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| 8-K - 8-K - Evoqua Water Technologies Corp. | q4188-k.htm |
| EX-99.1 - EXHIBIT 99.1 - Evoqua Water Technologies Corp. | q4fy18exhibit991.htm |
Fourth Quarter and Full Year 2018 Earnings November 27, 2018 TRANSFORMING WATER. ENRICHING LIFE.TM ©2017 Evoqua Water Technologies
Forward-Looking Statement Safe Harbor This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All of these forward-looking statements are based on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements, or could affect our share price. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include among other things, general global economic and business conditions; our ability to compete successfully in our markets; our ability to execute projects in a timely manner; our ability to accurately predict the timing of contract awards; material and other cost inflation and our ability to mitigate the impact of inflation by increasing selling prices and improving our productivity efficiencies; our ability to achieve the expected benefits of our restructuring actions and restructuring our business into two segments; 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 or failure to meet performance guarantees; our ability to meet our customers’ safety standards or the potential for adverse publicity affecting our reputation as a result of incidents such as workplace accidents, mechanical failures, spills, uncontrolled discharges, damage to customer or third-party property or the transmission of contaminants or diseases; litigation, regulatory or enforcement actions and reputational risk as a result of the nature of our business or our participation in large-scale projects; seasonality of sales and weather conditions; risks related to government customers, including potential challenges to our government contracts or our eligibility to serve government customers; the potential for our contracts with federal, state and local governments to be terminated or adversely modified prior to completion; risks related to foreign, federal, state and local environmental, health and safety laws and regulations and the costs associated therewith; risks associated with international sales and operations, including our operations in China; our ability to adequately protect our intellectual property from third-party infringement; our increasing dependence on the continuous and reliable operation of our information technology systems; risks related to our substantial indebtedness; our need for a significant amount of cash, which depends on many factors beyond our control; AEA’s influence over us; and other factors to be described in the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, and in other periodic reports we file with the SEC. All statements other than statements of historical fact included in the presentation are forward-looking statements including, but not limited to expected results for the first quarter and full year of fiscal 2019, statements regarding our two-segment restructuring actions and expected restructuring charges and cost savings for fiscal 2019 and beyond. Any forward-looking statement that we make in this presentation speaks only as of November 27, 2018. We undertake no obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements made herein, whether as a result of new information, future events or otherwise. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to the date of this presentation. Immaterial rounding differences may be present in the data included in this presentation. Use of Non-GAAP Financial Measures - This presentation contains “non-GAAP financial measures,” which are adjusted financial measures that are not calculated and presented in accordance with generally accepted accounting principles in the United States, or “GAAP.” These non-GAAP adjusted financial measures are provided as additional information for investors. We believe these non-GAAP adjusted financial measures, such as Adjusted EBITDA and free cash flow, are helpful to management and investors in highlighting trends in our operating results, because they exclude, among other things, certain results of decisions that are outside the control of management, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. The presentation of this additional information is not meant to be considered in isolation or as a substitute for GAAP measures of net income (loss), or net cash provided by (used in) operating activities prepared in accordance with GAAP. For reconciliations of the non-GAAP adjusted financial measures used in this presentation to the nearest respective GAAP measures, see the Appendix to this presentation. Page 2
Q4 2018 Overview Strong Industrial segment performance • Service and aftermarket business growth Positives Launch of Water One Q4 Free cash flow of $33 million • 80% full year free cash flow to adjusted net income Products segment Aquatics product line under performance primarily impacted by • ERP integration Challenges • Supply chain • Project delays Municipal segment under performance • Primarily impacted by supply chain disruption and other operating costs Implement simplified and streamlined business model Accelerate pricing actions and cost reductions Actions Focused M&A activities on capex-like, tuck-in acquisitions Aligned 2019 compensation plans to growth, EBITDA & free cash flow Page 3
LTM revenue and profitability development xx Rolling LTM revenue and Adjusted EBITDA CAGR % ($ in millions) Services Product Sales 8.9% Total $1,330 $1,340 $1,298 $1,247 $1,265 $751 $756 $1,193 $1,210 $718 $1,163 $675 $687 $1,137 $646 $1,095 $631 $1,059 $1,069 $587 $609 $534 $551 $526 14.1% Products $562 $564 $572 $578 $580 $579 $584 $533 $535 $544 $550 $554 3.4% Services Q1'16 Q2'16 Q3'16 Q4'17 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 (1) 24.4% Adj. EBITDA Adj. EBITDA $160 $186 $208 $210 ($M) $119 $127 $142 $172 $196 $224 $227 $217 Adj. EBITDA(1) 11.3% 11.8% 12.9% 14.1% 14.8% 15.6% 16.2% 16.6% 16.6% 17.3% 17.1% % 16.2% (1) For the definition of Adjusted EBITDA and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. Page 4
Q4 2018 Adjusted EBITDA bridge and primary drivers ($ in millions) $71.4 $1.1 $(2.4) $61.2 $(7.4) $(1.5) Q4'17 Industrial Municipal Products Corporate Q4'18 Strong Services Supply chain Aquatics ERP Incremental public and Aftermarket disruption integration disruption company costs influenced by tariffs Strength and Supply chain penetration across Inflation and higher disruption influenced multiple end input costs by tariffs markets Delayed aquatics Inflation and higher project input costs Products segment (Products) Adjusted EBITDA below Prior year ~31% Q4 and ~2% full year FY18 Products excluding Aquatics & Disinfection (A&D) grew Adjusted EBITDA ~12% in Q4 and ~39% full year FY18 A&D representing ~48% of FY18 and ~63% of FY17 Products Adjusted EBITDA, was below prior year ~62% in Q4 and ~26% full year FY18 Page 5 (2.8)% +2.7% (5.1)% +9.2% change growth change growth
Fourth Quarter 2018 Results Highlights ($ in millions) Year-Over- Q4'17 Q4'18 Year Fourth Quarter 2018 Revenue $356.5 $366.3 2.7% Highlights • Revenue growth of 2.7% Gross Profit $122.9 $106.3 (13.5)% Operating Profit(1) $36.3 $16.4 (54.9)% • Strong Industrial segment growth Net Income $12.9 $(3.1) (123.8)% • Performed as expected due to growth and penetration across multiple end markets Adjusted Net Income(2) $21.2 $15.2 (28.3)% Adjusted EBITDA(3) $71.4 $61.2 (14.3)% • Offset by Municipal and Products segments (4) Adjusted EBITDA margin 20.0% 16.7% -330bps • Adjusted EBITDA change of (14.3)% Fourth Quarter 2018 Revenue • Products segment and Municipal segment ($ in millions) $16.8 • Aquatics business ERP system integration challenges $366.3 +9.2% $(2.2) growth • Supply chain issues impacted Aquatics $356.5 $(4.8) +2.7% (2.8)% business and Municipal segment growth change (5.1)% change • Partly offset by Industrial segment performance Q4'17 Industrial Municipal Products Q4'18 (1) GAAP basis before adjustments which primarily includes non-cash foreign currency negative impact on intracompany loans of $(6.5) million year over year (2) For the definition of Adjusted Net Income and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. (3) For the definition of Adjusted EBITDA and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. (4) Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue. Page 6
Full Year 2018 Results Highlights ($ in millions) FY'17 FY'18 Year-Over- Year Full Year 2018 Revenue $1,247.4 $1,339.5 7.4% • Revenue growth of 7.4% Gross Profit $399.7 $404.7 1.3% Operating Profit(1) $69.2 $66.8 (3.5)% • 3.4% from tuck-in acquisitions (5) Net Income $6.4 $7.9 23.4% • 4.0% pro forma growth Adjusted Net Income(2) $45.1 $62.1 37.7% • 7.2% Industrial sales growth Adjusted EBITDA(3) $207.7 $216.9 4.4% • 2.4% Products sales growth (4) Adjusted EBITDA margin 16.7% 16.2% -50bps • Adjusted EBITDA growth of 4.4% Full Year 2018 Revenue • 12.9% Industrial segment growth ($ in millions) • Adjusted EBITDA margin down 50 basis points $84.7 $13.8 $1,339.5 • Inflation and commodity cost impacts +7.4% $(6.4) +4.2% +13.2% growth • Higher capital mix growth $1,247.4 growth (2.3)% change • Lower contribution from high margin Aquatics business • Partly offset by price and cost reduction FY'17 Industrial Municipal Products FY'18 initiatives (1) GAAP basis before adjustments which primarily includes non-cash foreign currency negative impact on intracompany loans of $(13.7) million year over year (2) For the definition of Adjusted Net Income and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. (3) For the definition of Adjusted EBITDA and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. (4) Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue. (5) For the definition of pro forma growth and a reconciliation to revenue, its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. Page 7
FY18 revenue Industrial segment xx% 54.4% Revenue Highlights ($ in millions) Fourth Quarter 2018 $728.1 $199.3 $643.4 +6.5% • Revenue up 9.2% 13.2% 9.2% growthgrowth (2) $182.5 growth • 2.7% pro forma growth • Driven primarily by power, hydrocarbon and chemical processing markets • Adjusted EBITDA up 2.3% Q4'17 Q4'18 FY'17 FY'18 • Adjusted EBITDA margin declined 170 bps • Mix shift to capital Adjusted EBITDA(1) • Inflation impacts partly offset by price ($ in millions) $168.7 Full Year 2018 $149.4 $47.4 $48.5 12.9% • Revenue up 13.2% 2.3% growth (2) growth • 7.2% pro forma growth • Driven primarily by power markets and remediation projects Q4'17 Q4'18 FY'17 FY'18 • Adjusted EBITDA margin was flat Adjusted EBITDA margin(3) • Mix shift to capital 26.0% 24.3% 23.2% 23.2% • Inflation impacts partly offset by price (1) For the definition of Adjusted EBITDA and a reconciliation to operating profit (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. (2) For the definition of pro forma growth and a reconciliation to revenue, its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. (3) Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue. Page 8
FY18 revenue Municipal segment xx% 20.3% Revenue Highlights ($ in millions) Fourth Quarter 2018 $278.6 +6.5%$272.2 • Revenue down 2.8% $79.7 $77.5 growth(2.3)% • Lower project capital revenues (2.8)% change change • Partly offset by services growth • Adjusted EBITDA down 15.9% • Adjusted EBITDA margin declined 250 bps Q4'17 Q4'18 FY'17 FY'18 • Higher commodity, freight and other costs Full Year 2018 Adjusted EBITDA(1) • Revenue down 2.3% ($ in millions) • Large prior year waste water retrofit project • Partly offset by services growth $15.1 $44.8 $12.7 $37.3 • Adjusted EBITDA down 16.7% (15.9)% (16.7)% • Adjusted EBITDA margin declined 240 bps change change • Mix impacts • Inflation impacts Q4'17 Q4'18 FY'17 FY'18 • Supply chain disruption and extended delivery lead times Adjusted EBITDA margin(2) 18.9% 16.4% 16.1% 13.7% (1) For the definition of Adjusted EBITDA and a reconciliation to operating profit (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. (2) Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue. Page 9
FY18 revenue xx% Products segment 25.3% Revenue Highlights ($ in millions) Fourth Quarter 2018 $325.4 $339.2 $94.3 $89.5 +6.5% • Revenue change (5.1)% 4.2% (2) growthgrowth • (6.5)% pro forma change (5.1)% change • Aquatics product line performance • Adjusted EBITDA change (31.1)% • Adjusted EBITDA margin declined 690 bps Q4'17 Q4'18 FY'17 FY'18 • Aquatics high margin product line mix impacts • Productivity related to ERP system implementation Adjusted EBITDA(1) and supply chain disruption ($ in millions) Full Year 2018 • Revenue growth 4.2% $77.4 $75.9 • 2.4% pro forma growth(2) $23.8 • ~19% growth in 4 of the 5 businesses $16.4 (1.9)% change • Offset by Aquatics product line (31.1)% change • Adjusted EBITDA change (1.9)% • Impacted by Aquatics product line Q4'17 Q4'18 FY'17 FY'18 • ~39% growth in 4 of the 5 businesses • Adjusted EBITDA margin declined 140 bps Adjusted EBITDA margin(3) • Negative impacts of Aquatics product line 25.2% 18.3% 23.8% 22.4% (1) For the definition of Adjusted EBITDA and a reconciliation to operating profit (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. (2) For the definition of pro forma growth and a reconciliation to revenue, its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. (3) Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue. Page 10
Cash generation Free Cash Flow(1) Leverage ($ in millions) (Total net debt(2) to Adjusted EBITDA(3)) $49.8 $32.9 4.0x 4.1x 3.4x 3.2x 3.3x $7.6 $2.3 Q4'17 Q4'18 FY'17 FY'18 % Adjusted Net Income(4) 10.8% 216.4% 16.9% 80.2% Highlights Improved Q4 and FY18 Free Cash Flow ▪ Improved trade working capital Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 ▪ Free cash flow improvement from FY17 ~17% to FY18 ~80% Leverage Ratio Impact of ProAct Financing ProAct impacted net leverage by 0.4x $600 million interest rate cap established Nov 2018 (1) For the definition of Free Cash Flow and a reconciliation to operating cash flow, its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. (2) Total net debt is total debt minus cash and cash equivalents. (3) Adjusted EBITDA (with contributions from acquisitions) inclusive of completed acquisitions. For the definition of Adjusted EBITDA and a reconciliation to operating profit (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. (4) For the definition of Adjusted Net Income and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. Page 11
Key cash flow drivers Capital expenditures Net working capital(1) ($ in millions) ($ in millions) $80.7 $222.5 $222.3 $197.8 $194.3 $57.8 $183.5 $26.1 $17.3 Q4'17 Q4'18 FY'17 FY'18 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18* NWC (Excluding ProAct) Impact of ProAct on NWC Capex as % sales NWC as % sales 4.9% 7.1% 4.6% 6.0% 14.7% 15.5% 15.0% 16.7% 16.6% *ProAct impacted NWC by $6.8 million or 0.5% Highlights Highlights ▪ FY18 capex includes $13.9 million for Gulf Coast ▪ Maintained mid-teens ratio of net working capital as a Outsourced Water project; $11.3 for mobile RO units percentage of sales ▪ Maintenance capex ~2.5% of sales in FY 2018 ▪ Sequential working capital reduction (excluding ProAct) (1) Net working capital calculated as current assets less current liabilities, excluding cash, debt and the short-term portion of capital leases included in other current liabilities. Page 12
Two Segment Organizational Realignment Industrial Segment Municipal Segment Product Segment Municipal Municipal Products Services (Memcor / Wastewater) Applied Product Integrated Solutions & New Organization Technologies Services Structure ◦ Product Segment • Industrial Segment (effective October 1, 2018) ◦ Municipal Wastewater • Municipal Services Technologies and • Reduces cross-over accounts Advanced Filtration and markets ü ü Technology Agnostic • Aligns to how customers want Channel Agnostic ü ü North America Focused to buy Globally Deployed Technologies Page 13
Evolving Our Business FROM TO Integrated • Equipment Sale • Service & Solution Sale Solutions & • Pay-Per-Service or Event • Pay-Per-Usage (WaterOne®) Services • Regional Account Relations • National Strategic Partners • Product Specific Distributors • Leveraged Global Channel Partners Applied • Individual Product Silos • Application Focused Technology Product Technologies Platforms Expected* Restructuring Cost / Benefit Overview Actions Anticipated Spend Anticipated Benefit Structure / Integration $10 - $12 million Footprint / product rationalization / other $7 - $10 million $15 - $20 million annually Total $17 - $22 million Completion Goals: *Key Launch Date: Annualized Benefits: Structure / integration by Q3 FY19 Assumptions: October 2018 Begin to be realized in Q3 FY19 Remainder of anticipated spend by Q4 FY20 Page 14
2019 Priorities - Focus on execution Deliver profitable growth Sales channels and value propositions aligned to market Realized price and margin expansion across mix IOT for on demand and connected solutions M&A as a proxy for R&D and Capex Drive margin expansion through operational actions Standard systems and offshore deployed • Supply chain, engineering and back office Configured solutions and “process standard” products Service tools for efficiency and 24 hour connectivity Increase free cash flow Capital expenditures on highest return projects Working Capital Efficiency plan Free cash as incentive compensation component Page 15
2019 Key assumptions Revenue growth Mid-single digit growth 3% to 7% Price / Cost Expect neutral impact with upside potential Expect favorable 2H mix Restructuring costs/ Costs begin in Q1; benefit realization begins in Q3 synergies FCF conversion Greater than 80% of adjusted net income Effective tax Not expected to be a U.S. cash tax payer in 2019 rate Share count ~114 million at 9-30-18 Page 16
Quarterly revenue and profitability development Quarterly revenue and Adjusted EBITDA ($ in millions) $366 $357 $343 $367 $334 $320 $311 $300 $294 $297 $277 $280 $268 $270 $256 $259 $255 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Adj. EBITDA(1) ($M) $26.0 $22.8 $30.1 $41.0 $25.4 $29.9 $45.2 $59.4 $37.2 $43.9 $55.1 $71.4 $39.9 $57.7 $58.1 $61.2 Adj. EBITDA(1) 10.1% 8.8% 11.2% 11.1% 15.4% 18.6% 16.7% margin % 14.8% 10.0% 13.3% 14.6% 17.7% 20.0% 13.4% 17.3% 17.0% (1) For the definition of Adjusted EBITDA and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto Page 17
2019 Q1* and Full year current outlook Q1* Full Year Revenue $305 to $320 million $1.38 to $1.44 billion YOY growth ~3% to 8% ~3% to 7% Adjusted EBITDA(1) $34 to $38 million $220 to $240 million YOY growth ~(15%) to (5%) ~2% to 11% * Q1 guidance provided as a result of challenges from mix, potential supply chain issues, and the aquatics product line; We expect to return to annual guidance on a normalized basis in the future Notes: Excludes unannounced acquisitions (1) For a definition of Adjusted EBITDA see the Appendix hereto. Due to the forward-looking nature of Adjusted EBITDA presented above, we cannot reliably predict certain of the necessary components of the most directly comparable forward-looking GAAP measures and are unable to present a quantitative reconciliation of such Adjusted EBITDA to its most directly comparable GAAP measure. Page 18
Long-Term Targets (3-5 years)(1) Organic Sales Growth 3-5% Adjusted EBITDA Margin 20% Free Cash Flow Conversion 100% Net Financial Leverage ~2.5x (1) These long-term targets represent our goals and are not projections of future performance. These targets are forward-looking, are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the control of the Company and its management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results will vary and those variations may be material. For discussion of some of the important factors that could cause these variations, please see “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018 to be filed with the SEC, and in other periodic reports we file with the SEC. Nothing in this presentation should be regarded as a representation by any person that these targets will be achieved, and the Company undertakes no obligation to update this information. See “Forward-Looking Statements Safe Harbor” on page 2 of this presentation. Page 19
Key investment highlights Leading market Positioned to capitalize position in North on favorable industry America growth dynamics Iconic brands and Unparalleled service differentiated network technologies Significant operating Large installed base leverage Proven organic and Experienced inorganic growth management team platform Page 20
Appendix Page 21
Non-GAAP measures Management reviews key performance indicators including revenue, margins, segment operating income and margins, orders growth, working capital and backlog, among others. In addition, we consider certain non-GAAP measures to be useful to management and investors evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations, liquidity, management of assets and future prospects. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including but not limited to: dividends, acquisitions, share repurchases and debt repayment. These adjusted metrics are consistent with how management views our business and are used to make financial, operating, budgeting, planning and strategic decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators: "Pro forma growth" defined as revenue growth including the results of acquisitions for the periods prior to the respective acquisition dates. “EBITDA” defined as earnings before interest, taxes, depreciation and amortization expense. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude certain other items, including restructuring and related business transformation costs, purchase accounting adjustment costs, non-cash stock based compensation, sponsor fees, transaction costs and other gains, losses and expenses. "Adjusted EBITDA" on a segment level further reflects the adjustment for the impact of certain other items that have been adjusted at the segment level. “Free Cash Flow” defined as net cash from operating activities, as reported in the Statement of Cash Flows, less capital expenditures as well as adjustments for other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flow does not consider certain non-discretionary cash payments, such as debt. “Adjusted net income” defined as net income adjusted to exclude certain other items, including restructuring and related business transformation costs, purchase accounting adjustment costs, non-cash stock based compensation, sponsor fees, transaction costs and other gains, losses and expenses. Excluding revenue, Evoqua provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort. Page 22
Adjusted EBITDA reconciliation - 2018 ($ in millions) FYE 9/30 Q1'18 Q2'18 Q3'18 Q4'18 FY2018 Net income (loss) $ (3.0) $ 13.0 $ 1.0 $ (3.1) $ 7.9 Income tax provision / (benefit) (4.4) 2.0 1.4 2.4 1.4 Interest expense 17.2 10.8 12.4 17.1 57.5 Operating profit (loss) $ 9.8 $ 25.8 $ 14.8 $ 16.4 $ 66.8 Depreciation and amortization 19.9 20.5 21.5 24.0 85.9 EBITDA $ 29.7 $ 46.3 $ 36.3 $ 40.4 $ 152.7 A Restructuring and related business transaction costs 8.1 8.2 9.0 9.1 34.4 B Purchase accounting adjustment costs — — — — — C Stock-based compensation 2.6 4.3 4.4 4.5 15.8 D Sponsor fees 0.3 — — — 0.3 E Transaction costs 0.5 0.8 4.7 1.6 7.6 F Other gains, losses and expenses (1.3) (1.9) 3.7 5.6 6.1 Adjusted EBITDA $ 39.9 $ 57.7 $ 58.1 $ 61.2 $ 216.9 Revenue $ 297.1 $ 333.6 $ 342.5 $ 366.3 $ 1,339.5 Adjusted EBITDA as a % of Revenue 13.4% 17.3% 17.0% 16.7% 16.2% A Primarily comprised of severance, relocation, recruiting and other costs D Elimination of management fees paid to AEA during its ownership. associated with the voluntary separation program and other various AEA’s management agreement terminated at the IPO closing. restructuring and efficiency initiatives. B Reverses the impact from step-up to fair market value for inventory E Removal of expenses associated with recent platform and tuck-in acquired with the purchase of Magneto. acquisitions and divestitures and post-acquisition integration costs. C Represents non-cash stock-based compensation. F Add back of gains and losses associated with foreign exchange, recent asset sales along with expenses related to maintaining non-operational business locations and other unusual business expenses, primarily consisting of warranty claims and inventory write-off due to ERP system integration. Page 23
Adjusted EBITDA reconciliation - 2017 ($ in millions) FYE 9/30 Q1'17 Q2'17 Q3'17 Q4'17 FY2017 Net income (loss) $ (13.2) $ 4.9 $ 1.8 $ 13.0 $ 6.4 Income tax provision / (benefit) (7.1) (4.8) 12.2 7.1 7.4 Interest expense 14.8 11.9 12.5 16.3 55.4 Operating profit (loss) $ (5.5) $ 12.0 $ 26.4 $ 36.4 $ 69.2 Depreciation and amortization 18.6 18.9 18.3 22.1 77.9 EBITDA $ 13.1 $ 30.9 $ 44.7 $ 58.5 $ 147.1 A Restructuring and related business transaction costs 13.2 9.9 13.3 14.9 51.3 B Purchase accounting adjustment costs 0.2 — – — 0.2 C Stock-based compensation 0.5 0.6 0.6 0.6 2.3 D Sponsor fees 1.0 1.0 1.0 1.1 4.2 E Transaction costs 1.4 2.4 1.9 1.7 7.3 F Other gains, losses and expenses 7.9 (0.8) (6.5) (5.4) (4.7) Adjusted EBITDA $ 37.2 $ 43.9 $ 55.1 $ 71.4 $ 207.7 Revenue $ 279.9 $ 299.9 $ 311.1 $ 356.5 $ 1,247.4 Adjusted EBITDA as a % of Revenue 13.3% 14.6% 17.7% 20.0% 16.7% A Primarily comprised of severance, relocation, recruiting and other costs D Elimination of management fees paid to AEA during its ownership. associated with the voluntary separation program and other various AEA’s management agreement terminated at the IPO closing. restructuring and efficiency initiatives. B Reverses the impact from step-up to fair market value for inventory E Removal of expenses associated with recent platform and tuck-in acquired with the purchase of Magneto. acquisitions and divestitures and post-acquisition integration costs. C Represents non-cash stock-based compensation related to option F Add back of gains and losses associated with foreign exchange and awards. recent asset sales along with expenses related to maintaining non- operational business locations. Page 24
Adjusted EBITDA reconciliation - 2016 ($ in millions) FYE 9/30 Q1'16 Q2'16 Q3'16 Q4'16 FY2016 Net income (loss) $ (2.7) $ (0.9) $ 16.5 $ 0.2 $ 13.0 Income tax provision / (benefit) (5.0) (1.4) (14.1) 2.0 (18.4) Interest expense 9.0 9.0 11.5 13.1 42.5 Operating profit $ 1.3 $ 6.8 $ 13.8 $ 15.2 $ 37.2 Depreciation and amortization 16.3 16.3 18.4 18.3 69.3 EBITDA $ 17.7 $ 23.0 $ 32.2 $ 33.5 $ 106.4 A Restructuring and related business transaction costs 4.5 7.0 6.6 24.9 43.1 B Purchase accounting adjustment costs — — — 1.3 1.3 C Stock-based compensation 0.5 0.4 0.5 0.6 2.0 D Sponsor fees 0.8 1.1 1.0 0.9 3.8 E Transaction costs 0.1 2.4 1.4 1.4 5.4 F Other gains, losses and expenses 1.9 (4.1) 3.5 (3.2) (1.9) Adjusted EBITDA $ 25.4 $ 29.9 $ 45.2 $ 59.4 $ 160.1 Revenue $ 254.5 $ 270.0 $ 293.3 $ 319.4 $ 1,137.2 Adjusted EBITDA as a % of Revenue 10.0% 11.1% 15.4% 18.6% 14.1% A Primarily comprised of severance, relocation, recruiting and other costs D Elimination of management fees paid to AEA during its ownership. associated with the voluntary separation program and other various AEA’s management agreement terminated at the IPO closing. restructuring and efficiency initiatives. B Reverses the impact from step-up to fair market value for inventory E Removal of expenses associated with recent platform and tuck-in acquired with the purchase of Magneto. acquisitions and divestitures and post-acquisition integration costs. C Represents non-cash stock-based compensation related to option F Add back of gains and losses associated with foreign exchange and awards. recent asset sales along with expenses related to maintaining non- operational business locations. Page 25
Adjusted EBITDA reconciliation - 2015 ($ in millions) FYE 9/30 Q1'15 Q2'15 Q3'15 Q4'15 FY2015 Net Income (loss) $ (6.3) $ (21.8) $ 1.2 $ (59.2) $ (86.1) Income tax provision / (benefit) (4.9) (8.6) 0.3 61.1 47.9 Interest expense 8.5 8.5 8.4 8.7 34.1 Operating profit (loss) $ (2.8) $ (21.9) $ 10.0 $ 10.6 $ (4.1) Depreciation and amortization 14.0 13.4 15.3 15.4 58.1 EBITDA $ 11.2 $ (8.5) $ 25.3 $ 26.1 $ 54.1 A Restructuring and related business transaction costs 7.4 11.0 7.1 7.4 32.8 B Purchase accounting adjustment costs — — — — — C Stock-based compensation — 0.7 0.4 0.6 1.6 D Sponsor fees 1.5 0.6 1.3 1.6 5.0 E Transaction costs — — — — — F Other gains, losses and expenses 5.9 19.1 (3.9) 5.3 26.4 Adjusted EBITDA $ 26.0 $ 22.8 $ 30.1 $ 41.0 $ 119.9 Revenue $ 256.8 $ 259.4 $ 268.2 $ 276.6 $1,061.0 Adjusted EBITDA as a % of Revenue 10.1% 8.8% 11.2% 14.8% 11.3% A Primarily comprised of severance, relocation, recruiting and other costs D Elimination of management fees paid to AEA during its ownership. associated with the voluntary separation program and other various AEA’s management agreement terminated at the IPO closing. restructuring and efficiency initiatives. B Reverses the impact from step-up to fair market value for inventory E Removal of expenses associated with recent platform and tuck-in acquired with the purchase of Magneto. acquisitions and divestitures and post-acquisition integration costs. C Represents non-cash stock-based compensation related to option F Add back of gains and losses associated with foreign exchange and awards. recent asset sales along with expenses related to maintaining non- operational business locations. Page 26
Segment Adjusted EBITDA reconciliation ($ in millions) Three Months Ended September 30, 2017 2018 Industrial Municipal Products Industrial Municipal Products Operating Profit $ 35.5 $ 13.1 $ 20.7 $ 35.5 $ 8.6 $ 7.1 D&A 11.9 2.0 3.1 13.0 1.7 3.8 Adjustments to EBITDA — — — — 2.4 5.5 Segment Adjusted EBITDA $ 47.4 $ 15.1 $ 23.8 $ 48.5 $ 12.7 $ 16.4 Fiscal Year Ended September 30, 2017 2018 Industrial Municipal Products Industrial Municipal Products Operating Profit $ 110.0 $ 36.6 $ 65.9 $ 120.9 $ 34.1 $ 55.4 D&A 39.4 8.2 11.5 45.2 7.0 13.1 Adjustments to EBITDA — — — 2.6 (3.8) 7.4 Segment Adjusted EBITDA $ 149.4 $ 44.8 $ 77.4 $ 168.7 $ 37.3 $ 75.9 Note: Segment Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business. Segment Adjusted EBITDA is defined as operating profit before depreciation, amortization and certain other adjustments distinct to the respective reported segments. Adjustments in the three months and fiscal year ended September 30, 2018 include - (1) costs and expenses in connection with certain restructuring initiatives, (2) costs associated with the achievement of earn-out targets established during the Noble and ADI acquisitions, (3) warranty costs associated with settlement of a legacy warranty claim, (4) gain on sale of assets related to disposition of land at our Windsor, Australia location, (5) expenses related to the remediation of manufacturing defects caused by a third party vendor for which the Company is seeking restitution, (6) expenses incurred related to the disposal of inventory as part of migration to a new ERP system, and (7) costs incurred with the termination of a business venture. Page 27
Free cash flow / Adjusted net income / EPS ($ in millions) Q4'17 Q4'18 FY'17 FY'18 Operating Cash Flow $ 12.7 $ 44.2 $ 28.5 $ 81.0 (+) EBITDA adjustments, excluding stock-based compensation and gain on sale of property, net of tax(1) 7.6 13.1 36.4 43.9 (-) Capital Expenditures (17.3) (26.1) (57.8) (80.7) (+) Financing related to growth capital expenditures — 2.2 5.4 5.7 (+) Financing related to property acquisition — — — 1.9 (-) Purchases of intangibles (e.g., software licenses) (0.7) (0.5) (4.9) (2.0) Free Cash Flow $ 2.3 $ 32.9 $ 7.6 $ 49.8 Operating Profit $ 36.3 $ 16.4 $ 69.2 $ 66.8 Interest expense (16.3) (17.2) (55.4) (57.6) Income tax expense (7.1) (2.3) (7.4) (1.4) Net Income (loss) $ 12.9 $ (3.1) $ 6.4 $ 7.9 EBITDA adjustments, net of tax(2) 8.3 18.3 38.7 54.2 Adjusted Net Income $ 21.2 $ 15.2 $ 45.1 $ 62.1 $ — Earnings (Loss) Per Share Basic EPS $ 0.11 $ (0.03) $ 0.02 $ 0.05 Diluted EPS $ 0.10 $ (0.03) $ 0.02 $ 0.05 Adjusted Basic EPS(1)(2) $ 0.18 $ 0.13 $ 0.39 $ 0.53 Adjusted Diluted EPS(1)(2) $ 0.18 $ 0.13 $ 0.37 $ 0.50 Q4'17 Memo items: Blended statutory tax rate 37.7% 26.0% 37.7% 26.0% Foreign currency (gain) loss primarily on intracompany loans $ (5.7) $ 0.8 $ (7.8) $ 5.9 Basic # of shares (in millions) 105.0 114.0 105.0 114.0 Diluted # of shares (in millions) 105.0 114.0 109.7 120.2 (1) Refer to adjustments on the Adjusted EBITDA reconciliation; also includes an adjustment of $1.3 million and $3.5 million for incremental interest costs for three and twelve months ended September 30, 2018, respectively. (2) Refer to adjustments on the Adjusted EBITDA reconciliation; also includes an adjustment of $3.9 million and $9.1 million for the write-off of deferred financing fees and incremental interest costs for the three and twelve months ended September 30, 2018, respectively. Page 28
Capital structure overview ($ in millions) 9/30/2017 12/31/2017 3/31/2018 6/30/2018 9/30/2018 Cash and cash equivalents $ 59.3 $ 80.3 $ 75.7 $ 57.3 $ 82.4 Revolving Credit Facility — — — — — First Lien Term Facility 896.6 794.6 792.6 790.6 938.2 Mortgage — — — 1.9 1.8 Equipment financing facilities 10.2 9.5 9.0 11.9 13.7 Capital leases 30.8 31.1 31.1 31.5 32.1 Total debt including capital leases 937.6 835.3 832.7 835.9 985.8 Less unamortized discount and lenders fees (16.9) (15.2) (14.6) (14.3) (14.1) Total net debt including capital leases(1) 920.7 820.1 818.1 821.6 971.7 Leverage Table calculation: Total net debt / Adjusted EBITDA(2) 4.1x 3.6x 3.3x 3.4x 4.1x Total net debt / Adjusted EBITDA (with contributions from acquisitions)(2) 4.0x 3.4x 3.2x 3.3x 4.1x (1) Total net debt is total debt minus cash and cash equivalents. (2) Adjusted EBITDA (with contributions from acquisitions) inclusive of completed acquisitions. For the definition of Adjusted EBITDA and a reconciliation to operating profit (loss), its most directly comparable financial measure presented in accordance with GAAP, see the Appendix hereto. Page 29
Pro forma growth Revenue 2017 2018 As Reported Pro Forma Growth ($ in millions) As As Change Change FYE 9/30 Reported Acquisitions Pro Forma Reported Acquisitions Pro Forma Variance % Variance % Evoqua Water $ 1,247.4 $ 89.1 $ 1,336.5 $ 1,339.5 $ 50.8 $ 1,390.3 $ 92.1 7.4 % $ 53.8 4.0 % Technologies $ 643.4 $ 80.8 $ 724.2 $ 728.1 $ 48.4 $ 776.5 $ 84.7 13.2 % $ 52.3 7.2 % Industrial $ 278.6 $ — $ 278.6 $ 272.2 $ — $ 272.2 $ (6.4) (2.3)% $ (6.4) (2.3)% Municipal $ 325.4 $ 8.3 $ 333.7 $ 339.2 $ 2.4 $ 341.6 $ 13.8 4.2 % $ 7.9 2.4 % Products As As Change Change Q4 Reported Acquisitions Pro Forma Reported Acquisitions Pro Forma Variance % Variance % Evoqua Water $ $ $ $ $ $ $ % $ ) )% Technologies 356.5 15.8 372.3 366.3 2.9 369.2 9.8 2.7 (3.1 (0.8 Industrial $ 182.5 $ 14.4 $ 196.9 $ 199.3 $ 2.9 $ 202.2 $ 16.8 9.2 % $ 5.3 2.7 % Municipal $ 79.7 $ — $ 79.7 $ 77.5 $ — $ 77.5 $ (2.2) (2.8)% $ (2.2) (2.8)% Products $ 94.3 $ 1.4 $ 95.7 $ 89.5 $ — $ 89.5 $ (4.8) (5.1)% $ (6.2) (6.5)% Page 30
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