We partner with our industrial customers through our direct sales and service team, which is organized geographically and by specific end market. In the municipal market we serve over 7,800 U.S. wastewater sites and over 1,800 global drinking water treatment sites, providing solutions that help treat over 40% of the U.S. municipal wastewater sites as of September 30, 2017. Our deep institutional relationships with independent sales representatives across North America, who serve as the primary channel for new municipal water treatment projects, and upon whom we depend to successfully market and sell our products, services and solutions provide us significant access to new projects up for bid and for servicing our installed base.

        For the fiscal year ended September 30, 2017, we generated 86% of our revenues in North America with a strong and growing international presence and we currently employ approximately 4,000 individuals across eight countries. For the fiscal year ended September 30, 2017, we generated revenue, net income and Adjusted EBITDA of $1.2 billion, $6.4 million and $207.7 million, respectively. For the fiscal year ended September 30, 2016, we generated revenue, net income and Adjusted EBITDA of $1.1 billion, $13.0 million and $160.1 million, respectively. For more information on Adjusted EBITDA, including a reconciliation to the most directly comparable GAAP financial measure, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—How We Assess the Performance of Our Business—Adjusted EBITDA."

        We serve our customers through three segments: Industrial, Municipal and Products. These segments all draw from the same reservoir of leading technologies, shared manufacturing infrastructure, common business processes and corporate philosophies. Our Industrial Segment provides fully-integrated systems and service solutions that selectively utilize our comprehensive portfolio of water treatment technologies to satisfy our customers' unique water needs. Our Municipal Segment provides engineered water treatment equipment and solutions based on our proprietary technology and odor and

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corrosion control services. Our Products Segment sells equipment, based on our broad technology portfolio, which is used as components in integrated solutions specified by water treatment designers and offered by original equipment manufacturers ("OEMs"), engineering firms, integrators and our own Industrial and Municipal Segments. For financial information regarding our reportable segments, see Note 21, "Business Segments," of Part II, Item 8 of this Annual Report on Form 10-K.

 
  Industrial   Municipal   Products

Overview

 

Tailored solutions in collaboration with our customers backed by life-cycle services including on-demand water, build-own-operate ("BOO"), recycle / reuse and emergency response service alternatives to improve operational reliability, performance and environmental compliance

 

Delivers solutions, equipment and services to engineering firms, OEMs and municipalities to treat wastewater and purify drinking water

 

Highly differentiated and scalable range of products and technologies specified by global water treatment designers, OEMs, engineering firms and integrators

           

Channel

 

Direct sales with market vertical focus

 

Independent representative network supported by technical sales team

Direct sales and aftermarket channels

 

Direct and indirect sales and aftermarket channels

           

Key offerings

 

Full lifecycle service and solutions for influent, effluent and process water, including on-demand water, BOO, recycle / reuse and emergency response services

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

 

Wide range of wastewater solutions:

Ultrafiltration membrane bioreactors

Advanced biological treatment

Clarifiers, aerators, screens and dewatering

Ballasted clarification

Odor and corrosion control equipment and services

Ultrafiltration for drinking water

Retrofit, rehabilitation and aftermarket

 

Filtration

Regenerative media and microsand

Self-cleaning filters and intake screens

Disinfection

Low and medium pressure ultraviolet ("UV")

Electrochlorination and gas chlorination

Anode technology

Electrodeionization

Analyzers and controllers

           

Percentage of FY 2017 revenue

  52%   22%   26%

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        As depicted in the table below, we target attractive global end-markets that utilize water as a critical part of their operations or production processes including pharmaceuticals and health sciences, microelectronics, food and beverage, hydrocarbon and chemical processing, power, general manufacturing, municipal drinking water and wastewater, marine and aquatics end markets. While a decline in general global and economic conditions could adversely affect us, our business is highly diversified across our key attractive and growing end markets presented below, and we believe that no single end market drives the overall results of our business.

GRAPHIC

        Industrial.    Our Industrial Segment provides application-specific solutions and full lifecycle services for critical water applications. We focus on treating industrial process water, utility water and wastewater. Industrial process water requires specific purity standards, which are used in making goods in industries such as microelectronics, pharmaceuticals and health sciences and food and beverage, including ingredient water. Industrial utility water is used for critical industrial applications including boiler feed and cooling water. Industrial wastewater is effluent water discharged from plants or facilities which is treated before it is returned to the environment or recycled or reused within the water cycle. Our operations across the water cycle are complex and, if conducted improperly, may result in potential costs and liabilities, including as a result of environmental damage. Our comprehensive solutions are comprised of capital systems and related recurring aftermarket services, parts and consumables, along with long-term and short-term service contracts and emergency services. Our comprehensive capabilities range from discrete offerings to the provision of highly complex, fully integrated solutions. We are able to leverage our broad range of products and technologies to deliver a tailored solution that best

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addresses a specific customer's needs, including a growing portfolio of smart water technologies encompassed in our Water One platform. Key capital and related aftermarket service and product offerings include filtration, reverse osmosis, ion exchange and continuous deionization. As a result of our speed, capabilities and experience, we are a trusted partner to 25,000 industrial customers, including a substantial majority of Fortune 500 industrial companies. As water is a critical component in many industrial production processes, unavailability of proper water purity, specification or quality can lead to significant constraints, downtime and increased operating costs.

        The cost of an installation can range from a few thousand dollars to a few million dollars and often presents an ongoing service and aftermarket revenue opportunity that can reach or exceed the original project cost. The service and aftermarket sales component is supported by our broad application and process expertise and the largest integrated industrial service network in North America, based on management's estimate. Our network is comprised of certified technicians and the largest fleet of mobile reverse osmosis and deionization water treatment systems in North America based on management's estimate, and enables us to provide a complete range of services spanning from regular maintenance and emergency support to our unique Water One platform. Water One provides remote monitoring capabilities which enable us to optimize our routine service calls through predictive analytics and provide customers a more predictable, cost efficient water solution. We offer services which include water on demand, mobile solutions and smart water systems that leverage our extensive branch network, technical personnel and technology portfolio.

        We market our Industrial offerings through our direct sales force, which is organized by market vertical and is complemented by an inside sales force, field sales engineers and a growing e commerce platform.

        Municipal.    Our Municipal Segment leverages its proven application expertise to provide engineered solutions and equipment for the treatment of wastewater, purification of drinking water and odor and corrosion control for municipalities. Our portfolio of solutions includes ultrafiltration systems, advanced biological treatment, clarifiers, aerators, odor and corrosion control services, equipment for new municipal plant builds and retrofit, rehabilitation and aftermarket parts and services for our extensive installed base. We have provided solutions across a large municipal installed base with capacities ranging from 25,000 gallons per day to over 100 million gallons per day. Our operations are focused within the U.S. market, with a presence in the United Kingdom, Australia, Canada and Singapore.

        We maintain a comprehensive municipal representative network that broadly covers the United States, providing us with a differentiated ability to influence specifications and the basis of design for new treatment facilities. We also maintain relationships with engineering firms, operators and other key influencers through our direct technical sales force to drive adoption of our offerings.

        Products.    Our Products Segment sells differentiated technologies to a diverse set of water treatment system specifiers, integrators and end users globally. Our offerings are highlighted by our filtration and disinfection, electrodeionization and electrochlorination technologies, separation technologies and anodes offerings. Our filtration and disinfection offerings include our Defender line of products, which is a regenerative media filtration leader in the commercial aquatics market. Our IONPURE electrodeionization solutions allow customers to achieve ultrahigh purity water without the use of chemicals in the treatment process. Our electrochlorination products provide extensive water treatment solutions for the maritime, oil and gas and power markets. We also have extensive capabilities in anode technologies, cathodic protection, solid and liquid separation technologies and various aftermarket parts, consumables and accessories. All of our offerings are highly scalable and designed to meet current and future water treatment needs, with a focus on generating repeat business from our customers. We generally service the equipment we provide our customers: however, their

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failure to properly use, safeguard or maintain their equipment of product defects or unanticipated use of our products could result in liability to us.

        Our portfolio of technologies and products are sold either as discrete offerings or as components of broader Evoqua solutions through our Industrial and Municipal Segments. Our Products Segment also sells externally to a customer base comprised of globally located OEMs, integrators, regional distributors, customers, regional engineering firms and various other end users that we reach through multiple established sales and aftermarket channels.

Our Industry

        We estimate the global water and wastewater market to represent more than $600 billion in total revenue and include both capital and operating expenditures for the treatment and transportation of water by industrial, municipal, commercial and residential end users. Within the global water and wastewater market, we estimate our addressable market, comprised of equipment, consumables, aftermarket parts and operations-related and maintenance-related services for the treatment of water for industrial, commercial and municipal end users, to represent over $85 billion in total revenue.

        Our addressable market is further refined to include our served market, which is currently focused on the North American region, and totals approximately $10 billion in total revenue according to Amane Advisors. As compared to our larger addressable market, our served market excludes sectors that would require meaningful growth investment on our part to capture new customers or market opportunities.

        While a decline in general global economic and business conditions may adversely affect demand for our products, services and solutions, we believe the global water market will continue to experience growth, supported by a variety of anticipated secular trends that will drive the demand for water across a multitude of industrial, commercial and municipal applications. These secular trends include global population growth, urbanization, industrialization and overall economic growth. In addition, the supply of clean water could be adversely impacted by factors including an aging water infrastructure within North America and increased levels of water stress from seasonal rainfall, inadequate water storage options or treatment technologies. More specific to our business, water is a critical component and byproduct of many processes, including in manufacturing and product development. As such, as global consumption patterns evolve and water shortages persist, demand for equipment and services will continue to increase. We estimate the global water market is expected to grow in total revenue by approximately 3% annually from 2017 to 2020, although such growth may not be concentrated in the markets that we serve or may be otherwise affected by global or regional economic conditions.

        We hold leading positions in our market verticals that have been cultivated by our suite of differentiated solutions and our comprehensive service network, which had over four times as many locations as our closest competitor at September 30, 2017. Despite our leading positions in the individual market verticals where we participate, our market share did not exceed 25% in any single market vertical in which we participated during fiscal 2017.

        We serve three primary market verticals: (i) industrial, (ii) commercial and (iii) municipal. Industrial and commercial customers vary in size, scope and the complexity of their water treatment needs and include small manufacturing clients with a single facility, large commercial waterparks and multinational corporations with a significant global footprint. The municipal market consists of potable water and wastewater treatment solutions that are sold to municipalities and private companies operating under a concession agreement to own and operate treatment facilities on behalf of municipalities. We serve each market with a full range of solutions, services, technologies and aftermarket offerings.

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Initial Public Offering

        On November 6, 2017, we completed our initial public offering of 27,777,777 shares of common stock at a price of $18.00 per share, of which 8,333,333 shares were sold by us and 19,444,444 shares were sold by the selling stockholders, and on November 7, 2017, the selling stockholders sold an additional 4,166,666 shares of common stock as a result of the exercise in full by the underwriters of an option to purchase additional shares. Our common stock began trading on the New York Stock Exchange (the "NYSE") on November 2, 2017 under the ticker symbol "AQUA." After underwriting discounts and commissions but before expenses, we received net proceeds from our initial public offering of approximately $141.0 million. We used a portion of these proceeds to repay $104.9 million of indebtedness (including accrued and unpaid interest) under our senior secured first lien term loan facility and the remainder for general corporate purposes. We did not receive any proceeds from the sale of shares by the selling stockholders.

Our Growth Strategy

        The key elements of our strategy include:

        Grow and further penetrate our existing customer base.    We believe our strong brands, leading position in highly fragmented markets, scalable and global offerings, leading installed base and unique ability to provide complete treatment solutions will enable us to capture a larger share of our existing customers' water treatment spend while expanding with existing and new customers into adjacent end-markets and underpenetrated regions, including by investing in our sales force and cross-selling to existing customers. Our growth initiatives include both expanding our presence in our core North American market as well as replicating our leading position and strategies into underpenetrated global regions. For example, through innovative technologies such as IONPURE continuous electrodeionization and Defender aquatic regenerative media filtration systems, we have expanded our positions in markets such as Asia and the Middle East.

        Through direct sales efforts, outreach and education, we plan to continue to enhance our relationships and enable further adoption of our products, technologies and solutions by end customers and key influencers, including municipal representatives, engineering firms, designers and other system specifiers. Our performance depends, in part, on our ability to attract, incentivize and retain third party sales representatives that will be able to market and support our products effectively, and competing for sales personnel with established customer relationships intense.

        Continued transition of our customers to a higher value-add service-based business model.    Our goal is to provide "worry-free water" by combining our products and technologies with extensive service and distribution capabilities. We selectively target high value projects with opportunities for recurring business through service, parts and other aftermarket opportunities over the lifecycle of the process or capital equipment. In particular, we have developed a pipeline of smart, internet-connected monitoring technologies through the deployment of our Water One smart water platform that provides us with an increasing ability to handle our customers' complete water needs through on-demand water management, predictive maintenance and service response planning. Water One also enables us to transition our customers to more accurate pricing models based on usage, which otherwise would not have been possible without technological advancement. Our future growth depends, in part, on our ability to develop or acquire new products, services and solutions, identify emerging technological trends in our target end markets and maintain the integrity of our information technology systems.

        Drive margin expansion and cash flow improvements through continued focus on operational excellence and execution.    Since fiscal 2014, we have realigned our organizational structure, achieved significant cost savings through operational efficiencies and revitalized our culture, which has energized our workforce and reduced employee turnover. This organizational realignment transformed our business

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into a streamlined organization focused on improved accountability, responsiveness and resulted in an overall lower cost structure. We have identified and are pursuing a number of discrete initiatives which, if successful, we expect could result in additional cost savings over the next three years. These initiatives include our ePro and supply chain improvement program to consolidate and manage global spending, our improved logistics and transportation management program, further optimizing our engineering cost structure, capturing benefits of our Water One remote system monitoring and data analytics offerings. Furthermore, as a result of significant investments we have made in our footprint and facilities, we believe have capacity to support our planned growth without commensurate increases in fixed costs.

        Commercialize and drive adoption of nascent and newly acquired technologies by leveraging our sales channels and application expertise.    We offer a full range of services, systems and technologies that we continually develop to meet our customers' evolving water lifecycle needs. We develop our technologies through in-house research, development and engineering and targeted tuck-in, technology-enhancing and geography-expanding acquisitions and have a reservoir of recently launched technologies and a pipeline of new offerings designed to provide customers with innovative, value-enhancing solutions. Furthermore, we have successfully completed eight technology-enhancing and geography-expanding acquisitions since April 2016 to add new capabilities and cross-selling opportunities in areas such as electrochemical and electrochlorination cells, regenerative media filtration, anodes, UV disinfection and aerobic and anaerobic biological treatment technologies. We must continue to develop and acquire new products, services and solutions to successfully compete in our markets.

        We believe a key differentiator for our technology development program is our strong record of incorporating new technologies into the comprehensive solutions we provide to our customers across our platform. We are able to rapidly scale new technologies using our leading direct and third-party sales channels and our relationships with key influencers, including municipal representatives, engineering firms, designers and other system specifiers. Through our service network, we have a direct view of our customers' water needs which allows us to focus on developing and acquiring the most relevant and sought-after solutions.

        We believe our continued investment in driving penetration of our recently launched technologies, robust pipeline of new capabilities and best-in-class channels to market will allow us to continue to address our customer needs across the water lifecycle.

        Continue to evaluate and pursue accretive tuck-in acquisitions to add new technologies, attractive geographic regions and end-markets.    As a complement to our organic growth initiatives, we view tuck-in acquisitions as a key element of our overall growth strategy which will enable us to accelerate our growth in our current addressable market, new geographies and new end market verticals. Our existing customer relationships, channels to market and ability to rapidly commercialize technologies provide a strong platform to drive growth in the businesses we acquire. To capitalize on these opportunities we have built an experienced team dedicated to mergers and acquisitions that has successfully completed eight technology-enhancing and geography-expanding acquisitions since April 2016, including the addition of capabilities in the attractive aquatics market, which we have typically financed through borrowings under our revolving credit facility and cash on hand. Although we may not continue to identify suitable acquisition targets and implement our growth strategy, we currently have a pipeline which includes more than 60 potential targets, which has been developed proactively by our team as well as informed by our customer base.

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Our Industrial Segment

        Our Industrial Segment provides application-specific solutions and full lifecycle services for critical water applications. We focus on treating industrial process water, utility water and wastewater. Industrial process water requires specific purity standards, which are used in making goods in industries such as microelectronics, pharmaceuticals and health sciences and food and beverage, including ingredient water. Industrial utility water is used for critical industrial applications, including as boiler feed and cooling water. Industrial wastewater is effluent water discharged from plants or facilities which is treated before it is returned to the environment or recycled or reused within the water cycle. Our operations across the water cycle are complex and, if conducted improperly, may result in potential costs and liabilities, including as a result of environmental damage. Our comprehensive solutions are comprised of capital systems and related recurring aftermarket services, parts and consumables, along with long-term and short-term service contracts and emergency services. Our comprehensive capabilities range from discrete offerings to the provision of highly complex, fully integrated solutions. We are able to leverage our broad range of products and technologies to deliver a tailored solution that best addresses a specific customer's needs, including a growing portfolio of smart water technologies encompassed in our Water One platform. Key capital and related aftermarket service and product offerings include filtration, reverse osmosis, ion exchange and continuous deionization. As a result of our speed, capabilities and experience, we are a trusted partner to 25,000 industrial customers, including a substantial majority of Fortune 500 industrial companies. As water is a critical component in many industrial production processes, unavailability of proper water purity, specification or quality can lead to significant constraints, downtime and increased operating costs.

        The cost of an installation can range from a few thousand dollars to a few million dollars and typically provides an ongoing service and aftermarket revenue opportunity that itself reaches or exceeds the original project cost. The service and aftermarket sales component is supported by our broad application and process expertise and what we believe to be the largest integrated industrial service network in North America. Our network is comprised of certified technicians and the largest fleet of mobile reverse osmosis and deionization water treatment systems in North America, based on management's estimate, and enables us to provide a complete range of services spanning from regular maintenance and emergency support to our unique Water One platform. Water One provides remote monitoring capabilities which enable us to optimize our routine service calls through predictive analytics and provide customers a more predictable, cost-efficient water solution. We offer services which include water on-demand, mobile solutions and smart water systems that leverage our extensive branch network, technical personnel and technology portfolio.

        We partner with our industrial customers through our direct sales and service team, which is organized geographically and by market vertical and is complemented by an inside sales force, field sales engineers and a growing e-commerce platform. We primarily target three broad categories of customers in our Industrial Segment, principally based on their end markets and primary applications: Light Industries, Heavy Industries and Environmental Solutions.

    Light Industries

        Our light industries offerings include our usage-based, Water One deionized water service, preventative maintenance service contracts, integrated process and wastewater systems and aftermarket consumables and spare parts. We generally provide light industries services to general manufacturing, light industrial, pharmaceutical, food and beverage, microelectronics and health sciences customers.

    Heavy Industries

        Our heavy industries offerings include mobile, rapidly deployable services based on short-term operating contracts, "build-own-operate" outsourcing services and accompanying technological support,

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integrated process and wastewater systems and aftermarket consumables and spare parts. We generally provide heavy industries services to power generation, chemical processing, hydrocarbon processing and mining and pulp and paper customers.

    Environmental Solutions

        Our environmental solutions offerings include activated carbon, wastewater ion exchange and groundwater remediation solutions. We generally provide environmental solutions to hydrocarbon processing, chemical processing, food and beverage and municipal water customers.

Our Municipal Segment

        Our Municipal Segment leverages its proven application expertise to provide engineered solutions and equipment for the treatment of wastewater, purification of drinking water and odor and corrosion control for municipalities. Our portfolio of solutions includes ultrafiltration systems, advanced biological treatment, clarifiers, aerators, odor and corrosion control services, equipment for new municipal plant builds and retrofit, rehabilitation and aftermarket parts and services for our extensive installed base. We have provided solutions across a large municipal installed base with capacities ranging from 25,000 gallons per day to over 100 million gallons per day. Our operations are focused within the U.S. market, with a presence in the United Kingdom, Australia, Canada and Singapore.

        We maintain a comprehensive municipal representative network that broadly covers the U.S., providing us with a differentiated ability to influence specifications and the basis of design for new treatment facilities. We also maintain relationships with engineering firms, operators and other key influencers through our direct technical sales force to drive adoption of our offerings. We primarily target three broad categories of customers in our Municipal Segment, principally based on their end markets and primary application: Wastewater Treatment, Municipal Services and MEMCOR.

    Wastewater Treatment

        Our wastewater treatment offerings include advanced biological treatment, clarification, filtration, nutrient removal, odor and corrosion control, biosolid and field-erected biological wastewater treatment plant solutions. We generally provide wastewater treatment solutions to both municipal and industrial wastewater treatment facilities. We provide aftermarket and retrofit solutions to our extensive installed base.

    Municipal Services

        Our municipal service offerings include odor and corrosion control and disinfection capabilities, including advanced remote-monitoring and automated control solutions and multi-product liquid and vapor phase product combinations for wastewater collection. We also provide municipal service solutions for drinking water treatment and distribution.

    MEMCOR

        Our MEMCOR membrane technology offerings include CPII membrane systems, membrane bioreactor systems and XP and XP-E technologies. These include custom solutions built from standard components, modular designs for flexibility and fast installation and membrane modules for aftermarket replacement. We generally provide MEMCOR solutions to municipal drinking water treatment facilities, municipal and industrial wastewater treatment facilities and industrial utility and process water facilities.

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Our Products Segment

        Our Products Segment sells differentiated technologies to a diverse set of water treatment system specifiers, integrators and end users globally. Our offerings are highlighted by our filtration and disinfection, electrodeionization and electrochlorination technologies, separation technologies and anodes offerings. Our filtration and disinfection offerings include our Defender line of products, which is a regenerative media filtration leader in the commercial aquatics market. Our IONPURE electrodeionization solutions allow customers to achieve ultrahigh purity water without the use of chemicals in the treatment process. Our electrochlorination products provide extensive water treatment solutions for the maritime, oil and gas and power markets. We also have extensive capabilities in anode technologies, cathodic protection, solid and liquid separation technologies and various aftermarket parts, consumables and accessories. All of our offerings are highly scalable and designed to meet current and future water treatment needs, with a focus on generating repeat business from our customers. We generally service the equipment we provide our customers; however, their failure to properly use, safeguard or maintain their equipment or product defects or unanticipated use of our products could result in liability to us.

        Our portfolio of technologies and products are sold either as discrete offerings or as components of broader solutions through our Industrial and Municipal Segments. Our Products Segment also sells externally to a customer base comprised of globally located OEMs, integrators, regional distributors, customers, regional engineering firms and various other end users that we reach through multiple established sales and aftermarket channels. We target customers in our Products Segment principally based on their end markets and primary application: Aquatics and Disinfection, Process and Drinking Water, Electrochlorination, Separation Technology and Anodes.

    Aquatics and Disinfection

        Our aquatics and disinfection products include a wide range of filtration (regenerative media filters, high rate sand filters, microsand filters and screen filters), chlorination and UV disinfection systems, analyzers, controllers and related accessories. We sell to commercial aquatics, municipal drinking water, industrial and light manufacturing and commercial customers worldwide. Primary applications include filtration and disinfection of municipal and recreational pools and leisure facilities, fountains and water features and recreational water and waterparks, gas chlorination, UV and on-site chlorination and disinfection and water chemistry measurement and control for municipal drinking water, as well as pre-treatment and purification systems where ultrapure water polishing is required.

    Process and Drinking Water

        Our process and drinking water products include chemical-free ultrafiltration, microelectronic processing technologies and desalination solutions. We generally provide these products to municipal, power, microelectronic processing, solar, hydrocarbon and chemical processing and pharmaceutical customers. Primary applications include high purity process water for use in pharmaceutical, laboratory and microelectronic processing plants and the removal of dissolved salts from seawater, brackish water and municipal wastewater.

    Electrochlorination

        Our electrochlorination products are used with seawater for on-site sodium hypochlorite generating systems for maritime, oil and gas, power, military and ballast water customers. Our maritime growth prevention systems are used on military and commercial ships and in offshore oil and gas applications, and our ballast water management systems enable ships' owners and operators in all global waters to safely comply with stringent U.S. Coast Guard and future International Maritime Organization regulations.

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    Separation Technology

        Our products separate solids from liquids in a variety of slurries, for either disposal or reuse. We generally provide separation technology products and solutions to power, mining, microelectronics, solar, heavy and light industrial and municipal customers, for applications including the separation of solids from liquids in mining companies' tailings ponds and the separation and recovery of minerals from slurry for further processing within mineral companies' manufacturing processes.

    Anodes

        We produce custom-designed, state-of-the-art mixed-metal oxide anodes, provide recoating and repair services to our external customers and supply the anodes used across our own internal processing capabilities. We provide anode products and solutions to mining, chemical processing, light industrial and microelectronics customers for primary applications including biotechnology, water treatment, cathodic protection, seawater electrolysis, metal finishing and electroplating and swimming pool chlorination.

Customers

        We serve three primary market verticals: (i) industrial, (ii) commercial and (iii) municipal. Industrial and commercial customers vary in size, scope and the complexity of their water treatment needs and include small manufacturing clients with a single facility, large commercial waterparks and multinational corporations with a significant global footprint. The municipal market consists of potable water and wastewater treatment solutions that are sold to municipalities and private companies operating under a concession agreement to own and operate a treatment facility on behalf of a municipality. We serve each market with a full range of solutions, services, technologies and aftermarket offerings.

        The industrial market is comprised of direct end market distribution channels. The commercial market includes a variety of routes to market including direct and third party channel relationships. The municipal market is comprised of a wide range of drinking and wastewater treatment facilities.

        As of September 30, 2017, we had over 38,000 customers spanning a diverse range of industries and include the twenty largest U.S. companies in each of the pharmaceutical, hydrocarbon processing, power, chemical and food and beverage industries as well as U.S. wastewater sites and global drinking water treatment sites. We also have customers in the health science, microelectronics, drinking water, wastewater, general manufacturing, commercial aquatics, maritime and other industries. We provide products, services and solutions to federal, state and local government customers both directly and indirectly as a supplier to general contractors. During fiscal 2017, no single customer accounted for more than 1% of our revenues, and our top ten customers accounted for approximately 7% of our revenues.

        We provide products, services and solutions to federal, state and local government customers both directly and indirectly as a supplier to general contractors. Many of our government contracts contain a termination for convenience clause, regardless of whether we are the prime contractor or a subcontractor. Upon a termination for convenience, we are generally able to recover the purchase price for delivered items and reimbursement of allowable work in process costs. See Item 1A, "Risk Factors." In the industrial market we served over 25,000 customers as of September 30, 2017, including a substantial majority of the industrial companies within the Fortune 500. In the municipal market, we had equipment installed in over 40% of the U.S. municipal wastewater sites as of September 30, 2017.

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Suppliers

        We maintain a cost-effective, diversified procurement program through strong relationships with strategic suppliers across key inputs. We have implemented ePro, our supply chain excellence initiative that centralizes and standardizes purchasing across the organization. The top materials in our supply chain include metal, calcium nitrate, membranes and ion exchange resin. Further, we seek to insource certain products that align with our existing core competencies, including our manufacturing capabilities, and further enable us to provide our customers with a complete lifecycle solution. We seek sources of supply from multiple suppliers and often from multiple geographies, and we believe that our supply chain is well positioned to remain stable and cost-effective.

Seasonality

        While we do not believe it to be significant, our business does 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, our Municipal Segment experiences increased demand for our odor control product lines and services in the warmer months which, together with other factors, typically results in improved performance in the second half of our fiscal year. Inclement weather, such as hurricanes, droughts and floods, can also drive increased demand for our products and services. As a result, our results from operations may vary from period to period.

Sales and Marketing

        Our sales organization is positioned across our segments to drive top-line growth and increase market share for our Company. Our network includes third-party representatives, internal general managers, sales directors, sales engineers, third-party distributors and other personnel who support our day-to-day sales and marketing operations.

    Industrial Segment

        We market our offerings through our direct sales and service team, which is organized geographically and by end market and is complemented by an inside sales force, field sales engineers and a growing e-commerce platform. Our Industrial Segment sales organization focuses on direct sales with a market-vertical focus across geographic, strategic and e-commerce channels to market. As of September 30, 2017, our Industrial Segment services network consisted of 80 industrial service branches across North America, with 624 field service and 149 engineering employees, and over 90% of our customers are within two hours' travel of one of our branches.

    Municipal Segment

        We maintain a comprehensive municipal representative network in the United States, providing us with a unique ability to influence specifications and the basis of design for new treatment facilities. We also maintain relationships with engineering firms, operators and other key influencers through our direct technical sales force to drive adoption of our offerings. As of September 30, 2017, our Municipal Segment sales organization consisted of a network of 56 independent manufacturing representative companies, supported by our approximately 119 field service technicians and approximately 137 sales personnel, organized across wastewater treatment, municipal services and MEMCOR structures.

    Products Segment

        Our Products Segment customer base includes water treatment designers, OEMs, engineering firms, integrators and our own Industrial and Municipal Segments. Our Products Segment sales organization consists of five direct and indirect sales and aftermarket channels: (i) our direct and third-party aquatics and disinfection sales representatives target commercial aquatics, municipal and

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industrial water treatment in Americas, Europe, Middle East and Africa and Asia Pacific geographies, (ii) our process and drinking water sales channels work with non-exclusive OEMs and with our Industrial Segment to build small, "skidded" solutions for global industrial customers, to get our modular solutions specified into larger units and projects, (iii) our electrochlorination sales managers typically work with representatives of ship builders, shipyards, ship owners, service providers and manufacturers to have our products, services and solutions specified into commercial and military ships and offshore oil and gas rigs, (iv) our separation technology channel managers and sales representatives work with a large network of third-party manufacturers' representatives that are exclusive to specific territories or industries and leverage direct sales in industries not covered by third-party representatives and (v) our direct sales force sell our anodes into Americas, Europe and China geographies, and opportunistically cross-sell electrocatalytic products to our anode customers. As of September 30, 2017, we had active relationships with more than 200 OEM partnerships and managed over 300 channel partners.

Research, Development and Engineering

        We utilize a disciplined, stage-gate process—consisting of development, field test, commercialization, supply chain and sourcing decisions—to identify and develop new technologies to commercialize, focus our efforts on and engage early with supply-chain management to promote profitability. We focus on tuck-in acquisitions as additional resources for new product innovation and development.

        Our global research, development and engineering footprint includes six facilities located in the United States, the Netherlands, Germany, Singapore and Australia, staffed with managers, scientists, researchers, engineers and technicians, along with partnerships spanning leading universities research centers and other outside agencies. We spent approximately $20.0 million in fiscal 2017 on research, development and engineering, primarily related to employee costs.

Information Technology

        Our information technology systems consist of enterprise management, e-commerce, customer relationship and field service management, customer quoting and billing, environmental compliance, business and operational support, procurement and sales force management systems. We utilize an e-commerce platform that makes our products available to customers at all times, and we provide our e-commerce customers with both general and customer-specific portals, which provide customized pricing for strategic customer accounts. Further, in connection with our ePro initiative, we have adopted SAP Ariba to assist in automating and centralizing our procurement process. We update and build our information technology infrastructure through further investments focused on cost efficiencies, reliability, functionality and scalability.

Intellectual Property

        Our intellectual property and proprietary rights are important to our business. We currently have over 1,250 granted or pending patents. We undertake to strategically and proactively develop our intellectual property portfolio by pursuing patent protection, obtaining copyrights and registering our trademarks in the United States 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, non-disclosure agreements with third parties, employment agreements and other contractual rights, to protect our intellectual property rights.

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Competition

        Our industry is highly fragmented, and includes a number of regional and niche-offering focused competitors. Competition is largely based on product performance, reliability and innovativeness of products, services and solutions, application expertise and process knowledge, brand reputation, energy and water efficiency, product compliance with regulatory and environmental requirements, product lifecycle cost, scalability, timeliness of delivery, proximity of service centers to our customers, effectiveness of our distribution channels and price. Within each of our segments and the various businesses that comprise them, we compete with a fragmented range of companies, but do not have any individually key competitors.

Backlog

        Backlog represents the total amount of revenue we expect to receive as a result of contracts and orders awarded to us. However, because many of our contracts and orders are subject to reduction, cancellation or termination at the option of our customer, backlog is not an indication of our future performance. In 2017 we implemented a new methodology to record service orders to improve visibility of backlog and revenues associated with service contracts. Under this new methodology a service contract is recorded as an order when both parties have agreed to the terms and conditions, including contract value and length. The value assigned to the order is based on the fixed portion of the contract for the entire contract term. Utilizing our new methodology, as of September 30, 2017, our backlog was approximately $636.3 million.

Employees

        As of September 30, 2017, we had 3,958 employees. Of these employees 59% were full-time salaried level staff and the remaining employees consisted of a mix of full-time and part-time hourly workers. Approximately 74% of our employees work in our U.S. operations and approximately 26% work in foreign operations. None of our facilities in the United States or Canada are covered by collective bargaining agreements. As is common in Germany and the Netherlands, our employee populations there are represented by works councils. We are not involved in any material disputes with our employees and believe that relations with our employees and, to the extent applicable, with our organized labor unions, are good.

Insurance

        We maintain insurance policies to cover directors' and officers' liability, fiduciary, crime, special accident, property, business interruption, cargo, workers' compensation, automobile, general liability, environmental, umbrella and excess liability insurance.

        All of our insurance policies are with third-party carriers and syndicates with financial ratings of an A or better. We and our global insurance broker regularly review our insurance policies and believe the premiums, deductibles, coverage limits and scope of coverage under such policies are reasonable and appropriate for our business. The continued availability of appropriate insurance policies on commercially reasonable terms is important to our ability to operate our business and to maintain our reputation. See Item 1A, "Risk Factors."

Government Regulation

        We are subject to extensive and varied laws and regulations in the jurisdictions in which we operate, including those relating to anti-corruption and trade, data security and privacy, employment, workplace safety, public health and safety, product safety, intellectual property, transportation, zoning and fire codes. We operate our business in accordance with standards and procedures designed to comply with applicable laws and regulations.

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        In particular, our international operations subject us to laws and regulations related to anti corruption and trade, including those related to export and import compliance, anti-trust and money laundering. Our policies mandate compliance with these laws and regulations, and we have established policies and procedures designed to assist us and our personnel in compliance with applicable United States and international laws and regulations. However, any violation of such laws, regulations or policies could result in substantial fines, sanctions, civil and/or criminal penalties, imprisonment, disgorgement of profits, debarment from government contracts and curtailment of operations in certain jurisdictions, and might materially adversely affect our business, financial condition, results of operations or prospects. See Item 1A, "Risk Factors—Failure to comply with applicable anti-corruption and trade laws, regulations and policies, including the U.S. Foreign Corrupt Practices Act, could result in fines and criminal penalties, causing a material adverse effect on our business, financial condition, results of operations or prospects."

        In certain countries where we operate, our employees are represented by a works council, as required by local law. In such countries, we are required to consult and seek the consent or advice of these works councils in connection with certain corporate decisions, such as a major restructuring, a change of control or changes to local management. Certain other decisions that directly involve employment matters applicable either to all employees or certain groups of employees may also require works council approval. Further, certain of our international operations offer employees defined benefit plans in compliance with applicable local legal provisions requiring payments of, among other things, mandatory pension payments or allocations for severance pay. None of our U.S. employees are represented by unions or works councils, and our U.S. operations do not maintain defined-benefit plans.

        In addition, there are numerous U.S. federal, state and local laws and regulations and foreign laws and regulations regarding data security, privacy and the collection, sharing, use, processing, disclosure and protection of personal information and other user data, the scope of which is changing, subject to differing interpretations, and may be inconsistent among different jurisdictions. If our efforts to protect the security of information about our customers, suppliers and employees are unsuccessful, a significant data security breach may result in costly government enforcement actions, private litigation and negative publicity resulting in reputation or brand damage with customers, and our business, financial condition, results of operations or prospects could suffer. See Item 1A, "Risk Factors—If we experience a significant data security breach or fail to detect and appropriately respond to a significant data security breach, our business and reputation could suffer." Further, governments are continuing to focus on privacy and data security and it is possible that new privacy or data security laws will be passed or existing laws will be amended in a way that is material to our business.

Environmental Matters

        The geographic breadth of our facilities and the nature of our operations subject us to extensive environmental, health and safety laws and regulations in jurisdictions throughout the world. Such laws and regulations relate to, among other things, emissions to air, the treatment and discharge of drinking water and wastewater, the discharge of hazardous materials into the environment, the handling, storage, use, transport, treatment and disposal of hazardous materials and solid, hazardous and other wastes, product safety and workplace health and safety. These laws and regulations impose a variety of requirements and restrictions on our operations and the products we distribute. The failure by us to comply with these laws and regulations could result in fines, penalties, enforcement actions, third-party claims, damage to property or natural resources and personal injury claims, requirements to investigate or cleanup property or to pay for the costs of investigation or cleanup or regulatory or judicial orders requiring corrective measures, including the installation of pollution control equipment, remedial actions or the pulling of products from the market, and could negatively impact our reputation with customers. We are not aware of any pending environmental compliance or remediation matters that, in

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the opinion of management, are reasonably likely to have a material effect on our business, financial condition, results of operations or prospects. However, environmental, health and safety laws and regulations applicable to our business, the products we distribute, the services we provide and the business of our customers, and the interpretation or enforcement of these laws and regulations, are constantly evolving and it is impossible to predict accurately the effect that changes in these laws and regulations, or their interpretation or enforcement, may have upon our business, financial condition, results of operations or prospects. Should environmental, health and safety laws and regulations, or their interpretation or enforcement, become more stringent, our costs could increase and significant capital expenditures or operational restrictions could be required, which may have an adverse effect on our business, financial condition, results of operations or prospects. However, such increased stringency could also increase demand for our products, services and solutions, which assist various industries and municipalities in meeting environmental and safety requirements for the treatment and discharge of drinking water and wastewater. In addition, increased public awareness of the presence and human health impacts of man-made chemicals and naturally occurring contaminants in drinking water may increase demand for our municipal service offerings. Correspondingly, if stringent laws or regulations are delayed or are not enacted, or repealed or amended to be less stringent, or enacted with prolonged phase-in periods, or not enforced, then demand for our products and services may also be reduced.

        The nature of our operations, which involve the handling, storage, use, transport, treatment and disposal of hazardous materials and solid, hazardous and other wastes, exposes us to the risk of liability and claims associated with contamination at our current and former facilities or sites where we have disposed of or arranged for the disposal of waste, or with the impact of our products and services on human health and safety and the environment. Laws and regulations with respect to the investigation and remediation of contaminated sites can impose joint and several liability for releases or threatened releases of hazardous materials upon statutorily defined parties, including us, regardless of fault or the lawfulness of the original activity or disposal. We have been subject to claims and remediation obligations, including having been named as a potentially responsible party, in certain proceedings initiated pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, and similar state and foreign laws, regulations and statutes, and may be named a potentially responsible party in other similar proceedings in the future. Unforeseen expenditures or liabilities may arise in connection with such matters.

Available Information

        We are subject to the informational requirements of the Exchange Act, and in accordance therewith, we file reports, proxy and information statements and other information with the SEC. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available through the "Investors" section of our website at www.evoqua.com. Reports are available free of charge as soon as reasonably practicable after we electronically file them with, or furnish them to, the U.S. Securities and Exchange Commission (the "SEC"). The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K.

        In addition to our website, you may read and copy public reports we file with or furnish to the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains our reports, proxy and information statements, and other information that we file electronically with the SEC at www.sec.gov.

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Item 1A.    Risk Factors

        The following risk factors may be important to understanding any statement in this Annual Report on Form 10-K or elsewhere. Our business, financial condition, results of operations or prospects could be materially and adversely affected by a number of factors, whether currently known or unknown, including but not limited to those described below. Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations or prospects.

Risks Relating to Our Business

General global economic and business conditions may materially adversely affect demand for our products, services and solutions.

        We compete in various end markets and geographic regions around the world. Among these, the most significant are global industrial markets and municipal markets. In fiscal 2017, 86% and 14% of our revenue was from customers located in the United States and Canada and in other markets, respectively. We have experienced, and expect to continue to experience, fluctuations in revenues and operating results due to economic and business cycles. Important factors for our businesses and the businesses of our customers, both in the United States and abroad, include local and global macroeconomic conditions, the overall strength of and our customers' confidence in the economy, industrial and governmental capital spending, governmental fiscal and trading policies, global environmental and regulatory policies, the strength of the residential and commercial real estate markets, unemployment rates, consumer spending, availability of financing, interest rates, tax rates and changes in tax laws, political conditions and energy and commodity prices. The businesses of many of our industrial customers are, to varying degrees, cyclical, and have experienced periodic downturns. While we attempt to minimize our exposure to economic or market fluctuations by serving a balanced mix of end markets and geographic regions, any of the above factors, individually or in the aggregate, or a significant or sustained downturn in a specific end market or geographic region, could materially reduce demand for our products, services and solutions.

        Levels of municipal spending may particularly impact our business, financial condition, results of operations or prospects. Reduced tax revenue in certain regions, or inability to access traditional sources of credit, may limit spending and new development by municipalities or local governmental agencies, which in turn may materially adversely affect the demand for our solutions and reduce our revenue.

Failure to compete successfully in our markets could materially adversely affect our business, financial condition, results of operations or prospects.

        We offer our products, services and solutions in highly competitive markets. We believe the principal points of competition in our markets are product performance, reliability and innovation of our solutions, application expertise and process knowledge, brand reputation, energy and water efficiency, product compliance with environmental and regulatory requirements, product lifecycle cost, scalability, timeliness of delivery, proximity of service centers to our customers, effectiveness of our distribution channels and price. Maintaining and improving our competitive position will require successful management of these factors, including continued investment by us in research and development, engineering, marketing, customer service and support and our distribution networks. Our future growth rate depends upon our ability to compete successfully, which is impacted by a number of factors, including our ability to (i) identify emerging technological trends in our target end markets, (ii) develop and maintain a wide range of competitive and appropriately priced products, services and solutions and defend our market share against an ever-expanding number of competitors including

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many new and non-traditional competitors, (iii) enhance our products by adding innovative and, where applicable, patented features that differentiate our products from those of our competitors and prevent commoditization of our products, (iv) develop, manufacture, bring to market and drive commercial acceptance of compelling new products quickly and cost-effectively, (v) ensure that our products, services and solutions remain cost-competitive and (vi) attract, develop and retain individuals with the requisite technical expertise and understanding of customers' needs to develop and sell new technologies and products.

        We operate in markets that are characterized by customer demand that is often broad in scope but localized in delivery. We compete with companies that may be better positioned to capitalize on highly localized relationships and knowledge that are difficult for us to replicate. Our potential customers may prefer local suppliers, in some cases because of existing relationships and in other cases because of local legal restrictions or incentives that favor local businesses. Smaller regional suppliers may also have lower cost structures. As a result, efforts to expand or support our service network may not improve our ability to penetrate new local markets or expand our footprint in existing markets.

        Further, many of our customers actively monitor and review our company-wide safety record, and apply rigorous safety standards to us and our competitors. Although we take precautions to prevent workplace accidents and mechanical failures, such incidents are difficult to predict and may be outside of our control. If we are unable to meet our customers' stringent workplace safety standards, or if our customers perceive us to have a poor safety record, it could materially impact our ability to retain their business or attract new business.

        We may not be successful in maintaining our competitive position for a number of reasons. We may fail to identify optimal vertical or geographic markets, focus our attention in suboptimal vertical or geographic markets or fail to execute an appropriate business model in certain vertical or geographic markets. Our competitors may develop disruptive technologies or products that are superior to our products, develop more efficient or effective methods of providing products and services or adapt more quickly than we do to new technologies or evolving customer requirements. The failure of our technologies or products to gain market acceptance due to more attractive offerings by our competitors could significantly reduce our revenues and materially adversely affect our competitive standing or prospects. Pricing pressures also could cause us to adjust the prices of certain products to stay competitive, which could materially adversely affect our margins and overall financial performance. Failure to continue competing successfully or to win business with our existing customers could materially adversely affect our business, financial condition, results of operations or prospects.

Our future growth is dependent upon our ability to continue to develop or acquire new products, services and solutions and adapt our businesses to meet the demands of our customers, comply with changes to government regulations and achieve market acceptance with acceptable margins.

        Our future success depends upon a number of factors, including our ability to adapt our products, services and solutions to fit localities throughout our end markets, particularly in high growth emerging markets, such as China; identify emerging technological and other trends in our target end markets; and develop or acquire competitive products and services and bring them to market quickly and cost-effectively. If we are unable to continue to differentiate our products, services and solutions, or if we are forced to cut prices to remain competitive, our business, financial condition, results of operations or prospects could be materially and adversely affected.

        We are also impacted by changing technology, competitively imposed process and safety standards and regulatory requirements, particularly under environmental regulations, each of which influences the demand for our products, services and solutions. Advances in technology and changes in industrial specifications or in legislative, regulatory and environmental requirements, including the availability of

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intellectual property protections in various jurisdictions, may render certain of our products, services and solutions obsolete.

        In addition, our industrial and municipal customers have made considerable fixed-cost investments in the installation of their water and wastewater treatment products and systems, and our municipal customers are often subject to stringent appropriation requirements and extensive procurement processes. The replacement of our customers' installed products and systems with the new technologies that we develop could entail significant costs to such customers. Further, many of our potential customers engage and rely on engineering firms to recommend and select products and systems for their facilities, and many of our products are sold to OEMs as components of larger systems. Our inability to persuade our customers or other parties to adopt the technologies we develop could have an adverse effect on our business, financial condition, results of operations or prospects.

Our growth strategy includes acquisitions, and we may not be able to identify suitable acquisition targets or otherwise successfully implement our growth strategy.

        Acquisitions have historically been a significant part of our growth strategy, and we expect to continue to grow through acquisitions in the future. We expect to continue evaluating potential strategic acquisitions of businesses, assets and product lines. We may not be able to identify suitable candidates, negotiate appropriate or favorable acquisition terms, obtain financing that may be needed to consummate such transactions or complete proposed acquisitions. There is significant competition for acquisition and expansion opportunities in our businesses.

        In addition, acquisitions involve numerous risks, including (i) incurring the time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in management's attention being diverted from the operation of our existing business; (ii) using inaccurate estimates and judgments to evaluate credit, operations, funding, liquidity, business, management and market risks with respect to the target institution or assets; (iii) litigation relating to an acquisition, particularly in the context of a publicly held acquisition target, that could require us to incur significant expenses, result in management's attention being diverted from the operation of our existing business or delay or enjoin the transaction; (iv) failing to properly identify an acquisition candidate's liabilities, potential liabilities or risks; and (v) not receiving required regulatory approvals or such approvals being delayed or restrictively conditional. In addition, in connection with any acquisitions, we must comply with various antitrust requirements. It is possible that perceived or actual violations of these requirements could give rise to regulatory enforcement action or result in us not receiving the necessary approvals to complete a desired acquisition.

        We routinely evaluate potential acquisition candidates and engage in discussions and negotiations regarding potential acquisitions; however, even if we execute a definitive agreement for an acquisition, there can be no assurance that we will consummate the transaction within the anticipated closing timeframe, or at all. Further, acquisitions typically involve the payment of a premium over book- and market-values and, therefore, some dilution of our tangible book value and earnings per common share may occur in connection with any future transaction.

We may have difficulty in operating or integrating any acquired businesses, assets or product lines profitably or in otherwise successfully implementing our growth strategy.

        The anticipated benefits from any potential acquisitions may not be achieved unless the operations of the acquired business assets or product lines are successfully integrated in an efficient, effective and timely manner. The integration of our acquisitions will require substantial attention from management and operating personnel to ensure that the acquisition does not disrupt any existing operations, or affect our customers' opinions and perceptions of our services, products or customer support.

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        In addition, the integration of any acquisition includes numerous risks, including an acquired business not performing to our expectations, our not integrating it appropriately, failure to realize anticipated synergies and cost savings and difficulties, inefficiencies or cost overruns in integrating and assimilating the organizational cultures, operations, technologies, data, services and products of the acquired business with ours.

        The process of integrating acquired businesses, assets and product lines could cause the interruption of, or delays in, the operation of our existing business, which could have a material adverse effect on our business, financial condition, results of operations or prospects. Acquisitions also place a burden on our information, financial and operating systems and our employees and management. Our ability to manage our growth effectively and integrate the operations of acquired businesses, assets or product lines, will require us to continue to attract, train, motivate, manage and retain key employees and to expand our information technology, operational and financial systems. If we are unable to manage our growth effectively, we may spend time and resources on such acquisitions that do not ultimately increase our profitability or that cause loss of, or harm to, relationships with employees and customers.

Delays in enactment or repeals of environmental laws and regulations may make our products, services and solutions less economically beneficial to our customers, thereby affecting demand for our products, services and solutions.

        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 on the impact and timing of potential new water laws and regulations, as well as potential changes to existing laws and regulations, including the potential impact of environmental policies of the new Presidential administration installed in the United States in January of 2017. 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. For example, in response to Presidential Executive Order 13777, calling on each federal agency to establish a regulatory reform task force and evaluate existing rules and recommend repeal, replacement or modification to reduce regulatory burdens, the U.S. Environmental Protection Agency (the "U.S. EPA") established a task force and initiated reviews in several program areas. The U.S. EPA's Office of Water conducted such a review, soliciting public comments in the spring of 2017, including hosting a public listening session, seeking proposals for Office of Water rules that could be repealed, replaced or modified to make them less burdensome. We are currently unable to predict whether changes to statutes and rules which occur will affect demand for our products and services. To the extent that such changes have a negative impact on us, including as a result of related uncertainty, these changes may materially and adversely impact our business, financial condition, results of operations or prospects.

If we become subject to claims relating to handling, storage, release or disposal of hazardous materials, we could incur significant cost and time to comply.

        Our business activities, including our manufacturing processes and waste recycling and treatment processes, currently involve the use, treatment, storage, transfer, handling and/or disposal of hazardous materials, chemicals and wastes. These activities create a risk of significant environmental liabilities and reputational damage. Under applicable environmental laws and regulations, we could be strictly, jointly and severally liable for releases of regulated substances by us at our current or former properties or the properties of others or by other businesses that previously owned or used our current or former properties, including if such releases result in contamination of air, water or soil, or cause harm to individuals. We could also be liable or incur reputational damage if we merely generate hazardous materials or wastes, or arrange for their transportation, disposal or treatment, or we transport such

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materials, and they are subsequently released or cause harm, or if some other entity conducted such activities and by virtue of an acquisition, under applicable law we are a successor to that entity.

        Our business activities also create a risk of contamination or injury to our employees, customers or third parties, from the use, treatment, storage, transfer, handling and/or disposal of these materials, and these activities could result in accidental contamination or injury to the general public, as end-users of our industrial and municipal customers' products and services.

        In the event that our business activities result in environmental liabilities, such as those described above, we could incur significant costs or reputational damage in connection with the investigation and remediation of environmental contamination, and we could be liable for any resulting damages including natural resource damages. Such liabilities could exceed our available cash or any applicable insurance coverage we may have. Additionally, we are subject to, on an ongoing basis, federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations may become significant and could have a material adverse effect on our business, financial condition, results of operations or prospects.

        Further, we may incur costs to defend our position even if we are not liable for consequences arising out of a release of or exposure to a hazardous substance or waste, or other environmental damage. Our insurance policies may not be sufficient to cover the costs of such claims.

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 adversely impact our ability to operate or grow our business.

        Our success depends to a significant extent on our ability to retain or attract a significant number of employees in senior management, skilled technical, engineering, sales and other key personnel. Since the Acquisition, we have focused on creating a high performance culture, in which our employees are highly enabled, empowered and accountable. Our inability to continue to develop and maintain our culture by empowering our senior management, other leaders and employees and promoting an entrepreneurial spirit, could result in our loss of key leaders and employees and have a material adverse effect on our business, financial condition, results of operations or prospects.

        Effective succession planning is also important to our long-term success, as a failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. We have implemented a voluntary separation program intended to mitigate the risks associated with knowledge transfer, but we cannot guarantee that it will be effective or cost-efficient.

        We will need to continue to develop a roster of qualified talent to support business growth. Without a sufficient number of skilled employees, our operations and manufacturing quality could suffer. Our experienced sales team has also developed a number of meaningful customer relationships that would be difficult to replace. Therefore, competition for qualified technical personnel and for sales personnel with established customer relationships is intense, both in retaining our existing employees and in replacing or finding additional suitable employees. There can be no assurance that the labor pool from which we hire our personnel will increase or remain stable, and any failure to retain our existing technical and sales personnel and other employees or to attract additional skilled personnel could have a material adverse effect our business, financial condition, results of operations or prospects.

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Product defects and unanticipated or improper use of our products could adversely affect our business, reputation and financial statements.

        Manufacturing or design defects in (including in products or components that we source from third parties), unanticipated or improper use of, or inadequate disclosure of risks relating to the use of our products, services and solutions by our customers or third parties could create product safety, regulatory or other risks, including personal injury, death or property damage. These events could lead to recalls or safety alerts relating to our products, result in the removal of a product from the market and result in product liability claims being brought against us. Recalls, removals and product liability claims can result in significant costs, as well as negative publicity and damage to our reputation that could reduce demand for our products and have a material adverse effect on our business, financial condition, results of operations or prospects.

        Further, it is generally our responsibility to service the equipment we provide our customers throughout the duration of our contract with such customers, and our customers may be required to maintain insurance covering loss, damage or injury caused by our equipment. However, we are not able to monitor our customers' use or maintenance of their water systems or their compliance with our contracts or usage instructions. 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.

We may incur liabilities to customers as a result of warranty claims or failure to meet performance guarantees, which could reduce our profitability.

        Our customers typically require product warranties as to the proper operation and conformance to specifications of the products we manufacture or install and performance guarantees as to any effluent produced by our equipment and services. Failure of our products to operate properly or to meet specifications of our customers or our failure to meet our performance guarantees may increase costs by requiring additional engineering resources and services, replacement of parts and equipment and frequent replacement of consumables or monetary reimbursement to a customer or could otherwise result in liability to our customers. We have in the past received warranty claims, and we expect to continue to receive them in the future. There are significant uncertainties and judgments involved in estimating warranty and performance guarantee obligations, including changing product designs, differences in customer installation processes and failure to identify or disclaim certain variables in a 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.

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 under these construction-type customer arrangements or, in some cases, as a pre-requisite to submit a bid on a potential project.

        Current or future market conditions, as well as changes in surety companies' assessment of our operating and financial risk, could cause our surety providers and lenders to decline to issue or renew,

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or substantially reduce the amount of, bid or performance bonds for our work, and could increase our costs associated with collateral. These actions could be taken on short notice. Our inability to obtain adequate bonding or letters of credit to meet bid requirements or enter into significant long-term agreements could have a material adverse effect on our business, financial condition, results of operations or prospects.

        Further, surety companies may require that we collateralize a percentage of the bond with cash or another form of credit enhancement. Some of our customers also require collateral guarantees in the form of letters of credit to secure performance or to fund possible damages as the result of an event of default under our contracts with them. If we enter into significant long-term agreements that require the issuance of letters of credit, our liquidity could be negatively impacted.

Our inability to meet our customers' safety standards or adverse publicity affecting our reputation as a result of incidents such as workplace accidents, mechanical failures, spills, uncontrolled discharges, damage to customer or third-party property or the transmission of contaminants or diseases could have a material adverse effect on our sales and profitability.

        Maintaining a strong and reliable reputation for safety is critical to our business. Many of our customers actively monitor and review our company-wide safety record. Further, reports and media coverage of incidents, such as those involving workplace accidents, mechanical failures, spills, uncontrolled discharges, damage to customer or third-party property, the transmission of contaminants or diseases and other adverse events can result in negative publicity, and considerable expansion in the use of social media over recent years has increased the ways in which our reputation can be impacted, and the speed with which such an impact can occur. Such incidents, or reports thereof, could lead to a negative perception among our customers, prospective customers and the general public regarding the safety or quality of our products, services and solutions, and anything that damages our reputation or our customers' perception of our safety record, whether or not justified, could have a materially adverse impact on demand for our products and services, result in additional costs to our business or the loss of customers, result in litigation against us or increase government or regulatory oversight over us.

        Our products and facilities are subject to risks involving workplace accidents, mechanical failures spills, uncontrolled discharges and damage to customer or third-party property, including, among other things, personal injury or death caused by our products or occurring in our facilities, the destruction of customer or third-party property during the execution of a service arrangement or due to the malfunction of our products, delays in or suspension of service or the failure to timely deliver our products. A workplace accident, mechanical failure, spill, uncontrolled discharge or any problem involving any one or more of our products or facilities, or any perceived insufficiency in our response to any such deficiency or problem, could materially adversely affect our reputation. Many of our customers actively monitor and review our company-wide safety record, and apply rigorous safety standards to us and our competitors. Although we take precautions to prevent workplace accidents and mechanical failures, such incidents are difficult to predict and may be outside of our control. If we are unable to meet our customers' stringent workplace safety standards or, if our customers perceive us to have a poor safety record, it could materially impact our ability to retain their business or attract new business.

        Water may be subject to contaminants, including hazardous chemicals, or pathogens that cause a number of illnesses, including cholera, typhoid fever, giardiasis, cryptosporidiosis, amoebiasis and free living amoebic infections. Such contaminants or pathogens may be found in the environment, and, as a result, there is a risk that they could become present in water treated using our systems or products. Illness and death may result if such contaminants or pathogens are not eliminated during the treatment process. In particular, such contamination could result from failing to properly treat reusable products before they are distributed to our customers, or from actions taken by our customers or other third

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parties using our products, which could result in material liability. Further, any pandemic or other public health crisis, including those involving non-waterborne illnesses, might adversely impact our business by diminishing the public trust in water and wastewater treatment facilities or by causing customers to seek sources of water other than those processed using our systems or products. The potential impact of a contamination of water treated using our products, services or solutions is difficult to predict and could lead to an increased risk of exposure to product liability claims, increased scrutiny by federal and state regulatory agencies and negative publicity. Further, an outbreak of disease in any one of the municipal markets we serve could result in a widespread loss of customers across other such markets.

Our operations are subject to various hazards that may cause personal injury or property damage and increase our operating costs, and which may exceed the coverage of our insurance or for which we are not insured.

        There are inherent risks to our operations. We are exposed to risks posed by severe weather and other natural disasters, such as hurricanes and earthquakes. In addition to natural risks, hazards (such as fire, explosion, collapse or machinery failure) are inherent risks in our operations which may occur as a result of inadequate internal processes, technological flaws, human error or certain events beyond our control. We further utilize approximately 650 vehicles in connection with our offsite services and distribution operations and, from time to time, these drivers are involved in accidents which may cause injuries, spills or uncontrolled discharges and in which goods carried by these drivers may be lost or damaged. The hazards described above can cause significant personal injury or loss of life, severe damage to or destruction of property, plants and equipment, including customer or third-party property, contamination of, or damage to, the environment and suspension of operations. The occurrence of any of these events may result in our being subject to investigation, required to perform remediation or named as a defendant in lawsuits asserting claims for substantial damages, environmental cleanup costs, personal injury, natural resource damages and fines or penalties. As a result, we may from time to time become exposed to significant liabilities for which we may not have adequate insurance coverage. We may also become exposed to certain claims that are excluded from our insurance coverage, such as claims of fraud or for punitive damages. Although we have liability insurance, we cannot be certain that this insurance coverage will continue to be available to us at a reasonable cost or will be adequate to cover any product liability claims. In addition, such events may affect the availability of personnel, proper functioning of our information technology infrastructure and availability of third parties on whom we rely, any of which consequences could have a material adverse effect on our business, financial condition, results of operations or prospects.

Significant or prolonged disruptions in the supply of goods or services from third parties could materially adversely affect our business, financial condition, results of operations or prospects.

        We are dependent on a continuing flow of goods and services from suppliers to provide our products, services and solutions to our customers. A disruption or prolonged delays in obtaining supplies or services, including, for example, chemicals, electricity or other materials, could materially adversely affect our ability to provide our products, services and solutions to our customers, and our ability to operate in compliance with all regulatory requirements, which could have a material adverse effect on our business, financial condition, results of operations or prospects. In certain circumstances, we rely on third parties to provide certain important services and a disruption in these services could materially adversely affect our business, financial condition, results of operations or prospects. Some possible reasons for a delay or disruption in the supply of important goods and services include:

    our suppliers may not provide materials that meet our specifications in sufficient quantities;

    our suppliers may face production delays due to natural disasters, strikes, lock-outs or other such events;

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    one or more suppliers could make strategic changes in the lines of products and services they offer; and

    some of our suppliers, such as small companies, may be more likely to experience financial and operational difficulties than larger, well-established companies, because of their limited financial and other resources.

        As a result of any of these, or other, factors, we may be required to find alternative suppliers for the materials and services on which we rely. Accordingly, we may experience delays in obtaining appropriate materials and services on a timely basis and in sufficient quantities from such alternative suppliers at a reasonable price, which could interrupt services to our customers and materially adversely affect our business, financial condition, results of operations or prospects.

The loss of, or disruption in, our ability to efficiently operate our distribution network could have a material adverse impact on our business.

        We rely on the orderly operation of our receiving and distribution process, which depends on our distribution system, adherence to shipping schedules and effective management of our distribution network. If complications arise with our distribution system or if our shipping or storage facilities (or a significant portion of inventory located there) is severely damaged or destroyed, our ability to receive and deliver our products on a timely basis will be significantly impaired. There can be no assurance that disruptions in operations due to natural or man-made disasters, fire, flooding, terrorism or other catastrophic events, system failure, labor disagreements or shipping problems will not result in delays in the delivery of our products to our customers. Such delays could materially adversely impact our business, financial condition, results of operations or prospects. In addition, we could incur significantly higher costs and longer lead times associated with distributing our products to our customers during the time it takes for us to reopen or replace our facilities. Moreover, our business interruption insurance may not be adequate to cover or compensate us for any losses that may occur.

        We rely upon various means of transportation through third parties, including shipments by air, sea, rail and truck, to deliver products to our facilities from vendors and from our facilities to our customers, as well as for direct shipments from vendors to customers. Labor shortages or capacity constraints in the transportation industry, disruptions to the national and international transportation infrastructure, fuel shortages or transportation cost increases (such as increases in fuel costs or port fees) could materially adversely affect our business and operating results.

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, including to OEMs, 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.

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Our products, services and solutions, or our participation in large-scale projects, could expose us to litigation, regulatory or enforcement actions and reputational risk.

        We are subject to various laws, ordinances, regulations and other requirements of government authorities in foreign countries and in the United States, any violation of which could potentially create substantial liability for us. Changes in laws, ordinances, regulations or other government policies, the nature, timing and effect of which are uncertain, may significantly increase our expenses and liabilities.

        From time to time, we are involved in lawsuits that arise from our business. Litigation may, for example, relate to product liability claims, personal injury, property damage, accidents, regulatory issues, contract disputes or employment matters. We may face claims that are broader than the scope of our involvement on a project, including claims that seek to impose liability on us for an entire solution or system for which we provided only limited components.

        The occurrence of any of these matters could also create possible damage to our reputation. The defense and ultimate outcome of lawsuits against us may result in higher operating expenses. Higher operating expenses or reputational damage could have a material adverse effect on our business, financial condition, results of operations or prospects.

        It is not possible to predict with certainty the outcome of claims, investigations and lawsuits, and we could in the future incur judgments, fines or penalties or enter into settlements of lawsuits and claims that could have a material adverse effect on our business, financial condition, results of operations or prospects in any particular period. Additionally, we may be required to change or cease operations at one or more facilities if a regulatory agency determines that we have failed to comply with laws, regulations or orders applicable to our business.

A number of factors may prevent or delay our building new plants, expanding our existing plants or installing equipment at our customers' facilities, including our dependence on third-party suppliers and construction companies.

        A number of factors may prevent or delay construction, expansion or use of our facilities or installation of our equipment at our customers' facilities, including our dependence on third-party suppliers of equipment and materials, our dependence on third-party construction companies and the timing of equipment purchases.

        Further, we enter into contracts for customers regarding long-term engineering, procurement and construction projects. If a construction company we have commissioned to build a new project defaults or fails to fulfill its contractual obligations, we could face significant delays and cost overruns. Any construction delays could have a material adverse impact on us.

        The timing of equipment purchases can pose financial risks to us. We attempt to make purchases of equipment and/or material as needed. However, from time to time, there may be excess demand for certain types of equipment with substantial delays between the time we place orders and receive delivery. In those instances, to avoid construction delays, service disruptions or liquidated damages associated with the inability to own and place such equipment or materials into service when needed, we may place orders well in advance of deployment or when actual damage to the equipment or materials occurs. Thus, there is a risk that at the time of delivery of such equipment or materials, there may not yet be a need to use them; however, we are still required to accept delivery and make payment. In addition, due to the customization of some of our equipment or materials, there may be a limited market for resale of such equipment or material. This can result in our incurrence of material equipment and/or material costs, with no use for or ability to resell such equipment.

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Our financial results may fluctuate from period to period and can be difficult to predict.

        Our financial results may be impacted by large projects, the timing of which can change based upon customer requirements due to a number of factors affecting the project, such as funding, readiness of the project and regulatory approvals. Further, the cancellation of any such large projects may have a material adverse effect on our business, financial condition, results of operations or prospects. In addition, of our contracts for large capital water treatment projects, systems and solutions for municipal and industrial applications are generally fixed-price contracts with milestone billings. Additionally, competitive-bid processes impose significant uncertainty with respect to our prospects for success, and our failure to properly predict our win rate could reduce our margins. Accordingly, our financial results for any given period may fluctuate and can be difficult to predict.

        Further, our capital expenditures for any given fiscal year may exceed our initial forecasts and may vary substantially if we are required to undertake certain actions to comply with new regulatory requirements or compete with new technologies. We may not have the capital to undertake the capital investments. If we are unable to do so, we may not be able to effectively compete.

Seasonality of sales and weather conditions may adversely affect, or cause volatility in, our financial results.

        We experience seasonal demand in a number of our markets, as demand for infrastructure and municipal products and projects follows warm weather trends. Seasonal effects may vary from year to year and are impacted by weather patterns, particularly by temperatures, heavy flooding and droughts.

        Additionally, our operating results and financial condition could be materially and adversely affected by severe weather, natural disasters, environmental factors, terrorist or other deliberate attacks or hazards (such as fire, explosion or mechanical failure) resulting from inadequate internal processes, technical flaws, human error or other circumstances. Repercussions of these catastrophic events may include:

    shutting down or curtailing the operation of affected plants and facilities for limited or extended periods;

    shutting down or curtailing the operation of our customers permanently or for limited or extended periods, which may result in a decrease in our revenue;

    the need to obtain necessary equipment or supplies, including electricity, which may not be available to us in a timely manner or at a reasonable cost;

    evacuation of or injury to personnel;

    damage or catastrophic loss to our equipment, facilities and project work sites, resulting in suspension of operations or delays in building or maintaining our plants;

    loss of productivity;

    interruption to any projects that we may have in process; and

    harm to our brand and reputation.

Government customers involve unique policy-, contract- and performance-related risks, and we may face challenges to our government contracts or our eligibility to serve government customers, any of which could materially adversely impact our business, financial condition, results of operations or prospects.

        We derive, and expect to continue to derive in the future, a substantial portion of our revenues from government customers. Sales to governments and related entities present risks in addition to those involved in sales to industrial and other customers, including policy-related risks such as potential disruption due to appropriation and spending patterns, delays in the adoption of new technologies due

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to political, fiscal or bureaucratic processes, delays in approving budgets and the government's right to cancel contracts and purchase orders for its convenience. General political and economic conditions, which we cannot accurately predict, also directly and indirectly affect policies relating to the quantity and allocation of expenditures by government customers. In addition, government contracts may involve long purchase and payment cycles, competitive bidding requirements, qualification requirements, delays or changes in agreed-to funding, budgetary constraints, political agendas, extensive specification development and price negotiations, milestone requirements and the potential unenforceability of limitations on liability or other contractual provisions, any of which may create price pressure and reduce our margins. Because our water treatment projects and solutions for municipal customers often include fixed-price contracts with milestone billings and liquidated damages for our delay, our performance under such contracts involves risks such as not receiving payments, not receiving payments in a timely manner or incurring significant damages if certain milestones are not met or not met on schedule. As a result, we could experience a material adverse effect on our business, financial condition, results of operations or prospects.

        Each government entity also maintains its own rules and regulations with which we must comply and which can vary significantly among customers. We face risks associated with the failure to comply with such rules and regulations. These risks include bid protests, in which our competitors could challenge the contracts we have obtained, or suspension, debarment or similar ineligibility from serving government customers. Challenges to our current or future government contracts or to our eligibility to serve government customers could result in a loss of government sales and have a material adverse effect on our business, financial condition, results of operations or prospects.

Our contracts with federal, state and local governments may be terminated or adversely modified prior to completion, which could adversely affect our business.

        Government contracts generally contain provisions, and are subject to laws and regulations, that give the government rights and remedies not typically found in commercial contracts, including provisions permitting the government to:

    terminate our existing contracts;

    reduce potential future revenues from our existing contracts;

    modify some of the terms and conditions in our existing contracts;

    suspend or permanently prohibit us from doing business with the government or with any specific government agency;

    impose fines and penalties;

    subject us to criminal prosecution or debarment;

    subject the award of some contracts to protest or challenge by competitors, which may require the contracting agency or department to suspend our performance pending the outcome of the protest or challenge and which may also require the government to solicit new bids for the contract or result in the termination, reduction or modification of the awarded contract;

    suspend work under existing multiple year contracts and related task orders if the necessary funds are not appropriated by the U.S. Congress or state or local legislatures;

    decline to exercise an option to extend an existing multiple year contract; and

    claim rights in technologies and systems invented, developed or produced by us.

        The government may terminate a contract with us either for convenience (for instance, due to a change in its perceived needs or its desire to consolidate work under another contract) or if we default

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by failing to perform under the contract. Upon a termination for convenience, we are generally able to recover the purchase price for delivered items and reimbursement of allowable work-in-process costs. If the government terminates a contract with us based upon our default, we generally would be denied any recovery for undelivered work, and instead may be liable for excess costs incurred by the government in procuring undelivered items from an alternative source and other damages as authorized by law. We may in the future receive show-cause or cure notices under contracts that, if not addressed to the government's satisfaction, could give the government the right to terminate those contracts for default or to cease procuring our services under those contracts.

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 United States, 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 United States 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

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with these laws, regulations and permits or that we will be able to obtain or renew all required permits. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators and be subject to lawsuits, civil or criminal, seeking enforcement and/or injunctive relief. We may also be subject to civil claims by citizens groups seeking to enforce environmental laws. In the event of an accident or if we otherwise fail to comply with applicable regulations, we could lose our permits or approvals and/or be held liable for damages and monetary penalties.

        Environmental laws and regulations are complex and change frequently. These laws, and the enforcement thereof, have tended to become more stringent over time. It is possible that new standards could be imposed, either stricter or more lenient, that could result in the obsolescence of our products or lead to an interruption or suspension of our operations and have a material adverse effect on the productivity and profitability of a particular manufacturing facility, service or product or on us as a whole.

Wastewater operations entail significant risks that may impose significant costs.

        Wastewater treatment involves various unique risks. If our treatment systems fail or do not operate properly, or if there is a spill, untreated or partially treated wastewater could discharge onto property or into nearby streams and rivers, causing various damages and injuries, including environmental damage. These risks are most acute during periods of substantial rainfall or flooding, which are the main causes of sewer overflow and system failure. Liabilities resulting from such damages and injuries could materially adversely affect our business, financial condition, results of operations or prospects.

        These risks could be increased by the potential physical impacts of climate change on our operations. The physical impacts of climate change are highly uncertain and would vary depending on geographical location, but could include changing temperatures, water shortages, changes in weather and rainfall patterns and changing storm patterns and intensities. Many climate change predictions, if true, present several potential challenges to water and wastewater service providers, such as increased precipitation and flooding, potential degradation of water quality and changes in demand for water services.

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. 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 United States that have military or strategic applications. The Export Administration Regulations regulate the export of certain "dual use" goods, software and technologies, and in some cases requires export licenses from the U.S. Department of Commerce. Office of Foreign Asset Control regulations implement various sanctions programs that include prohibitions of restrictions on dealings with certain sanctioned countries, governments, entities and individuals. Our policies mandate compliance with these anti-bribery and trade laws, regulations and policies, and we have established policies and procedures designed to assist us and our personnel in compliance with applicable United States and international laws and regulations. However, we operate in parts of the world that are recognized as having governmental and commercial corruption and in certain circumstances, strict compliance with anti-bribery and trade laws, regulations and policies may conflict

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with local customs and practices. 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.

Our business, results of operations and financial condition may be materially adversely affected by risks associated with international sales and operations.

        Our international sales and operations are subject, in varying degrees, to risks inherent to doing business outside the United States. These risks include the following:

    changes in trade protection measures, including tariff and trade barriers and import and export licensing requirements;

    potential negative consequences from changes to taxation policies;

    unanticipated changes in other laws, governmental policies and regulations, or in how such provisions are interpreted or administered;

    risks associated with the withdrawal of the United Kingdom from the European Union, commonly known as "Brexit," including volatility in worldwide and European financial markets, potential restrictions on the free movement of goods and labor between the United Kingdom and the European Union and other impediments to our ability to transact within and between each of the United Kingdom and the European Union;

    potential disruptions in our global supply chain;

    possibility of unfavorable circumstances arising from host country laws or regulations;

    restrictions on, or taxation of, dividends on repatriation of earnings under applicable local law, monetary transfer restrictions and foreign currency exchange regulations in the jurisdictions in which our subsidiaries operate;

    currency exchange rate fluctuations and restrictions on currency repatriation;

    labor disturbances;

    safety and security considerations;

    increased costs and risks of developing and managing global operations, including our potential failure to implement global best practices, experiences of employee dissatisfaction and the improper allocation of resources, as a result of distance as well as language and cultural differences; and

    political instability insurrection, armed conflict, terrorism or war.

        In addition to the general risks that we face outside the United States, our operations in emerging markets could involve additional uncertainties for us, including risks that governments may impose limitations on our ability to repatriate funds; governments may impose withholding or other taxes on remittances and other payments to us, or the amount of any such taxes may increase; an outbreak or

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escalation of any insurrection or armed conflict may occur; governments may seek to nationalize our assets; or governments may impose or increase investment barriers or other restrictions affecting our business. The emerging markets in which we are active, including China, pose other uncertainties, including the difficulty of enforcing agreements, collecting receivables, protecting of our intellectual property and other assets and pricing of our products appropriately, as well as higher business conduct risks, less qualified talent and risks of political instability. We cannot predict the impact such events might have on our business, financial condition, results of operations or prospects.

Our operations in China expose us to risks inherent in doing business there.

        We currently have operations and source and manufacture certain of our materials and products for global distribution from third-party suppliers and manufacturers in China. The political, legal and economic climate in China, both nationally and regionally, is fluid and unpredictable, and 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 laws and regulations such as those related to, among other things, taxation, import and export tariffs, environmental regulations, land use rights, intellectual property, currency controls, network security, employee benefits and other matters, and we may not obtain or retain the requisite legal permits to continue to operate in China or we may become subject to costs or operational limitations imposed in connection with obtaining and complying with such permits. In addition, Chinese trade regulations are in a state of flux, and we may become subject to other forms of taxation, tariffs and duties in China. We may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet U.S. and international standards. We may also experience difficulty in managing relations with our employees, distributors, suppliers or customers, with whom disagreements or conflicts of interest could materially adversely affect our operations or our ability to source and manufacture certain of our materials and products in China. Further, the third parties we rely on in China may disclose our confidential information or intellectual property to competitors or third parties, which could result in the illegal distribution and sale of counterfeit versions of our products. Any of these factors could have a material adverse effect on our business, financial condition, results of operations or prospects.

        Additionally, the rapid development of the Chinese economy has led to increased labor costs, and the cost of labor in China may continue to increase in the future. Our results of operations will be materially and adversely affected if our labor costs, or the labor costs of our suppliers and manufacturers, increase significantly. We and our manufacturers and suppliers may be unable to find a sufficient number of qualified workers due to the intensely competitive and fluid market for skilled labor in China. Furthermore, pursuant to Chinese labor laws, employers in China are subject to various requirements when signing labor contracts, paying remuneration, determining the term of employees' probation and unilaterally terminating labor contracts. These labor laws and related regulations impose liabilities on employers and may significantly increase the costs of workforce reductions. If we decide to change or reduce our workforce, these labor laws could limit or restrict our ability to make such changes in a timely, favorable and effective manner. Any of these events could have a material adverse effect our business, financial condition, results of operations or prospects.

If we do not or cannot adequately protect our intellectual property, if third parties infringe our intellectual property rights, or if third parties claim that we are infringing or misappropriating their intellectual property rights, we may suffer competitive injury, expend significant resources enforcing our rights or defending against such claims, or be prevented from selling products or services.

        We own numerous patents, trademarks, service marks, copyrights, trade secrets and other intellectual property and licenses to intellectual property owned by others, which in aggregate are important to our business. The intellectual property rights that we obtain, however, may not provide

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our products and services with a significant competitive advantage because our rights may not be sufficiently broad or may be challenged, invalidated, or subject to government march-in or sovereign rights or compulsory licensing, sunshine laws, or be subject to freedom of information requests, or court-ordered public disclosure, or be subject to open-source software licensing, or be circumvented, independently developed or designed-around, misappropriated, disparaged, diluted, or stolen, particularly in countries where intellectual property rights laws are not highly developed, protected or enforced. Our failure to obtain or maintain intellectual property rights that convey competitive advantage, adequately protect our intellectual property or detect or prevent circumvention or unauthorized use of such property and the cost of enforcing our intellectual property rights could materially adversely impact our business, financial condition, results of operations or prospects.

        From time to time, we, or on occasion our suppliers, contractors or indemnified parties in our supply chain including end-users, receive notices from third parties alleging or warning of potential intellectual property infringement or misappropriation. Any dispute or litigation regarding intellectual property could be costly and time-consuming due to the complexity and the uncertainty of intellectual property litigation. Our intellectual property portfolio may not be useful in asserting a counterclaim, or negotiating a license, in response to a claim of infringement or misappropriation. We may incur significant costs and diversion of management attention and resources as a result of such claims of infringement or misappropriation, and we or our suppliers or sub-contractors could lose rights to critical technology, be unable to license critical technology, provide or sell critical products or services, or be required to pay substantial damages or license fees with respect to the infringed rights or be required to redesign, rework, re-program, or replace our or our customers' products, sub-components, software, or systems, or re-cast our valuable brands at substantial cost, any of which could materially adversely impact our competitive position, financial condition and results of operations even if we successfully defend against such claims of infringement or misappropriation.

We are increasingly dependent on the continuous and reliable operation of our information technology systems, and a disruption of these systems could materially adversely affect our business.

        We rely on our information technology systems in connection with the operation of our business, including with respect to customer service and billing, accounting and, in some cases, the monitoring and operation of our installations. Many of our products, services and solutions depend on the integrity of our information technology systems, including our Water One remote system, monitoring and data analytics features and our automated control solutions. In addition, we rely on our systems to manage maintenance and construction projects, materials and supplies and our human resource functions. A loss of these systems, major problems with the operation of these systems, the failure to properly implement these systems, including in customer installations, or the failure to identify market trends and continuously update our information technology systems could materially adversely affect our operations, sales and reputation and have a material adverse effect on our business, financial condition, results of operations or prospects.

        Specifically, our information technology systems may be vulnerable to damage or interruption from:

    power loss, computer systems failures and internet, telecommunications or data network failures;

    operator negligence or improper operation by, or supervision of, employees;

    physical and electronic loss of data;

    computer viruses;

    intentional security breaches, hacking, denial of service actions, misappropriation of data and similar events; and

    hurricanes, fires, floods, earthquakes and other natural disasters.

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        Such incidents may result in the loss or compromise of customer, financial or operational data, disruption of billing, collections or normal field service activities, disruption of data analytics and electronic monitoring and control of operational systems and delays in financial reporting and other normal management functions. Possible impacts associated with a cybersecurity incident may include remediation costs related to lost, stolen, or compromised data, repairs to infrastructure, physical systems or data processing systems, increased cybersecurity protection costs, adverse effects on our compliance with regulatory and environmental laws and regulations, including standards for drinking water, litigation and reputational damage.

        We, and some of our third party vendors, have experienced cybersecurity attacks in the past and may experience them in the future, potentially with more frequency. To date, most of these attacks have been unsuccessful, and none have resulted in any material adverse impact to our business or operations. We have adopted measures to mitigate potential risks associated with information technology disruptions and cybersecurity threats, however, given the unpredictability of the timing, nature and scope of such disruptions, we could potentially be subject to production downtimes, operational delays, other detrimental impacts on our operations or ability to provide products and services to our customers, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems or networks, financial losses from remedial actions, loss of business or potential liability, regulatory enforcement actions and/or damage to our reputation, any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition. We also have a concentration of operations on certain sites, such as production and shared services centers, where business interruptions could cause material damage and costs. Transport of goods from suppliers, and to customers, could also be hampered for the reasons stated above.

        Although we continue to assess these risks, implement controls and perform business continuity and disaster recovery planning, we cannot be sure that interruptions with material adverse effects will not occur.

If we experience a significant data security breach or fail to detect and appropriately respond to a significant data security breach, our business and reputation could suffer.

        The nature of our business involves the receipt and storage of information about our customers, suppliers and employees. Further, we rely on various information technology systems to capture, process, store and report data in connection with the products, services and solutions that we provide to our customers, such as our Water One smart water technology. 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 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.

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Our business could be adversely affected by inflation and other manufacturing and operating cost increases.

        Our operating costs are subject to fluctuations, particularly due to changes in commodity prices, raw materials, energy and related utilities, freight and cost of labor. In order to remain competitive, we may not be able to recuperate all or a portion of these higher costs from our customers through product price increases. In addition, many of our contracts are long-term in nature, and our failure to negotiate price escalation provisions, or to obtain adequate price escalation provisions, in our long-term contracts could, in the event of an inflationary or otherwise cost-increasing environment, have a material adverse effect on our business, financial condition, results of operations or prospects. Further, in a declining price environment, our operating margins may contract because we account for inventory costs on the basis of an average or first-in, first-out method. Actions we take to mitigate volatility in manufacturing and operating costs may not be successful and, as a result, our business, financial condition, results of operations or prospects could be materially and adversely affected.

Proposed changes to U.S. tax laws may, if enacted, have a material adverse impact on our business.

        The U.S. Congress has recently introduced tax reform legislation that would significantly impact U.S. taxation of corporations. The tax reform bill currently under consideration by the U.S. Senate would reduce the U.S. corporate tax rate, introduce a capital investment deduction, limit the interest deduction, limit certain deductions for executive compensation, and make certain changes to the international tax system, including the taxation of the accumulated foreign earnings of U.S. multinational corporations. The legislation, if enacted, could have a material adverse impact on our business. In particular, the bill would limit the deduction for interest expense available to a U.S. corporation that is a member of an international group in certain circumstances, based on the debt burden on the U.S. corporation as compared to the total debt burden on the international group, and would limit interest deductions to 30% of earnings, as adjusted for tax purposes. These provisions, if enacted, could increase our tax liability. We cannot predict which, if any, of these proposals will be enacted into law or the resulting impact any such enactment will have on our financial results. However, if new legislation were enacted, it could materially and adversely impact our business, financial condition, cash flows and results of operations.

Our ability to use our net operating loss carryforwards may be limited.

        As of September 30, 2017, we had approximately $147.0 million of U.S. federal and state net operating loss carryforwards ("NOLs"). Our NOLs begin to expire in 2019. Utilization of these NOLs depends on many factors, including our future income, which cannot be assured. We have full valuation allowance against the NOLs. In addition, the U.S. Congress has recently introduced tax reform legislation that would, if enacted, impose certain limitations on a corporation's ability to offset its future income with its NOLs. The proposed legislation would also reduce the U.S. corporate tax rate, which would result in a reduction of the expected cash tax benefit that would arise from any future utilization of our NOLs. Finally, in addition, Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"), generally imposes an annual limitation on the amount of taxable income that may be offset by NOLs when a corporation has undergone an "ownership change" (as determined under Section 382). Generally, a corporation experiences such an ownership change if the percentage of its stock owned by its "5-percent shareholders," as defined in Section 382, increases by more than 50 percentage points (by value) over a three-year period. Any unused annual limitation may, subject to certain limitations, be carried over to later years. We may undergo an ownership change in the future, including an ownership change as a result of the combined effect of our initial public offering and future equity offerings, which would result in an annual limitation under Section 382 determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate as defined in Section 382, increased under certain circumstances as a result of recognizing built-in gains in our assets existing at the time of the ownership change. The limitations

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arising from any ownership change may prevent utilization of our NOLs prior to their expiration. Future ownership changes or regulatory changes could further limit our ability to utilize our NOLs. To the extent we are not able to offset our future income with our NOLs, this could adversely affect our operating results and cash flows if we attain profitability.

Changes in our effective tax rates may adversely affect our financial results.

        We offer our products, services and solutions in more than 100 countries and 16.4% of our revenue was generated outside the United States in fiscal 2017. Given the global nature of our business, a number of factors may increase our future effective tax rates, including:

    our decision to repatriate non-U.S. earnings for which we have not previously provided for U.S. taxes;

    the jurisdictions in which profits are determined to be earned and taxed;

    sustainability of historical income tax rates in the jurisdictions in which we conduct business;

    the resolution of issues arising from tax audits with various tax authorities; and

    changes in the valuation of our deferred tax assets and liabilities, and changes in deferred tax valuation allowances.

        Any significant increase in our future effective tax rates could reduce net income for future periods.

Our historical consolidated financial information may not be representative of our results if we had operated independently of Siemens and does not reflect further changes to our management structure following our separation from Siemens and, as a result, may not be a reliable indicator of the results that we will achieve as an independent company.

        Prior to the Acquisition in fiscal 2014, we operated as a subsidiary of Siemens. Consequently, some of the financial information included in this Annual Report on Form 10-K has been derived from the combined and consolidated financial statements and accounting records of Siemens and reflects assumptions and allocations made by Siemens. Our financial position, results of operations and cash flows, as presented, may be different from those that would have resulted if we had been operated as a standalone company or by a company other than Siemens. For example, our fiscal 2013 selected historical consolidated financial statements were prepared on a "carve-out" basis for the purpose of presenting our historical financial position, results of operations and cash flows. Since our business had represented a portion of the Siemens' business, the selected financial data presented for this period in Item 6, "Selected Financial Data" in this Annual Report on Form 10-K is not necessarily indicative of our current or future performance and does not reflect what our performance would have been had we operated as a separate stand-alone entity during this period. Further, in fiscal 2016, we effected an organizational redesign to align the management activities of certain of our business centers with functional leaders and, in connection with our acquisition of Neptune-Benson Holding Corp. and certain of its affiliates ("Neptune-Benson") on April 15, 2016 (the "Neptune-Benson Acquisition"), we created a new Aquatics and Disinfection division, which we subsequently merged into our Products Segment. This realignment has had implications on how we manage our business. As a result, our historical financial information may not be a reliable indicator of our future results or the results that we will achieve following the acquisitions and divestitures that we have made and the realignment of our management structure following our separation from Siemens.

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We are a holding company with no operations of our own, and we depend on our subsidiaries for cash.

        We are a holding company and do not have any material assets or operations other than ownership of equity interests of our subsidiaries. Our operations are conducted almost entirely through our subsidiaries, and our ability to generate cash to meet our obligations or to pay dividends, if any, is highly dependent on the earnings of, and receipt of funds from, our subsidiaries through dividends or intercompany loans. The ability of our subsidiaries to generate sufficient cash flow from operations to allow us and them to make scheduled payments on our debt obligations will depend on their future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of our control. We cannot provide any assurance that the cash flow and earnings of our operating subsidiaries will be adequate for our subsidiaries to service their debt obligations. Additionally, under the terms of the agreement governing our senior secured credit facilities, our operating subsidiaries are currently limited in their ability to pay cash dividends to us, and we expect these limitations to continue in the future under the terms of any future credit agreement or any future debt or preferred equity securities of ours or of our subsidiaries. If our subsidiaries do not generate sufficient cash flow from operations to satisfy corporate obligations, we may have to undertake alternative financing plans (such as refinancing), restructure debt, sell assets, reduce or delay capital investments or seek to raise additional capital. We cannot provide any assurance that any such alternative refinancing would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be permitted under the terms of our various debt instruments then in effect. Our inability to generate sufficient cash flow to satisfy our obligations, or to refinance our obligations on commercially reasonable terms, could have a material adverse effect on our business, financial condition, results of operations or prospects.

        Furthermore, we and our subsidiaries may incur substantial additional indebtedness in the future that may severely restrict or prohibit our subsidiaries from making distributions, paying dividends, if any, or making loans to us.

We may incur impairment charges for our goodwill and other indefinite-lived intangible assets which would negatively impact our operating results.

        We have a significant amount of goodwill and purchased intangible assets on our balance sheet as a result of the Acquisition in 2014 and subsequent acquisitions we have completed, including the Neptune-Benson Acquisition. As of September 30, 2017, the net carrying value of our goodwill and other indefinite-lived intangible assets totaled approximately $356.1 million, including $143.7 million related to Neptune-Benson. 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 Industrial segment. 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. In testing for impairment, we will make a qualitative assessment, and if we believe that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step goodwill impairment test is required. 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.

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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, 2017, we had total indebtedness of $906.8 million, including $896.6 million of borrowings under our term loan facility, no borrowings under our revolving credit facility, and $10.2 million in borrowings related to BOO financing. We also had $6.7 million of letters of credit issued under our $95.0 million revolving credit facility and an additional $10.6 million of letters of credit issued under a separate uncommitted facility as of September 30, 2017. On November 7, 2017, we used a portion of the proceeds of our initial public offering to repay approximately $104.9 million of indebtedness (including accrued and unpaid interest) under the term loan facility. See also Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

        Our high level of indebtedness could have important consequences to us, including:

    making it more difficult for us to satisfy our obligations with respect to our debt;

    limiting our ability to obtain additional financing to fund future working capital, capital expenditures, investments or acquisitions or other general corporate requirements;

    requiring a substantial portion of our cash flows to be dedicated to debt service payments and/or debt repayment instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, investments or acquisitions or other general corporate purposes;

    increasing our vulnerability to adverse changes in general economic, industry and competitive conditions;

    exposing us to the risk of increased interest rates as borrowings under our senior secured credit facilities (to the extent not hedged) bear interest at variable rates, which could further adversely impact our cash flows;

    limiting our flexibility in planning for and reacting to changes in our business and the industry in which we compete;

    restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

    impairing our ability to obtain additional financing in the future;

    placing us at a disadvantage compared to other, less leveraged competitors; and

    increasing our cost of borrowing.

        Any one of these limitations could have a material effect on our business, financial condition, results of operations, prospects and our ability to satisfy our obligations in respect of our outstanding debt.

Despite our current debt levels, we may incur substantially more indebtedness, which could further exacerbate the risks associated with our substantial leverage.

        We and our subsidiaries may be able to incur additional indebtedness in the future, which may be secured. While the agreement governing our senior secured credit facilities limits our ability and the ability of our subsidiaries to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and thus, notwithstanding these restrictions, we may still be able to incur substantially more debt. In addition, provided that no default or event of default (as defined in the agreement governing our senior secured credit facilities) has occurred and is continuing, we have the option to add one or more incremental term loan or revolving credit facilities or increase commitments under our revolving credit facility by an aggregate amount which does not cause our total first lien net

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leverage ratio, on a pro forma basis (in each case, as defined in the agreement governing our senior secured credit facilities), to exceed 4.50 to 1.00, plus up to an additional $100.0 million (excluding incremental revolving credit facilities or increases under our revolving credit facility in an aggregate principal amount not to exceed $30.0 million) (all of which remains available as of September 30, 2017). On November 7, 2017, we used a portion of the proceeds of our initial public offering to repay approximately $104.9 million of indebtedness (including accrued and unpaid interest) under the term loan facility. See also Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources." To the extent that we incur additional indebtedness, the risks that we now face related to our substantial indebtedness could increase.

To service our indebtedness, we require a significant amount of cash, which depends on many factors beyond our control.

        We cannot provide any assurance that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our senior secured credit facilities in amounts sufficient to enable us to fund our liquidity needs.

        If we do not generate sufficient cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:

    refinancing or restructuring our debt;

    selling assets; or

    seeking to raise additional capital.

        We cannot provide any assurance that we would be able to enter into these alternative financing plans on commercially reasonable terms or at all. Moreover, any alternative financing plans that we may be required to undertake would still not guarantee that we would be able to meet our debt obligations. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to obtain alternative financing, could materially adversely affect our business, financial condition, results of operations or prospects. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

We will need to repay or refinance borrowings under our senior secured credit facilities.

        Our revolving credit facility and term loan facility are scheduled to mature in January 2019 and January 2021, respectively. We will need to repay, refinance, replace or otherwise extend the maturity of our senior secured credit facilities. Our ability to repay, refinance, replace or extend these facilities by their maturity dates will be dependent on, among other things, business conditions, our financial performance and the general condition of the financial markets. If a financial disruption were to occur at the time that we are required to repay indebtedness outstanding under our senior secured credit facilities, we could be forced to undertake alternate financings, including a sale of additional common stock, negotiate for an extension of the maturity of our senior secured credit facilities or sell assets and delay capital expenditures in order to generate proceeds that could be used to repay indebtedness under our senior secured credit facilities. We cannot provide any assurance that we will be able to consummate any such transaction on terms that are commercially reasonable, on terms acceptable to us or at all.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

        Borrowings under our senior secured credit facilities are at variable rates of interest and expose us to interest rate risk. Interest rates are still near historically low levels and are projected to rise in the future. If interest rates rise, our debt service obligations on the variable rate indebtedness will increase

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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 $896.6 million outstanding as of September 30, 2017) and that our revolving credit facility was fully drawn, each 0.125% change in interest rates would result in an approximate change of $1.3 million in annual interest expense on the indebtedness under our senior secured credit facilities. On November 7, 2017, we used a portion of the proceeds of our initial public offering to repay approximately $104.9 million of indebtedness (including accrued and unpaid interest) under the term loan facility. See also Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

The covenants in our senior secured credit facilities impose restrictions that may limit our operating and financial flexibility.

        Our senior secured credit facilities contain a number of significant restrictions and covenants that limit our ability, among other things, to:

    incur additional indebtedness;

    pay dividends or distributions on our capital stock or repurchase or redeem our capital stock;

    prepay, redeem or repurchase specified indebtedness;

    create certain liens;

    sell, transfer or otherwise convey certain assets;

    make certain investments;

    create dividend or other payment restrictions affecting subsidiaries;

    engage in transactions with affiliates;

    create unrestricted subsidiaries;

    consolidate, merge or transfer all or substantially all of our assets or the assets of our subsidiaries;

    enter into agreements containing certain prohibitions affecting us or our subsidiaries; and

    enter into new lines of business.

        In addition, our senior secured credit facilities contain a financial covenant requiring us to comply with a 5.55 to 1.00 first lien net leverage ratio test. This financial covenant is solely for the benefit of the lenders under our revolving credit facility and is tested as of the last day of a quarter on which the aggregate amount of revolving loans and letters of credit outstanding under the revolving credit facility (net of cash collateralized letters of credit and undrawn outstanding letters of credit in an amount of up to 50% of the revolving credit facility) exceeds 25% of the total commitments thereunder.

        These covenants could materially adversely affect our ability to finance our future operations or capital needs. Furthermore, they may restrict our ability to expand and pursue our business strategies and otherwise conduct our business. Our ability to comply with these covenants may be affected by circumstances and events beyond our control, such as prevailing economic conditions and changes in regulations, and we cannot provide any assurance that we will be able to comply with such covenants. These restrictions also limit our ability to obtain future financings to withstand a future downturn in our business or the economy in general. In addition, complying with these covenants may also cause us to take actions that may make it more difficult for us to successfully execute our business strategy and compete against companies that are not subject to such restrictions.

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        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.

Risks Relating to Ownership of our Common Stock

The market price of our common stock may be highly volatile, and our stockholders may not be able to resell their shares at or above the price they paid for them.

        The trading price of our common stock could be volatile, and our stockholders could lose all or part of their investment. We cannot provide any assurance that an active public market for our common stock will be sustained. The following factors, in addition to other factors described in this "Risk Factors" section and elsewhere in this Annual Report on Form 10-K, may have a significant impact on the market price of our common stock:

    negative trends in global economic conditions or activity levels in our industry;

    changes in our relationship with our customers or in customer needs, expectations or trends;

    announcements concerning our competitors or our industry in general;

    our ability to implement our business strategy;

    our ability to complete and integrate acquisitions;

    actual or anticipated fluctuations in our quarterly or annual operating results;

    trading volume of our common stock;

    the failure of securities analysts to cover the Company or changes in analysts' financial estimates;

    severe weather, natural disasters, acts of war or terrorism or other external events;

    economic, legal and regulatory factors unrelated to our performance;

    changes in accounting principles;

    the loss of any of our management or key personnel;

    sales of our common stock by us, our executive officers and directors or our stockholders (including certain affiliates of AEA) in the future; and

    general economic and market conditions and overall fluctuations in the U.S. equity markets.

        In addition, broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance, and factors beyond our control may cause our stock price to decline rapidly and unexpectedly.

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Because AEA controls a significant percentage of our common stock, it may influence major corporate decisions, and the interests of AEA and its affiliates, including certain of our directors, may conflict with the interests of owners of our common stock and those of the Company.

        AEA currently owns 40.6% of our common stock. Through this beneficial ownership and a stockholders' agreement and irrevocable voting proxies, pursuant to which certain of our stockholders have agreed to vote all of their shares to elect one individual to our board of directors that has been nominated by AEA (so long as AEA holds an aggregate of at least 10% of our outstanding common stock), AEA may be deemed to beneficially own 70.7% of the voting power of our outstanding common stock. In addition, so long as AEA holds an aggregate of at least 10% of our outstanding common stock, certain of these stockholders have also agreed to irrevocably appoint AEA as its proxy to vote all of their shares of our common stock with respect to the election of any member of our board of directors, and in the aggregate, AEA and these other stockholders beneficially own more than 50% of our outstanding common stock. As a result, AEA will be able to influence matters requiring approval by our stockholders and/or our board of directors, including the election of directors and the approval of business combinations or dispositions and other extraordinary transactions. See Item 13, "Certain Relationships and Related Party Transactions."

        AEA may have interests that are different from our other stockholders and may vote in a way with which our other stockholders disagree and which may be adverse to our other stockholders' interests. Further, AEA's concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our common stock to decline or prevent our stockholders from realizing a premium over the market price for their common stock. Additionally, AEA and its affiliates are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us or supply us with goods and services. Stockholders should consider that the interests of AEA may differ from their interests in material respects.

        Three of our seven directors are currently affiliated with AEA. These persons have fiduciary duties to both us and AEA. As a result, they may have real or apparent conflicts of interest on matters affecting both us and AEA, which in some circumstances may have interests adverse to ours. In addition, our amended and restated certificate of incorporation provides that the doctrine of "corporate opportunity" will not apply with respect to us, to AEA or certain related parties or any of our directors who are employees of AEA or its affiliates in a manner that would prohibit them from investing in competing businesses or doing business with our customers. AEA or its affiliates may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. To the extent they invest in such other businesses, AEA and its affiliates, including affiliates of AEA who serve on our board of directors, may have interests that differ from those of our other stockholders.

Sales, or the potential for sales, of a substantial number of shares of our common stock in the public market by us or our existing stockholders could cause our stock price to fall.

        Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. The holders of substantially all of our outstanding common stock prior to our initial public offering are subject to lock-up agreements with the underwriters of our initial public offering that restrict the stockholders' ability to transfer shares of our common stock for at least 180 days from the date of the final prospectus for our initial public offering, subject to certain exceptions. As of November 30, 2017, we had 113,264,709 outstanding shares of common stock. Subject to limitations, approximately 104,931,376 shares will become eligible for sale upon expiration of the lock-up period. In addition, shares issued or

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issuable upon exercise of options and warrants vested as of the expiration of the lock-up period will be eligible for sale at that time. Sales of stock by these stockholders could have a material adverse effect on the trading price of our common stock.

        As of November 30, 2017, holders of an aggregate of 104,931,376 shares of our common stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Registration of these shares under the Securities Act, would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by our affiliates as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our markets, or if they adversely change their recommendations or publish negative reports regarding our business or our stock, our stock price and trading volume could materially decline.

        The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our markets or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our stock, or provide more favorable relative recommendations about our competitors, our stock price could materially decline. If any analyst who may cover us were to cease coverage of our Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to materially decline.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.

        Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, as well as provisions of the Delaware General Corporation Law (the "DGCL"), could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:

    establishing a classified board of directors such that not all members of the board of directors are elected at one time;

    allowing the authorized number of our directors to be determined exclusively by resolution of our board of directors and granting to our board of directors the sole power to fill any vacancy on the board of directors;

    limiting the ability of stockholders to remove directors without cause;

    providing that our board of directors is expressly authorized to adopt, or to alter or repeal, our amended and restated bylaws;

    authorizing the issuance of "blank check" preferred stock by our board of directors, without further stockholder approval, to thwart a takeover attempt;

    prohibiting stockholder action by written consent (and, thus, requiring that all stockholder actions be taken at a meeting of our stockholders);

    eliminating the ability of stockholders to call a special meeting of stockholders;

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    establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at annual stockholder meetings; and

    requiring the approval of the holders of at least two-thirds of the voting power of all outstanding stock entitled to vote thereon, voting together as a single class, to amend or repeal our amended and restated certificate of incorporation or amended and restated bylaws.

        In addition, while we have opted out of Section 203 of the DGCL, our amended and restated certificate of incorporation contains similar provisions providing that we may not engage in certain "business combinations" with any "interested stockholder" for a three-year period following the time that the stockholder became an interested stockholder, unless:

    prior to such time, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

    upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares; or

    at or subsequent to that time, the business combination is approved by our board of directors and by the affirmative vote of holders of at least two-thirds of our outstanding voting stock that is not owned by the interested stockholder.

        These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our Company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take corporate actions other than those you desire.

Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us.

        Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers, employees or agents, (iii) any action asserting a claim against us arising under the DGCL or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine. Stockholders in our Company will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporation related to choice of forum. The choice of forum provision in our amended and restated certificate of incorporation may limit our stockholders' ability to obtain a favorable judicial forum for disputes with us.

We will be exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002.

        We are in the process of evaluating our internal controls systems to allow management to report on, and our independent auditors to audit, our internal controls over financial reporting. We will be performing the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act of 2002 (the "Sarbanes Oxley Act"). We will be required to comply with Section 404 in full (including an auditor attestation on management's internal controls report) in our annual report on Form 10-K for the fiscal year ending September 30, 2018 (subject to any change in applicable SEC rules). Furthermore, upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board ("PCAOB") rules and regulations that remain unremediated. As a public company, we

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are required to report, among other things, control deficiencies that constitute a "material weakness" or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

        If we fail to implement the requirements of Section 404 in a timely manner, regulatory authorities such as the SEC or the PCAOB might subject us to sanctions or investigation. If we do not implement improvements to our disclosure controls and procedures or to our internal controls in a timely manner, our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal controls over financial reporting pursuant to an audit of our controls. This may subject us to adverse regulatory consequences or a loss of confidence in the reliability of our financial statements. We could also suffer a loss of confidence in the reliability of our financial statements if our independent registered public accounting firm reports a material weakness in our internal controls, if we do not develop and maintain effective controls and procedures or if we are otherwise unable to deliver timely and reliable financial information.

        Additionally, effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Inadequate internal controls could also cause investors to lose confidence in our reported financial information. Any loss of confidence in the reliability of our financial statements or other negative reaction to our failure to develop timely or adequate disclosure controls and procedures or internal controls could result in a decline in the price of our common stock. In addition, if we fail to remedy any material weakness, our financial statements may be inaccurate, we may face restricted access to the capital markets and our stock price may be adversely affected.

We do not currently expect to pay any cash dividends.

        We currently anticipate that we will retain future earnings for the development, operation and expansion of our business, and the continued operation and expansion of our business will require substantial funding. Accordingly, we do not currently anticipate declaring or paying any cash dividends on shares of our common stock in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors that our board of directors deems relevant. We are a holding company, and substantially all of our operations are carried out by our operating subsidiaries. Under our senior secured credit facilities, our operating subsidiaries are currently limited in their ability to pay cash dividends, and we expect these limitations to continue in the future. Our ability to pay dividends may also be limited by the terms of any future credit agreement or any future debt or preferred equity securities of ours or of our subsidiaries. Accordingly, realization of a gain on any investment in shares of our common stock will depend on the appreciation of the price of our common stock, which may never occur.

The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act and the NYSE, may strain our resources, increase our costs and divert management's attention, and we may be unable to comply with these requirements in a timely or cost-effective manner.

        As a public company, we are subject to the reporting requirements of the Exchange Act, and the corporate governance standards of the Sarbanes-Oxley Act and the NYSE. These requirements place a strain on our management, systems and resources and we will incur significant legal, accounting, insurance and other expenses that we did not incur as a private company. The Exchange Act, requires

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us to file annual, quarterly and current reports with respect to our business and financial condition within specified time periods and to prepare a proxy statement with respect to our annual meeting of stockholders. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. The NYSE requires that we comply with various corporate governance requirements. To maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting and comply with the Exchange Act and NYSE requirements, significant resources and management oversight will be required. This may divert management's attention from other business concerns and lead to significant costs associated with compliance, which could have a material adverse effect on us and the price of our common stock.

        The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or its committees or as our executive officers. Advocacy efforts by stockholders and third parties may also prompt even more changes in governance and reporting requirements. We cannot predict or estimate the amount of additional costs we may incur or the timing of these costs. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

We may be subject to securities litigation, which is expensive and could divert management attention.

        Our share price may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management's attention and resources, which could have a material adverse effect on our business, financial condition, results of operations or prospects. Any adverse determination in litigation could also subject us to significant liabilities.

We are a "controlled company" within the meaning of the corporate governance standards of the NYSE and, as a result, will qualify for, and may rely on, exemptions from certain corporate governance requirements.

        We are currently a "controlled company" within the meaning of the corporate governance standards of the NYSE. A company of which more than 50% of the voting power is held by an individual, a group or another company is a "controlled company" within the meaning of the corporate governance standards of the NYSE and may elect not to comply with certain corporate governance requirements of the NYSE, including:

    the requirement that a majority of our board of directors consist of independent directors;

    the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and

    the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and

    the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

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        We intend to continue to rely on all of the exemptions listed above for as long as we remain a "controlled company." If we continue to utilize the exemptions, we will not have a majority of independent directors and our nominating and corporate governance and compensation committees will not consist entirely of independent directors. As a result, our board of directors and those committees may have more directors who do not meet the NYSE's independence standards than they would if those standards were to apply. The independence standards are intended to ensure that directors who meet those standards are free of any conflicting interest that could influence their actions as directors. Accordingly, our stockholders do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

        In addition, on June 20, 2012, the SEC adopted Rule 10C-1 under the Exchange Act to implement provisions of the Dodd-Frank Act pertaining to compensation committee independence and the role and disclosure of compensation consultants and other advisers to the compensation committee. The national securities exchanges have since adopted amendments to their existing listing standards to comply with provisions of Rule 10C-1, and on January 11, 2013, the SEC approved such amendments. The amended listing standards require, among other things, that

    compensation committees be composed of fully independent directors, as determined pursuant to new and existing independence requirements;

    compensation committees be explicitly charged with hiring and overseeing compensation consultants, legal counsel and other committee advisers; and

    compensation committees are required to consider, when engaging compensation consultants, legal counsel or other advisers, certain independence factors, including factors that examine the relationship between the consultant or adviser's employer and us.

        As a "controlled company," we are not subject to these compensation committee independence requirements, and accordingly, our stockholders do not have the same protections afforded to stockholders of companies that are subject to these compensation committee independence requirements.

Item 1B.    Unresolved Staff Comments

        None.

Item 2.    Properties

        We operate 161 locations located in the United States, Canada, the United Kingdom, the Netherlands, Germany, Australia, China and Singapore, including 18 manufacturing facilities, six research and development facilities and 87 service branches. Of our facilities, we own 25 properties and lease 136 properties. Our North American presence includes 12 resin regeneration plants, three carbon reactivation plants and a wastewater ion exchange facility. As of September 30, 2017, the covered square footage of our facilities is equal to an aggregate of approximately 3.5 million square feet.

Item 3.    Legal Proceedings

        From time to time, we are subject to various claims, charges and litigation matters that arise in the ordinary course of business. We believe these actions are a normal incident of the nature and kind of business in which we are engaged. While it is not feasible to predict the outcome of these matters with certainty, we do not believe that any asserted or unasserted legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or prospects.

Item 4.    Mine Safety Disclosures

        None.

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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 began trading on the NYSE under the symbol "AQUA" on November 2, 2017. Before then, there was no public market for the Company's common stock.

        After underwriting discounts and commissions but before expenses, we received net proceeds from our initial public offering of approximately $141.0 million. We used a portion of the net proceeds from our initial public offering to repay approximately $104.9 million of indebtedness (including accrued and unpaid interest) under our senior secured first lien term loan facility and we used the remainder for general corporate purposes.

        As of November 30, 2017, there were 321 holders of record of the Company's common stock, which does not reflect those shares held beneficially or those shares held in "street" name. Accordingly, the number of beneficial owners of our common stock exceeds this number.

Dividend Policy

        No dividends were paid to stockholders during fiscal 2017 or fiscal 2016. 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 10, "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 conditions, future prospects, contractual restrictions and covenants and other factors that the board of directors may deem relevant.

Item 6.    Selected Financial Data

        Our selected historical consolidated balance sheet data presented below as of September 30, 2016 and 2017 and our selected historical consolidated statements of operations and cash flow data presented below for the period from October 1, 2013 through January 15, 2014 and the period from January 16, 2014 through September 30, 2014 (each as described below) each of the fiscal years ended September 30, 2015, 2016 and 2017 has been derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Our selected historical consolidated balance sheet data presented below as of September 30, 2014 and 2015 and our selected historical consolidated statements of operations and cash flow data presented below for the period from October 1, 2013 through January 15, 2014 and the period from January 16, 2014 through September 30, 2014 (each as described below) has been derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K. Our selected historical consolidated balance sheet data presented below as of January 15, 2014 has been derived from our unaudited financial information not included in this Annual Report on Form 10-K. Our selected historical consolidated balance sheet, statement of operations and cash flow data presented below as of and for the fiscal year ended September 30, 2013 has been derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K. The consolidated financial data of our Predecessor as of and for the fiscal year ended September 30, 2013 and as of January 15, 2014 and for the period from October 1, 2013 to January 15, 2014 was prepared on a "carve-out" basis for the purpose of presenting our historical financial position, results of operations and cash flows. Because the Predecessor represents a portion of the Siemens' business, the selected financial data presented for these periods is not necessarily indicative of our current or future performance and does not reflect

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what our performance would have been had we operated as a separate stand-alone entity during these periods.

        On January 15, 2014, Evoqua Water Technologies Corp. (formerly EWT Holdings I Corp.) acquired, through its wholly-owned entities, EWT Holdings II Corp. and EWT Holdings III Corp., all of the capital stock of the Predecessor. As a result of the Acquisition and resulting change in control and changes due to the impact of purchase accounting, we are required to present separately the operating results for the Predecessor and Successor. We refer to the period from October 1, 2013 through January 15, 2014 as "Predecessor Period 2014," and the consolidated financial statements for that period include the accounts of the Predecessor. We refer to the period from January 16, 2014 through September 30, 2014 as "Successor Period 2014," and the consolidated financial statements for that period include the accounts of the Successor. The Successor was incorporated on October 7, 2013. From October 7, 2013 to January 15, 2014, the Successor had no activities other than the incurrence of transaction costs related to the Acquisition, which are included in the Successor Period 2014. Consequently, Successor Period 2014, fiscal 2015 and fiscal 2016 may not be comparable to Predecessor Period 2014.

        The historical results presented below are not necessarily indicative of the results to be expected for any future period. The selected historical consolidated financial data presented below should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and

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Results of Operations," and our consolidated financial statements and related notes thereto contained in Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.

 
  Predecessor    
  Successor  
 
   
  October 1,
2013
Through
January 15,
   
  January 16,
2014
Through
September 30,
   
   
   
 
 
  Fiscal Years
Ended
September 30,
   
   
   
   
 
 
   
  Fiscal Years Ended September 30,  
 
   
 
 
  2013   2014    
  2014   2015   2016   2017  
 
   
 
 
  (in thousands, except per share data)
 

Statement of Operations Data:

                                         

Revenue from product sales and services

  $ 1,185,161   $ 306,314       $ 791,154   $ 1,060,966   $ 1,137,196   $ 1,247,424  

Costs of product sales and services

    (952,481 )   (228,227 )       (700,245 )   (768,549 )   (804,131 )   (847,673 )

Gross profit

    232,680     78,087         90,909     292,417     333,065     399,751  

Research and development expense

    (28,091 )   (6,728 )       (18,829 )   (25,909 )   (22,897 )   (19,990 )

Sales and marketing expense

    (148,948 )   (38,479 )       (90,947 )   (124,429 )   (135,208 )   (142,441 )

General and administrative expense

    (17,641 )   (35,652 )       (104,122 )   (147,663 )   (144,771 )   (169,617 )

Parent corporate headquarter costs allocation

    (32,607 )                        

Other operating income (expense), net

    (629 )   (1,198 )       (522 )   74     6,966     1,501  

Interest expense

        (23 )       (23,994 )   (34,060 )   (42,518 )   (55,377 )

Equity income of non-consolidated affiliate(1)

    1,805     518         1,283     1,424          

Income (loss) before income taxes

    6,569     (3,475 )       (146,222 )   (38,146 )   (5,363 )   13,827  

Income tax benefit (expense)

    (6,508 )   1,173         48,465     (47,905 )   18,394     (7,417 )

Net income (loss)

    61     (2,302 )       (97,757 )   (86,051 )   13,031     6,410  

Net income attributable to non-controlling interest

                        1,392     4,247  

Net income (loss) attributable to the Company

  $ 61   $ (2,302 )     $ (97,757 ) $ (86,051 ) $ 11,639   $ 2,163  

Weighted average shares outstanding

                                         

Basic

                    100,964     101,763     104,254     104,964  

Diluted

                    100,964     101,763     106,161     109,688  

Earnings (loss) per share

                                         

Basic

                  $ (0.97 ) $ (0.85 ) $ 0.11   $ 0.02  

Diluted

                  $ (0.97 ) $ (0.85 ) $ 0.11   $ 0.02  

Cash Flow Data:

                                         

Net cash provided by (used in) operating activities

  $ 105,961   $ 45,577       $ 37,478   $ 41,944   $ 31,919   $ 28,502  

Net cash provided by (used in) investing activities

    (22,609 )   (7,524 )       (762,087 )   (46,866 )   (344,610 )   (134,895 )

Net cash provided by (used in) financing activities

    (43,470 )   89,901         911,444     (6,263 )   191,389     114,519  

Effect of exchange rate changes on cash

    (25 )   (243 )       (1,399 )   (5,225 )   2,637     766  

Change in cash and cash equivalents

  $ 39,857   $ 127,711       $ 185,436   $ (16,410 ) $ (118,665 ) $ 8,892  

Balance Sheet Data (as of end of period):

                                         

Cash and cash equivalents

  $ 39,857   $ 167,568       $ 177,887   $ 169,027   $ 50,362   $ 59,254  

Property, plant, and equipment, net

    212,627     209,345         222,163     235,828     256,765     280,043  

Other assets(2)

    876,035     840,467         734,990     635,016     989,104     1,134,012  

Total assets

  $ 1,128,519   $ 1,217,380       $ 1,135,040   $ 1,039,871   $ 1,296,231   $ 1,473,309  

Long-term debt

              $ 553,506   $ 547,032   $ 728,132   $ 878,524  

Other liabilities

    416,309     417,886         326,121     318,479     364,164     378,210  

Total liabilities

    416,309     417,886         879,627     865,511     1,092,296     1,256,734  

Net parent investment

    712,210     799,494                      

Total shareholders' equity

              $ 255,413   $ 174,360   $ 203,935   $ 216,575  

Total liabilities and shareholders' equity

  $ 1,128,519   $ 1,217,380       $ 1,135,040   $ 1,039,871   $ 1,296,231   $ 1,473,309  

(1)
We hold a 50% partnership interest in Treated Water Outsourcing ("TWO"), a joint venture between us and Nalco Water, an Ecolab company, which, for the fiscal years ended September 30, 2014 and 2015, we accounted for under the equity method and did not consolidate, as we did not have a controlling financial interest based on the shared powers of both joint venture partners to direct the activities that most significantly impact TWO's financial performance. On October 1, 2015, a change occurred in the partnership structure of TWO such that we are now obligated to absorb all risk of loss up to 100% of the joint venture partner's equity. As such, the accounting for our 50% interest changed from equity method investment to full consolidation as a variable interest entity under ASC 810.

(2)
Other assets in fiscal 2013 includes $271.2 million of goodwill, which had been identifiable to Predecessor but was recorded at a higher level within Siemens.

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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 Item 6, "Selected Financial and Operating Data" and Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the section titled "Cautionary Note Regarding Forward-Looking Statements" and in Item 1A, "Risk Factors" in this Annual Report on Form 10-K. Unless otherwise specified, all dollar amounts in this section are referred to in thousands.

Overview and Background

        We are a leading provider of mission critical water treatment solutions, offering services, systems and technologies to support our customers' full water lifecycle needs. With over 200,000 installations worldwide, we hold leading positions in the industrial, commercial and municipal water treatment markets in North America. We offer a comprehensive portfolio of differentiated, proprietary technology solutions sold under a number of market-leading and well-established brands. We deliver and maintain these mission critical solutions through the largest service network in North America assuring our customers continuous uptime with 86 branches which are located no further than a two-hour drive from more than 90% of our customers' sites. We believe that the customer intimacy created through our service network is a significant competitive advantage.

        Our solutions are designed to provide "worry-free water" by ensuring that our customers have access to an uninterrupted quantity and level of quality of water that meets their unique product, process and recycle or reuse specifications. We enable our customers to achieve lower costs through greater uptime, throughput and efficiency in their operations and support their regulatory compliance and environmental sustainability. We have worked to protect water, the environment and our employees for over 100 years. As a result, we have earned a reputation for quality, safety and reliability and are sought out by our customers to solve the full range of their water treatment needs, and maintaining our reputation is critical to the success of our business and solution set.

        Our vision "to be the world's first choice in water solutions" and our values of "integrity, customers and performance" foster a corporate culture that is focused on employee enablement, empowerment and accountability, which creates a highly entrepreneurial and dynamic work environment. Our purpose is "Transforming water. Enriching life." We draw from a long legacy of water treatment innovations and industry firsts, supported by more than 1,250 granted or pending patents, which in aggregate are important to our business. Our core technologies are primarily focused on removing impurities from water, rather than neutralizing them through the addition of chemicals, and we are able to achieve purification levels which are 1,000 times greater than typical drinking water.

Business Segments

        Our business is organized by customer base and offerings into three reportable segments that each draw from the same reservoir of leading technologies, shared manufacturing infrastructure, common business processes and corporate philosophies. Our reportable segments consist of: (i) our Industrial Segment, (ii) our Municipal Segment and (iii) our Products Segment. The key factors used to identify these reportable segments are the organization and alignment of our internal operations, the nature of the products and services and customer type.

    Within the Industrial Segment, we primarily provide tailored solutions in collaboration with our customers backed by life-cycle services including on-demand water, build-own-operated ("BOO"), recycle and reuse and emergency response service alternatives to improve operational reliability, performance and environmental compliance.

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    Within the Municipal Segment, we primarily deliver solutions, equipment and services to engineering firms, OEMs and municipalities to treat wastewater and purify drinking water, and to control odor and corrosion.

    Within the Products Segment, we provide a highly differentiated and scalable range of products and technologies specified by global water treatment designers, OEMs, engineering firms and integrators.

        We evaluate our business segments' operating results based on income from operations and EBITDA on a segment basis. Corporate activities include general corporate expenses, elimination of intersegment transactions, interest income and expense and other unallocated charges, which have not been allocated to business segments. As such, the segment results provided herein may not be comparable to other companies.

        For the fiscal years ended September 30, 2015, 2016 and 2017, our Industrial Segment accounted for 53.6%, 53.1% and 51.6% of our revenues, respectively; our Municipal Segment accounted for 25.8%, 24.4% and 22.3% of our revenues, respectively; and our Products Segment accounted for 20.6%, 22.5% and 26.1% of revenues, respectively.

Organic Growth Drivers

    Market Growth

        We maintain a leading position among customers in growing industries that utilize water as a critical part of their operations or production processes, including pharmaceuticals and health sciences, microelectronics, food and beverage, hydrocarbon and chemical processing, power, general manufacturing, municipal drinking and wastewater, marine and aquatics. Water treatment is an essential, non-discretionary market that is growing in importance as access to clean water has become an international priority. Underpinning this growth are a number of global, long-term trends that have resulted in increasingly stringent effluent regulations, along with a growing demand for cleaner and sustainable waste streams for reuse. These trends include the growing global population, increasing levels of urbanization and continued global economic growth, and we have seen these trends manifest themselves within our various end markets creating multiple avenues of growth. For example, within the industrial market, water is an integral and meaningful component in the production of a wide-range of goods spanning from consumer electronics to automobiles.

    Our Existing Customer Base

        We believe our strong brands, leading position in highly fragmented markets, scalable and global offerings, leading installed base and unique ability to provide complete treatment solutions will enable us to capture a larger share of our existing customers' water treatment spend while expanding with existing and new customers into adjacent end-markets and underpenetrated regions, including by investing in our sales force and cross-selling to existing customers. We are uniquely positioned to further penetrate our core markets, with over 200,000 installations across over 38,000 global customers. We maintain a customer-intimate business model with strong brand value and provide solutions-focused offerings capable of serving a customer's full lifecycle water treatment needs, both in current and new geographic regions.

    Our Service Model

        We selectively target high value projects with opportunities for recurring business through service, parts and other aftermarket opportunities over the lifecycle of the process or capital equipment. In particular, we have developed a pipeline of smart, internet-connected monitoring technologies through the deployment of our Water One smart water platform that provides us with an increasing ability to

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handle our customers' complete water needs through on-demand water management, predictive maintenance and service response planning. Water One also enables us to transition our customers to more accurate pricing models based on usage, which otherwise would not have been possible without technological advancement. Our technology solutions provide customers with increased stability and predictability in water-related costs, while enabling us to optimize our service route network and on demand offerings through predictive analytics, which we believe will result in market share gains, improved service levels, increased barriers to entry and reduced costs.

    Product and Technology Development

        We develop our technologies through in-house research, development and engineering and targeted tuck-in, technology-enhancing and geography-expanding acquisitions. We have a reservoir of recently launched technologies and a strong pipeline of new offerings designed to provide customers with innovative, value-enhancing solutions. Furthermore, we have successfully completed eight technology-enhancing and geography-expanding acquisitions since April 2016 to add new capabilities and cross-selling opportunities in areas such as electrochemical and electrochlorination cells, regenerative media filtration, anodes, UV disinfection and aerobic and anaerobic biological treatment technologies. We are able to rapidly scale new technologies using our leading direct and third-party sales channels and our relationships with key influencers, including municipal representatives, engineering firms, designers and other system specifiers. We believe our continued investment in driving penetration of our recently launched technologies, robust pipeline of new capabilities and best-in-class channels to market will allow us to continue to address our customer needs across the water lifecycle.

    Operational Excellence

        We believe that continuous improvement of our operations, processes and organizational structure is a key driver of our earnings growth. Since fiscal 2014, we have realigned our organizational structure, achieved significant cost savings through operational efficiencies and revitalized our culture, which has energized our workforce and reduced employee turnover. We have identified and are pursuing a number of discrete initiatives which, if successful, we expect could result in additional cost savings over the next three years. These initiatives include our ePro and supply chain improvement programs to consolidate and manage global spending, our improved logistics and transportation management program, further optimizing our engineering cost structure, capturing benefits of our Water One remote system monitoring and data analytics offerings. We refer to these initiatives as "Value Creators" as these improvements focus on creating value for customers through reduced leadtimes, improved quality and superior customer support, while also creating value for stockholders through enhanced earnings growth. Furthermore, as a result of significant investments we have made in our footprint and facilities, we have capacity to support our planned growth without commensurate increase in fixed costs.

Acquisitions

        We believe that tuck-in acquisitions present a key opportunity within our overall growth strategy, which we will continue to evaluate strategically. These strategic acquisitions will enable us to accelerate our growth in our current addressable market, as well as in new geographies and new end market verticals. Our existing customer relationships, best-in-class channels to market and ability to rapidly commercialize technologies provide a strong platform to drive rapid growth in the businesses we acquire. To capitalize on these opportunities, we have built an experienced team dedicated to mergers and acquisitions that has successfully completed eight technology-enhancing and geography-expanding acquisitions since April 2016, with purchase prices ranging from approximately $3.3 million to approximately $283.7 million, and pre-acquisition revenues ranging from approximately $3.1 million to approximately $55.7 million. We will continue to actively evaluate acquisition opportunities that are

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consistent with our business strategy and financial model, and, although we may not be able to continue to identify suitable acquisition targets and implement our growth strategy, we currently have a pipeline which includes more than 60 potential targets, which has been developed proactively by our team as well as informed by our customer base. Our acquisitions include:

    Magneto—On April 11, 2016, we completed the acquisition of 100% of the issued and outstanding capital stock of privately held Magneto Special Anodes B.V. ("Magneto"), a leader in the development and manufacture of anodes for the electrochemical industry and refurbishment of electrochlorination cells for seawater electrolysis for €23.6 million (or approximately $26.7 million). Magneto is included in the results of our Products Segment.

    Neptune-Benson—On April 15, 2016, we completed the acquisition of 100% of the issued and outstanding capital stock of privately held Neptune-Benson, a leading manufacturer of high-quality water filtration and disinfection products for the commercial, industrial and municipal water markets for $283.7 million. Neptune-Benson is included in the results of our Products Segment.

    VAF—On July 1, 2016, we completed the acquisition of substantially all of the assets of Valve and Filtration Systems, Ltd. ("VAF") for approximately $3.3 million, consisting of $2.7 million cash at closing and $0.6 million related to a $1.0 million maximum earnout payment subject to various performance metrics over the next five years. VAF is a leading screen filtration manufacturer based in Arvada, Colorado. VAF is included in the results of our Products Segment.

    Delta UV—On August 3, 2016, we completed the acquisition of 100% of the issued and outstanding capital stock of Delta Ultraviolet Corporation ("Delta UV"), a leading manufacturer and marketer of UV-C technology in North America for $4.8 million. Delta UV is included in the results of our Products Segment.

    ETS—On November 1, 2016, we completed the acquisition of substantially all of the assets of Environmental Treatment Systems Inc. ("ETS"), which adds organic wastewater treatment capability to our industrial treatment solutions, for $10.7 million. ETS further allows us to insource manufacturing of dissolved air flotation units, the production of which we previously outsourced. ETS is included in the results of our Industrial Segment.

    Noble—On May 9, 2017, we completed the acquisition of substantially all of the assets of Noble Water Technologies, Inc. ("Noble"), which provides water equipment and treatment systems for commercial buildings, industrial plants, medical laboratories and the pharmaceutical industry, with a focus on the Texas market, for $7.6 million, consisting of $5.9 million cash paid at closing and $1.7 million related to a $2.4 million maximum earnout payment subject to various performance metrics measured at the end of the 12 month period following closing. Noble supports our existing high-purity water capabilities and is based in Dallas, Texas. Noble is included in the results of our Industrial Segment.

    ADI—On June 30, 2017, we completed the acquisition of ADI Systems North America Inc., Geomembrane Technologies Inc. and Lange Containment Systems, Inc. (collectively "ADI"), a leader in anaerobic digestion, aerobic treatment and biogas treatment, green energy recovery and water reuse technologies, as well as industrial wastewater cover liners and containment systems for a base purchase price of CAD 72.2 million (or approximately $55.6 million), of which CAD 67.3 million ($51.8 million) in cash was paid at closing and included the fair value of the earnout payments of CAD 4.9 million ($3.8 million). The maximum earnout payment of CAD 7.5 million (or approximately $5.8 million), is payable over a period of twenty-four months based upon the achievement of certain specified performance metrics. ADI is included in the results of our Industrial Segment.

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    Olson—On June 30, 2017, we completed the acquisition of all of the issued and outstanding shares of capital stock of privately held Olson Irrigation Systems ("Olson"), a leading designer and producer of filters and irrigation components for the agriculture and industrial markets, for $9.4 million. Olson is included in the results of our Products Segment.

Key Factors and Trends Affecting Our Business and Financial Statements

        Various trends and other factors affect or have affected our operating results, including:

        Overall economic trends.    The overall economic environment and related changes in industrial, commercial and municipal spending impact our business. In general, positive conditions in the broader economy promote industrial, commercial and municipal customer spending, while economic weakness results in a reduction of new industrial, commercial and municipal project activity. Macroeconomic factors that can affect customer spending patterns, and thereby our results of operations, include population growth, total water consumption, municipal budgets, employment rates, business conditions, the availability of credit or capital, interest rates, tax rates and regulatory changes. Since the businesses of our customers vary in cyclicality, periodic downturns in any specific sector typically have modest impacts on our overall business.

        New products and technologies.    Our ability to maintain our appeal to existing customers and attract new customers depends on our ability to originate, develop and offer a compelling array of products, services and solutions responsive to evolving customer innovations, preferences and specifications. We expect that increased use of water in industrial and commercial processes will drive increased customer demand in the future, and our ability to grow will depend in part on effectively responding to innovation in our customers' processes and systems. Further, our ability to provide products that comply with evolving government regulations will also be a driver of the appeal of our products, services and solutions to industrial and commercial customers.

        Changes in costs.    We have significant exposures to certain commodities, including steel, caustic, carbon, calcium nitrate and iridium, and volatility in the market price of these commodity input materials has a direct impact on our costs. If we are unable to manage commodity fluctuations through pricing actions, cost savings projects and sourcing decisions as well as through consistent productivity improvements, it may adversely impact our gross profit and gross margin. Further, additional potential acquisitions and international expansion will place increased demands on our operational, managerial, administrative and other resources. Managing our growth effectively will require us to continue to enhance our management systems, financial and management controls and information systems. We will also be required to hire, train and retain operational and sales personnel, which affects our operating margins.

        Government policies.    Decaying water systems in the United States will require critical drinking water and wastewater repairs, often led by municipal governments. Further, as U.S. states increase regulation on existing and emerging contaminants, we expect that our customers will increasingly require sustainable solutions to their water-related needs. In general, increased infrastructure investment and more stringent municipal, state and federal regulations promote increased spending on our products, services and solutions, while a slowdown in investment in public infrastructure or the elimination of key environmental regulations could result in lower industrial and municipal spending on water systems and products.

        Availability of water.    In general, we expect demand for our products and services to increase as the availability of clean water from public sources decreases. Secular trends that will drive demand for water across a multitude of industrial, commercial and municipal applications include global population growth, urbanization, industrialization and overall economic growth. In addition, the supply of clean water could be adversely impacted by factors including an aging water infrastructure within North

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America and increased levels of water stress from seasonal rainfall, inadequate water storage options or treatment technologies. Because water is a critical component and byproduct of many processes, including in manufacturing and product development, we expect that, as global consumption patterns evolve and water shortages persist, demand for our equipment and services will continue to increase.

        Operational investment.    Our historical operating results reflect the impact of our ongoing investments to support our growth. We have made significant investments in our business that we believe have laid the foundation for continued profitable growth. We believe that our strengthened sales force, mergers and acquisitions team, enhanced information systems, research, development and engineering investments and other factors enable us to support our operating model.

        Our ability to source and distribute products effectively.    Our revenues are affected by our ability to purchase our inputs in sufficient quantities at competitive prices. While we believe our suppliers have adequate capacity to meet our current and anticipated demand, our level of revenues could be adversely affected in the event of constraints in our supply chain, including the inability of our suppliers to produce sufficient quantities of raw materials in a manner that is able to match demand from our customers.

        Fluctuation in quarterly results.    Our quarterly results have historically varied depending upon a variety of factors, including funding, readiness of projects and regulatory approvals. In addition, our contracts for large capital water treatment projects, systems and solutions for industrial, commercial and municipal applications are generally fixed-price contracts with milestone billings. As a result of these factors, our working capital requirements and demands on our distribution and delivery network may fluctuate during the year.

        Contractual relationships with customers.    Due to our large installed base and the nature of our contractual relationships with our customers, we have high visibility into a large portion of our revenue. The one- to twenty-year terms of many of our service contracts and the regular delivery and replacement of many of our products help to insulate us from the negative impact of any economic decline.

        Inflation and deflation trends.    Our financial results can be expected to be directly impacted by substantial increases in costs due to commodity cost increases or general inflation which could lead to a reduction in our revenues as well as greater margin pressure as increased costs may not be able to be passed on to customers. To date, changes in commodity prices and general inflation have not materially impacted our business.

        Exchange rates.    The reporting currency for our financial statements is the U.S. dollar. We operate in numerous countries around the world and therefore, certain of our assets, liabilities, revenues and expenses are denominated in functional currencies other than the U.S. dollar, primarily in the euro, U.K. sterling, Chinese renminbi, Canadian dollar, Australian dollar and Singapore dollar. To prepare our consolidated financial statements we must translate those assets, liabilities, revenues and expenses into U.S. dollars at the applicable exchange rate. As a result, increases or decreases in the value of the U.S. dollar against these other currencies will affect the amount of these items recorded in our consolidated financial statements, even if their value has not changed in the functional currency. While we believe we are not susceptible to any material impact on our results of operations caused by fluctuations in exchange rates because our operations are primarily conducted in the United States, 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.

        Public company costs.    As a result of our initial public offering, we will incur additional legal, accounting and other expenses that we did not previously incur, including costs associated with SEC

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reporting and corporate governance requirements. These requirements include compliance with the Sarbanes-Oxley Act as well as other rules implemented by the SEC and the NYSE. Our financial statements following our initial public offering will reflect the impact of these expenses. In addition, the one-time grant of stock-settled restricted stock unit awards made in connection with the initial public offering to certain members of management will result in increased non-cash stock-based compensation expense, which will be incremental to our ongoing stock-based compensation expense. This stock-based compensation expense is expected to be expensed beginning in the first fiscal quarter of fiscal 2018 and continuing over the following eight fiscal quarters. For more information, please see Item 11, "Executive Compensation—IPO Awards—Restricted Stock Units."

        Debt refinancings.    In October 2016, we repaid our senior secured second lien term loan facility in full and revolving credit loans then-outstanding and borrowed an additional $150.0 million of term loans under our term loan facility at lower rates.

        In August 2017, we completed an incremental financing of $80.0 million. In this transaction we combined the incremental debt tranche of approximately $183 million associated with the Neptune Benson acquisition, along with the new borrowings of $80 million into our existing first lien term loan tranche a lower interest rate. Proceeds from the incremental financing were used to repay $60 million of revolving credit facility borrowings and the remainder was placed on the balance sheet for general corporate purposes, including future acquisitions. We have the option to add one or more incremental term loans under our term loan facility or revolving credit facilities or increase commitments under our revolving credit facility. Further, our revolving credit facility and term loan facility are scheduled to mature in January 2019 and January 2021, respectively, and we will need to repay, refinance, replace or otherwise extend the maturity of our senior secured credit facilities. Accordingly, our results have been and will be impacted by substantial changes in our net interest expense throughout the periods presented and in the future. See "—Liquidity and Capital Resources" below.

How We Assess the Performance of Our Business

        In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of our business are revenue, gross profit, gross margin, operating expenses, net income (loss) and Adjusted EBITDA.

    Revenue

        Our sales are a function of sales volumes and selling prices, each of which is a function of the mix of product and service sales, and consist primarily of:

    sales of tailored light industry technologies, heavy industry technologies and environmental products, services and solutions in collaboration with our industrial customers, backed by lifecycle services including emergency response services and build-own-operate alternatives, to a broad group of industrial customers in our U.S., Canada and Singapore markets;

    sales of products, services and solutions to engineering firms and municipalities to purify drinking water and treat wastewater globally; and

    sales of a wide variety of differentiated products and technologies, to an array of OEM, distributor, end-user, engineering firm and integrator customers in all of our geographic markets and aftermarket channels.

    Cost of Sales, Gross Profit and Gross Margin

        Gross profit is determined by subtracting cost of product sales and cost of services from our product and services revenue. Gross margin measures gross profit as a percentage of our combined product and services revenue.

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        Cost of product sales consists of all manufacturing costs required to bring a product to a ready for sale condition, including direct and indirect materials, direct and indirect labor costs including benefits, freight, depreciation, information technology, rental and insurance, repair and maintenance, utilities, other manufacturing costs, warranties and third party commissions.

        Cost of services primarily consists of the cost of personnel and travel for our field service, supply chain and technicians, depreciation of equipment and field service vehicles and freight costs.

    Operating Expenses

        Operating expenses consist primarily of sales and marketing, general and administrative and research and development expenses.

        Sales and Marketing.    Sales and marketing expenses consist primarily of advertising and marketing promotions of our products, services and solutions and related personnel expenses (including all Evoqua sales and application employees' base compensation and incentives), as well as sponsorship costs, consulting and contractor expenses, travel, display expenses and related amortization. We expect our sales and marketing expenses to increase as we continue to actively promote our products, services and solutions.

        General and Administrative.    General and administrative expenses consist of fixed overhead personnel expenses associated with our service organization (including district and branch managers, customer service, contract renewals and regeneration plant management). We expect our general and administrative expenses to increase due to the anticipated growth of our business and related infrastructure as well as legal, accounting, insurance, investor relations and other costs associated with becoming a public company.

        Research and Development.    Research and development expenses consist primarily of personnel expenses related to research and development, patents, sustaining engineering, consulting and contractor expenses, tooling and prototype materials and overhead costs allocated to such expenses. Substantially all of our research and development expenses are related to developing new products and services and improving our existing products and services. To date, research and development expenses have been expensed as incurred, because the period between achieving technological feasibility and the release of products and services for sale has been short and development costs qualifying for capitalization have been insignificant.

        We expect our research and development expenses to increase as we continue to invest in developing new products, services and solutions and enhancing our existing products, services and solutions.

    Net Income (Loss)

        Net income (loss) is determined by subtracting operating expenses and interest expense from, and adding other operating income (expense), equity income from our partnership interest in TWO and income tax benefit (expense) to, gross profit. For more information on how we determine gross profit, see "—Gross Profit."

    Adjusted EBITDA

        Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business. Adjusted EBITDA is defined as net income (loss) before interest expense, income tax benefit (expense) and depreciation and amortization, adjusted for the impact of certain other items, including restructuring and related business transformation costs, purchase accounting adjustment costs, non-cash stock-based compensation, sponsor fees, transaction costs and other gains,

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losses and expenses. 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 the 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 of each reportable segment to evaluate the operating performance of such segments.

        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.

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        The following is a reconciliation of our net income (loss) to Adjusted EBITDA:

 
  Fiscal Years
Ended
September 30
 
 
  2015   2016   2017  
 
  (in thousands)
 

Net income (loss)

  $ (86,051 ) $ 13,031   $ 6,410  

Interest expense

    34,060     42,518     55,377  

Income tax (benefit) expense

    47,905     (18,394 )   7,417  

Depreciation and amortization

    58,139     69,289     77,886  

EBITDA

  $ 54,053   $ 106,444   $ 147,090  

Restructuring and related business transformation costs(a)

    32,842     43,075     51,331  

Purchase accounting adjustment costs(b)

        1,267     229  

Stock-based compensation(c)

    1,587     1,999     2,251  

Sponsor fees(d)

    5,012     3,758     4,174  

Transaction costs(e)

        5,374     7,342  

Other gains, losses and expenses(f)

    26,417     (1,864 )   (4,750 )

Adjusted EBITDA

  $ 119,911   $ 160,053   $ 207,666  

(a)
Represents:

(i)
costs and expenses in connection with various restructuring initiatives since the Acquisition, including severance costs, relocation costs, recruiting expenses, write-offs of inventory and fixed assets and third-party consultant costs to assist with these initiatives (includes (A) $16.9 million in fiscal 2016 (all of which is reflected as a component of Restructuring charges in Note 12, "Restructuring and Related Charges" in Part II, Item 8 of this Annual Report on Form 10-K) and $20.1 million in fiscal 2017 (all of which is reflected as a component of Restructuring charges in Note 12, "Restructuring and Related Charges" in Part II, Item 8 of this Annual Report on Form 10-K) related to our voluntary separation plan pursuant to which approximately 220 employees accepted separation packages, and (B) $9.2 million (of which $6.5 million is reflected as a component of Restructuring charges in Note 12, "Restructuring and Related Charges" in Part II, Item 8 of this Annual Report on Form 10-K) in fiscal 2015, $11.1 million (all of which is reflected as a component of Restructuring charges in Note 12, "Restructuring and Related Charges" in Part II, Item 8 of this Annual Report on Form 10-K) in fiscal 2016 and $13.2 million (of which $12.3 million is reflected as a component of Restructuring charges in Note 12, "Restructuring and Related Charges" in Part II, Item 8 of this Annual Report on Form 10-K) in fiscal 2017 related to various other initiatives implemented to restructure and reorganize our business with the appropriate management team and cost structure). Differences between amounts reflected as Restructuring charges in Note 12, "Restructuring and Related Charges" in Part II, Item 8 of this Annual Report on Form 10-K, and amounts reflected in this adjustment also relate to retention payments made to employees in fiscal 2015 of $2.5 million that have been reflected as components of Cost of product sales and services ($1.1 million), Research and development expense ($0.1 million), Sales and marketing expense ($1.0 million) and General and administrative expense ($0.3 million). Differences between amounts reflected as Restructuring charges in Note 12, "Restructuring and Related Charges" in Part II, Item 8 of this Annual Report on Form 10-K in fiscal 2016 and fiscal 2017 and amounts reflected in this adjustment relate primarily to impairment charges related to assets in our Italy operations that have been reflected as a component of Cost of product sales and services ($0.9 million);

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    (ii)
    legal settlement costs and intellectual property related fees associated with legacy matters prior to the Acquisition, including fees and settlement costs related to product warranty litigation on MEMCOR products and certain discontinued products ($11.7 million in fiscal 2015, reflected as components of Cost of product sales and services ($10.7 million) and General and administrative expenses ($1.0 million), $5.1 million, primarily reflected as a component of Cost of product sales and services in fiscal 2016 and $2.5 million, primarily reflected as components of Cost of product sales and services ($0.4 million) and General and administrative expenses ($2.1 million) in fiscal 2017);

    (iii)
    expenses associated with our information technology and functional infrastructure transformation following the Acquisition, including activities to optimize information technology systems and functional infrastructure processes for a standalone business ($12.1 million, primarily reflected as components of Cost of product sales and services ($3.0 million), Research and development expense ($0.4 million), Sales and marketing expense ($0.3 million) and General and administrative expense ($8.4 million) in fiscal 2015, $9.5 million, primarily reflected as components of Cost of product sales and services ($3.6 million), Sales and marketing expense ($2.5 million), General and administrative expense ($3.1 million) and Research and development expense ($0.3 million) in fiscal 2016 and $7.3 million, primarily reflected as components of Cost of product sales and services ($3.3 million), Sales and marketing expense ($1.5 million), and General and administrative expense ($2.5 million) in fiscal 2017); and

    (iv)
    costs incurred by us in connection with the initial public offering, including consultant costs and public company compliance costs ($0.5 million in fiscal 2016, reflected as a component of General and administrative expense and $8.3 million in fiscal 2017, reflected as a component of General and administrative expense).

(b)
Represents adjustments for the effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of the Acquisition and the acquisition of Magneto.

(c)
Represents non-cash stock-based compensation expenses related to option awards. See Note 15, "Stock Option Plan" in Part II, Item 8 of this Annual Report on Form 10-K for further detail.

(d)
Represents management fees paid to AEA pursuant to the management agreement. Pursuant to the management agreement, AEA provided advisory and consulting services to us in connection with the Acquisition, including investment banking, due diligence, financial advisory and valuation services. AEA also provided ongoing advisory and consulting services (similar in nature to the services provided in connection with the Acquisition) to us pursuant to the management agreement. In connection with the initial public offering, the management agreement was terminated. See Item 13, "Certain Relationships and Related Party Transactions and Director Independence" and Note 18, "Related-Party Transactions" in Part II, Item 8 of this Annual Report on Form 10-K for further detail.

(e)
Represents expenses associated with acquisition and divestiture-related activities and post-acquisition integration costs and accounting, tax, consulting, legal and other fees and expenses associated with acquisition transactions ($5.4 million in fiscal 2016 and $7.3 million in fiscal 2017).

(f)
Represents:

(i)
impact of foreign exchange gains and losses ($19.0 million loss in fiscal 2015, $0.5 million loss in fiscal 2016 and $7.8 million gain in fiscal 2017);

(ii)
$3.5 million gain on the sale of assets, primarily related to the disposition of our non-core waste management location in Vernon, California (the "Vernon Disposition");

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    (iii)
    foreign exchange impact related to headquarter allocations ($0.7 million gain in fiscal 2016, and $1.2 million loss in fiscal 2017); and

    (iv)
    expenses related to maintaining non-operational business locations ($7.4 million in fiscal 2015, $1.8 million in fiscal 2016 and $1.9 million in fiscal 2017).

Results of Operations

        The following tables summarize key components of our results of operations for the periods indicated:

 
  Fiscal Years Ended September 30  
 
  2015   2016   2017  
 
   
  (unaudited)
   
 
 
  (in thousands, except per share data)
 

Statement of Operations Data:

                   

Revenue from product sales and services

  $ 1,060,966   $ 1,137,196   $ 1,247,424  

Cost of product sales and services

    (768,549 )   (804,131 )   (847,673 )

Gross profit

    292,417     333,065     399,751  

Research and development expense

    (25,909 )   (22,897 )   (19,990 )

Sales and marketing expense

    (124,429 )   (135,208 )   (142,441 )

General and administrative expense

    (147,663 )   (144,771 )   (169,617 )

Other operating (expense) income, net

    74     6,966     1,501  

Interest expense

    (34,060 )   (42,518 )   (55,377 )

Equity income of non-consolidated affiliate(1)

    1,424          

Loss before income taxes

    (38,146 )   (5,363 )   13,827  

Income tax benefit (expense)

    (47,905 )   18,394     (7,417 )

Net income (loss)

    (86,051 )   13,031     6,410  

Net income attributable to non-controlling interest

        1,392     4,247  

Net income (loss) attributable to the Company

  $ (86,051 ) $ 11,639   $ 2,163  

Weighted average shares outstanding

                   

Basic

    101,763     104,254     104,964  

Diluted

    101,763     106,161     108,055  

Earnings (loss) per share

                   

Basic

  $ (0.85 ) $ 0.11   $ 0.02  

Diluted

  $ (0.85 ) $ 0.11   $ 0.02  

(1)
We hold a 50% partnership interest in TWO, which, for the fiscal years ended September 30, 2014 and 2015, we accounted for under the equity method and did not consolidate, as we did not have a controlling financial interest based on the shared powers of both joint venture partners to direct the activities that most significantly impact TWO's financial performance. On October 1, 2015, a change occurred in the partnership structure of TWO such that we are now obligated to absorb all risk of loss up to 100% of the joint venture partner's equity. As such, the accounting for our 50% interest changed from equity method investment to full consolidation as a variable interest entity under ASC 810.

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Fiscal Years Ended September 30, 2016 and September 30, 2017

 
  Fiscal Year Ended September 30,    
 
 
  2016   2017    
 
 
   
  % of
Revenues
   
  % of
Revenues
  % Variance  
 
  (unaudited)
   
 
 
  (in thousands)
   
 

Revenue from product sales and services

  $ 1,137,196     100.0 % $ 1,247,424     100.0 %   9.7 %

Cost of product sales and services

    (804,131 )   (70.7 )%   (847,673 )   (68.0 )%   5.4 %

Gross profit

    333,065     29.3 %   399,751     32.0 %   20.0 %

Research and development expense

    (22,897 )   (2.0 )%   (19,990 )   (1.6 )%   (12.7 )%

Sales and marketing expense

    (135,208 )   (11.9 )%   (142,441 )   (11.4 )%   5.3 %

General and administrative expense

    (144,771 )   (12.7 )%   (169,617 )   (13.6 )%   17.2 %

Other operating income (expense), net

    6,966     0.6 %   1,501     0.1 %   (78.5 )%

Interest expense

    (42,518 )   (3.7 )%   (55,377 )   (4.4 )%   30.2 %

Loss before income taxes

    (5,363 )   (0.5 )%   13,827     1.1 %   (357.8 )%

Income tax benefit (expense)

    18,394     1.6 %   (7,417 )   (0.6 )%   (140.3 )%

Net income (loss) before non-controlling interest

    13,031     1.1 %   6,410     0.5 %   (50.8 )%

Net income attributable to non-controlling interest

    1,392     0.1 %   4,247     0.3 %   205.1 %

Net income (loss) attributable to the Company

  $ 11,639     1.0 % $ 2,163     0.2 %   (81.4 )%

Other financial data:

                               

Adjusted EBITDA(1)

  $ 160,053     14.1 % $ 207,666     16.6 %   18.3 %

(1)
For the definition of Adjusted EBITDA and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see "—How We Assess the Performance of Our Business—Adjusted EBITDA."

Consolidated Results

        Revenues—Revenues increased $110.2 million, or 9.7%, to $1,247.4 million in the fiscal year ended September 30, 2017 from $1,137.2 million in the fiscal year ended September 30, 2016.

        The following table provides the change in revenues from product sales and revenues from services, respectively:

 
  Fiscal Year
Ended
September 30,
2016
  % of
Revenues
  Fiscal Year
Ended
September 30,
2017
  % of
Revenues
  %
Variance
 

Revenue from product sales

  $ 587.1     51.6 % $ 675.0     54.1 %   15.0 %

Revenue from services

    550.1     48.4 %   572.4     45.9 %   4.1 %

  $ 1,137.2     100.0 % $ 1,247.4     100.0 %   9.7 %

        Revenues from product sales increased $87.9 million, or 15%, to $675.0 million in the fiscal year ended September 30, 2017 from $587.1 million in the fiscal year ended September 30, 2016. The increase in product revenues was primarily due to the acquisitions of Neptune-Benson, VAF, Delta UV, Magneto, ETS, Noble, ADI and Olson, which accounted for $68.1 million. The remaining increase was related to organic revenue growth of approximately $8.6 million in the power and microelectronics

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markets in the Asia region driven by product sales of electrodeionization equipment, $3.8 million from the Wallace and Tiernan business, $3.7 million from capital sales in the separation technologies product line, and $3.4 million from stronger sales of aquatic filters in the Americas region. The Municipal aftermarket business increased by $1.8 million predominantly in North America through both wastewater and MEMCOR. These revenue increases were offset by lower sales volumes in capital projects driving a decline of $2.0 million in revenues related to large project timing in both North America & United Kingdom, and $1.6 million of revenue decline related to our Italian operations in the year ended September 30, 2016 that did not reoccur due to the wind down of our operations in that geographic area.

        Revenues from services increased $22.3 million, or 4.1%, to $572.4 million in the fiscal year ended September 30, 2017 from $550.1 million in the fiscal year ended September 30, 2016. The increase was driven mainly by organic revenue growth, including volume driven increases in Industrial service revenue of approximately $27.7 million associated with higher U.S. customer production levels in the general manufacturing and pharmaceutical and healthcare end markets and new account penetration in the power and hydrocarbon and chemical processing end markets, and an increase of approximately $2.4 million related to our Municipal services business. These increases were offset by approximately $7.9 million in revenues related to our Vernon location in the year ended September 30, 2016 that did not reoccur because of the Vernon Disposition as of September 30, 2016.

        Cost of Sales and Gross Margin—Total gross margin increased to 32% in the fiscal year ended September 30, 2017 from 29.3% in the fiscal year ended September 30, 2016.

        The following table provides the change in cost of product sales and cost of services, respectively, along with related gross margins:

 
  Fiscal Year Ended September 30,  
 
  2016   2017  
 
   
  Gross
Margin %
   
  Gross
Margin %
 

Cost of product sales

  $ 407.4     30.6 % $ 445.9     33.9 %

Cost of services

    396.8     27.9 %   401.8     29.8 %

  $ 804.2     29.3 % $ 847.7     32.0 %

        Cost of product sales increased by approximately $38.5 million in the fiscal year ended September 30, 2017 as compared to the fiscal year ended September 30, 2016. The increase in cost of product sales was primarily driven by the acquisitions of Neptune-Benson, VAF, Delta UV, Magneto, ETS, Noble, ADI and Olson, which accounted for $32.5 million. These accretive acquisitions were the primary driver of the increase of 330 basis points in gross margin percentage. The remaining increase in cost of product sales was due to organic growth driven by higher sales volumes due to increased U.S customer production levels in the general manufacturing and pharmaceutical and healthcare end markets and the power and microelectronics markets in the Asian region. These increases in cost of product sales were partially offset by a decrease of $2.2 million related to the wind down of our Italian operations.

        Cost of services increased by approximately $5.0 million in the fiscal year ended September 30, 2017 as compared to the fiscal year ended September 30, 2016. The increase in cost of services was related to an overall increase in revenue volume, offset by the benefits of cost efficiencies implemented as well as $7.6 million related to the cost of services attributable to the Vernon Disposition as of September 30, 2016.

        Operating Expenses—Operating expenses increased $29.2 million, or 9.6%, to $332.0 million in the fiscal year ended September 30, 2017 from $302.9 million in the fiscal year ended September 30, 2016.

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The increase in operating expense was primarily due to expenses associated with the acquired companies of Neptune-Benson, VAF, Delta UV, Magneto, ETS, Noble, ADI and Olson, which accounted for $18.4 million of the operating expense increase. A discussion of operating expenses by category is as follows:

    Research and Development Expense—Research and development expenses decreased $2.9 million, or 12.7%, to $20.0 million in the fiscal year ended September 30, 2017 from $22.9 million in the fiscal year ended September 30, 2016. Research and development expenses increased $1.0 million with the acquisition of Magneto and their extensive research and development programs related to anode coatings, but was offset by decrease of approximately $1.5 million in research and development expenses in connection with the consolidation and restructuring of our Singaporean research and development center as well as a reduction of approximately $0.9 million associated with a restructuring program in the Municipal Segment implemented in December, 2016.. Additionally, we received reimbursements from the Singapore government for research and development credits in the fiscal year ended September 30, 2017 of approximately $1.3 million.

    Sales and Marketing Expense—Sales and marketing expenses increased $7.2 million, or 5.3%, to $142.4 million in the fiscal year ended September 30, 2017 from $135.2 million in the fiscal year ended September 30, 2016. The driving factor in the increase in sales and marketing expense was an increase of $10.9 million associated with the sales and marketing activities of the acquired companies of Neptune Benson, VAF, Delta UV, Magneto, ETS, Noble, ADI and Olson. This increase was offset by a decrease in the bad debt reserve of $2.5 million related to aligning our bad debt reserve in addition to recovering a receivable that had been previously written off.

    General and Administrative Expense—General and administrative expenses increased $24.8 million, or 17.2%, to $169.6 million in the fiscal year ended September 30, 2017 from $144.8 million in the fiscal year ended September 30, 2016. This increase in general and administrative expenses was partially due to the acquisitions of Neptune-Benson, VAF, Delta UV, Magneto, ETS, Noble, ADI and Olson, which accounted for $7.4 million of the increase. The balance of the increase in general and administrative expenses was primarily due to costs associated with the Company's strategic transaction process of $8.1 million, costs related to restructuring and the integration of acquisitions of $3.9 million and expenses incurred related to other various strategic projects or initiatives of approximately $2.2 million.

        Other Operating Income (Expense), Net—Other operating income decreased $5.5 million, or 78.5%, to $1.5 million of income in the fiscal year ended September 30, 2017 from $7.0 million of income in the fiscal year ended September 30, 2016. In the fiscal year ended September 30, 2016, we sold two locations, which resulted in a gain on sale. There were no similar transactions in the fiscal year ended September 30, 2017.

        Interest Expense—Interest expense increased $12.9 million, or 30.2%, to $55.4 million in the fiscal year ended September 30, 2017 from $42.5 million in the fiscal year ended September 30, 2016. The increase in interest expense was primarily due to an increase in borrowing in support of acquisitions, interest on capital leases and fees associated with our senior secured credit facilities.

        Income Tax Benefit (Expense)—Income tax was an expense of $7.4 million in the fiscal year ended September 30, 2017 as compared to a benefit of $18.4 million in the fiscal year ended September 30, 2016, an increase of 140.2%. The effective tax rate in the fiscal year ended September 30, 2017 was 53.6% as compared to 343.0% in the fiscal year ended September 30, 2016. This change was primarily the result of an increase in the valuation allowance during the fiscal year ended September 30, 2017, compared to a decrease in valuation allowance in the fiscal year ended September 30, 2016.

        Net Income—Net income decreased by $6.6 million, or 50.8%, to net income of $6.4 million for the fiscal year ended September 30, 2017 as compared to net income of $13.0 million for the fiscal year

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ended September 30, 2016. This decrease was primarily driven by increased tax expense of $7.4 million in the fiscal year ended September 30, 2017 as compared to a tax benefit of $18.4 million in the fiscal year ended September 30, 2016, a difference of $25.8 million. Furthermore, $12.9 million of additional interest expense was incurred in the fiscal year ended September 30, 2017. These factors offset the increased revenue volume and profitability associated with the acquisitions of Neptune-Benson, VAF, Delta UV, Magneto, ETS, Noble, ADI and Olson, which accounted for $11.6 million of increased net income for the fiscal year ended September 30, 2017. The increased volume and profitability as well as incremental benefits from restructuring activities and operational efficiencies that were implemented in the prior year (net of charges from additional restructuring actions taken in the fiscal year ended September 30, 2017) contributed the remaining $1.3 million to net income for the fiscal year ended September 30, 2017.

        Adjusted EBITDA—Adjusted EBITDA increased $47.6 million, or 29.7%, to $207.7 million for the fiscal year ended September 30, 2017 from $160.1 million for the fiscal year ended September 30, 2016. Increased volume and benefits from restructuring and operational efficiencies that we implemented in the current and prior fiscal year provided $27.0 million of the increase in Adjusted EBITDA. Additionally, revenue volume and profitability associated with prior year and current year acquisitions contributed approximately $20.6 million of the increase in Adjusted EBITDA.

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Segment Results

 
  Fiscal Year
Ended September 30,
   
 
 
  2016   2017   % Variance  
 
  (unaudited)
   
 
 
  (in thousands)
   
 

Revenues

                   

Industrial

  $ 604,192   $ 643,405     6.5 %

Municipal

    278,000     278,608     0.2 %

Products

    255,004     325,411     27.6 %

Total Consolidated

  $ 1,137,196   $ 1,247,424     9.7 %

Percentage of total consolidated revenues

                   

Industrial

    53.1 %   51.6 %      

Municipal

    24.4 %   22.3 %      

Products

    23.4 %   26.1 %      

Total Consolidated

    100.0 %   100.0 %      

Operating Profit

                   

Industrial

  $ 91,396   $ 109,954     20.3 %

Municipal

    31,287     36,640     17.1 %

Products

    48,712     65,909     35.3 %

Corporate

    (134,240 )   (143,299 )   7.1 %

Total Consolidated

  $ 37,155   $ 69,204     86.3 %

Operating profit as a percentage of total consolidated revenues

                   

Industrial

    8.0 %   8.8 %      

Municipal

    2.8 %   2.9 %      

Products

    4.3 %   5.3 %      

Corporate

    (11.8 )%   (11.5 )%      

Total Consolidated

    3.3 %   5.5 %      

EBITDA

                   

Industrial

  $ 129,662   $ 149,442     15.3 %

Municipal

    39,434     44,777     13.5 %

Products

    55,099     77,422     40.5 %

Corporate and unallocated costs

    (117,751 )   (124,551 )   5.8 %

Total Consolidated

  $ 106,444   $ 147,090     38.2 %

EBITDA as a percentage of total consolidated revenues

                   

Industrial

    11.4 %   12.0 %      

Municipal

    3.5 %   3.6 %      

Products

    4.8 %   6.2 %      

Corporate and unallocated costs

    (10.4 )%   (10.0 )%      

Total Consolidated

    9.4 %   11.8 %      

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        EBITDA on a segment basis is defined as earnings before interest, taxes, depreciation and amortization. The following is a reconciliation of our segment operating profit to EBITDA on a segment basis:

 
  Fiscal Year Ended September 30,  
 
  2016   2017  
 
  Industrial   Municipal   Products   Industrial   Municipal   Products  
 
  (in thousands)
 

Operating Profit

  $ 91.396   $ 31,287   $ 48,712   $ 109,954   $ 36,640   $ 65,909  

Interest expense(1)

                         

Income tax expense (benefit)(1)

                         

Depreciation and amortization

    38,266     8,147     6,387     39,488     8,137     11,513  

EBITDA

  $ 129,662   $ 39,434   $ 55,099   $ 149,442   $ 44,777   $ 77,422  

(1)
Interest expense and Income tax expense (benefit) are corporate activities that are not allocated to our three reportable segments.

Industrial

        Revenues in the Industrial Segment increased $39.2 million, or 6.5%, to $643.4 million in the fiscal year ended September 30, 2017 from $604.2 million in the fiscal year ended September 30, 2016. The increase in revenues was primarily due to an increase in service revenues of $27.7 million driven by higher customer production levels in general manufacturing and pharmaceutical and healthcare end markets and new account penetration in power and hydrocarbon and chemical processing end markets. In addition, an increase of $19.4 million of revenue was attributable to our acquisitions of ETS, ADI and Noble during the fiscal year ended September 30, 2017. Our increased revenues were partially offset by a decrease of $7.9 million in revenues related to the Vernon Disposition as of September 30, 2016.

        Operating profit in the Industrial Segment increased $18.6 million, or 20.3%, to $110.0 million in the fiscal year ended September 30, 2017 from $91.4 million in the fiscal year ended September 30, 2016. The increase in operating profit was primarily related to an increase in volume of $9.4 million as well as $9.8 million of benefits experienced as a result of our Value Creator initiatives. Value Creator benefits include carry over benefits from operational efficiency initiatives that we implemented in the prior fiscal year.

        EBITDA in the Industrial Segment increased $19.8 million, or 15.3%, to $149.4 million in the fiscal year ended September 30, 2017 from $129.7 million in the fiscal year ended September 30, 2016. The increase in EBITDA resulted from the same factors which impacted operating profit in the Industrial Segment during this period.

Municipal

        Revenues in the Municipal Segment increased slightly by $0.6 million, or 0.2%, to $278.6 million in the fiscal year ended September 30, 2017 from $278.0 million in the fiscal year ended September 30, 2016. Excluding the operations in Italy, which we are in the process of closing and resulted in a decline of $1.6 million over the same period, the overall business grew by $2.2 million, or 0.8%. Excluding Italy, the aftermarket and services revenues are up 3.3% and 2.5% respectively, while capital revenues declined by 1.6%. Timing in capital was offset by growth in both the Municipal Services and wastewater and MEMCOR aftermarket revenues as compared to the prior fiscal year.

        Operating profit in the Municipal Segment increased $5.4 million, or 17.1%, to $36.6 million in the fiscal year ended September 30, 2017 from $31.3 million in the fiscal year ended September 30, 2016.

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The increase in operating profit was primarily due to the continued Value Creator benefits in both project execution and ePro of $2.4 million, benefits from the alignment to a more customer focused organizational structure of $2.8 million, and reduced warranty expense of $1.3 million. This was partially offset by increased labor costs of approximately $1.8 million.

        EBITDA in the Municipal Segment increased $5.3 million, or 13.5%, to $44.8 million in the fiscal year ended September 30, 2017 from $39.4 million in the fiscal year ended September 30, 2016. EBITDA increased as a result of the same factors which impacted operating profit in the Municipal Segment during this period.

Products

        Revenues in the Products Segment increased $70.4 million, or 27.6%, to $325.4 million in the fiscal year ended September 30, 2017 from $255.0 million in the fiscal year ended September 30, 2016. The increase in revenues was primarily due to the acquisitions of Neptune-Benson, VAF, Delta UV, Magneto and Olson. These acquisitions accounted for an aggregate of $48.7 million of the increased revenues. The Products Segment also increased revenues in the amount of $9.2 million in our power and microelectronics markets. These increases were principally due to higher product sales of electrodeionization equipment in our legal entity in China. Additionally, there were increases of $7.7 million due to growth in the aquatics and disinfection division and $3.7 million from stronger capital sales.

        Operating profit in the Products Segment increased $17.2 million, or 35.3%, to $65.9 million in the fiscal year ended September 30, 2017 from the $48.7 million in the fiscal year ended September 30, 2016. The increase in operating profit was primarily due to the additional revenue volume and profitability associated with the acquisitions of Neptune-Benson, VAF, Delta UV, Magneto and Olson. These acquisitions accounted for $10.1 million of the operating profit increase in the year ended September 30 2017. The aquatics and disinfection division saw operating profit grow $4.7 million in the fiscal year ended September 30, 2017. Operating profit in the electrodeionization equipment product lines also improved due to the increased revenues of $5.8 million in the Asia region, which accounted for $1.6 million in additional operating profit. Lastly, operating profit in the marine end markets improved $1.1 million.

        EBITDA in the Products Segment increased $22.3 million, or 40.5%, to $77.4 million in the fiscal year ended September 30, 2017 from $55.1 million in the fiscal year ended September 30, 2016, with $15.6 million attributable to the Neptune-Benson, VAF, Delta UV, Magneto and Olson. The balance of $6.7 million was due to growth in the other product lines and reduced operating expenses from restructuring in the prior period.

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Fiscal Years Ended September 30, 2015 and September 30, 2016

 
  Fiscal Years Ended September 30    
 
 
  2015   2016    
 
 
   
  % of
Revenues
   
  % of
Revenues
  %
Variance
 
 
  (in thousands)
   
 

Revenue from product sales and services

  $ 1,060,966     100 % $ 1,137,196     100 %   7.2 %

Cost of product sales and services

    (768,549 )   (72.4 )%   (804,131 )   (70.7 )%   4.6 %

Gross profit

    292,417     27.6 %   333,065     29.3 %   13.9 %

Research and development expense

    (25,909 )   (2.4 )%   (22,897 )   (2.0 )%   (11.6 )%

Sales and marketing expense

    (124,429 )   (11.7 )%   (135,208 )   (11.9 )%   8.7 %

General and administrative expense

    (147,663 )   (13.9 )%   (144,771 )   (12.7 )%   (2.0 )%

Other operating income (expense), net

    74     0.0 %   6,966     0.6 %   N/M  

Interest expense

    (34,060 )   (3.2 )%   (42,518 )   (3.7 )%   24.8 %

Equity income of a non-consolidated affiliate(1)

    1,424     0.1 %       %   N/M  

Loss before income taxes

    (38,146 )   (3.6 )%   (5,363 )   (0.5 )%   (85.9 )%

Income tax benefit (expense)

    (47,905 )   (4.5 )%   18,394     1.6 %   138.4 %

Net income (loss)

    (86,051 )   (8.1 )%   13,031     1.1 %   115.1 %

Net income attributable to non-controlling interest

        %   1,392     0.1 %   N/M  

Net income (loss) attributable to the Company

  $ (86,051 )   (8.1 )% $ 11,639     1.0 %   113.5 %

Other financial data:

                               

Adjusted EBITDA(2)

  $ 119,911     11.3 % $ 160,053     14.1 %   33.5 %

(1)
We hold a 50% partnership interest in TWO, which, for the fiscal years ended September 30, 2014 and 2015, we accounted for under the equity method and did not consolidate, as we did not have a controlling financial interest based on the shared powers of both joint venture partners to direct the activities that most significantly impact TWO's financial performance. On October 1, 2015, a change occurred in the partnership structure of TWO such that we are now obligated to absorb all risk of loss up to 100% of the joint venture partner's equity. As such, the accounting for our 50% interest changed from equity method investment to full consolidation as a variable interest entity under ASC 810.

(2)
For the definition of Adjusted EBITDA and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see "—How We Assess the Performance of Our Business—Adjusted EBITDA."

N/M—Not meaningful

Consolidated Results

        Revenues—Revenues increased $76.2 million, or 7.2%, to $1,137.2 million in the fiscal year ended September 30, 2016 from $1,061.0 million in the fiscal year ended September 30, 2015.

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        The following table provides the change in revenues from product sales and revenues from services, respectively:

 
  Fiscal Years Ended September 30,    
 
 
  2015   2016    
 
 
   
  % of
Revenues
   
  % of
Revenues
  %
Variance
 

Revenue from product sales

  $ 533.7     50.3 % $ 587.1     51.6 %   10.0 %

Revenue from services

    527.3     49.7 %   550.1     48.4 %   4.3 %

  $ 1,061.0     100.0 % $ 1,137.2     100.0 %      

        Revenues from product sales increased $53.4 million, or 10.0%, to $587.1 million in the fiscal year ended September 30, 2016 from $533.7 million in the fiscal year ended September 30, 2015. The increase in revenues was primarily due to the acquisitions of Neptune-Benson, VAF, Delta UV, ETS and Magneto. These acquisitions accounted for $44.4 million of the increase in product revenues. Other areas of product revenue growth included an increase in the execution of capital project orders of approximately $17.3 million as compared to the prior year in the power and pulp and paper end markets, as well as an increase of approximately $7.8 million for products related to highly purified water in the microelectronics and power markets with the establishment of a new legal entity and sales presence in the China market. This increase was partially offset by delays in the marine and power product retrofit markets, which experienced a decrease in product revenues of approximately $14.0 million.

        Revenues from services increased $22.8 million, or 4.3%, to $550.1 million in the fiscal year ended September 30, 2016 from $527.3 million in the fiscal year ended September 30, 2015. Service and capital system support revenues increased in the power, hydrocarbon and chemical processing end markets for approximately $6.4 million, driven by penetration into new and existing customer accounts, as well as service business growth in the Municipal Segment for approximately $4.4 million through geographical expansion and rollout of new service offerings. The consolidation of TWO, our joint venture that sells water management equipment and services, also accounted for approximately $11.6 million of the increase in service revenues.

        Cost of Sales and Gross Margin—Total gross margin increased to 29.3% in the fiscal year ended September 30, 2016 from 27.6% in the fiscal year ended September 30, 2015.

        The following table provides the change in cost of product sales and cost of services, respectively, along with related gross margins:

 
  Fiscal Years Ended September 30,  
 
  2015   2016  
 
   
  Gross
Margin %
   
  Gross
Margin %
 

Cost of product sales

  $ 385.2     27.8 % $ 407.4     30.6 %

Cost of services

    383.3     27.3 %   396.8     27.9 %

  $ 768.5     27.6 % $ 804.2     29.3 %

        Cost of product sales increased by approximately $22.2 million in the year ended September 30, 2016 as compared to the year ended September 30, 2015. The increase in cost of sales for our products business was primarily due to the impact of the acquisitions of Neptune-Benson, VAF, Delta UV and Magneto. These acquisitions accounted for $21.2 million of the increase in cost of sales as well as a corresponding gross profit increase of approximately $23.2 million and were the primary driver of the 2.8% increase in gross margin. Increases in revenues related to capital project orders and sales in the

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microelectronics and power markets drove an increase in cost of sales of approximately $17.4 million, however, purchasing and supply chain productivity measures that were implemented to adjust for the standalone nature of the Company supported a reduction in cost of sales of approximately $6.2 million. Cost of product sales was also favorably impacted by the final stages of the wind down of our Italian operations, which drove a decrease of approximately $11.7 million in cost of sales and a corresponding increase in gross profit of $4.5 million as compared to the prior year. Additionally, commensurate with the delays in revenues, cost of sales were reduced in the marine and power product retrofit markets by approximately $9.7 million.

        Cost of services increased approximately $13.5 million in the year ended September 30, 2016 as compared to the year ended September 30, 2015. This was commensurate with the increase in revenue volume, offset by the beneficial impact of various restructuring initiatives put in place over the previous period.

        Operating Expenses—Operating expenses increased $4.9 million, or 1.6%, to $302.9 million in the fiscal year ended September 30, 2016 from $298.0 million in the fiscal year ended September 30, 2015. The largest driver in the increase in operating expenses was primarily due to the acquisitions of Neptune-Benson, VAF and Delta UV accounting for $9.8 million of the operating expense increase and Magneto accounting for $2.7 million of the increase. These increases in operating expenses were offset with decreases in expenses in the other segments. A discussion of operating expenses by category is as follows:

    Research and Development Expense—Research and development expenses decreased $3.0 million, or 11.6%, to $22.9 million in the fiscal year ended September 30, 2016 from $25.9 million in the fiscal year ended September 30, 2015. Research and development expenses increased $0.2 million with the acquisition of Magneto and their extensive research and development programs related to anode coatings.

    Sales and Marketing Expense—Sales and marketing expenses increased $10.8 million, or 8.7%, to $135.2 million in the fiscal year ended September 30, 2016 from $124.4 million in the fiscal year ended September 30, 2015. The driving factor for the increase in sales and marketing expenses associated with reinvigoration and expansion of the sales force, which drove an increase in salaries and benefits of approximately $9.8 million, coupled with implementation of sales initiatives such as training and rebranding, which incurred approximately $1.2 million of additional cost.

    General and Administrative Expense—General and administrative expenses decreased $2.9 million, or 2.0%, to $144.8 million in the fiscal year ended September 30, 2016 from $147.7 million in the fiscal year ended September 30, 2015. The acquisitions of Neptune-Benson, VAF, Delta UV and Magneto accounted for a $11.7 million increase in general and administrative expenses, which was offset by a $14.6 million decrease in general and administrative expenses as a result of restructuring actions and other cost savings initiatives taken across the business.

        Other Operating Income, Net—Other operating income increased $6.9 million to $7.0 million in the fiscal year ended September 30, 2016 from $0.1 million in the fiscal year ended September 30, 2015. The increase in other operating income was primarily due to a gain on disposal of assets, including the Vernon Disposition.

        Interest Expense—Interest expense increased $8.4 million, or 24.8%, to $42.5 million in the fiscal year ended September 30, 2016 from $34.1 million in the fiscal year ended September 30, 2015. The increase in interest expense is due to an increase in borrowing for acquisitions, interest on capital leases and fees associated with our senior secured credit facilities.

        Income Tax Benefit (Expense)—Income tax expense decreased $66.3 million, or 138.4%, to an income tax benefit of $18.4 million in the fiscal year ended September 30, 2016 from an expense of

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$47.9 million in the fiscal year ended September 30, 2015. The effective tax rate in the fiscal year ended September 30, 2016 was 343.0% compared to an effective tax rate of (125.6)% in the fiscal year ended September 30, 2015. The decrease in income tax expense and effective tax rate in the fiscal year ended September 30, 2016 was primarily due to the benefit resulting from the release of valuation allowance as a result of additional deferred tax liabilities recognized in connection with the Neptune-Benson Acquisition.

        Net Income—Net income increased $99.1 million, or 115.1%, to net income of $13.0 million for the fiscal year ended September 30, 2016 from a net loss of $86.1 million for the fiscal year ended September 30, 2015. The primary driver of the increase in net income was the transition from a large tax expense of $47.9 million in the fiscal year ended September 30, 2015 to a tax benefit of $18.4 million in the fiscal year ended September 30, 2016, a change of approximately $66.3 million. The change in tax expense was related to the establishment and subsequent partial release of valuation allowance. Additional contributors to the increase in net income included the improvement in gross profit of approximately $40.7 million driven by revenue volume and profitability as discussed above, as well as the increase in other operating income of approximately $6.9 million discussed above. These contributors to net income were offset by the overall increase in operating expenses of approximately $4.9 million.

        Adjusted EBITDA—Adjusted EBITDA increased $40.2 million, or 33.5%, to $160.1 million for the fiscal year ended September 30, 2016 from $119.9 million for the fiscal year ended September 30, 2015. Increased volume and carry over benefits from restructuring and operational efficiencies that we implemented in the prior year provided $17.1 million of the increase in Adjusted EBITDA. Additionally, revenue volume and profitability associated with the acquisitions of Neptune-Benson, VAF, Delta UV and Magneto contributed approximately $15.9 million of the increase in Adjusted EBITDA, while the final stages in closure of our Italian operations improved our profitability by $5.9 million for the fiscal year ended September 30, 2016.

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Segment Results

 
  Fiscal Years Ended
September 30,
   
 
 
  2015   2016   % Variance  
 
  (in thousands)
   
 

Revenues

                   

Industrial

  $ 569,007   $ 604,192     6.2 %

Municipal

    273,574     278,000     1.6 %

Products

    218,335     255,004     16.8 %

Other

    50         N/M  

Total Consolidated

  $ 1,060,966   $ 1,137,196     7.2 %

Percentage of total consolidated revenues

                   

Industrial

    53.6 %   53.1 %      

Municipal

    25.8 %   24.4 %      

Products

    20.6 %   22.5 %      

Total Consolidated

    100 %   100 %      

Operating Profit

                   

Industrial

  $ 86,316   $ 91,396     5.9 %

Municipal

    22,141     31,287     41.3 %

Products

    37,528     48,712     29.8 %

Corporate

    (150,071 )   (134,240 )   (10.5 )%

Total Consolidated

  $ (4,086 ) $ 37,155     N/M  

Operating profit as a percentage of total consolidated revenues

                   

Industrial

    8.1 %   8.0 %      

Municipal

    2.1 %   2.8 %      

Products

    3.5 %   4.3 %      

Corporate

    (14.1 )%   (11.8 )%      

Total Consolidated

    (0.4 )%   3.3 %      

EBITDA

                   

Industrial

  $ 116,883   $ 129,662     10.9 %

Municipal

    29,797     39,434     32.3 %

Products

    39,223     55,099     40.5 %

Corporate and unallocated costs

    (131,850 )   (117,751 )   (10.7 )%

Total Consolidated

  $ 54,053   $ 106,444     96.9 %