UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒						Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
~~December 31, 2020~~June 30, 2021
or
☐						Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
						For the transition period from _____ to _____

Commission File Number: 001-38272

EVOQUA WATER TECHNOLOGIES CORP.

(Exact name of registrant as specified in its charter)


Delaware		46-4132761
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
210 Sixth Avenue		15222
Pittsburgh,	Pennsylvania
(Address of principal executive offices)		(Zip Code)

(724) 772-0044

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	AQUA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

There were ~~119,650,959~~120,232,936 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of ~~January 31,~~July 30, 2021.

EVOQUA WATER TECHNOLOGIES CORP.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You can generally identify forward‑looking statements by our use of forward‑looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “projection,” “seek,” “should,” “will” or “would,” or the negative thereof, or other variations thereon or comparable terminology. In particular, statements about the markets in which we operate, including growth of our various markets, our expectations, beliefs, plans, strategies, objectives, prospects, assumptions, or future events or performance, statements regarding our restructuring actions and expected restructuring charges and cost savings for fiscal 2021 and beyond, statements regarding our cash requirements, working capital needs and expected capital expenditures, and statements related to the COVID-19 pandemic and its ongoing impact on our business contained in this Report are forward‑looking statements.

We have based these forward‑looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward‑looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, as filed with the Securities and Exchange Commission (“SEC”) on November 20, 2020, and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of this Report may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward‑looking statements or could affect our share price. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward‑looking statements include, among other things:

•general global economic and business conditions, including the impacts of the COVID-19 pandemic and disruptions in global ~~oil markets;~~supply chains;

•our ability to compete successfully in our markets;

•our ability to execute projects on budget and on schedule;

•the potential for us to incur liabilities to customers as a result of warranty claims or failure to meet performance guarantees;

•our ability to meet our 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;

•our ability to continue to develop or acquire new products, services and solutions and adapt our business to meet the demands of our customers, comply with changes to government regulations and achieve market acceptance with acceptable margins;

•our ability to implement our growth strategy, including acquisitions, and our ability to identify suitable acquisition targets;

•our ability to operate or integrate any acquired businesses, assets or product lines profitably or otherwise successfully implement our growth strategy;

•our ability to achieve the expected benefits of our restructuring ~~actions, including restructuring our business into two segments;~~actions;

•material and other cost inflation and our ability to mitigate the impact of inflation by increasing selling prices ~~and~~and/or improving our productivity efficiencies;

•our ability to accurately predict the timing of contract awards;

•delays in enactment or repeals of environmental laws and regulations;

•the potential for us to become subject to claims relating to handling, storage, release or disposal of hazardous materials;

•our ability to retain our senior management and other key ~~personnel;~~personnel and to attract key talent in increasingly competitive labor markets;

•our increasing dependence on the continuous and reliable operation of our information technology systems;

•risks associated with product defects and unanticipated or improper use of our products;

•litigation, regulatory or enforcement actions and reputational risk as a result of the nature of our business or our participation in large‑scale projects;

•seasonality of sales and weather conditions;

•risks related to government customers, including potential challenges to our government contracts or our eligibility to serve government customers;

•the potential for our contracts with federal, state and local governments to be terminated or adversely modified prior to completion;

•risks related to foreign, federal, state and local environmental, health and safety laws and regulations and the costs associated therewith;

•risks associated with international sales and operations, including our operations in the People’s Republic of China;

•our ability to adequately protect our intellectual property from third‑party infringement;

•risks related to our substantial indebtedness;

•our need for a significant amount of cash, which depends on many factors beyond our control;

•~~risks related to AEA Investors LP’s (together with certain of its affiliates, collectively, “AEA”) ownership interest in us;~~ and

•other risks and uncertainties, including those listed under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, as filed with the SEC on November 20, 2020, and in other filings we may make from time to time with the SEC.

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 Report are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward‑looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward‑looking statements contained in this Report, they may not be predictive of results or developments in future periods.

Any forward‑looking statement that we make in this Report speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward‑looking statements, whether as a result of new information, future events or otherwise, after the date of this Report.

Part I - Financial Information

Item 1. Financial Statements

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Evoqua Water Technologies Corp.
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of ~~December 31, 2020~~June 30, 2021 (Unaudited) and September 30, 2020			4
Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended ~~December 31,~~June 30, 2021 and 2020 ~~and 2019~~			5
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended ~~December 31,~~June 30, 2021 and 2020 ~~and 2019~~			6
Unaudited Consolidated Statements of Changes in Equity for the Three and Nine Months Ended ~~December 31,~~June 30, 2021 and 2020 ~~and 2019~~			7
Unaudited Consolidated Statements of Changes in Cash Flow for the ~~Three~~Nine Months Ended ~~December 31,~~June 30, 2021 and 2020 ~~and 2019~~			89
Unaudited Supplemental Disclosure of Cash Flow Information for the ~~Three~~Nine Months Ended ~~December 31,~~June 30, 2021 and 2020 ~~and 2019~~			910
Notes to Unaudited Consolidated Financial Statements			1011

Evoqua Water Technologies Corp.

Consolidated Balance Sheets

(In thousands)


		(Unaudited)					(Unaudited)
		December 31, 2020		September 30, 2020			June 30, 2021		September 30, 2020
ASSETS	ASSETS					ASSETS
Current assets	Current assets	$	679,540	$	695,712	Current assets	$	664,060	$	695,712
Cash and cash equivalents	Cash and cash equivalents	197,920		193,001		Cash and cash equivalents	141,524		193,001
Receivables, net	Receivables, net	246,211		260,479		Receivables, net	246,619		260,479
Inventories, net	Inventories, net	155,026		142,379		Inventories, net	161,228		142,379
Contract assets	Contract assets	59,825		80,759		Contract assets	69,343		80,759
Prepaid and other current assets	Prepaid and other current assets	19,569		18,715		Prepaid and other current assets	43,444		18,715
Income tax receivable	Income tax receivable	989		379		Income tax receivable	1,902		379

Property, plant, and equipment, net	Property, plant, and equipment, net	369,915		364,461		Property, plant, and equipment, net	372,399		364,461
Goodwill	Goodwill	408,593		397,205		Goodwill	409,756		397,205
Intangible assets, net	Intangible assets, net	302,557		309,967		Intangible assets, net	297,674		309,967
Deferred income taxes, net of valuation allowance	Deferred income taxes, net of valuation allowance	1,650		3,639		Deferred income taxes, net of valuation allowance	1,710		3,639
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	48,245		45,965		Operating lease right-of-use assets, net	47,307		45,965
Other non‑current assets	Other non‑current assets	33,166		27,509		Other non‑current assets	50,252		27,509

Total assets	Total assets	$	1,843,666	$	1,844,458	Total assets	$	1,843,158	$	1,844,458
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities	Current liabilities	$	326,126	$	349,555	Current liabilities	$	370,703	$	349,555
Accounts payable	Accounts payable	141,931		153,890		Accounts payable	144,426		153,890
Current portion of debt, net of deferred financing fees		18,426		14,339
Current portion of debt, net of deferred financing fees and discounts						Current portion of debt, net of deferred financing fees and discounts	11,474		14,339
Contract liabilities	Contract liabilities	34,445		26,259		Contract liabilities	36,915		26,259
Product warranties	Product warranties	5,577		6,115		Product warranties	8,063		6,115
Accrued expenses and other liabilities	Accrued expenses and other liabilities	120,668		143,389		Accrued expenses and other liabilities	165,127		143,389
Income tax payable	Income tax payable	5,079		5,563		Income tax payable	4,698		5,563

Non‑current liabilities	Non‑current liabilities	1,015,579		1,012,840		Non‑current liabilities	$	927,276	$	1,012,840
Long-term debt, net of deferred financing fees		860,215		861,695
Long-term debt, net of deferred financing fees and discounts						Long-term debt, net of deferred financing fees and discounts	778,170		861,695
Product warranties	Product warranties	1,646		1,724		Product warranties	2,629		1,724
Obligation under operating leases	Obligation under operating leases	39,897		37,796		Obligation under operating leases	38,541		37,796
Other non‑current liabilities	Other non‑current liabilities	102,517		98,456		Other non‑current liabilities	95,924		98,456
Deferred income taxes	Deferred income taxes	11,304		13,169		Deferred income taxes	12,012		13,169

Total liabilities	Total liabilities	1,341,705		1,362,395		Total liabilities	$	1,297,979	$	1,362,395
Commitments and Contingent Liabilities (Note 20)		0		0
Commitments and Contingent Liabilities (Note 19)						Commitments and Contingent Liabilities (Note 19)	0		0
Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
Common stock, par value $0.01: authorized 1,000,000 shares; issued 120,750 shares, outstanding 118,554 at December 31, 2020; issued 119,486 shares, outstanding 117,291 at September 30, 2020		1,202		1,189
Treasury stock: 2,196 shares at December 31, 2020 and 2,195 shares at September 30, 2020		(2,837)		(2,837)
Common stock, par value $0.01: authorized 1,000,000 shares; issued 121,837 shares, outstanding 120,173 at June 30, 2021; issued 119,486 shares, outstanding 117,291 at September 30, 2020						Common stock, par value $0.01: authorized 1,000,000 shares; issued 121,837 shares, outstanding 120,173 at June 30, 2021; issued 119,486 shares, outstanding 117,291 at September 30, 2020	$	1,219	$	1,189
Treasury stock: 1,664 shares at June 30, 2021 and 2,195 shares at September 30, 2020						Treasury stock: 1,664 shares at June 30, 2021 and 2,195 shares at September 30, 2020	(2,837)		(2,837)
Additional paid-in capital	Additional paid-in capital	582,197		564,928		Additional paid-in capital	573,892		564,928
Retained deficit	Retained deficit	(56,231)		(62,664)		Retained deficit	(38,040)		(62,664)
Accumulated other comprehensive loss, net of tax		(24,083)		(20,472)
Accumulated other comprehensive income (loss), net of tax						Accumulated other comprehensive income (loss), net of tax	9,342		(20,472)
Total Evoqua Water Technologies Corp. equity	Total Evoqua Water Technologies Corp. equity	500,248		480,144		Total Evoqua Water Technologies Corp. equity	$	543,576	$	480,144
Non-controlling interest	Non-controlling interest	1,713		1,919		Non-controlling interest	1,603		1,919
Total shareholders’ equity	Total shareholders’ equity	501,961		482,063		Total shareholders’ equity	$	545,179	$	482,063
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	1,843,666	$	1,844,458	Total liabilities and shareholders’ equity	$	1,843,158	$	1,844,458

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
			2020			2019			2021		2020		2021		2020
Revenue from product sales	Revenue from product sales		$	180,015		$	196,560	Revenue from product sales	$	218,427	$	207,575	$	600,908	$	610,104
Revenue from services	Revenue from services		142,178			149,545		Revenue from services	151,254		140,252		437,530		435,491
Revenue from product sales and services	Revenue from product sales and services		322,193			346,105		Revenue from product sales and services	$	369,681	$	347,827	$	1,038,438	$	1,045,595
Cost of product sales	Cost of product sales		(131,061)			(140,456)		Cost of product sales	(152,591)		(143,457)		(428,173)		(428,069)
Cost of services	Cost of services		(95,787)			(99,934)		Cost of services	(100,061)		(94,136)		(291,972)		(290,371)
Cost of product sales and services	Cost of product sales and services		(226,848)			(240,390)		Cost of product sales and services	$	(252,652)	$	(237,593)	$	(720,145)	$	(718,440)
Gross profit	Gross profit		95,345			105,715		Gross profit	$	117,029	$	110,234	$	318,293	$	327,155
General and administrative expense	General and administrative expense		(42,283)			(45,770)		General and administrative expense	(50,837)		(44,867)		(146,048)		(152,767)
Sales and marketing expense	Sales and marketing expense		(33,928)			(38,014)		Sales and marketing expense	(35,871)		(29,855)		(103,629)		(101,845)
Research and development expense	Research and development expense		(3,123)			(3,684)		Research and development expense	(3,413)		(2,782)		(9,929)		(9,655)
Total operating expenses	Total operating expenses		(79,334)			(87,468)		Total operating expenses	$	(90,121)	$	(77,504)	$	(259,606)	$	(264,267)
Other operating income	Other operating income		480			51,720		Other operating income	1,662		621		2,653		61,859
Other operating expense	Other operating expense		(257)			(275)		Other operating expense	(260)		(285)		(618)		(834)
Income before interest expense and income taxes	Income before interest expense and income taxes		16,234			69,692		Income before interest expense and income taxes	$	28,310	$	33,066	$	60,722	$	123,913
Interest expense	Interest expense		(8,673)			(13,583)		Interest expense	(11,224)		(10,485)		(28,292)		(37,320)
Income before income taxes	Income before income taxes		7,561			56,109		Income before income taxes	$	17,086	$	22,581	$	32,430	$	86,593
Income tax expense	Income tax expense		(1,084)			(2,603)		Income tax expense	(3,887)		(740)		(7,672)		(3,336)
Net income	Net income		6,477			53,506		Net income	$	13,199	$	21,841	$	24,758	$	83,257
Net income attributable to non‑controlling interest	Net income attributable to non‑controlling interest		44			361		Net income attributable to non‑controlling interest	44		457		134		916
Net income attributable to Evoqua Water Technologies Corp.	Net income attributable to Evoqua Water Technologies Corp.		$	6,433		$	53,145	Net income attributable to Evoqua Water Technologies Corp.	$	13,155	$	21,384	$	24,624	$	82,341
Basic income per common share	Basic income per common share		$	0.05		$	0.46	Basic income per common share	$	0.11	$	0.18	$	0.21	$	0.71
Diluted income per common share	Diluted income per common share		$	0.05		$	0.44	Diluted income per common share	$	0.11	$	0.18	$	0.20	$	0.68

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Comprehensive Income (Loss)

(In thousands)


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
			2020			2019			2021		2020		2021		2020
Net income	Net income		$	6,477		$	53,506	Net income	$	13,199	$	21,841	$	24,758	$	83,257
Other comprehensive (loss) income
Other comprehensive income (loss)								Other comprehensive income (loss)
Foreign currency translation adjustments	Foreign currency translation adjustments		(4,877)			8,057		Foreign currency translation adjustments	591		1,366		22,605		(5,301)
Unrealized derivative gain (loss) on cash flow hedges, net of tax			1,002			(49)
Unrealized derivative (loss) gain on cash flow hedges, net of tax								Unrealized derivative (loss) gain on cash flow hedges, net of tax	(3,524)		(3,314)		6,569		(3,525)
Change in pension liability, net of tax	Change in pension liability, net of tax		264			236		Change in pension liability, net of tax	266		235		640		706
Total other comprehensive (loss) income	Total other comprehensive (loss) income		(3,611)			8,244		Total other comprehensive (loss) income	$	(2,667)	$	(1,713)	$	29,814	$	(8,120)
Less: Comprehensive income attributable to non‑controlling interest	Less: Comprehensive income attributable to non‑controlling interest		(44)			(361)		Less: Comprehensive income attributable to non‑controlling interest	(44)		(457)		(134)		(916)
Comprehensive income attributable to Evoqua Water Technologies Corp.	Comprehensive income attributable to Evoqua Water Technologies Corp.		$	2,822		$	61,389	Comprehensive income attributable to Evoqua Water Technologies Corp.	$	10,488	$	19,671	$	54,438	$	74,221

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Changes in Equity

(In thousands)


		Three Months Ended December 31, 2020
		Common Stock			Treasury Stock			Additional Paid‑in Capital				Retained Deficit		Accumulated Other Comprehensive Loss			Non‑controlling Interest				Total				Common Stock							Treasury Stock						Additional Paid‑in Capital				Retained Deficit				Accumulated Other Comprehensive (Loss) Income				Non‑controlling Interest				Total
		Shares	Cost		Shares	Cost										Shares								Cost			Shares				Cost
Balance at September 30, 2020	Balance at September 30, 2020	119,486	$	1,189	2,195	$	(2,837)			$	564,928			$	(62,664)				$	(20,472)			$	1,919		$	482,063	Balance at September 30, 2020		119,486			$	1,189			2,195			$	(2,837)			$	564,928			$	(62,664)			$	(20,472)			$	1,919	$	482,063

Equity based compensation expense	Equity based compensation expense	—	—		—	—		3,019				—		—			—				$	3,019		Equity based compensation expense	—			—				—			—			3,019				—				—				—				$	3,019
Issuance of common stock, net	Issuance of common stock, net	1,264	13		1	—		14,250				—		—			—				$	14,263		Issuance of common stock, net	1,264			13				1			—			14,250				—				—				—				$	14,263

Dividends paid to non-controlling interest																								Dividends paid to non-controlling interest	—			—				—			—			—				—				—				(250)				$	(250)

Dividends paid to non-controlling interest		—	—		—	—		—				—		—			(250)				$	(250)
Net income	Net income	—	—		—	—		—				6,433		—			44				$	6,477		Net income	—			—				—			—			—				6,433				—				44				$	6,477
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—				—		(3,611)			—				$	(3,611)		Other comprehensive loss	—			—				—			—			—				—				(3,611)				—				$	(3,611)
Balance at December 31, 2020	Balance at December 31, 2020	120,750	$	1,202	2,196	$	(2,837)	$	582,197			$	(56,231)	$	(24,083)		$	1,713			$	501,961		Balance at December 31, 2020	120,750			$	1,202			2,196			$	(2,837)		$	582,197			$	(56,231)			$	(24,083)			$	1,713			$	501,961

Equity based compensation expense																								Equity based compensation expense	—			—				—			—			3,214				—				—				—				$	3,214
Issuance of common stock, net																								Issuance of common stock, net	692			13				(532)			—			(21,377)				—				—				—				$	(21,364)

Dividends paid to non-controlling interest																								Dividends paid to non-controlling interest	—			—				—			—			—				—				—				(100)				$	(100)

Net income																								Net income	—			—				—			—			—				5,036				—				46				$	5,082
Other comprehensive income																								Other comprehensive income	—			—				—			—			—				—				36,092				—				$	36,092
Balance at March 31, 2021																								Balance at March 31, 2021	121,442			$	1,215			1,664			$	(2,837)		$	564,034			$	(51,195)			$	12,009			$	1,659			$	524,885

Equity based compensation expense																								Equity based compensation expense	—			—				—			—			4,228				—				—				—				$	4,228
Issuance of common stock, net																								Issuance of common stock, net	395			4				0			—			5,630				—				—				—				$	5,634

Dividends paid to non-controlling interest																								Dividends paid to non-controlling interest	—			—				—			—			—				—				—				(100)				$	(100)

Net income																								Net income	—			—				—			—			—				13,155				—				44				$	13,199
Other comprehensive loss																								Other comprehensive loss	—			—				—			—			—				—				(2,667)				—				$	(2,667)
Balance at June 30, 2021																								Balance at June 30, 2021	121,837			$	1,219			1,664			$	(2,837)		$	573,892			$	(38,040)			$	9,342			$	1,603			$	545,179

Three Months Ended December 31, 2019
Common Stock Treasury Stock Additional
Paid‑in
Capital Retained
Deficit Accumulated
Other Comprehensive Loss Non‑controlling
Interest Total
Shares Cost Shares Cost
Balance at September 30, 2019 116,008 $ 1,154 1,664 $ (2,837) $ 552,422 $ (174,976) $ (13,004) $ 3,063 $ 365,822
Cumulative effect of adoption of new accounting standards — — — — — (2,023) — — $ (2,023)
Equity based compensation expense — — — — 3,680 — — — $ 3,680
Issuance of common stock, net 1,645 16 419 — 4,030 — — — $ 4,046
Dividends paid to non-controlling interest — — — — — — — (1,250) $ (1,250)
Divestiture of Memcor product line — — — — (16,895) — — — $ (16,895)
Net income — — — — — 53,145 — 361 $ 53,506
Other comprehensive income — — — — — — 8,244 — $ 8,244
Balance at December 31, 2019 117,653 $ 1,170 2,083 $ (2,837) $ 543,237 $ (123,854) $ (4,760) $ 2,174 $ 415,130


	Common Stock			Treasury Stock			Additional Paid‑in Capital		Retained Deficit		Accumulated Other Comprehensive (Loss) Income		Non‑controlling Interest		Total
	Shares	Cost		Shares	Cost
Balance at September 30, 2019	116,008	$	1,154	1,664	$	(2,837)	$	552,422	$	(174,976)	$	(13,004)	$	3,063	$	365,822
Cumulative effect of adoption of new accounting standards	—	—		—	—		—		(2,023)		—		—		$	(2,023)
Equity based compensation expense	—	—		—	—		3,680		—		—		—		$	3,680
Issuance of common stock, net	1,645	16		419	—		4,030		—		—		—		$	4,046

Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(1,250)		$	(1,250)
Divestiture of Memcor product line	—	—		—	—		(16,895)		—		—		—		$	(16,895)
Net income	—	—		—	—		—		53,145		—		361		$	53,506
Other comprehensive income	—	—		—	—		—		—		8,244		—		$	8,244
Balance at December 31, 2019	117,653	$	1,170	2,083	$	(2,837)	$	543,237	$	(123,854)	$	(4,760)	$	2,174	$	415,130
Cumulative effect of adoption of new accounting standards	—	—		—	—		—		686		—		—		$	686
Equity based compensation expense	—	—		—	—		2,304		—		—		—		$	2,304
Issuance of common stock, net	1,417	15		111	—		11,309		—		—		—		$	11,324

Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(200)		$	(200)

Net income	—	—		—	—		—		7,812		—		98		$	7,910
Other comprehensive loss	—	—		—	—		—		—		(14,651)		—		$	(14,651)
Balance at March 31, 2020	119,070	$	1,185	2,194	$	(2,837)	$	556,850	$	(115,356)	$	(19,411)	$	2,072	$	422,503

Equity based compensation expense	—	—		—	—		2,520		—		—		—		$	2,520
Issuance of common stock, net	322	2		1	—		2,577		—		—		—		$	2,579

Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(400)		$	(400)
Net income	—	—		—	—		—		21,384		—		457		$	21,841
Other comprehensive loss	—	—		—	—		—		—		(1,713)		—		$	(1,713)
Balance at June 30, 2020	119,392	$	1,187	2,195	$	(2,837)	$	561,947	$	(93,972)	$	(21,124)	$	2,129	$	447,330

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Changes in Cash Flows

(In thousands)


		Three Months Ended December 31,					Nine Months Ended June 30,
		2020		2019			2021		2020
Operating activities	Operating activities					Operating activities
Net income	Net income	$	6,477	$	53,506	Net income	$	24,758	$	83,257
Reconciliation of net income to cash flows provided by operating activities:	Reconciliation of net income to cash flows provided by operating activities:					Reconciliation of net income to cash flows provided by operating activities:
Depreciation and amortization	Depreciation and amortization	27,391		25,143		Depreciation and amortization	83,707		80,056
Amortization of deferred financing fees		526		701
Amortization of deferred financing fees (includes $1,333 and $1,795 write off of deferred financing fees)						Amortization of deferred financing fees (includes $1,333 and $1,795 write off of deferred financing fees)	2,814		3,504
Deferred income taxes	Deferred income taxes	258		(679)		Deferred income taxes	994		(1,422)
Share-based compensation	Share-based compensation	3,019		3,680		Share-based compensation	10,461		8,504
Loss on sale of property, plant and equipment	Loss on sale of property, plant and equipment	19		173		Loss on sale of property, plant and equipment	2,456		767
Gain on sale of business		0		(58,279)
Loss (gain) on sale of business						Loss (gain) on sale of business	193		(68,051)
Foreign currency exchange gains on intercompany loans and other non-cash items	Foreign currency exchange gains on intercompany loans and other non-cash items	(6,459)		(6,086)		Foreign currency exchange gains on intercompany loans and other non-cash items	(4,628)		(2,438)
Changes in assets and liabilities	Changes in assets and liabilities					Changes in assets and liabilities
Accounts receivable	Accounts receivable	18,083		11,087		Accounts receivable	18,931		8,685
Inventories	Inventories	(11,551)		(14,613)		Inventories	(18,261)		(25,523)
Contract assets	Contract assets	21,458		3,042		Contract assets	12,059		(1,486)
Prepaids and other current assets	Prepaids and other current assets	(465)		(631)		Prepaids and other current assets	(21,869)		1,359
Accounts payable	Accounts payable	(12,652)		(11,056)		Accounts payable	(10,587)		8,938
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(32,356)		(9,378)		Accrued expenses and other liabilities	23,065		(1,738)
Contract liabilities	Contract liabilities	8,010		4,651		Contract liabilities	9,337		(7,893)
Income taxes	Income taxes	(1,271)		1,388		Income taxes	(2,489)		1,620
Other non‑current assets and liabilities	Other non‑current assets and liabilities	(4,873)		2,083		Other non‑current assets and liabilities	(28,083)		12,528
Net cash provided by operating activities	Net cash provided by operating activities	15,614		4,732		Net cash provided by operating activities	102,858		100,667
Investing activities	Investing activities					Investing activities
Purchase of property, plant and equipment	Purchase of property, plant and equipment	(17,260)		(17,572)		Purchase of property, plant and equipment	(54,147)		(65,924)
Purchase of intangibles	Purchase of intangibles	(81)		(210)		Purchase of intangibles	(1,206)		(708)
Proceeds from sale of property, plant and equipment	Proceeds from sale of property, plant and equipment	127		251		Proceeds from sale of property, plant and equipment	1,108		379
Proceeds from sale of business, net of cash of $0 and $12,117	Proceeds from sale of business, net of cash of $0 and $12,117	0		108,921		Proceeds from sale of business, net of cash of $0 and $12,117	897		118,894
Acquisitions	Acquisitions	(8,743)		(11,160)		Acquisitions	(21,059)		(10,884)
Net cash (used in) provided by investing activities	Net cash (used in) provided by investing activities	(25,957)		80,230		Net cash (used in) provided by investing activities	(74,407)		41,757
Financing activities	Financing activities					Financing activities
Issuance of debt, net of deferred issuance costs	Issuance of debt, net of deferred issuance costs	7,805		3,532		Issuance of debt, net of deferred issuance costs	747,877		12,859
Borrowings under credit facility	Borrowings under credit facility	0		13		Borrowings under credit facility	0		2,597
Repayment of debt	Repayment of debt	(5,723)		(3,793)		Repayment of debt	(837,082)		(113,572)
Repayment of finance lease obligation	Repayment of finance lease obligation	(3,821)		(4,162)		Repayment of finance lease obligation	(10,173)		(9,988)
Payment of earn-out related to previous acquisitions	Payment of earn-out related to previous acquisitions	0		(175)		Payment of earn-out related to previous acquisitions	0		(175)
Proceeds from issuance of common stock	Proceeds from issuance of common stock	14,263		4,046		Proceeds from issuance of common stock	18,096		9,596

Taxes paid related to net share settlements of share-based compensation awards						Taxes paid related to net share settlements of share-based compensation awards	(1,315)		(9,828)

Distribution to non‑controlling interest	Distribution to non‑controlling interest	(250)		(1,250)		Distribution to non‑controlling interest	(450)		(1,850)
Net cash provided by (used in) financing activities		12,274		(1,789)
Net cash used in financing activities						Net cash used in financing activities	(83,047)		(110,361)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	2,988		1,849		Effect of exchange rate changes on cash	3,119		793

Change in cash and cash equivalents	Change in cash and cash equivalents	4,919		85,022		Change in cash and cash equivalents	(51,477)		32,856
Cash and cash equivalents	Cash and cash equivalents					Cash and cash equivalents
Beginning of period	Beginning of period	193,001		109,881		Beginning of period	193,001		109,881
End of period	End of period	$	197,920	$	194,903	End of period	$	141,524	$	142,737

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Supplemental Disclosure of Cash Flow Information

(In thousands)


		Three Months Ended December 31,					Nine Months Ended June 30,
		2020		2019			2021		2020
Supplemental disclosure of cash flow information	Supplemental disclosure of cash flow information					Supplemental disclosure of cash flow information
Cash paid for taxes	Cash paid for taxes	$	1,334	$	1,382	Cash paid for taxes	$	7,536	$	3,865
Cash paid for interest	Cash paid for interest	$	7,624	$	12,268	Cash paid for interest	$	20,643	$	31,200
Non‑cash investing and financing activities	Non‑cash investing and financing activities					Non‑cash investing and financing activities

Finance lease transactions	Finance lease transactions	$	5,484	$	1,782	Finance lease transactions	$	12,300	$	8,401
Operating lease transactions	Operating lease transactions	$	5,954	$	4,734	Operating lease transactions	$	11,699	$	12,085
Option and Purchase Right		$	—	$	7,673
Purchase Right						Purchase Right	$	0	$	7,167

See accompanying notes to these Unaudited Consolidated Financial Statements

910

Evoqua Water Technologies Corp.

Notes to Unaudited Consolidated Financial Statements

(In thousands, except per share data)

1. Description of the Company and Basis of Presentation

Background

Evoqua Water Technologies Corp. (referred to herein as the “Company” or “EWT”) is a holding company and does not conduct any business operations of its own. The Company was incorporated on October 7, 2013. On January 15, 2014, the Company acquired, through its wholly owned ~~entities,~~subsidiaries, EWT Holdings II Corp. (“EWT II”) and EWT Holdings III Corp. (“EWT III”), ~~all of the outstanding shares of~~ Siemens Water Technologies, a group of legal ~~entity businesses~~entities formerly owned by Siemens AG (“Siemens”). The stock purchase closed on January 15, 2014 and was effective January 16, 2014 (the “Acquisition”). On November 6, 2017, the Company completed its initial public offering (“IPO”).

On December 4, 2020, the Company completed a secondary public offering, pursuant to which 12,000 shares of common stock were sold by certain selling shareholders. On February 11, 2021, the Company completed an additional secondary public offering, pursuant to which 16,383 shares of common stock were sold by certain selling shareholders. Upon completion of these offerings, AEA Investors LP disposed of all of their shares of the Company’s common stock. The Company did not receive any proceeds from the sale of shares by the selling shareholders in ~~this~~either of these secondary public ~~offering.~~offerings.

The Business

EWT provides a wide range of product brands and advanced water and wastewater treatment systems and technologies, as well as mobile and emergency water supply solutions and service contract options through its branch network. Headquartered in Pittsburgh, Pennsylvania, EWT is a multinational corporation with operations in the United States (“U.S.”), Canada, the United Kingdom (“UK”), the Netherlands, Germany, Australia, the People’s Republic of China, Singapore, the Republic of Korea and India.

The Company is organizationally structured into 2 reportable operating segments for the purpose of making operational decisions and assessing financial performance: (i) Integrated Solutions and Services and (ii) Applied Product Technologies.

Basis of Presentation

The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All intercompany transactions have been eliminated. Unless otherwise specified, all dollar and share amounts in these notes are referred to in thousands.

The interim Unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. In our opinion, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. We consistently applied the accounting policies described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, as filed with the SEC on November 20, 2020 (“2020 Annual Report”), in preparing these Unaudited Consolidated Financial Statements, with the exception of accounting standard updates described in Note 2, “Recent Accounting Pronouncements.” These Unaudited Consolidated Financial Statements should be read in conjunction with the audited financial statements and the notes included in our 2020 Annual Report. Certain prior period amounts have been reclassified to conform to the current period presentation.

Correction of Immaterial Errors

During the quarter ended March 31, 2021, the Company identified errors related to the reporting of tax remittances associated with certain equity awards, resulting in a classification error of $18,669 between additional paid in capital and accumulated other comprehensive loss. Management recorded the correction to additional paid in capital and accumulated other comprehensive balances during the quarter ended March 31, 2021. Management considered both the quantitative and qualitative factors within the provisions of SEC Staff Accounting Bulletin No. 99, Materiality, and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. Based on evaluation of the errors, management has concluded that the prior period errors were immaterial to the previously issued financial statements. As a result of that classification error, management also identified a second, related immaterial classification error for the understatement of net cash provided by operating cash flows of $18,669 and an overstatement of net cash provided by financing activities of $18,669 for the period from October 1, 2019 to September 30, 2020. The Company has elected to voluntarily correct the identified immaterial classification error in the prior period Unaudited Consolidated Statements of Changes to Cash Flows to enhance comparability. In doing so, balances in the Unaudited Consolidated Statements of Changes to Cash Flows included in this Form 10-Q have been adjusted to reflect the voluntary immaterial classification error correction of $18,182 between financing and operating in the prior period. Future filings that include prior periods will be corrected, as needed, when filed.

The correction of the above classification errors did not have any effect on the Unaudited Consolidated Statements of Operations in any of the periods previously presented.

2. Recent Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial

Reporting(“ASU 2020-04”), aswhich was amended by the subsequent issuance in January 2021 of ASU 2021-01, Reference Rate Reform (Topic 848): Scope(“ASU 2021-01”), which provides optional expedients and exceptions for contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met.. ASU 2020-04 became effective immediately and expires on December 21, 2022. ASU 2020-04 allows eligible contracts that are modified to be accounted for as a continuation of those contracts, permits companies to preserve their hedging accounting during the transition period and enables companies to make a one-time election to transfer or sell held-to-maturity debt securities that are affected by rate reform. ASU 2021-01 provides optional expedients and exceptions for contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. The Company is currently assessing the impact of the adoption of ASU 2020-04 and ASU 2021-01 on the Company’s Unaudited Consolidated Financial Statements and related disclosures.

Accounting Pronouncements Recently Adopted

The Company adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on October 1, 2020 (“ASU 2016-13”). ASU 2016-13 requires entities to use a new forward-looking “expected loss” model that reflects expected credit losses, including credit losses related to trade receivables, and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, which generally will result in the earlier recognition of allowances for losses. The Company adopted ASU 2016-13 using a modified retrospective approach and determined that there was no cumulative-effect adjustment to its beginning Retained deficit on the Consolidated Balance Sheets. The adoption of this standard did not have a material impact on the Company’s Unaudited Consolidated Financial Statements. See Note 7, “Accounts Receivable” for further details and related disclosures.

The following accounting pronouncements were adopted by the Company ~~during the three months ended December 31,~~on October 1, 2020, and the adoptions did not have a material impact on the Company’s Unaudited Consolidated Financial Statements or disclosures:


Accounting Standards Updates
ASU 2020-03, Codification Improvements to Financial Instruments
ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses
ASU 2018-18, Collaborative Arrangements (Topic 808) Clarifying the Interaction between Topic 808 and Topic 606
ASU 2018-13, Fair Value Measurement (Subtopic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

3. Variable Interest Entities

Treated Water Outsourcing (“TWO”) is a joint venture between the Company and Nalco Water, an Ecolab company, in which the Company holds a 50% partnership interest. The Company is obligated to absorb all risk of loss up to 100% of the joint venture partner’s equity. As such, the Company fully consolidates TWO as a variable interest entity (“VIE”) under ~~Accounting Standards Codification (“ASC”)~~ASC Topic No. 810, Consolidation. The Company has not provided, and is not contractually required to provide, additional financial support to this entity, and the Company does not have the ability to use the assets of TWO to settle obligations of the Company’s other subsidiaries.

The following provides a summary of TWO’s balance sheet as of ~~December 31, 2020~~June 30, 2021 and September 30, 2020, and summarized financial information for the three and nine months ended ~~December 31, 2020~~June 30, 2021 and ~~2019.~~2020.


		December 31, 2020		September 30, 2020			June 30, 2021		September 30, 2020
Current assets (includes cash of $1,743 and $2,088)		$	3,560	$	4,016
Current assets (includes cash of $1,580 and $2,088)						Current assets (includes cash of $1,580 and $2,088)	$	3,529	$	4,016
Property, plant and equipment	Property, plant and equipment	1,084		1,145		Property, plant and equipment	963		1,145
Goodwill	Goodwill	2,206		2,206		Goodwill	2,206		2,206

Total liabilities	Total liabilities	(1,219)		(1,324)		Total liabilities	(1,287)		(1,324)


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
			2020			2019			2021		2020		2021		2020
Total revenues			$	834		$	2,642
Total revenue								Total revenue	$	843	$	1,328	$	2,511	$	5,180
Total operating expenses	Total operating expenses		(737)			(1,958)		Total operating expenses	(748)		(803)		(2,217)		(3,847)
Income from operations	Income from operations		$	97		$	684	Income from operations	$	95	$	525	$	294	$	1,333

On October 1, 2019, the Company acquired a 60% investment position in San Diego-based Frontier Water Systems, LLC (“Frontier”). The Frontier acquisition is a VIE because it has insufficient equity to finance its activities due to key assets being assigned to the Company upon acquisition. The Company is the primary beneficiary of Frontier because the Company has the power to direct the activities that most significantly affect Frontier’s economic performance.

In addition, the Company entered into an agreement to purchase the remaining As40% interest in Frontier on or prior to March 30, 2024. This agreement (a) gave holders of the remaining 40% interest in Frontier (the “Minority Owners”) the right to sell to Evoqua up to approximately 10% of the outstanding equity in Frontier at a predetermined price, which right was exercisable by the Minority Owners between January 1, 2021 and February 28, 2021 (the “Option”), and (b) obligates the Company to purchase and the Minority Owners to sell all of the Minority Owners’ remaining interest in Frontier at the fair market value at the time of sale on or prior to March 30, 2024 (the “Purchase Right”). The Purchase Right may be exercised early by the Minority Owners. The agreement to purchase the remaining interest was determined to be financing due to the mandatory Purchase Right, as per ASC Topic 480, Distinguishing Liabilities From Equity, and as such, the Company recognized a liability for the remaining 40% interest. The Minority Owners exercised the Option, and on April 8, 2021, the Company completed the purchase of an additional 8% of the outstanding equity in Frontier for approximately $1,490. As a result, the Company’s ownership position in Frontier increased to 68%.

Additionally, the Company fully consolidates Frontier as a VIE under ASC Topic No. 810, Consolidation.

The following provides a summary of Frontier’s balance sheet as of ~~December 31, 2020~~June 30, 2021 and September 30, 2020, and summarized financial information for the three and nine months ended ~~December 31, 2020~~June 30, 2021 and ~~2019.~~2020.


		December 31, 2020		September 30, 2020			June 30, 2021		September 30, 2020
Current assets (includes cash of $2,143 and $1,675)		$	3,528	$	4,024
Current assets (includes cash of $2,947 and $1,675)						Current assets (includes cash of $2,947 and $1,675)	$	10,034	$	4,024
Property, plant and equipment	Property, plant and equipment	3,210		3,159		Property, plant and equipment	2,974		3,159
Goodwill	Goodwill	1,798		1,798		Goodwill	1,798		1,798
Intangible assets, net	Intangible assets, net	9,505		9,918		Intangible assets, net	8,678		9,918
Total liabilities	Total liabilities	(3,798)		(3,692)		Total liabilities	(9,039)		(3,692)

Three Months Ended
December 31,
2020 2019
Total revenues $ 770 $ 1,645
Total operating expenses (1,738) (1,937)
Loss from operations $ (968) $ (292)


	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
Total revenue	$	4,945	$	1,411	$	7,793	$	4,134
Total operating expenses	(4,448)		(2,003)		(8,587)		(6,304)
Income (loss) from operations	$	497	$	(592)	$	(794)	$	(2,170)

4. Acquisitions and Divestitures

Acquisitions support the Company’s strategy of delivering a broad solutions portfolio with robust technology across multiple geographies and end markets. The Company continues to evaluate potential strategic acquisitions of businesses, assets and product lines and believes that capex-like, tuck-in acquisitions present a key opportunity within its overall growth strategy.

On April 1, 2021, the Company acquired the assets of Water Consulting Specialists, Inc. (“WCSI”) for $12,025 cash paid at closing. In addition, the Company recorded a liability of $761 associated with an earn-out related to the WCSI acquisition, which is included in Accrued expenses and other liabilities on the Consolidated Balance Sheets. WCSI is a leader in the design, manufacturing, and service of industrial high-purity water treatment systems. The acquisition strengthens the Company’s portfolio of high-purity water treatment systems and provides the opportunity to further expand its digitally enabled solutions and services in key industrial markets. WCSI is a part of the Integrated Solutions and Services segment. During the nine months ended June 30, 2021, the Company incurred approximately $117 in acquisition costs, which are included in General and administrative expense on the Unaudited Consolidated Statements of Operations.

The Company has not finalized the valuations of the acquired assets, assumed liabilities, and identifiable intangible assets, including goodwill. The preliminary opening balance sheet for WCSI is summarized as follows:


Current assets	$	1,813
Property, plant and equipment	221
Goodwill	4,361
Intangible assets, net	7,336
Other non-current assets	86
Total assets acquired	13,817
Liabilities assumed	(1,792)
Net assets acquired	$	12,025

On December 17, 2020, the Company acquired the industrial water business of Ultrapure & Industrial Services, LLC (“Ultrapure”) for $8,743 cash paid at closing. On April 1, 2021, the Company paid an additional $290 as a result of net working capital adjustments. Ultrapure, based out of Texas, provides customers across multiple end markets with a variety of water treatment products and services, including service deionization, reverse osmosis, UV, and ozonation. Ultrapure will strengthen the Company’s service capabilities in the Houston and Dallas markets and is a part of the Integrated Solutions and Services segment. During the ~~three~~nine months ended ~~December 31, 2020,~~June 30, 2021, the Company incurred approximately ~~$216~~$230 in acquisition costs, which are included in General and administrative ~~expenses.~~

expense on the Unaudited Consolidated Statements of Operations.

The ~~accounting for the acquisition has not yet been completed because the~~ Company has not finalized the valuations of the acquired assets, assumed liabilities and identifiable intangible assets, including goodwill. The preliminary opening balance sheet for Ultrapure is summarized as follows:


Current assets	$	~~2,039~~2,366
Property, plant and equipment	~~900~~963
Goodwill	~~6,088~~2,836
Intangible assets, net	3,751
Other non-current assets	2221
Total assets acquired	~~9,049~~9,937
Liabilities assumed	~~(306)~~(904)
Net assets acquired	$	~~8,743~~9,033

On March 1, 2021, the Company completed the divestiture of the Lange containment system, geomembrane and geosynthetic liner product line (the “Lange Product Line”) for $897 in cash at closing. The Lange Product Line was a part of the Integrated Solutions and Services segment. During the nine months ended June 30, 2021, the Company recognized a loss of $193 on the divestiture.

5. Revenue

Revenue Recognition

The Company recognizes sales of products and services based on the five-step analysis of transactions as provided in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”). For all contracts with customers, the Company first identifies the contract which usually is established when the customer’s purchase order is accepted or acknowledged. Next, the Company identifies the performance obligations in the contract. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company then determines the transaction price in the arrangement and allocates the transaction price to each performance obligation identified in the contract. The Company’s allocation of the transaction price to the performance obligations ~~are~~is based on the relative standalone selling prices for the goods and services contained in a particular performance obligation. The transaction price is adjusted for the Company’s estimate of variable consideration, which may include discounts if the Company would fail to meet certain performance requirements, volume discounts or early payment discounts. To estimate variable consideration, the Company utilizes historical experience and known terms. Variable consideration in contracts for the three and nine months ended ~~December 31, 2020~~June 30, 2021 was insignificant.

For sales of aftermarket parts or products with a low level of customization and engineering time, the Company recognizes ~~revenues~~revenue at the time risks and rewards of ownership pass, which is generally when products are shipped or delivered to the customer as the Company has no obligation for installation. The Company considers shipping and handling services to be fulfillment activities and as such they do not represent separate performance obligations for revenue recognition. Sales of service arrangements are recognized as the services are performed.

For certain arrangements where there is significant customization to the product and for long-term construction-type sales contracts, revenue may be recognized over time. In these instances, revenue is recognized using a measure of progress that applies an input method based on costs incurred in relation to total estimated costs. These arrangements include large capital water treatment projects, and systems and solutions for municipal and industrial applications. The nature of the contracts is generally fixed price with milestone billings. In order for revenue to be recognized over a period of time, the product must have no alternative use and the Company must have an enforceable right to payment for the performance completed to date, including a normal profit margin, in the event of termination for convenience. If these two criteria are not met, ~~revenues~~revenue from these contracts will not be recognized until construction is complete. Contract ~~revenues~~revenue and cost estimates are reviewed and revised quarterly at a minimum and the cumulative effect of such adjustments are recognized in current operations. The amount of such adjustments has not been material.

The Company has made accounting policy elections to exclude all taxes by governmental authorities from the measurement of the transaction price and that long-term construction-type sales contracts, or those contracts for products with significant customization that the total contract price is less than $100, will be recorded at the point in time when the construction is complete.

Performance Obligations

The Company elects to apply the practical expedient to exclude from this disclosure revenue related to performance obligations if the product has an alternative use and the Company does not have an enforceable right to payment for the performance completed to date, including a normal profit margin, in the event of termination for convenience. The Company maintains a backlog of confirmed orders, which totaled approximately ~~$154,029~~$250,887 at ~~December 31, 2020.~~June 30, 2021. This backlog represents the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of the end of the reporting period. The Company estimates that the majority of these performance obligations will be satisfied within the next twelve to twenty-four months.

The recording of assets recognized from the costs to obtain and fulfill customer contracts primarily ~~relate~~relates to the deferral of sales commissions. The Company’s costs incurred to obtain or fulfill a contract with a customer are classified

as non-current assets and amortized to expense over the period of benefit of the related revenue. These costs are recorded within Cost of product sales and services. The amount of contract costs was insignificant at ~~December 31, 2020.~~June 30, 2021.

The Company offers standard warranties that generally do not represent a separate performance obligation. In certain instances, a warranty is obtained separately from the original equipment sale or the warranty provides incremental services and as such is treated as a separate performance obligation.

Disaggregation of Revenue

In accordance with Topic 606, the Company disaggregates revenue from contracts with customers into source of revenue, reportable operating segment and geographical regions. The Company determined that disaggregating revenue into these categories meets the disclosure objective in Topic 606, which is to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

Information regarding the source of ~~revenues:~~revenue:


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
			2020			2019			2021		2020		2021		2020
Revenue from contracts with customers recognized under Topic 606	Revenue from contracts with customers recognized under Topic 606		$	285,188		$	308,602	Revenue from contracts with customers recognized under Topic 606	$	320,218	$	310,525	$	903,325	$	934,121
Other (1)	Other (1)		37,005			37,503		Other (1)	49,463		37,302		135,113		111,474
Total	Total		$	322,193		$	346,105	Total	$	369,681	$	347,827	$	1,038,438	$	1,045,595

(1) Other revenue relates to revenue recognized pursuant to ASU 2016-02, Leases (Topic 842), ~~mainly~~primarily attributable to long term rentals.

Information regarding ~~revenues~~revenue disaggregated by source of revenue and segment is as follows:

Three Months Ended December 31,
2020 2019
Integrated Solutions and Services Applied Product Technologies Total Integrated Solutions and Services Applied Product Technologies Total
Revenue from capital projects $ 50,626 $ 76,889 $ 127,515 $ 54,620 $ 74,926 $ 129,546
Revenue from aftermarket 27,146 25,354 52,500 29,673 37,341 67,014
Revenue from service 136,945 5,233 142,178 143,845 5,700 149,545
Total $ 214,717 $ 107,476 $ 322,193 $ 228,138 $ 117,967 $ 346,105


	Three Months Ended June 30,
	2021						2020
	Integrated Solutions and Services		Applied Product Technologies		Total		Integrated Solutions and Services		Applied Product Technologies		Total
Revenue from capital projects	$	63,336	$	92,692	$	156,028	$	64,692	$	85,654	$	150,346
Revenue from aftermarket	31,852		30,547		62,399		29,143		28,086		57,229
Revenue from service	144,499		6,755		151,254		134,876		5,376		140,252
Total	$	239,687	$	129,994	$	369,681	$	228,711	$	119,116	$	347,827


	Nine Months Ended June 30,
	2021						2020
	Integrated Solutions and Services		Applied Product Technologies		Total		Integrated Solutions and Services		Applied Product Technologies		Total
Revenue from capital projects	$	166,055	$	259,877	$	425,932	$	185,404	$	235,794	$	421,198
Revenue from aftermarket	91,499		83,477		174,976		90,717		98,189		188,906
Revenue from service	420,984		16,546		437,530		418,613		16,878		435,491
Total	$	678,538	$	359,900	$	1,038,438	$	694,734	$	350,861	$	1,045,595

1417

Information regarding ~~revenues~~revenue disaggregated by geographic area is as follows:


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
			2020			2019			2021		2020		2021		2020
United States	United States		$	264,131		$	277,717	United States	$	291,113	$	285,077	$	829,925	$	853,067
Asia	Asia		22,605			18,742		Asia	31,987		19,806		81,568		51,268
Europe	Europe		21,285			26,112		Europe	28,749		23,413		81,561		79,906
Canada	Canada		11,179			17,563		Canada	14,210		16,536		36,025		50,418
Australia	Australia		2,993			5,971		Australia	3,622		2,995		9,359		10,936
Total	Total		$	322,193		$	346,105	Total	$	369,681	$	347,827	$	1,038,438	$	1,045,595

Contract Balances

The Company performs its obligations under a contract with a customer by transferring products and/or services in exchange for consideration from the customer. The Company receives payments from customers based on a billing schedule as established in its contracts.

Contract assets relate to costs incurred to perform in advance of scheduled billings. Contract liabilities relate to payments received in advance of performance under the contracts. Change in contract assets and liabilities are due to the Company’s performance under the contract.

The tables below provide a roll-forward of contract assets and contract liabilities balances for the periods presented:


		Three Months Ended December 31,					Nine Months Ended June 30,
Contract assets (a)	Contract assets (a)	2020		2019		Contract assets (a)	2021		2020
Balance at beginning of period	Balance at beginning of period	$	80,759	$	73,467	Balance at beginning of period	$	80,759	$	73,467

Recognized in current period	Recognized in current period	66,885		84,596		Recognized in current period	232,750		255,623
Reclassified to accounts receivable	Reclassified to accounts receivable	(88,560)		(87,046)		Reclassified to accounts receivable	(244,766)		(253,199)
Amounts related to sale of the Memcor product line	Amounts related to sale of the Memcor product line	0		2,710		Amounts related to sale of the Memcor product line	0		2,710
Foreign currency	Foreign currency	741		182		Foreign currency	600		(1,011)
Balance at end of period	Balance at end of period	$	59,825	$	73,909	Balance at end of period	$	69,343	$	77,590

(a) Excludes receivable balances which are disclosed on the Consolidated Balance Sheets.


		Three Months Ended December 31,					Nine Months Ended June 30,
Contract Liabilities	Contract Liabilities	2020		2019		Contract Liabilities	2021		2020
Balance at beginning of period	Balance at beginning of period	$	26,259	$	39,051	Balance at beginning of period	$	26,259	$	39,051

Recognized in current period	Recognized in current period	96,230		88,616		Recognized in current period	245,049		241,468
Amounts in beginning balance reclassified to revenue	Amounts in beginning balance reclassified to revenue	(24,895)		(37,624)		Amounts in beginning balance reclassified to revenue	(18,496)		(37,508)
Current period amounts reclassified to revenue	Current period amounts reclassified to revenue	(62,730)		(46,083)		Current period amounts reclassified to revenue	(216,972)		(210,985)
Amounts related to sale of the Memcor product line	Amounts related to sale of the Memcor product line	0		(700)		Amounts related to sale of the Memcor product line	0		(700)
Foreign currency	Foreign currency	(419)		374		Foreign currency	1,075		(485)
Balance at end of period	Balance at end of period	$	34,445	$	43,634	Balance at end of period	$	36,915	$	30,841

1518

6. Fair Value Measurements

As of ~~December 31, 2020~~June 30, 2021 and September 30, 2020, the fair values of cash and cash equivalents, accounts receivable, and accounts payable approximate carrying values due to the short maturity of these items.

The Company measures the fair value of pension plan assets and liabilities, deferred compensation plan assets and liabilities on a recurring basis pursuant to ASC Topic No. 820, Fair Value Measurement. ASC Topic No. 820 establishes a three‑tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Level 1: Quoted prices for identical instruments in active markets.

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model‑derived valuations whose inputs are observable or whose significant value driver is observable.

Level 3: Unobservable inputs in which little or no market data is available, therefore requiring an entity to develop its own assumptions.

The following table presents the Company’s financial assets and liabilities at fair value. The fair values related to the pension plan assets are determined using net asset value (“NAV”) as a practical expedient, or by information categorized in the fair value hierarchy level based on the inputs used to determine fair value. The reported carrying amounts of deferred compensation plan assets and liabilities and debt approximate their fair values. The Company uses interest rates and other relevant information generated by market transactions involving similar instruments to fair value these assets and liabilities, therefore all are classified as Level 2 within the valuation hierarchy.

1619


	Net Asset Value		Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of ~~December 31, 2020~~June 30, 2021
Assets:
Pension plan
Cash	$	—	$	~~769~~448	$	—	$	—
Global Multi-Asset Fund	~~14,895~~15,303		—		—		—
Government Securities	~~3,034~~2,557		—		—		—
Liability Driven Investment	~~6,126~~5,930		—		—		—
Guernsey Unit Trust	~~2,100~~2,381		—		—		—
Global Absolute Return	~~2,223~~2,275		—		—		—
Deferred compensation plan assets
Cash	—		1,240		—		—
~~Insurance~~Mutual Funds	—		17,964		—		—
Interest rate swaps	—		—		~~20,777~~2,443		—


Foreign currency forward contracts	—		—		~~173~~59		—
Liabilities:
Pension plan	—		—		~~(49,599)~~(48,524)		—
Deferred compensation plan liabilities	—		—		~~(22,833)~~(23,980)		—
Long‑term debt	—		—		~~(885,971)~~(799,922)		—
Interest rate swap	—		—		~~(3,703)~~(376)		—
Foreign currency forward contracts	—		—		~~(53)~~(120)		—
Commodity swaps					(16)
Earn-outs related to acquisitions	—		—		—		~~(295)~~(1,056)
~~Option and~~ Purchase Right	—		—		—		~~(7,739)~~(6,249)

As of September 30, 2020
Assets:
Pension plan
Cash	$	—	$	15,061	$	—	$	—
Government Securities	4,924		—		—		—
Liability Driven Investment	3,604		—		—		—
Guernsey Unit Trust	1,881		—		—		—
Global Absolute Return	2,060		—		—		—
Deferred compensation plan assets
Trust Assets	—		55		—		—
Insurance	—		—		19,804		—

Foreign currency forward contracts	—		—		140		—
Liabilities:
Pension plan	—		—		(47,389)		—
Deferred compensation plan liabilities	—		—		(21,439)		—
Long‑term debt	—		—		(872,441)		—
Interest rate swap	—		—		(4,669)		—
Foreign currency forward contracts	—		—		(47)		—
Earn-outs related to acquisitions	—		—		—		(295)
Option and Purchase Right	—		—		—		(7,739)

The pension plan assets and liabilities and deferred compensation plan assets and liabilities are included in Other non‑current assets and Other non‑current liabilities at ~~December 31, 2020~~June 30, 2021 and September 30, 2020.

The unrealized gain on mutual funds was $532 at June 30, 2021.

The Company records contingent consideration arrangements at fair value on a recurring basis, and the associated balances presented as of ~~December 31, 2020~~June 30, 2021 and September 30, 2020 are earn-outs related to acquisitions. The fair value of earn-outs related to acquisitions is based on significant unobservable inputs including the achievement of certain performance metrics. Significant changes in these inputs would result in corresponding increases or decreases in the fair value of the earn-out each period until the related contingency has been resolved. Changes in the fair value of the contingent consideration obligations can result from adjustments in the probability of achieving future development steps, sales targets and profitability and are recorded in General and administrative expenses in the Unaudited Consolidated Statements of Operations. During the three and nine months ended June 30, 2021, the Company recorded a liability of $761 associated with an earn-out related to the WCSI acquisition, which is included in Accrued expenses and other liabilities on the Consolidated Balance Sheets. There were no other changes in the fair value of earn-outs related to ~~acquisitions during the three months ended December 31, 2020.~~acquisitions. As of ~~December 31, 2020~~June 30, 2021 and September 30, 2020, earn-outs related to acquisitions totaled ~~$295~~$1,056 and are included in Accrued expenses and other liabilities on the Consolidated Balance Sheets.

Pursuant to the acquisition of Frontier, the Company recorded a liability for the Option and Purchase Right to purchase the remaining 40% interest. The fair value of ~~the~~these options is based upon significant unobservable inputs including future earnings and other market factors. Significant changes in these inputs would result in corresponding increases or decreases in the fair value of ~~the~~these options each period until the purchase of the remaining ~~40%~~ interest has occurred. Changes in the fair value can result from earnings achieved over the passage of time and will be recorded in Interest expense in the Unaudited Consolidated Statements of Operations. There were no changes in the fair value of the Option and Purchase Right recorded during the three and nine months ended ~~December 31, 2020.~~June 30, 2021. The Minority Owners exercised the Option, and on April 8, 2021 the Company completed the purchase of an additional 8% of the outstanding equity in Frontier for approximately $1,490. As of ~~each of December 31, 2020~~June 30, 2021 and September 30, 2020, $6,249 and $7,739, respectively, is included in Other non‑current liabilities related to the ~~Option and~~ Purchase Right on the Consolidated Balance Sheets.

7. Accounts Receivable

All trade receivables are reported on the Consolidated Balance Sheets at the outstanding principal amount adjusted for any allowance for credit losses and any charge offs. The Company provides an allowance for credit losses to reduce trade receivables to their estimated net realizable value equal to the amount that is expected to be collected. This allowance is estimated based on historical collection experience, the aging of receivables, specific current and expected future macro-economic and market conditions, and assessments of the current creditworthiness and economic status of customers. The Company considers a receivable delinquent if it is unpaid after the term of the related invoice has expired. Write‑offs are recorded at the time all collection efforts have been exhausted. The Company reviews its allowance for credit losses on a quarterly basis.

Accounts receivable are summarized as follows:


		December 31, 2020		September 30, 2020			June 30, 2021		September 30, 2020
Accounts receivable	Accounts receivable	$	250,534	$	264,536	Accounts receivable	$	250,608	$	264,536
Allowance for credit losses	Allowance for credit losses	(4,323)		(4,057)		Allowance for credit losses	(3,989)		(4,057)
Receivables, net	Receivables, net	$	246,211	$	260,479	Receivables, net	$	246,619	$	260,479

The movement in the allowance for credit losses was as follows for the ~~three~~nine months ended ~~December 31, 2020:~~June 30, 2021:


Balance at September 30, 2020	$	(4,057)
Charged to costs and expenses	~~(405)~~(460)
Write-offs	~~179~~562
Foreign currency and other	~~(40)~~(34)
Balance at ~~December 31, 2020~~June 30, 2021	$	~~(4,323)~~(3,989)

1821

8. Inventories

The major classes of Inventories, net are as follows:


		December 31, 2020		September 30, 2020			June 30, 2021		September 30, 2020
Raw materials and supplies	Raw materials and supplies	$	81,917	$	78,319	Raw materials and supplies	$	85,671	$	78,319
Work in progress	Work in progress	16,956		15,654		Work in progress	19,489		15,654
Finished goods and products held for resale	Finished goods and products held for resale	63,339		56,435		Finished goods and products held for resale	63,493		56,435
Costs of unbilled projects	Costs of unbilled projects	3,860		3,438		Costs of unbilled projects	3,789		3,438
Reserves for excess and obsolete	Reserves for excess and obsolete	(11,046)		(11,467)		Reserves for excess and obsolete	(11,214)		(11,467)
Inventories, net	Inventories, net	$	155,026	$	142,379	Inventories, net	$	161,228	$	142,379

9. Property, Plant, and Equipment

Property, plant, and equipment consists of the following:


		December 31, 2020		September 30, 2020			June 30, 2021		September 30, 2020
Machinery and equipment	Machinery and equipment	$	363,338	$	357,650	Machinery and equipment	$	386,458	$	357,650
Rental equipment	Rental equipment	230,027		221,953		Rental equipment	238,953		221,953
Land and buildings	Land and buildings	70,709		70,245		Land and buildings	70,591		70,245
Construction in process	Construction in process	51,923		48,325		Construction in process	53,975		48,325
		715,997		698,173			749,977		698,173
Less: accumulated depreciation	Less: accumulated depreciation	(346,082)		(333,712)		Less: accumulated depreciation	(377,578)		(333,712)
		$	369,915	$	364,461		$	372,399	$	364,461

The Company entered into secured financing agreements that require providing a security interest in specified equipment. As of ~~December 31, 2020~~June 30, 2021 and September 30, 2020, the gross and net amounts of those assets are as follows:


		December 31, 2020				September 30, 2020					June 30, 2021				September 30, 2020
		Gross		Net		Gross		Net			Gross		Net		Gross		Net
Machinery and equipment	Machinery and equipment	$	65,285	$	53,214	$	63,305	$	52,620	Machinery and equipment	$	71,012	$	55,956	$	63,305	$	52,620
Construction in process	Construction in process	13,978		13,978		8,098		8,098		Construction in process	22,760		22,760		8,098		8,098
		$	79,263	$	67,192	$	71,403	$	60,718		$	93,772	$	78,716	$	71,403	$	60,718

Depreciation expense and maintenance and repairs expense for the three and nine months ended ~~December 31,~~June 30, 2021 and 2020 ~~and 2019~~ were as follows:


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
			2020			2019			2021		2020		2021		2020
Depreciation expense	Depreciation expense		$	18,511		$	17,303	Depreciation expense	$	19,170	$	18,992	$	56,450	$	54,480
Maintenance and repair expense	Maintenance and repair expense		5,208			6,065		Maintenance and repair expense	4,603		4,601		14,565		15,915

1922

10. Goodwill

Changes in the carrying amount of goodwill are as follows:


		Integrated Solutions and Services		Applied Product Technologies		Total			Integrated Solutions and Services		Applied Product Technologies		Total
Balance at September 30, 2020	Balance at September 30, 2020	$	224,381	$	172,824	$	397,205	Balance at September 30, 2020	$	224,381	$	172,824	$	397,205
Business combinations		6,088		0		6,088
Business combinations and divestitures								Business combinations and divestitures	10,349		0		10,349
Measurement period adjustment	Measurement period adjustment	72		0		72		Measurement period adjustment	(3,194)		0		(3,194)
Foreign currency translation	Foreign currency translation	1,990		3,238		5,228		Foreign currency translation	3,232		2,164		5,396
Balance at December 31, 2020		$	232,531	$	176,062	$	408,593
Balance at June 30, 2021								Balance at June 30, 2021	$	234,768	$	174,988	$	409,756

As of ~~December 31, 2020~~June 30, 2021 and September 30, 2020, ~~$159,240~~$159,620 and $153,004, respectively, of goodwill was deductible for tax purposes.

11. Debt

Long‑term debt consists of the following:


		December 31, 2020		September 30, 2020			June 30, 2021		September 30, 2020
First Lien Term Loan, due December 20, 2024		$	816,907	$	819,276
Revolving Credit Facility		—		0
Equipment Financing, due February 28, 2021 to July 5, 2029, interest rates ranging from 3.25% to 8.07% (1)		70,085		63,918
2021 Term Loan, due April 1, 2028 (1)						2021 Term Loan, due April 1, 2028 (1)	$	475,000	$	0
2021 Revolving Credit Facility, due April 1, 2026 (1)						2021 Revolving Credit Facility, due April 1, 2026 (1)	95,000		0
2014 Term Loan, due December 20, 2024 (1)						2014 Term Loan, due December 20, 2024 (1)	0		819,276
2014 Revolving Credit Facility (1)						2014 Revolving Credit Facility (1)	0		0
Securitization Facility, due April 1, 2024						Securitization Facility, due April 1, 2024	148,151		0
Equipment Financing, due September 30, 2023 to July 5, 2029, interest rates ranging from 3.13% to 8.07%						Equipment Financing, due September 30, 2023 to July 5, 2029, interest rates ranging from 3.13% to 8.07%	83,255		63,918
Notes Payable, due July 31, 2023	Notes Payable, due July 31, 2023	560		611		Notes Payable, due July 31, 2023	455		611
Mortgage (2)	Mortgage (2)	0		1,665		Mortgage (2)	0		1,665
Total debt	Total debt	887,552		885,470		Total debt	801,861		885,470
Less unamortized deferred financing fees	Less unamortized deferred financing fees	(8,911)		(9,436)		Less unamortized deferred financing fees	(12,217)		(9,436)
Total net debt	Total net debt	878,641		876,034		Total net debt	789,644		876,034
Less current portion	Less current portion	(18,426)		(14,339)		Less current portion	(11,474)		(14,339)
Total long‑term debt	Total long‑term debt	$	860,215	$	861,695	Total long‑term debt	$	778,170	$	861,695

(1)On ~~December 30, 2020,~~April 1, 2021, the Company ~~completed $3,905~~paid off the outstanding balance of ~~equipment financings due December 30, 2027 at a fixed interest rate of 3.73%. On December 31, 2020,~~ the ~~Company completed $3,899 of equipment financings due February 28,~~2014 Term Loan (as defined below) and entered into the 2021 ~~at a fixed interest rate of 3.25%~~Credit Agreement (as defined below).

(2)~~During the three months ended December 31,~~In November 2020, the Company paid off the outstanding balance of the mortgage due June 30, 2028.

~~Term Facilities and Revolving~~2014 Credit ~~Facility~~Agreement

On January 15, 2014, EWT III entered into a First Lien Credit Agreement (as modified, amended or supplemented from time to time, the ~~“Credit~~“2014 Credit Agreement”) and a Second Lien Credit Agreement among EWT III, EWT ~~Holdings~~ II, ~~Corp.,~~ the lenders party thereto and Credit Suisse AG as administrative agent and collateral agent. The term loans outstanding under the Second Lien Credit Agreement were prepaid on October 28, 2016. The 2014 Credit Agreement also ~~makes~~made available to the Company a revolving credit facility (the ~~“Revolver”~~“ 2014 Revolving Credit Facility”) of up to $125,000, with a letter of credit sublimit of up to $45,000. The term ~~loans~~loan outstanding under the 2014 Credit Agreement (the ~~“First Lien~~“2014 Term Loan”) was scheduled to mature on December 20, 2024, and the ~~Revolver matures~~2014 Revolving Credit Facility was scheduled to mature on December 20, 2022.

~~The Company makes quarterly principal payments~~ As described below, on April 1, 2021, we completed a refinancing of ~~$2,369. At December 31, 2020,~~ the ~~interest rate on borrowings was 2.65%, comprised of 0.15% LIBOR plus~~outstanding 2014 Term Loan and terminated the ~~2.50% spread.~~2014 Credit Agreement.

2023

~~Deferred financing fees related~~2021 Credit Agreement

On April 1, 2021, EWT III entered into a Credit Agreement (the “2021 Credit Agreement”) among EWT III, as borrower, EWT II, as parent guarantor, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and ING Capital, LLC, as sustainability coordinator. The 2021 Credit Agreement provides for a multi-currency senior secured revolving credit facility in an aggregate principal amount not to exceed the ~~First Lien~~U.S. dollar equivalent of $350,000 (the “2021 Revolving Credit Facility”) and a discounted senior secured term (the “2021 Term Loan”) in the amount of $475,000 (together with the 2021 Revolving Credit Facility, the “Senior Facilities”). The 2021 Credit Agreement also provides for a letter of credit sub-facility not to exceed $60,000. The Senior Facilities are guaranteed by EWT II and certain existing and future direct or indirect wholly-owned domestic subsidiaries of EWT III (together with EWT III, collectively, the “Loan Parties”), and collateralized by a first lien on substantially all of the assets of the Loan ~~were included as a contra liability to debt~~Parties, with certain exceptions. In connection with entering into the 2021 Credit Agreement, on April 1, 2021, EWT III repaid all outstanding indebtedness under the ~~Consolidated Balance Sheets as follows:~~

December 31,
2020 September 30,
2020
Current portion of deferred financing fees (1) $ (2,130) $ (2,112)
Long-term portion of deferred financing fees (2) (6,781) (7,324)
Total deferred financing fees $ (8,911) $ (9,436)
2014 Credit Agreement and terminated that facility.

~~(1)~~
~~Included in Current portion of debt, net of deferred financing fees on the Consolidated Balance Sheets.~~

~~(2)Included in Long-term debt, net of deferred financing fees on the Consolidated Balance Sheets.~~

~~Amortization of deferred financing fees included in interest expense were $526 and $515 for the three months ended December 31, 2020 and 2019, respectively.~~

The ~~following summarizes the Company’s outstanding borrowings under the Revolver and outstanding letters of credit as of December 31, 2020 and September 30, 2020, respectively.~~

December 31,
2020 September 30,
2020
Borrowing availability under the Revolver $ 125,000 $ 125,000
Outstanding borrowings under the Revolver 0 0
Outstanding letters of credit under the Revolver 11,824 12,963
Unused amounts under the Revolver $ 113,176 $ 112,037
Additional letters of credit under a separate arrangement $ 33 $ 52

~~The~~2021 Credit Agreement contains ~~limitations on incremental borrowings, is subject~~customary representations, warranties, affirmative covenants, and negative covenants, each substantially similar to those included in the 2014 Credit Agreement, including, among other things, a springing maximum first lien leverage ~~ratios and allows for optional prepayments. Under certain circumstances, the Company may be required~~ratio of 5.55 to ~~remit excess cash flows as defined based upon exceeding certain leverage ratios.~~1.00. The Company did not exceed ~~such ratios~~this ratio during the three months ended ~~December 31, 2020,~~June 30, 2021, does not anticipate exceeding ~~such ratios~~this ratio during the year ending September 30, 2021, and therefore does not anticipate any additional repayments during the year ending September 30, 2021. In addition, the Company did not exceed this ratio as noted in the 2014 Credit Agreement during the six months ended March 31, 2021.

With respect to the 2021 Revolving Credit Facility, EWT III is required to pay a commitment fee based on the daily unused portion of the 2021 Revolving Credit Facility, as well as certain other fees to the agents and the arrangers under the Senior Facilities. Amounts outstanding under the Senior Facilities, at EWT III’s option, bear interest at either (i) a Base Rate determined in accordance with the terms of the 2021 Credit Agreement, (ii) with respect to any amounts denominated in U.S. dollars or Sterling, LIBOR, or replacement thereof, as determined in accordance with the terms of the 2021 Credit Agreement, or (iii) with respect to amounts denominated in Euros, the EURIBOR, or replacement thereof, as determined in accordance with the terms of the 2021 Credit Agreement. In the case of the 2021 Revolving Credit Facility, an applicable margin based on the consolidated total leverage of EWT III and its restricted subsidiaries, as calculated in accordance with the terms of the 2021 Credit Agreement, will be added to the interest rate elected by EWT III; provided that the interest rate may be adjusted if EWT III meets certain metrics for a sustainability price adjustment prior to December 31, 2021. In the case of the 2021 Term Loan, a fixed applicable margin, calculated in accordance with the terms of the 2021 Credit Agreement, will be added to the interest rate elected by EWT III.

On April 1, 2021, EWT III borrowed the full amount of $475,000 under the 2021 Term Loan and $105,000 under the 2021 Revolving Credit Facility. The 2021 Term Loan was issued at a discount of $2,375, which is recorded as a contra-liability to the carrying amount of debt issued, and is being amortized to interest expense using the effective interest method. The net proceeds of these borrowings under the Senior Facilities, together with the net proceeds of the Receivables Securitization Program (as defined below) and cash on hand, were used to repay all outstanding indebtedness, in an aggregate principal amount of approximately $814,538, under the 2014 Credit Agreement. The proceeds of the 2021 Revolving Credit Facility may also be used to finance or refinance the working capital and capital expenditures needs of EWT III and certain of its subsidiaries and for general corporate purposes.

The 2021 Term Loan matures on April 1, 2028 and requires quarterly principal payments of $1,188 starting in the fourth quarter of 2021. Subject to the terms of the 2021 Credit Agreement, to the extent not previously paid, any amount owed under the 2021 Revolving Credit Facility will become due and payable in full on April 1, 2026.

At June 30, 2021, the Company had (a) $475,000 outstanding under the 2021 Term Loan at an interest rate of 2.63%, comprised of 0.13% LIBOR plus the 2.50% spread, and (b) $95,000 outstanding under the 2021 Revolving Credit Facility at an interest rate of 2.38%, comprised of 0.13% LIBOR plus the 2.25% spread.

The following table summarizes the amount of the Company’s outstanding borrowings and outstanding letters of credit under the 2021 Revolving Credit Facility as of June 30, 2021, and under the 2014 Revolving Credit Facility as of September 30, 2020.


	June 30, 2021		September 30, 2020
Borrowing availability	$	350,000	$	125,000
Outstanding borrowings	95,000		0
Outstanding letters of credit	11,504		12,963
Unused amounts	$	243,496	$	112,037

Additional letters of credit under a separate arrangement	$	0	$	52

Receivables Securitization Program

On April 1, 2021, Evoqua Finance LLC (“Evoqua Finance”), an indirect wholly-owned subsidiary of the Company, entered into an accounts receivable securitization program (the “Receivables Securitization Program”) consisting of, among other agreements, (i) a Receivables Financing Agreement (the “Receivables Financing Agreement”) among Evoqua Finance, as the borrower, the lenders from time to time party thereto (the “Receivables Financing Lenders”), PNC Bank, National Association (“PNC Bank”), as administrative agent, Evoqua Water Technologies LLC (“EWT LLC”), an indirect wholly-owned subsidiary of the Company, as initial servicer, and PNC Capital Markets LLC (“PNC Markets”), as structuring agent, pursuant to which the lenders have made available to Evoqua Finance a receivables finance facility (the “Securitization Facility”) in an amount up to $150,000 and (ii) a Sale and Contribution Agreement (the “Sale Agreement”) among Evoqua Finance, as purchaser, EWT LLC, as initial servicer and as an originator, and Neptune Benson, Inc., an indirectly wholly-owned subsidiary of the Company, as an originator (together with EWT LLC, the “Originators”). Under the Receivables Securitization Program, the Originators, pursuant to the Sale Agreement, are required to sell substantially all of their domestic trade receivables and certain related rights to payment and obligations of the Originators with respect to such receivables (the “Receivables”) to Evoqua Finance, which, in turn, will obtain loans secured by the Receivables from the Receivables Financing Lenders pursuant to the Receivables Financing Agreement. The Receivables underlying any borrowings will continue to be included in Accounts receivable, net, in the Consolidated Balance Sheets of the Company. On April 1, 2021, Evoqua Finance borrowed $142,200 under the Securitization Facility. During the third quarter of 2021, Evoqua Finance borrowed an additional amount under the Securitization Facility and had $148,151 outstanding at June 30, 2021 which includes $51 of accrued interest.

The Receivables Securitization Program contains certain customary representations, warranties, affirmative covenants, and negative covenants, subject to certain cure periods in some cases, including the eligibility of the Receivables being sold by the Originators and securing the loans made by the Receivables Financing Lenders, as well as customary reserve requirements, events of default, termination events, and servicer defaults. The Company was in compliance with all covenants during the three months ended June 30, 2021, does not anticipate becoming noncompliant during the year ending September 30, 2021, and therefore does not anticipate any additional repayments during the year ending September 30, 2021.

The Receivables Financing Lenders under the Receivables Securitization Program receive interest at LIBOR or LMIR as selected by Evoqua Finance. The Receivables Financing Agreement contains customary LIBOR benchmark replacement language. The interest rate on the Securitization Facility was 1.35% as of June 30, 2021, comprised of 0.10% LIBOR plus the 1.25% spread. The Receivables Securitization Program matures on April 1, 2024.

Equipment Financings

During the nine months ended June 30, 2021, the Company completed the following equipment financings:


Date Entered	Due	Interest Rate at 6/30/2021		Principal Amount
June 30, 2021	June 30, 2028	3.85	%	$	1,348
June 30, 2021	July 31, 2029(1)	4.75	%	8,378
June 30, 2021	June 30, 2029	4.09	%	1,653
March 31, 2021	March 31, 2028	3.85	%	3,630
March 31, 2021	June 30, 2029	4.09	%	2,559
December 31, 2020	June 30, 2029	4.09	%	3,899
December 30, 2020	December 30, 2027	3.73	%	3,905
				$	25,372

(1) Represents an advance received from the lender on a multiple draw term loan in which the Company is making interest only payments through August 1, 2022 based on a 1.00% LIBOR floor plus a 3.75% spread. The Company entered into an interest rate swap with an effective date of August 1, 2022 to mitigate risk associated with this variable rate equipment financing, see Note 12, “Derivative Financial Instruments” for further discussion.

Deferred Financing Fees and Discounts

Deferred financing fees and discounts related to the Company’s long-term debt were included as a contra liability to debt on the Consolidated Balance Sheets as follows:


	June 30, 2021		September 30, 2020
Current portion of deferred financing fees and discounts (1)	$	(1,791)	$	(2,112)
Long-term portion of deferred financing fees and discounts (2)	(10,426)		(7,324)
Total deferred financing fees and discounts	$	(12,217)	$	(9,436)

(1)Included in Current portion of debt, net of deferred financing fees and discounts on the Consolidated Balance Sheets.

(2)Included in Long-term debt, net of deferred financing fees and discounts on the Consolidated Balance Sheets.

As a result of the refinancing on April 1, 2021, the Company wrote off approximately $1,333 of deferred financing fees related to the 2014 Term Loan. In addition, the Company incurred approximately $4,985 of fees, of which approximately $1,931 were recorded as deferred financing fees on the Consolidated Balance Sheets and approximately $3,054 were expensed. During the nine months ended June 30, 2021, the Company incurred approximately $822 of fees related to the Receivables Securitization Program and $467 of fees related to an equipment financing which were recorded as deferred financing fees on the Consolidated Balance Sheets.

Amortization of deferred financing fees and discounts included in interest expense were $437 and $277 for the three months ended June 30, 2021 and 2020, respectively and $1,481 and $1,213 for the nine months ended June 30, 2021 and 2020, respectively.

Repayment Schedule

Aggregate maturities of all long‑term debt, including current portion of long‑term debt and excluding finance lease obligations as of ~~December 31, 2020,~~June 30, 2021, are presented below:


Fiscal Year	Fiscal Year			Fiscal Year
Remainder of 2021	Remainder of 2021	$	16,440	Remainder of 2021	$	3,372
2022	2022	17,002		2022	13,612
2023	2023	17,295		2023	14,536
2024	2024	797,133		2024	161,158
2025	2025	7,754		2025	14,579
Thereafter	Thereafter	31,928		Thereafter	594,604
Total	Total	$	887,552	Total	$	801,861

12. Derivative Financial Instruments

Interest Rate Risk Management

The Company is subject to market risk exposure arising from changes in interest rates on the senior secured credit facilities as well as variable rate equipment financings, which bear interest at rates that are indexed against LIBOR. The Company’s objectives in using interest

rate derivatives are to add stability to interest expense and to mitigate its exposure to rising interest rates.

To accomplish these objectives, on June 30, 2021, the Company entered into an interest rate swap with an effective date of August 1, 2022 to mitigate risk associated with a variable rate equipment financing. The interest rate swap provides for a fixed rate of 5.25%, has a notional amount of $31,000 and a term of seven years. The interest rate swap has been designated as a cash flow hedge.

On May 22, 2020, the Company entered into an interest rate swap to mitigate risks associated with variable rate debt. The interest rate swap became effective on June 30, 2020, has a term of five years to hedge the variability of interest payments on the first $500,000 of the Company’s senior secured debt and fixes ~~the~~ LIBOR ~~rate~~ on this portion of the senior secured debt at 0.55%. The interest rate swap has been designated as a cash flow hedge and unrealized gains or losses, net of income tax, are recorded as a component of Accumulated Other Comprehensive Income (“AOCI”) on the Consolidated Balance Sheets. As interest payments are made, the realized gain or loss on the payments is recorded in Interest expense on the Unaudited Consolidated Statements of Operations.hedge.

Foreign Currency Risk Management

The Company’s functional currency is the U.S. dollar. By operating internationally, the Company is subject to foreign currency risk from transactions denominated in currencies other than the U.S. dollar (“foreign currencies”). To mitigate cross-currency transaction risk, the Company analyzes significant exposures where it has receipts or payments in a currency other than the functional currency of its operations, and from time to time may strategically enter into short-term foreign currency forward contracts to lock in some or all of the cash flows associated with these transactions. The Company is also subject to currency translation risk associated with converting the foreign operations’ financial statements into U.S. dollars. The Company uses foreign currency derivative contracts in order to manage the effect of exchange fluctuations on forecasted sales and purchases that are denominated in foreign currencies. To mitigate the impact of foreign exchange rate risk, the Company entered into a series of forward contracts designated as cash flow hedges. As of ~~December 31, 2020,~~June 30, 2021, the notional amount of the forward contracts held to sell foreign currencies was ~~$4,268.~~$7,392.

Commodity Price Risk Management

The Company is subject to changes in index pricing of platinum. To mitigate price risk of certain platinum purchase contracts, the Company has entered into a financially settled platinum swap designated as a cash flow hedge.

Credit Risk Management

The counterparties to the Company’s derivative contracts are highly-rated financial institutions. The Company regularly reviews the creditworthiness of its financial counterparties and fully expects the counterparties to perform

under their respective agreements. The Company is not subject to any obligations to post collateral under derivative instrument contracts. The Company records all derivative instruments on a gross basis in the Consolidated Balance Sheets. Accordingly, there are no offsetting amounts that net assets against liabilities.

Derivatives Designated as Cash Flow Hedges

The Company accounts for derivatives and hedging activities in accordance with ASC Topic No. 815, “Derivatives and ~~Hedging” (Topic~~Hedging (“Topic No. ~~815)~~815”). As required by Topic No. 815, the Company records all derivatives on the balance sheet at fair value and adjusts to market on a quarterly basis. The Company’s interest rate ~~swap is~~swaps are valued based on readily-observable market inputs, such as quotations on interest rates and LIBOR yield curves at the reporting date. The Company’s foreign currency forward contracts are valued based on quoted forward foreign exchange prices and spot rates at the reporting date. The Company’s platinum swap is valued using the LBMA Platinum Price PM Index at the reporting date.For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in ~~AOCI~~Accumulated other comprehensive income (loss), net of tax (“AOCI”) until the hedged item affects earnings. The Company does not use derivative financial instruments for trading or speculative purposes.

The following represents the fair value recorded for derivatives designated as cash flow hedges for the periods presented:

Asset Derivatives
Balance Sheet Location December 31,
2020 September 30,
2020
Foreign currency forward contracts Prepaid and other current assets 173 133


		Asset Derivatives
	Balance Sheet Location	June 30, 2021		September 30, 2020
Interest rate swaps	Prepaid and other current assets	$	2,443	$	0

Foreign currency forward contracts	Prepaid and other current assets	48		133


			Liability Derivative						Liability Derivatives
		Balance Sheet Location	December 31, 2020		September 30, 2020			Balance Sheet Location	June 30, 2021		September 30, 2020
Interest rate swap		Accrued expenses and other current liabilities	$	3,703	$	4,669
Interest rate swaps							Interest rate swaps	Accrued expenses and other current liabilities	$	376	$	4,669
Foreign currency forward contracts	Foreign currency forward contracts	Accrued expenses and other current liabilities	52		47		Foreign currency forward contracts	Accrued expenses and other current liabilities	113		47
Commodity swaps							Commodity swaps	Accrued expenses and other current liabilities	16		0

The following represents the amount of (loss) gain ~~(loss)~~ recognized in AOCI (net of tax) during the periods presented:


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
			2020			2019			2021		2020		2021		2020
Interest rate swap			$	457		$	0
Interest rate swaps								Interest rate swaps	$	(4,157)	$	(3,258)	$	5,111	$	(3,258)
Interest rate cap	Interest rate cap		0			(14)		Interest rate cap	0		(20)		0		(19)
Foreign currency forward contracts	Foreign currency forward contracts		3			19		Foreign currency forward contracts	67		10		(265)		(150)
Commodity swaps								Commodity swaps	(16)		0		(16)		0
									$	(4,106)	$	(3,268)	$	4,830	$	(3,427)

The following represents the amount of ~~(loss)~~ gain ~~on foreign currency forward contracts~~(loss) reclassified from AOCI into earnings during the periods presented:

Three Months Ended
December 31,
Location of (Loss) Gain 2020 2019
General and administrative expense $ (32) $ 54
Interest expense (510) 0
$ (542) $ 54


	Three Months Ended June 30,				Nine Months Ended June 30,
Location of (Loss) Gain	2021		2020		2021		2020
Cost of product sales and services	$	9	$	(2)	$	(4)	$	(8)
General and administrative expense	0		48		(72)		$	78
Selling and marketing expense	0		0		(39)		28

Interest expense	(591)		0		(1,624)		0
	$	(582)	$	46	$	(1,739)	$	98

Based on the fair value amounts of the Company’s cash flow hedges at ~~December 31, 2020,~~June 30, 2021, the Company expects that approximately ~~$124~~$56 of pre-tax net ~~gains~~losses will be reclassified from AOCI into earnings during the next twelve months. The amount ultimately realized, however, will differ as exchange rates vary and the underlying contracts settle.

Derivatives Not Designated as Cash Flow Hedges

The following represents the fair value recorded for derivatives not designated as cash flow hedges for the periods presented:

Asset Derivatives

Balance Sheet Location

December 31,
2020

September 30,
2020

Balance Sheet Location

June 30,
2021

September 30,
2020

Foreign currency forward contracts

Prepaid and other current assets

Foreign currency forward contracts

Prepaid and other current assets

Liability Derivatives

Balance Sheet Location

December 31,
2020

September 30,
2020

Balance Sheet Location

June 30,
2021

September 30,
2020

Foreign currency forward contracts

Accrued expenses and other current liabilities

Foreign currency forward contracts

Accrued expenses and other current liabilities

13. Product Warranties

A reconciliation of the activity related to the accrued warranty, including both the current and long‑term portions, is as follows:


		Current Product Warranties				Non-Current Product Warranties					Current Product Warranties				Non-Current Product Warranties
		Three Months Ended December 31,				Three Months Ended December 31,					Nine Months Ended June 30,				Nine Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Balance at beginning of the period	Balance at beginning of the period	$	6,115	$	4,922	$	1,724	$	2,332	Balance at beginning of the period	$	6,115	$	4,922	$	1,724	$	2,332

Warranty provision for sales	Warranty provision for sales	371		1,251		252		44		Warranty provision for sales	5,680		2,496		1,577		481
Settlement of warranty claims	Settlement of warranty claims	(978)		(1,989)		(374)		(1,076)		Settlement of warranty claims	(3,826)		(3,243)		(701)		(1,298)
Amounts related to sale of the Memcor product line	Amounts related to sale of the Memcor product line	0		795		0		135		Amounts related to sale of the Memcor product line	0		795		0		136
Foreign currency translation and other	Foreign currency translation and other	69		152		44		36		Foreign currency translation and other	94		276		29		(51)
Balance at end of the period	Balance at end of the period	$	5,577	$	5,131	$	1,646	$	1,471	Balance at end of the period	$	8,063	$	5,246	$	2,629	$	1,600

14. Restructuring and Related Charges

To better align its resources with its growth strategies and reduce its cost structure, the Company commits to various restructuring plans as necessary. The Company has undertaken various restructuring initiatives, including undertaking activities to reduce the cost structure and rationalize location footprint following the sale of the Memcor product line, transitioning from a 3-segment structure to a 2-segment operating model designed to better serve the

needs of customers worldwide, and various initiatives within the Integrated Solutions and Services segment to drive efficiency and effectiveness in certain divisions.

The Company currently expects to incur approximately ~~$3,000~~$1,300 to ~~$5,000~~$2,300 of costs through the remainder of fiscal 2021 related to restructuring charges following the sale of the Memcor product line. The Company currently expects to incur approximately ~~$1,000~~$200 to $400 of cash costs through the remainder of fiscal 2021 as a result of its transition to a two-segment operating model related to other non-employee related business optimizations. The Company currently expects to incur approximately ~~$1,300~~$1,000 to ~~$1,700~~$1,400 of costs through the remainder of fiscal 2021 related to the restructuring within certain divisions of the Integrated Solutions and Services segment.

The table below sets forth the amounts accrued for the restructuring components and related activity:


		Three Months Ended December 31,					Nine Months Ended June 30,
		2020		2019			2021		2020
Balance at beginning of the period	Balance at beginning of the period	$	970	$	655	Balance at beginning of the period	$	970	$	655
Restructuring charges following the sale of the Memcor product line	Restructuring charges following the sale of the Memcor product line	908		0		Restructuring charges following the sale of the Memcor product line	4,649		4,758
Restructuring charges related to two-segment realignment	Restructuring charges related to two-segment realignment	238		675		Restructuring charges related to two-segment realignment	830		1,866
Restructuring charges related to other initiatives	Restructuring charges related to other initiatives	29		245		Restructuring charges related to other initiatives	1,856		1,141
Release of prior reserves	Release of prior reserves	(9)		(53)		Release of prior reserves	(296)		(62)
Write off charges	Write off charges	(121)		0		Write off charges	(966)		0
Cash payments	Cash payments	(986)		(1,156)		Cash payments	(6,349)		(7,314)
Other adjustments	Other adjustments	92		(1)		Other adjustments	8		0
Balance at end of the period	Balance at end of the period	$	1,121	$	365	Balance at end of the period	$	702	$	1,044

The balances for accrued restructuring liabilities at ~~December 31, 2020~~June 30, 2021 and September 30, 2020, are recorded in Accrued expenses and other liabilities on the Consolidated Balance Sheets. Restructuring charges primarily represent severance charges and other employee costs, fixed asset write-offs and certain relocation expenses. The Company expects to pay the remaining amounts accrued as of ~~December 31, 2020~~June 30, 2021 during the remainder of fiscal 2021.

The table below sets forth the location of amounts recorded above on the Unaudited Consolidated Statements of Operations:


		Three Months Ended December 31,					Nine Months Ended June 30,
		2020		2019			2021		2020
Cost of product sales and services	Cost of product sales and services	$	826	$	384	Cost of product sales and services	$	4,341	$	5,198
General and administrative expense	General and administrative expense	138		480		General and administrative expense	1,675		2,310
Sales and marketing expense	Sales and marketing expense	218		3		Sales and marketing expense	348		173
Research and development expense	Research and development expense	(16)		0		Research and development expense	(15)		22
Other operating expense, net						Other operating expense, net	690		0
							$	7,039	$	7,703
		$	1,166	$	867

The Company continues to evaluate restructuring activities that may result in additional charges in the future.

15. Employee Benefit Plans

The Company maintains multiple employee benefit plans.

Certain of the Company’s employees in the UK were participants in a Siemens defined benefit plan established for employees of a UK-based operation acquired by Siemens in 2004. The plan was frozen with respect to future service credits for active employees, however the benefit formula recognized future compensation increases. The Company

agreed to establish a replacement defined benefit plan, with the assets of the Siemens scheme transferring to the new scheme on April 1, 2015.

The Company’s employees in Germany also participate in a defined benefit plan. Assets equaling the plan’s accumulated benefit obligation were transferred to a German defined benefit plan sponsored by the Company upon the acquisition of EWT from Siemens. The German entity also sponsors a defined benefit plan for a small group of employees located in France.

The components of net periodic benefit cost for the plans were as follows:


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
			2020			2019			2021		2020		2021		2020
Service cost	Service cost		$	284		$	261	Service cost	$	287	$	259	$	858	$	779
Interest cost	Interest cost		79			68		Interest cost	81		67		240		203
Expected return on plan assets	Expected return on plan assets		(87)			(30)		Expected return on plan assets	(88)		(30)		(262)		(89)
Amortization of actuarial losses	Amortization of actuarial losses		264			236		Amortization of actuarial losses	266		235		640		706
Pension expense for defined benefit plans	Pension expense for defined benefit plans		$	540		$	535	Pension expense for defined benefit plans	$	546	$	531	$	1,476	$	1,599

The components of pension expense, other than the service cost component which is included in General and administrative expense, are included in the line item Other operating expense in the Unaudited Consolidated Statements of Operations.

16. Income Taxes

The income tax provision for interim periods is comprised of tax on ordinary income (loss) provided at the most recent projected annual effective tax rate (“PAETR”), adjusted for the tax effect of discrete items. Management estimates the PAETR each quarter based on the forecasted annual pretax income or (loss). The Company is required to reduce deferred tax assets by a valuation allowance if, based on all available evidence, it is considered more likely than not that some portion or all of the benefit of the deferred tax assets will not be realized in future periods. The Company also records the income tax impact of certain discrete, unusual or infrequently occurring items including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur.

When a company maintains a valuation allowance in a particular jurisdiction, no net deferred income tax expense or (benefit) will typically be provided. Jurisdictions with projected income that maintain a valuation allowance typically will form part of the PAETR calculation discussed above. However, jurisdictions with a projected loss for the year that maintain a valuation allowance are excluded from the PAETR calculation. Instead, the income tax for these jurisdictions is computed separately.

The actual year-to-date income tax expense (benefit) is the product of the most current PAETR and the actual year-to-date pretax income (loss) adjusted for any discrete tax items. The income tax expense (benefit) for a particular quarter, except for the first quarter, is the difference between the year-to-date calculation of income tax expense (benefit) and the year-to-date calculation for the prior quarter. Items unrelated to current period ordinary income or (loss) are recognized entirely in the period identified as a discrete item of tax. Discrete items generally relate to changes in tax laws, adjustments to prior period’s actual liability determined upon filing tax returns, and adjustments to previously recorded reserves for uncertain tax positions, initially recording or fully reversing valuation allowances. The inclusion of discrete items in a particular quarter can cause the actual effective rate for that quarter to vary significantly from the PAETR.

Therefore, the actual effective income tax rate for a particular quarter can vary significantly based upon the jurisdictional mix and timing of actual earnings compared to projected annual earnings, permanent items, earnings for those jurisdictions that maintain a valuation allowance, tax associated with jurisdictions excluded from the PAETR calculation and discrete items.

Annual Effective Tax Rate

The updated PAETR, which excludes the impact of discrete items, was ~~13.8%~~19.7% and ~~4.9%~~3.9% as of the ~~three~~nine months ended ~~December 31,~~June 30, 2021 and 2020, ~~and 2019,~~ respectively. For the ~~three~~nine months ended ~~December 31, 2020,~~June 30, 2021, the PAETR ~~of 13.8%~~ was lower than the ~~U.S~~U.S. federal statutory rate of 21.0% primarily due to the impact of maintaining a U.S. valuation allowance that is provided on U.S. deferred tax assets offset by changes in the mix of earnings between countries, some of which have higher statutory rates, and it is higher than the prior year’s rate which included the impact of the sale of the Memcor product line and the impact on deferred tax liabilities related to indefinite lived intangibles, a portion of which was reversed in relation to the sale of the Memcor product line.

The Company continues to maintain a full valuation allowance on U.S. federal and state net deferred tax assets (excluding the tax effects of deferred tax liabilities associated with indefinite lived intangibles) for the ~~year~~period ending ~~September~~June 30, 2021 as a result of pretax losses incurred since the Company’s inception in early 2014. The Company reported positive U.S. pre-tax earnings for the first time in 2017 and again in 2020 and is projecting positive pre-tax earnings in 2021, however, the Company generated pre-tax losses in all other ~~years and~~years. The Company was in a three-year cumulative loss position at September 30, ~~2019.~~2019, but was no longer in a three-year cumulative loss position at September 30, 2020. The Company believes it is prudent to retain a valuation allowance until a more consistent pattern of earnings is established and net operating loss carryforwards begin to be utilized.

Current and Prior Period Tax Expense

For the three months ended ~~December 31,~~June 30, 2021, the Company recognized income tax expense of $3,887 on pretax income of $17,086. The rate of 22.7% differed from the U.S. statutory rate of 21.0% principally due to the impact of higher earnings in non-U.S. tax jurisdictions, some with higher statutory rates, which increases overall tax expense, and lower earnings in the U.S., which does not impact tax expense due to the U.S. valuation allowance.

For the three months ended June 30, 2020, the Company recognized income tax expense of ~~$1,084~~$740 on pretax income of ~~$7,561.~~$22,581. The rate of ~~14.3%~~3.3% differed from the U.S. statutory rate of 21.0% principally due to the favorable impact to the PAETR of the gain on the sale of the Memcor product line which did not generate significant tax expense due to the combination of the U.S. valuation allowance and favorable foreign tax regimes, as well as the favorable impact of the reversal of a portion of deferred tax liabilities related to indefinite lived intangibles.

For the nine months ended June 30, 2021, the Company recognized income tax expense of $7,672 on pretax income of $32,430. The rate of 23.7% differed from the statutory rate of 21.0% principally due to the unfavorable impact of ~~maintaining~~discrete items related to an adjustment for prior periods and recording an uncertain tax position related to a tax audit in a foreign jurisdiction, as well as the impact of higher earnings in non-U.S. tax jurisdictions, which increases overall tax expense, and lower earnings in the U.S., which does not impact tax expense due to the U.S. valuation ~~allowance against U.S. deferred tax assets.~~

allowance.

For the ~~three~~nine months ended ~~December 31, 2019,~~June 30, 2020, the Company recognized income tax expense of ~~$2,603~~$3,336 on pretax income of ~~$56,109.~~$86,593. The rate of ~~4.6%~~3.9% differed from the statutory rate of 21.0% principally due to the gain on the sale of the Memcor product line, which did not generate significant tax expense due to the combination of the U.S. valuation allowance and favorable foreign tax regimes, as well as the favorable impact of the reversal of a portion of deferred tax liabilities related to indefinite lived intangibles.

At ~~December 31,~~June 30, 2021 and 2020, ~~and 2019,~~ the Company had gross unrecognized tax benefits of ~~$1,322~~$1,805 and ~~$1,289,~~$1,313 respectively.

17. Share-Based Compensation

The Company designs equity compensation plans to attract and retain employees while also aligning

employees’ interests with the interests of the Company’s shareholders. In addition, members of the Company’s Board of Directors (the “Board”) participate in equity compensation plans in connection with their service on the ~~Company’s~~ Board.

The Company established the Evoqua Water Technologies Corp. Stock Option Plan (the “Stock Option Plan”) shortly after the acquisition date of January 16, 2014. The plan allows certain management employees and the Board to purchase shares in the Company. Under the Stock Option Plan, the number of shares available for award was 11,083.

As of ~~December 31, 2020,~~June 30, 2021, there were approximately ~~2,149~~2,177 shares available for future grants, however, the Company does not currently intend to make additional grants under the Stock Option Plan.

In connection with the IPO, the Board adopted, and the Company’s shareholders approved, the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (the “Equity Incentive Plan”), under which equity awards may be granted in the form of options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalent rights, share awards and performance-based awards (including performance share units and performance-based restricted stock). Upon adoption of the Equity Incentive Plan, 5,100 shares of common stock of the Company were reserved for issuance thereunder. On February 18, 2020, the Company’s shareholders approved the amendment and restatement of the Equity Incentive Plan in order to increase the number of shares of common stock reserved for issuance thereunder by 5,000 shares and incorporate other changes.

On May 18, 2021 (the “Grant Date”), the Compensation Committee of the Board approved and the Company granted special one-time awards of 234 restricted stock units (“Special RSUs”) and 469 performance share units (“Special PSUs”) under the Equity Incentive Plan to certain executive officers of the Company. Subject to the applicable executive officer’s continued employment with the Company and the terms and conditions of the Equity Incentive Plan and the related award agreement, the Special RSUs will vest ratably over a three-year period on each annual anniversary of the Grant Date, and the Special PSUs will be earned incrementally in three tranches of 25%, 25%, and 50% after one-, two-, and three-year performance periods, respectively, and will cumulatively be paid, if earned, after the end of the three-year performance period ending on May 18, 2024, based on the Company’s total stockholder return (“TSR”) compared to peer water companies, including certain U.S.-listed companies included in the S&P Global Water Index (the “Peer Companies”). Each tranche of the Special PSUs reflects the right to receive between 50% and 100% of the shares underlying such tranche based on the Company’s TSR as compared to the Peer Companies (“Relative TSR”) for the applicable performance period. Subject to certain exceptions provided in the award agreements in the event of death, disability, or change in control, for each tranche, Special PSUs will be earned as follows: 100% if Relative TSR for the period is at the 80th percentile or above; 50% if Relative TSR for the period is at the 60th percentile; and 0% if Relative TSR is below the 60th percentile. Linear interpolation will be used to determine the percentage of each tranche earned when Relative TSR is between the 60th percentile and the 80th percentile for the applicable performance period. The payout for each tranche of the Special PSUs is capped at 100% even if Relative TSR exceeds the 80th percentile for the applicable period. If the Company’s TSR is negative for any performance period, the number of Special PSUs that may vest for the corresponding tranche will be capped at 50% of the amount that otherwise would have been earned for the period.

As of ~~December 31, 2020,~~June 30, 2021, there were approximately ~~5,916~~4,336 shares available for grants under the Equity Incentive Plan.

In addition to the establishment of the Equity Incentive Plan, in connection with the IPO, the Company entered into restricted stock unit (“RSU”) agreements with each of the executive officers and certain other key members of management. Pursuant to the RSU agreements, 1,197 stock-settled RSUs were granted, the aggregate value of which equals $25,000. The RSUs vested and settled in full upon the second anniversary of the IPO on November 2, 2019, resulting in the issuance of 1,158 shares, 419 of which were deposited into treasury in satisfaction of withholding tax obligations resulting from the vesting of the RSUs.

Option awards are granted at various times during the year, vest ratably at 25% per year, and are exercisable at the time of vesting. The options granted have a ~~ten-year~~ten-year contractual term.

A summary of the stock option activity as of ~~December 31, 2020~~June 30, 2021 is presented below:


(In thousands, except per share amounts)	(In thousands, except per share amounts)	Options	Weighted Average Exercise Price/Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value		(In thousands, except per share amounts)	Options	Weighted Average Exercise Price/Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value

Outstanding at September 30, 2020	Outstanding at September 30, 2020	7,430	$	10.30	5.9 years	$	83,152	Outstanding at September 30, 2020	7,430	$	10.30	5.9 years	$	83,152
Granted	Granted	1	23.18					Granted	611	24.76
Exercised	Exercised	(1,112)	5.75					Exercised	(2,548)	6.50

Forfeited	Forfeited	(4)	19.00					Forfeited	(42)	20.70

Outstanding at December 31, 2020		6,315	$	11.09	5.9 years	$	100,326
Options exercisable at December 31, 2020		4,177	$	7.28	4.8 years	$	82,285
Options vested and expected to vest at December 31, 2020		6,301	$	11.07	5.9 years	$	100,226
Outstanding at June 30, 2021								Outstanding at June 30, 2021	5,450	$	13.61	6.1 years	$	109,936
Options exercisable at June 30, 2021								Options exercisable at June 30, 2021	3,505	$	9.66	4.9 years	$	84,548
Options vested and expected to vest at June 30, 2021								Options vested and expected to vest at June 30, 2021	5,388	$	13.50	6.1 years	$	109,276

The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) during the ~~three~~nine months ended ~~December 31, 2020~~June 30, 2021 was ~~$19,362.~~$51,448.

A summary of the status of the Company's non-vested stock options as of and for the ~~three~~nine months ended ~~December 31, 2020~~June 30, 2021 is presented below.


(In thousands, except per share amounts)	(In thousands, except per share amounts)	Shares	Weighted Average Grant Date Fair Value/Share		(In thousands, except per share amounts)	Shares	Weighted Average Grant Date Fair Value/Share
Nonvested at beginning of period	Nonvested at beginning of period	2,166	$	5.56	Nonvested at beginning of period	2,166	$	5.56
Granted	Granted	1	8.12		Granted	611	8.98
Vested	Vested	(25)	2.27		Vested	(790)	5.53
Forfeited	Forfeited	(4)	6.47		Forfeited	(42)	6.73
Nonvested at end of period	Nonvested at end of period	2,138	$	5.60	Nonvested at end of period	1,945	$	6.62

The total fair value of options vested during the ~~three~~nine months ended ~~December 31, 2020,~~June 30, 2021, was ~~$57.~~$4,371.

~~Restricted Stock Units~~

The following is a summary of the RSU activity for the ~~three~~nine months ended ~~December 31, 2020.~~June 30, 2021.


(In thousands, except per share amounts)	(In thousands, except per share amounts)	Shares	Weighted Average Grant Date Fair Value/Share		(In thousands, except per share amounts)	Shares	Weighted Average Grant Date Fair Value/Share
Outstanding at September 30, 2020	Outstanding at September 30, 2020	750	$	17.86	Outstanding at September 30, 2020	750	$	17.86
Granted	Granted	114	24.51		Granted	729	25.94
Vested	Vested	(1)	24.25		Vested	(239)	17.55
Forfeited	Forfeited	(2)	16.31		Forfeited	(23)	20.38

Cancelled	Cancelled	(7)	21.22		Cancelled	(7)	21.22
Outstanding at December 31, 2020		854	$	18.71
Vested and expected to vest at December 31, 2020		836	$	18.63
Outstanding at June 30, 2021					Outstanding at June 30, 2021	1,210	$	22.72
Expected to vest at June 30, 2021					Expected to vest at June 30, 2021	1,147	$	22.57

The following is a summary of the Special PSU activity for the nine months ended June 30, 2021.


(In thousands, except per share amounts)	Shares	Weighted Average Grant Date Fair Value/Share

Granted	469	$	16.92


Nonvested at end of period	469	$	16.92
Expected to vest	422	$	16.92

Expense Measurement and Recognition

The Company recognizes share-based compensation for all currently outstanding awards and, in future periods, will recognize compensation costs for the unvested portion of awards based on grant date fair values. Total share-based compensation expense was ~~$3,076~~$5,526 and ~~$3,691~~$2,542 during the three months ended ~~December 31,~~June 30, 2021 and 2020, ~~and 2019,~~ respectively, of which ~~$3,019~~$4,228 and ~~$3,680~~$2,520 was non-cash, respectively. Total share-based compensation expense was $11,816 and $8,559 during the nine months ended June 30, 2021 and 2020, respectively, of which $10,461 and $8,504 was non-cash, respectively. The unrecognized compensation expense related to stock options, RSUs, and ~~RSUs~~Special PSUs was ~~$7,653~~$10,309, $22,934 and ~~$11,736,~~$7,611, respectively at ~~December 31, 2020,~~June 30, 2021, and is expected to be recognized over a weighted average period of ~~2.1~~2.3 years, 2.4 years and ~~2.2~~2.9 years, respectively. The Company received ~~$14,263~~$18,096 from the exercise of stock options during the ~~three~~nine months ended ~~December 31, 2020.~~June 30, 2021.

Employee Stock Purchase Plan

Effective October 1, 2018, the Company implemented an employee stock purchase plan (the “ESPP”) which allows employees to purchase shares of the Company’s stock at 85% of the lower of the fair market value on the first day of the applicable offering period or on the last business day of a ~~six-month~~six-month purchase period within the offering period. These purchases are offered twice throughout each fiscal year, and are paid by employees through payroll deductions over the respective six month purchase period, at the end of which the stock is transferred to the employees. On December 21, 2018, the Company registered 11,297 shares of common stock, par value $0.01 per share, of which 5,000 are available for future issuance under the ESPP. During the three months ended ~~December 31,~~June 30, 2021 and 2020, ~~and 2019,~~ the Company incurred compensation expense of ~~$216~~$249 and ~~$39,~~$153, respectively, in salaries and wages inwith respect ofto the ESPP, representing the fair value of the discounted price of the shares. During the nine months ended June 30, 2021 and 2020, the Company incurred compensation expense of $652 and $227, respectively. These amounts are included in the total share-based compensation expense above. On October 2, 2020 and April 1, 2021, 120 and 62 shares, respectively, were issued under the ~~ESPP plan.~~ESPP.

18. Concentration of Credit Risk

The Company’s cash and cash equivalents and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality. Accounts receivable are derived from revenue earned from customers located in the U.S. and internationally and

generally do not require collateral. The Company’s trade receivables do not represent a significant concentration of credit risk at ~~December 31, 2020~~June 30, 2021 and September 30, 2020 due to the wide variety of customers and markets into which products are sold and their dispersion across geographic areas. The Company does perform ongoing credit evaluations of its customers and maintains an allowance for potential credit losses on trade receivables. As of and for the three and nine months ended ~~December 31,~~June 30, 2021 and 2020, ~~and 2019,~~ no customer accounted for more than 10% of net sales or net accounts receivable.

The Company operates predominantly in 10 countries worldwide and provides a wide range of proven product brands and advanced water and wastewater treatment technologies, mobile and emergency water supply solutions, and service contract options through its Integrated Solutions and Services and Applied Product Technologies segments. The Company is a multi-national business but its sales and operations are primarily in the U.S. Sales to unaffiliated customers are based on the Company locations that maintain the customer relationship and ~~transacts~~transact the external sale.

19. ~~Related‑Party Transactions~~

The Company reimbursed AEA, the Company’s private equity sponsor, for normal and customary expenses incurred by AEA on behalf of the Company. The Company notes that these related-party transactions were not significant in the three months ended December 31, 2020 and 2019.

~~20.~~ Commitments and Contingencies

Guarantees

From time to time, the Company is required to provide letters of credit, bank guarantees, or surety bonds in support of its commitments and as part of the terms and conditions on water treatment projects. In addition, the Company is required to provide letters of credit or surety bonds to the Department of Environmental Protection or equivalent in some states in order to maintain its licenses to handle toxic substances at certain of its water treatment facilities.

These financial instruments typically expire after all Company commitments have been met, a period typically ranging from twelve months to ten years, or more in some circumstances. The letters of credit, bank guarantees, or surety bonds are arranged through major banks or insurance companies. In the case of surety bonds, the Company generally indemnifies the issuer for all costs incurred if a claim is made against the bond.

The following summarizes the Company’s outstanding letters of credit and surety bonds as of ~~December 31, 2020~~June 30, 2021 and September 30, 2020, respectively.


		December 31, 2020		September 30, 2020			June 30, 2021		September 30, 2020
Revolving credit capacity	Revolving credit capacity	$	45,000	$	45,000	Revolving credit capacity	$	60,000	$	45,000
Letters of credit outstanding	Letters of credit outstanding	11,824		12,963		Letters of credit outstanding	11,504		12,963
Remaining revolving credit capacity	Remaining revolving credit capacity	$	33,176	$	32,037	Remaining revolving credit capacity	$	48,496	$	32,037

Surety capacity	Surety capacity	$	230,000	$	230,000	Surety capacity	$	250,000	$	230,000
Surety issuances	Surety issuances	144,647		152,990		Surety issuances	141,837		152,990
Remaining surety available	Remaining surety available	$	85,353	$	77,010	Remaining surety available	$	108,163	$	77,010

The longest maturity date of letters of credit and surety bonds in effect as of ~~December 31, 2020~~June 30, 2021 was March 20, 2030.

Litigation

From time to time, as a normal incident of the nature and kind of business in which the Company is engaged, various claims or charges are asserted and litigation is commenced against it arising from or related to: product liability; personal injury; trademarks, trade secrets, or other intellectual property; shareholder disputes; labor and employee disputes; commercial or contractual disputes; breach of warranty; or environmental matters. Claimed amounts may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. While it is not feasible to predict the outcome of these matters with certainty, and some lawsuits, claims or proceedings may be disposed or decided unfavorably, the Company does not expect that any asserted or un-asserted legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on its results of operations, or financial condition.

~~21.~~As of June 30, 2021, an accrued liability of $16,650 relating to the proposed settlement of securities litigation and a corresponding asset for the related insurance coverage of $16,650 is included in Accrued expenses and other liabilities and Prepaid and other current assets on the Consolidated Balance Sheets, respectively. See Part II, Item 1, “Legal Proceedings,” for additional information regarding legal proceedings in which the Company is engaged.

20. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following:


		December 31, 2020		September 30, 2020			June 30, 2021		September 30, 2020
Salaries, wages and other benefits	Salaries, wages and other benefits	$	45,716	$	67,766	Salaries, wages and other benefits	$	67,648	$	67,766
Provisions for litigation(1)						Provisions for litigation(1)	19,439		2,580
Obligation under operating leases	Obligation under operating leases	12,890		12,767		Obligation under operating leases	13,293		12,767
Obligation under finance leases	Obligation under finance leases	11,611		11,362		Obligation under finance leases	12,097		11,362
Third party commissions	Third party commissions	8,490		9,270		Third party commissions	9,415		9,270
Taxes, other than income						Taxes, other than income	5,675		5,316
Insurance liabilities	Insurance liabilities	3,773		3,954		Insurance liabilities	3,377		3,954
Earn-outs related to acquisitions						Earn-outs related to acquisitions	1,056		295

Severance payments						Severance payments	702		970
Fair value of liability derivatives	Fair value of liability derivatives	3,756		4,716		Fair value of liability derivatives	512		4,716
Taxes, other than income		3,425		5,316
Provisions for litigation		2,071		2,580
Severance payments		1,121		970

Earn-outs related to acquisitions		295		295
Other	Other	27,520		24,393		Other	31,913		24,393
		$	120,668	$	143,389		$	165,127	$	143,389

(1) At June 30, 2021, provisions for litigation includes an accrued liability of $16,650 relating to the proposed settlement of securities litigation. See Note 19, “Commitments and Contingencies” for further discussion.

~~22.~~21. Business Segments

The Company’s reportable operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance. The key factors used to identify these reportable operating segments are the organization and alignment of the Company’s internal operations, the nature of the products and services, and customer type.

The Company has 2 reportable operating segments, Integrated Solutions and Services and Applied Product Technologies. The business segments are described as follows:

Integrated Solutions and Services is a group entirely focused on engaging directly with end users through direct sales with a market vertical focus. Integrated Solutions and Services provides tailored services and solutions in collaboration with the customers backed by life‑cycle services including on‑demand water, outsourced water, recycle / reuse, and emergency response service alternatives to improve operational reliability, performance, and environmental compliance. Key offerings within this segment also include equipment systems for industrial needs (influent water, boiler feed water, ultrahigh purity, process water, wastewater treatment, and recycle / reuse), full-scale outsourcing of operations and maintenance, and municipal services, including odor and corrosion control services.

Applied Product Technologies is focused on developing product platforms to be sold primarily through third party channels. This segment primarily engages in indirect sales through independent sales representatives, distributors, and aftermarket channels. Applied Product Technologies provides a range of highly differentiated and scalable products and technologies specified by global water treatment designers, original equipment manufacturers (“OEMs”), engineering firms, and integrators. Key offerings within this segment include filtration and separation, disinfection, wastewater solutions, anode and electrochlorination technology, and aquatics technologies and solutions for the global recreational and commercial pool market.

Corporate activities include general corporate expenses, elimination of inter-segment transactions, interest income and expense, and certain other charges. Certain other charges may include restructuring and other business transformation charges that have been undertaken to align and reposition the Company to the current reporting structure, acquisition related costs (including transaction costs and certain integration ~~costs)~~costs,) and share-based compensation charges.

Since certain administrative and other operating expenses and other items have not been allocated to business segments, the results in the below table are not necessarily a measure computed in accordance with generally accepted accounting principles and may not be comparable to other companies.

Reportable operating segment ~~sales~~revenue and operating profit for the three and nine months ended ~~December 31,~~June 30, 2021 and 2020 ~~and 2019~~ were as follows:


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
			2020			2019			2021		2020		2021		2020
Total sales
Total revenue								Total revenue
Integrated Solutions and Services	Integrated Solutions and Services		$	216,753		$	231,800	Integrated Solutions and Services	$	245,414	$	230,314	$	690,370	$	702,938
Applied Product Technologies	Applied Product Technologies		123,581			138,529		Applied Product Technologies	149,434		136,350		419,122		404,303
Total sales			340,334			370,329
Intersegment sales
Total revenue								Total revenue	394,848		366,664		1,109,492		1,107,241
Intersegment revenue								Intersegment revenue
Integrated Solutions and Services	Integrated Solutions and Services		2,036			3,662		Integrated Solutions and Services	5,727		1,603		11,832		8,204
Applied Product Technologies	Applied Product Technologies		16,105			20,562		Applied Product Technologies	19,440		17,234		59,222		53,442
Total intersegment sales			18,141			24,224
Sales to external customers
Total intersegment revenue								Total intersegment revenue	25,167		18,837		71,054		61,646
Revenue to external customers								Revenue to external customers
Integrated Solutions and Services	Integrated Solutions and Services		214,717			228,138		Integrated Solutions and Services	239,687		228,711		678,538		694,734
Applied Product Technologies	Applied Product Technologies		107,476			117,967		Applied Product Technologies	129,994		119,116		359,900		350,861
Total sales			$	322,193		$	346,105
Total revenue								Total revenue	$	369,681	$	347,827	$	1,038,438	$	1,045,595

Operating profit (loss)	Operating profit (loss)							Operating profit (loss)
Integrated Solutions and Services	Integrated Solutions and Services		$	26,357		$	33,154	Integrated Solutions and Services	$	37,793	$	32,608	$	94,934	$	102,457
Applied Product Technologies	Applied Product Technologies		13,380			63,142		Applied Product Technologies	22,735		23,588		54,218		110,480
Corporate	Corporate		(23,503)			(26,604)		Corporate	(32,218)		(23,130)		(88,430)		(89,024)
Total operating profit	Total operating profit		16,234			69,692		Total operating profit	28,310		33,066		60,722		123,913
Interest expense	Interest expense		(8,673)			(13,583)		Interest expense	(11,224)		(10,485)		(28,292)		(37,320)
Income before income taxes	Income before income taxes		7,561			56,109		Income before income taxes	17,086		22,581		32,430		86,593
Income tax expense	Income tax expense		(1,084)			(2,603)		Income tax expense	(3,887)		(740)		(7,672)		(3,336)
Net income	Net income		$	6,477		$	53,506	Net income	$	13,199	$	21,841	$	24,758	$	83,257


	June 30, 2021		September 30, 2020
Assets
Integrated Solutions and Services	$	862,288	$	835,307
Applied Product Technologies	611,785		598,701
Corporate	369,085		410,450
Total assets	$	1,843,158	$	1,844,458

3138

December 31,
2020 September 30,
2020
Assets
Integrated Solutions and Services $ 846,707 $ 835,307
Applied Product Technologies 599,543 598,701
Corporate 397,416 410,450
Total assets $ 1,843,666 $ 1,844,458

~~23.~~22. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings from continuing operations per common share (in thousands, except per share amounts):


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
			2020			2019			2021		2020		2021		2020
Numerator:	Numerator:							Numerator:
Numerator for basic and diluted earnings per common share—Net income attributable to Evoqua Water Technologies Corp.	Numerator for basic and diluted earnings per common share—Net income attributable to Evoqua Water Technologies Corp.		$	6,433		$	53,145	Numerator for basic and diluted earnings per common share—Net income attributable to Evoqua Water Technologies Corp.	$	13,155	$	21,384	$	24,624	$	82,341
Denominator:	Denominator:							Denominator:
Denominator for basic net income per common share—weighted average shares	Denominator for basic net income per common share—weighted average shares		117,768			115,586		Denominator for basic net income per common share—weighted average shares	119,015		116,621		119,015		116,621
Effect of dilutive securities:	Effect of dilutive securities:							Effect of dilutive securities:
Share‑based compensation	Share‑based compensation		3,790			5,443		Share‑based compensation	3,245		3,595		3,312		4,432
Denominator for diluted net income per common share—adjusted weighted average shares	Denominator for diluted net income per common share—adjusted weighted average shares		121,558			121,029		Denominator for diluted net income per common share—adjusted weighted average shares	122,260		120,216		122,327		121,053
Basic earnings attributable to Evoqua Water Technologies Corp. per common share	Basic earnings attributable to Evoqua Water Technologies Corp. per common share		$	0.05		$	0.46	Basic earnings attributable to Evoqua Water Technologies Corp. per common share	$	0.11	$	0.18	$	0.21	$	0.71
Diluted earnings attributable to Evoqua Water Technologies Corp. per common share	Diluted earnings attributable to Evoqua Water Technologies Corp. per common share		$	0.05		$	0.44	Diluted earnings attributable to Evoqua Water Technologies Corp. per common share	$	0.11	$	0.18	$	0.20	$	0.68

~~24.~~23. Subsequent Events

None.

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Item 2. 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 the Unaudited Consolidated Financial Statements, including the notes, included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Report”), and with our audited consolidated financial statements and the related notes thereto in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, as filed with the SEC on November 20, 2020 (the “2020 Annual Report”). You should review the disclosures in Part I, Item 1A. “Risk Factors” in the 2020 Annual Report, as well as any cautionary language in this Report, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Unless otherwise indicated or the context otherwise requires, all references to “the Company,” “Evoqua,” “Evoqua Water Technologies Corp.,” “we,” “us,” “our” and similar terms refer to Evoqua Water Technologies Corp., together with its consolidated subsidiaries. Unless otherwise specified, all dollar amounts in this section are referred to in millions.

Overview ~~and Background~~

We are a leading provider of ~~mission critical~~mission-critical water and wastewater treatment solutions, offering a broad portfolio of products, services, and expertise to support industrial, municipal, and recreational customers who value water. With over 200,000 installations worldwide, we hold leading positions in the industrial, commercial and municipal water treatment ~~markets~~markets. We are headquartered in ~~North America.~~Pittsburgh, Pennsylvania, with locations across ten countries. We ~~offer~~have a comprehensive portfolio of differentiated, proprietary ~~technology solutions sold~~technologies offered under ~~several~~ market‑leading and well‑established ~~brands to our global customer base. We have worked to protect~~brands. Our core technologies are primarily focused on removing impurities from water, rather than neutralizing them through 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~~addition of ~~their water treatment needs, and maintaining our reputation is critical to the success of our business.~~chemicals.

Our solutions are designed to ~~ensure that~~provide our customers ~~have~~with the quantity and quality of water ~~that meets~~necessary to meet their unique specifications. We enable our customers to achieve lower costs through greater uptime, throughput and efficiency in their operations ~~and support~~while supporting their regulatory compliance and environmental ~~sustainability.~~sustainability requirements. We deliver and maintain these mission critical solutions through ~~the largest~~our extensive North American service network, ~~in North America, assuring~~and we sell our ~~customers continuous uptime with 92 service branches as of December 31, 2020.~~products and technologies internationally through direct and indirect sales channels. We have ~~an extensive service~~worked to protect water, the environment, and ~~support network, and as~~our employees for more than 100 years. As a result, we have earned a ~~certified Evoqua Service Technician is generally no more than~~reputation for quality, safety and reliability around the world. Our employees are united by a ~~two-hour drive from more than 90% of our North American customers’ sites.~~common purpose: Transforming water. Enriching life.®

Our vision “to be the world’s first choice for water solutions” and our values of “integrity, customers, ~~performance~~sustainable, and ~~sustainable”~~performance” foster a ~~corporate~~ culture that is focused on establishing a workforce that is enabled, empowered and accountable, ~~which creates~~creating a highly ~~entrepreneurial and~~ dynamic work environment. Our purpose is “Transforming water. Enriching life.” We draw from a long legacy of water treatment innovations and industry firsts, supported by more than 1,300 granted or pending patents, which in aggregate are imperative to our business. Our core technologies are primarily focused on removing impurities from water, rather than neutralizing them through the addition of chemicals, and we are able to achieve purification levels that are 1,000 times greater than typical drinking water.

~~Business Segments~~

We serve our customers through the following two segments:

•Integrated Solutions and Services ~~a group focused on engaging directly with~~segment, which provides application-specific solutions and full lifecycle services for critical water and wastewater applications across numerous end ~~users,~~markets, including on‑demand water, outsourced water, recycle and reuse, and emergency response service alternatives to improve operational reliability, performance and environmental compliance; and

•Applied Product Technologies segment, which provides a ~~group focused on developing product platforms~~highly differentiated and scalable range of water and wastewater products and technologies that can be stand-alone or as components in integrated solutions to ~~be sold primarily through third party channels.~~ a diverse set of system specifiers, integrators, and end-users around the globe.

Our segments draw from the same reservoir of leading technologies, shared manufacturing infrastructure, common business processes, and corporate philosophies. The key factors used to identify these reportable operating segments are the organization and alignment of our internal operations, the nature of the products and services and customer type.

•~~Within the Integrated Solutions~~ We expect to drive growth in our segments through market expansion, leveraging our existing customer base and ~~Services segment, we primarily provide tailored solutions in collaboration with~~recurring service model, innovation through new product technology development, a focus on operational excellence, and strategic acquisitions. For a detailed discussion of our customers backed by life‑cycle services including on‑demand water, outsourced water, recycle and reuse and emergency response service alternatives to improve operational reliability, performance and environmental compliance.growth drivers, see our 2020 Annual Report.

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Recent Developments, Key Factors and Trends Affecting Our Business and Financial Statements

Our 2020 Annual Report includes a discussion of various key factors and trends that we believe have affected or may affect our operating results. The following discussion highlights recent developments, as well as significant changes in these key factors and trends.

•Impact of the COVID-19 pandemic~~Within~~. Our business has been considered essential under federal and local standards, and we have maintained business continuity at our critical service branches and manufacturing facilities to date. We have taken measures throughout the ~~Applied Product Technologies segment, we provide~~duration of the pandemic to protect our employees, including implementation of remote working practices where possible and enhanced safety procedures for employees on site at our facilities and our customers’ facilities, and to manage our supply chain to ensure that necessary personal protective equipment is available to our personnel. These measures have resulted in additional incremental costs and reductions in service productivity over the course of the pandemic, although neither had a ~~highly differentiated and scalable range of products and technologies specified by global water treatment designers, OEMs, engineering firms and integrators.~~significant impact on our financial results in the three months ended June 30, 2021.

~~We evaluate~~To date, the pandemic has negatively impacted volume across our business, ~~segments’ operating~~due primarily to customer site access restrictions, temporary customer site closures, and temporary delays in annual maintenance activities by customers in certain end markets, although we have started to see volume rebound in certain end markets during the third quarter, as further discussed below in the discussion of our results ~~based~~of operations. Along with this increase in volume, in the third quarter we experienced increases in certain discretionary costs that were the subject of cost reduction actions earlier in the pandemic, particularly employee travel expenses. We have continued to focus on ~~income from operations~~collecting outstanding customer account balances, and, net income (loss) before interest expense, income tax benefit (expense) and depreciation and amortization (“EBITDA”) on a segment basis. Corporate activities include general corporate expenses, elimination of intersegment transactions, interest income and expense and certain other charges, whichthrough June 30, 2021, we have not ~~been allocated to business segments. As such, the segment results provided herein may not be comparable to other companies. In addition,~~experienced any deterioration in collections from our ~~chief operating decision maker uses adjusted EBITDA of each reportable segment~~customers. We continue to evaluate the ~~operating performance of such segments. Adjusted EBITDA~~impact of the ~~reportable segments does not~~pandemic on our business and the potential effects of recent spikes in COVID-19 cases in certain regions, as well as challenges created by the macro-economic conditions associated with the reopening and reacceleration of global economies. These challenges include disruptions in our supply chain, material price inflation, shortages of and delays in obtaining certain ~~unallocated charges that are presented within Corporate activities. These unallocated charges include certain restructuring~~materials and ~~other business transformation charges that~~component parts, labor shortages, and wage inflation. We have ~~been incurred~~taken and continue to ~~align and reposition~~take measures to mitigate the Company to the current reporting structure, acquisition related costs (including transaction costs and certain integration costs) and share-based compensation charges. EBITDA and adjusted EBITDA are non-GAAP financial measures. impact of these challenges, but if sustained, they could have a material adverse effect on our results of operations.

For more information regarding ~~EBITDA~~factors and ~~adjusted EBITDA, including a reconciliation to the most directly comparable GAAP~~events that may impact our business, results of operations and financial ~~measure, please see the section titled “How We Assess the Performance of Our Business”.~~

~~Organic Growth Drivers~~

~~Market Growth~~

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

~~Our Existing Customer Base~~

We believe our strong brands, leading position in highly fragmented markets, scalable and global offerings, leading installed base and unique ability to provide complete treatment solutions will enable us to capture a larger share of our existing customers’ water treatment spend while expanding with existing and new customers into adjacent end‑markets and under-penetrated regions, including by investing in our sales force and cross‑selling to existing customers. We believe we are uniquely positioned to further penetrate our core markets, with over 200,000 installations across over 38,000 global customers. We maintain a customer‑intimate business model with strong brand value and provide solutions‑focused offerings capable of serving a 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 internet‑connected monitoring technologies through the deployment of our Water One® service platform, which enables customers to outsource their water treatment systems and focus on their core business, offering customers system optimization, predictive and proactive service, and simplified billing and pricing. Our Water One® platform also enables us to transition our customers to pricing models based on usage, which otherwise would not have been possible without technological advancement. Our technology solutions provide customers with increased stability and predictability in water‑related costs, while enabling us to optimize our service route network and on demand offerings through predictive analytics, which we believe will result in market share gains, improved service levels, increased barriers to entry and reduced costs.

~~Product and Technology Development~~

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

~~Operational Excellence~~

We believe that continuous improvement of our operations, processes and organizational structure is a key driver of our earnings growth. We have identified and are pursuing several discrete initiatives that, if successful, we expect could result in additional cost savings over the next two years. These initiatives include our supply chain improvement program to consolidate and manage global spending, our improved logistics and transportation management program, capturing benefits of our Water One® platform and further optimizing our engineering cost structure, our global shared services organization and our sales, inventory and operations planning, including footprint rationalization. These improvements focus on creating value for customers through reduced leadtimes, improved quality and superior customer support, while also creating value for shareholders through enhanced earnings growth. Furthermore,condition as a result of ~~significant investments we have made~~the COVID-19 pandemic, see “Risk Factors-Risks Related to the COVID-19 Pandemic” included in ~~our footprint and facilities, we believe we have~~Part I, Item 1A. “Risk Factors” in the ~~capacity to support our planned growth without commensurate increases in fixed costs.~~2020 Annual Report.

Acquisitions and ~~Divestitures~~

We believe that capex-like, tuck‑in acquisitions present a key opportunity within our overall growth strategy, which we will continue to evaluate strategically. These strategic acquisitions will enable us to accelerate our growth by extending the critical mass in existing markets as well as expanding in new geographies and new end market verticals. Our existing customer relationships, best‑in‑class channels to market and ability to rapidly commercialize technologies provide a strong platform to drive rapid growth in the businesses we acquire. To capitalize on these opportunities, we have built an experienced team dedicated to mergers and acquisitions that has, since April 2016, successfully completed fifteen acquisitions and the acquisition of a 60% interest in Frontier Water Systems LLC, expanding our vertical markets and geographic reach and enhancing our technologies, with purchase prices ranging from approximately $2.0 million to approximately $283.7 million, and pre‑acquisition revenues ranging from approximately $2.1 million to approximately $55.7 million. During the three months endeddivestitures. On December ~~31,~~17, 2020, we acquired the industrial water business of Ultrapure & Industrial Services, LLC (“Ultrapure”)~~. See Note 4, “Acquisitions”~~ for $8.7 million cash paid at closing. On April 1, 2021, we paid an additional $0.3 million as a result of net working capital adjustments. Ultrapure, based out of Texas, provides customers across multiple end markets with a variety of water treatment products and services, including service deionization, reverse osmosis, UV, and ozonation. Ultrapure will strengthen the Company’s service capabilities in ~~Item 1 in this Report for~~the Houston and Dallas markets and is a ~~complete discussion.~~

part of the Integrated Solutions and Services segment. During the ~~three~~nine months ended June 30, 2021, the Company incurred approximately $0.2 million in acquisition costs, which are included in General and administrative expense on the Unaudited Consolidated Statements of Operations.

On March 1, 2021, we completed the divestiture of the Lange containment system, geomembrane, and geosynthetic liner product line (the “Lange Product Line”) for $0.9 million in cash at closing. The Lange Product Line was a part of the Integrated Solutions and Services segment. During the nine months ended June 30, 2021, the Company recognized a loss of $0.2 million on the divestiture.

On April 1, 2021, we acquired Water Consulting Specialists, Inc (“WCSI”) for $12.0 million cash paid at closing. In addition, we recorded a liability of $0.8 million associated with an earn-out related to the acquisition, which is included in Accrued expenses and other liabilities on the Consolidated Balance Sheets. WCSI is a leader in the design, manufacturing, and service of industrial high-purity water treatment systems. The acquisition strengthens the Company’s portfolio of high-purity water treatment systems and provides the opportunity to further expand its digitally enabled solutions and services in key industrial markets. WCSI is a part of the Integrated Solutions and Services segment. During the nine months ended June 30, 2021, the Company incurred approximately $0.1 million in acquisition costs, which are included in General and administrative expense on the Unaudited Consolidated Statements of Operations.

On December 31, 2019, we completed the sale of the Memcor product line to DuPont de Nemours, Inc. ~~(“DuPont”).~~ The Company recognized a $49.0 million net pre-tax benefit on the sale of the Memcor product line, net of $8.3 million of

discretionary compensation payments to employees in connection with the transaction and $1.0 million in transaction costs incurred ~~during~~in the ~~three~~nine months ended ~~December 31, 2019.~~June 30, 2020.

On October 1, 2019, we acquired a 60% investment position in San Diego-based Frontier Water Systems, LLC (“Frontier”), which included an agreement to purchase the remaining 40% interest in Frontier on or prior to March 30, 2024. This agreement gave holders of the remaining 40% interest in Frontier (the “Minority Owners”) the right to sell to Evoqua up to approximately 10% of the outstanding equity in Frontier at a predetermined price, which right was exercisable by the Minority Owners between January 1, 2021 and February 28, 2021 (the “Option”). The Minority Owners exercised the Option, and on April 8, 2021, the Company completed the purchase of an additional 8% of the outstanding equity in Frontier for approximately $1.5 million. As a result, the Company’s ownership position in Frontier increased to 68%.

We ~~will~~ continue to actively evaluate acquisition opportunities that are consistent with our business strategy. We maintain a robust pipeline of potential acquisition targets, developed by our management team as well as various outside industry experts and consultants.

~~Key Factors and Trends Affecting Our Business and Financial Statements~~

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

~~Impact~~Debt refinancing.On April 1, 2021, we completed the refinancing of the ~~COVID-19 pandemic. Our business has been considered essential~~term loan (the “2014 Term Loan”) outstanding under ~~federal~~our First Lien Credit Agreement dated January 15, 2014 (as modified, amended or supplemented from time to time, the “2014 Credit Agreement”), among EWT Holdings III Corp. (“EWT III”), EWT Holdings II Corp. (“EWT II”), the lenders party thereto and ~~local standards,~~Credit Suisse AG as administrative agent and wecollateral agent. On April 1, 2021, EWT III entered into a Credit Agreement (the “2021 Credit Agreement”) among EWT III, as borrower, EWT II, as parent guarantor, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and ING Capital, LLC, as sustainability coordinator, which provides for (i) a senior secured term loan facility relating to a term loan (the “2021 Term Loan”) in the amount of $475.0 million maturing on April 1, 2028, and (ii) a multi-currency senior secured revolving credit facility in an aggregate principal amount not to exceed the U.S. dollar equivalent of $350.0 million (the “2021 Revolving Credit Facility”) maturing on April 1, 2026.

On April 1, 2021, Evoqua Finance LLC (“Evoqua Finance”) entered into an accounts receivable securitization program (the “Receivables Securitization Program”) consisting of, among other agreements, (i) a Receivables Financing Agreement (the “Receivables Financing Agreement”) among Evoqua Finance, as the borrower, the lenders from time to time party thereto (the “Receivables Financing Lenders”), PNC Bank, National Association (“PNC Bank”), as administrative agent, Evoqua Water Technologies LLC (“EWT LLC”), an indirect wholly-owned subsidiary of the Company, as initial servicer, and PNC Capital Markets LLC (“PNC Markets”), as structuring agent, pursuant to which the lenders have ~~maintained business continuity at our critical service branches~~made available to Evoqua Finance a receivables finance facility (the “Securitization Facility”) in an amount up to $150.0 million maturing on April 1, 2024, and ~~manufacturing facilities to~~(ii) a Sale and Contribution Agreement (the “Sale Agreement”) among Evoqua Finance, as purchaser, EWT LLC, as initial servicer and as an originator, and Neptune Benson, Inc., an indirectly wholly-owned subsidiary of the Company, as an originator (together with EWT LLC, the “Originators”).

~~date. We have taken measures~~On April 1, 2021, we borrowed $475.0 million under the 2021 Term Loan, $105.0 million under the 2021 Revolving Credit Facility and $142.2 million under the Securitization Facility. The net proceeds of these facilities, together with cash on hand, were used to ~~protect~~repay all outstanding indebtedness under our ~~employees, including implementation~~2014 Credit Agreement, in an aggregate principal amount of ~~remote working practices where possible~~approximately $814.5 million. The reduction in the outstanding principal amount of our term loan of approximately $340.0 million was funded by draws on the 2021 Revolving Credit Facility, the Securitization Facility and ~~enhanced safety procedures for employees~~$100.0 million of cash on site at our facilities and our customers’ facilities, as well as managing our supply chain to ensure that necessary personal protective equipment is available to our personnel. These measures have resulted in incremental costs and reductions in service productivity. We have also taken certain cost reduction actions, some of which are temporary in nature, such as reduction of marketing and travel activity as well as deferment of headcount additions, to offset increased costs and preserve liquidity. Finally, we have reallocated existing resources to maintain productivity levels where feasible.

hand. In addition to extending the ~~incremental costs~~maturities of our term loan and previous revolving credit facility, the refinancing reduced our weighted average cash borrowing cost ~~reduction actions described above,~~and improved liquidity. See “Liquidity and Capital Resources” below for additional information. At June 30, 2021, the Company had $475.0 million outstanding under the 2021 Term Loan, $95.0 million outstanding on the 2021 Revolving Credit Facility, and $148.2 million outstanding under the Securitization Facility.

Legal Settlement. As of June 30, 2021, an accrued liability of $16.7 million relating to ~~date,~~ the ~~pandemic has impacted volume across our business, due primarily to site access restrictions, temporary site closures,~~proposed settlement of securities litigation and ~~temporary delays~~a corresponding asset for the related insurance coverage of $16.7 million is included in ~~annual maintenance activities by customers in certain end markets. We have emphasized our focus~~Accrued expenses and other liabilities and Prepaid and other current assets on ~~collections, and, to date, we have not experienced any downturn in collections from our customers. We continue to evaluate~~ the impact of the pandemic on our business and how the economic downturn resulting from the pandemic might affect our customers’ willingness to make capital expenditures and our ability to collect from our customers.

~~For more~~Consolidated Balance Sheets, respectively. See Part II, Item 1, “Legal Proceedings,” for additional information regarding factors and events that may impact our business, results of operations and financial condition as a result of the COVID-19 pandemic, see “Risk Factors-Risks Related to the COVID-19 Pandemic” includedlegal proceedings in ~~Item 1A. “Risk Factors” in the 2020 Annual Report.~~

~~Overall economic trends.~~ The overall economic environment and related changes in industrial, commercial and municipal spending impact our business. In general, positive conditions in the broader economy promote industrial, commercial and municipal customer spending, while economic weakness results in a reduction of new industrial, commercial and municipal project activity. Macroeconomic factors that can affect customer spending patterns, and thereby our results of operations, include population growth, total water consumption, municipal budgets, employment rates, business conditions, the availability of credit or capital, interest rates, tax rates, imposition of tariffs and regulatory changes. Since the businesses of our customers vary in cyclicality, periodic downturns in any specific sector typically have modest impacts on our overall business. For example, the recent weakness in global oil markets has created, and may continue to create, some weakness in demand from customers that we serve in the oil and gas industry. Additionally, the COVID-19 pandemic has increased economic uncertainty and has caused an economic slowdown that is likely to continue and may result in a sustained global recession.

~~Changes in costs and availability.~~ We have significant exposures to certain commodities, including steel, caustic, carbon, calcium nitrate and iridium, and volatility in the market price and availability of these commodity input materials has a direct impact on our costs and our business. For example, restrictions on international trade, including tariffs imposed by the U.S. government and other governments, as well as supply chain disruptions caused by the COVID-19 pandemic, have increased and could further increase the cost of certain materials and have restricted and could further restrict availability of certain commodities, which may result in delays in our execution of projects or margin erosion. Although we have offset a portion of these cost increases through price increases, there can be no assurance that we will be able to continue to recuperate additional cost increases from our customers through product price increases. If we are unable to manage commodity fluctuations through pricing actions, cost savings projects and sourcing decisions as well as through consistent productivity improvements, it may adversely impact our gross profit and gross margin. Further, additional potential acquisitions and international expansion will place increased demands on our operational, managerial, administrative and other resources. Managing our growth effectively will require us to continue to enhance our management systems, financial and management controls and information systems. We will also be required to hire, train and retain operational and sales personnel, which affects our operating margins.

~~Inflation and deflation trends.~~ Our financial results can be expected to be directly impacted by substantial increases in costs due to commodity cost increases or general inflation. We anticipate some inflationary pressure in fiscal 2021, which could lead to greater margin pressure, as increased costs may not be able to be passed on to customers.

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

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

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

~~Availability of water.~~ In general, we expect demand for our products and services to increase as the availability of clean water from public sources decreases. Secular trends that will drive demand for water across a multitude of industrial, commercial and municipal applications include global population growth, urbanization, industrialization and overall economic growth. In addition, the supply of clean water could be adversely impacted by factors including an aging water infrastructure within North America and increased levels of water stress from seasonal rainfall, inadequate water storage options or treatment technologies. Because water is a critical component and byproduct of many processes, including in manufacturing and product development, we expect that, as global consumption patterns evolve and water shortages persist, demand for our equipment and services will continue to increase.

~~Operational investment.~~ Our historical operating results reflect the impact of our ongoing investments to support our growth. We have made significant investments in our business that we believe have laid the foundation for continued profitable growth. Activities related to operational investments include employee training and development, integrating acquired businesses, implementing enhanced information systems, research, development and engineering investments and other activities to enable us to support our operating model.

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

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

~~Exchange rates.~~ The reporting currency for our Unaudited Consolidated Financial Statements is the U.S. dollar. We operate in numerous countries around the world and therefore, certain of our assets, liabilities, revenues and expenses are denominated in functional currencies other than the U.S. dollar, primarily in the euro, U.K. sterling, Chinese renminbi, Canadian dollar, Australian dollar and Singapore dollar. To prepare our Unaudited 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 Unaudited Consolidated Financial Statements, even if their value has not changed in the functional currency. While we believe that we are not susceptible to any material impact on our results of operations caused by fluctuations in exchange rates because our operations are primarily conducted in the U.S., if we expand our foreign operations in the future, substantial increases or decreases in the value of the U.S. dollar relative to these other currencies could have a significant impact on our results of operations.

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How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of our consolidated business are revenue, gross profit, gross margin, ~~operating expenses,~~and net income (loss). Management utilizes these financial measures prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) when reviewing the Company’s performance and ~~adjusted EBITDA (which is a~~making financial, operational, and strategic decisions, and believes they are useful metrics for investors that help with performance comparability period over period. In addition, we consider certain non-GAAP financial ~~measure,~~measures such as adjusted EBITDA, as described more fully below. We evaluate our business segments’ operating results based on revenue, income from operations (“operating profit”) and ~~reconciled to~~adjusted EBITDA on a segment basis. We believe these financial measures are helpful in understanding and evaluating the ~~most directly comparable GAAP financial measure below).~~segments’ core operating results and facilitates comparison of our performance on a consistent basis period over period.

Revenue

Our ~~sales are~~revenue is a function of sales volumes and selling ~~prices, each~~prices. We report revenue by segment and by source which includes revenue from product sales (capital projects and aftermarket) and revenue from service. Revenue is used by management to evaluate the performance of ~~which~~our business. Organic revenue is ~~a function~~defined as revenue excluding the impact of foreign currency translation and inorganic revenue. Inorganic revenue represents the impact from acquisitions and divestitures during the first 12 months following the closing of the ~~mix of product and service sales, and consist primarily of:~~

•acquisition or divestiture. Divestitures include sales of ~~tailored water treatment solutions~~insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. Management believes that reporting organic revenue provides useful information to investors by helping identify underlying growth trends in our core business and ~~environmental products, services~~facilitating easier comparisons of our revenue performance with prior and ~~solutions~~future periods and to our ~~industrial customers, backed by lifecycle services including emergency response services~~peers. We exclude the effect of foreign currency translation from organic sales because foreign currency translation is not under management’s control, is subject to volatility and ~~outsourced water alternatives,~~can obscure underlying business trends. We exclude the effect of acquisitions and divestitures because they can obscure underlying business trends and make comparisons of long-term performance difficult between the Company and its peers due to the varying nature, size and number of transactions from period to period. See “Non-GAAP Reconciliations” in Item 2 of this Report for a ~~broad group~~reconciliation of ~~industrial customers in our U.S., Canada and Singapore markets;~~organic revenue.

•~~sales of products, services~~Gross profit and ~~solutions to engineering firms and municipalities to purify drinking water and treat wastewater globally; and~~gross margin

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

~~Cost of Sales, Gross Profit and Gross Margin~~

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

~~Cost of product sales consists of all manufacturing costs required~~ Gross profit and gross margin provide a comparable metric to ~~bring a product to a ready for sale condition, including direct~~help investors evaluate the cost efficiency 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~~ability of the ~~cost of personnel and travel for our field service, supply chain and technicians, depreciation of equipment and field service vehicles and freight costs.~~

~~Operating Expenses~~

~~Operating expenses consist primarily of the following:~~

~~General and Administrative.~~ General and administrative expenses (“G&A expense”) consist of fixed overhead personnel expenses associated with our corporate functions and our service organization (including district and branch managers, customer service, contract renewals and regeneration plant management). We expect our general and administrative expensesCompany to ~~increase due~~convert revenue to ~~the anticipated growth of our business and related infrastructure as well as due to the legal, accounting, insurance, investor relations and other costs associated with being a public company.~~profit.

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

~~Research and Development.~~ Research and development expenses (“R&D expense”) consist primarily of personnel expenses related to research and development, patents, sustaining engineering, consulting and contractor expenses, tooling and prototype materials and overhead costs allocated to such expenses. Substantially all of our research and development expenses are related to developing new products and services and improving our existing products and services. To date, research and development expenses have been expensed as incurred, because the period between

~~achieving technological feasibility and the release of products and services for sale has been short and development costs qualifying for capitalization have been insignificant.~~

R&D expense can fluctuate depending on our determination to invest in developing new products, services and solutions and enhancing our existing products, services and solutions versus adding these capabilities through a mergers and acquisitions strategy. R&D expenditures are concentrated in our products businesses.

Net ~~Income (Loss)~~income (loss)

Net income (loss) is determined by subtracting operating expenses and interest expense from, and adding other operating income (expense), equity income (loss) from our partnership interest in Treated Water Outsourcing and income tax benefit (expense) to, gross profit. ~~For more information on how we determine gross profit, see “Gross Profit.”~~Net income (loss) is used by the Company to measure profitability as well as the overall health of the business.

Adjusted EBITDA

Adjusted EBITDA, which is a non-GAAP financial measure, is one of the primary metrics used by management to evaluate the strength and financial performance of our core business. Adjusted EBITDA is defined as net income (loss) before interest expense, income tax benefit (expense) and depreciation and amortization, adjusted for the impact of certain other items, including restructuring and related business transformation costs, ~~purchase accounting adjustment costs, non-cash~~ share-based compensation, transaction costs, and other gains, losses and ~~expenses.~~expenses that we believe do not directly reflect our underlying business operations. We present adjusted EBITDA ~~which is not a recognized financial measure under accounting principles generally accepted in the United States (“GAAP”),~~ because we believe it is frequently used by analysts, investors and other interested parties to evaluate and compare operating performance and value companies inwithin our industry. Further, we believe it is helpful in highlighting trends in our operating results and provides greater clarity and comparability period over period to management and our investors regarding the operational impact of long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate, and capital investments. In addition, adjusted EBITDA highlights true business performance by removing the impact of certain items that management believes do not directly

reflect our underlying operations and provides investors with greater visibility into the ongoing organic drivers of our business performance.

Management uses adjusted EBITDA to supplement GAAP measures of performance as follows:

•to assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance;

•in our management incentive compensation, which is based in part on components of adjusted EBITDA;

•in certain calculations under our senior secured credit facilities, which use components of adjusted EBITDA;

•to evaluate the effectiveness of our business strategies;

•to make budgeting decisions; and

•to compare our performance against that of other peer companies using similar measures.

In addition to the above, our chief operating decision maker uses ~~EBITDA and~~ adjusted EBITDA of each reportable operating segment to evaluate the operating performance of such segments. Adjusted EBITDA on a segment basis is defined as earnings before depreciation and amortization, adjusted for the impact of certain other items that have been reflected at the segment level. Adjusted EBITDA of the reportable operating segments do not include certain charges that are presented within corporate activities. These charges include certain restructuring and other business transformation charges that have been incurred to align and reposition the Company to the current reporting structure, acquisition related costs (including transaction costs and integration costs) and share-based compensation charges.

Adjusted EBITDA should not be considered a substitute for, or superior to, financial measures prepared in accordance with GAAP. The financial results prepared in accordance with GAAP and the reconciliations from these results should be carefully evaluated. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA. 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~~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.

3944

Results of Operations

The following table summarizes key components of our results of operations for the periods indicated:


	Three Months Ended June 30,										Nine Months Ended June 30,
	2021				2020						2021				2020
(In millions, except per share amounts)			% of Revenue				% of Revenue		% Variance				% of Revenue				% of Revenue		% Variance
Revenue from product sales and services	$	369.7	100.0	%	$	347.8	100.0	%	6.3	%	$	1,038.4	100.0	%	$	1,045.6	100.0	%	(0.7)	%

Gross profit	$	117.0	31.6	%	$	110.2	31.7	%	6.2	%	$	318.3	30.7	%	$	327.2	31.3	%	(2.7)	%



Total operating expenses	$	(90.1)	(24.4)	%	$	(77.5)	(22.3)	%	16.3	%	$	(259.6)	(25.0)	%	$	(264.3)	(25.3)	%	(1.8)	%


Other operating income, net	$	1.4	0.4	%	$	0.4	0.1	%	250.0	%	$	2.0	0.2	%	$	61.0	5.8	%	(96.7)	%
Interest expense	$	(11.2)	(3.0)	%	$	(10.5)	(3.0)	%	6.7	%	$	(28.3)	(2.7)	%	$	(37.3)	(3.6)	%	(24.1)	%
Income before income taxes	$	17.1	4.6	%	$	22.6	6.5	%	(24.3)	%	$	32.4	3.1	%	$	86.6	8.3	%	(62.6)	%
Income tax expense	$	(3.9)	(1.1)	%	$	(0.8)	(0.2)	%	387.5%		$	(7.7)	(0.7)	%	$	(3.3)	(0.3)	%	133.3	%
Net income	$	13.2	3.6	%	$	21.8	6.3	%	(39.4)	%	$	24.7	2.4	%	$	83.3	8.0	%	(70.3)	%
Net income attributable to non‑controlling interest	$	—	—	%	$	0.4	0.1	%	(100.0)	%	$	0.1	—	%	$	1.0	0.1	%	(90.0)	%
Net income attributable to Evoqua Water Technologies Corp.	$	13.2	3.6	%	$	21.4	6.2	%	(38.3)	%	$	24.6	2.4	%	$	82.3	7.9	%	(70.1)	%

Weighted average shares outstanding
Basic	119.0				116.6						119.0				116.6
Diluted	122.3				120.2						122.3				121.1
Earnings per share
Basic	$	0.11			$	0.18					$	0.21			$	0.71
Diluted	$	0.11			$	0.18					$	0.20			$	0.68

Other financial data:
Adjusted EBITDA(1)	$	66.2	17.9	%	$	63.8	18.3	%	3.8	%	$	169.0	16.3	%	$	164.1	15.7	%	3.0	%

(1)Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see “Non-GAAP Reconciliations” in Item 2 of this Report.

Consolidated Results for the Three Months Ended June 30, 2021 and 2020

Revenue-Revenue increased $21.9 million, or 6.3%, to $369.7 million in the three months ended June 30, 2021, from $347.8 million in the three months ended June 30, 2020. Revenue from product sales increased $10.8 million, or 5.2%, to $218.4 million in the three months ended June 30, 2021, from $207.6 million in the three months ended June 30, 2020. Revenue from services increased $11.1 million, or 7.9%, to $151.3 million in the three months ended June 30, 2021, from $140.2 million in the three months ended June 30, 2020.

The following tables provide the change in revenue by offering and the change in revenue by driver during the three months ended June 30, 2021 and 2020:


	Three Months Ended June 30,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Revenue from product sales:
Capital	$	156.0	42.2	%	$	150.4	43.2	%	$	5.6	3.7	%
Aftermarket	62.4		16.9	%	57.2		16.4	%	5.2		9.1	%
Revenue from services	151.3		40.9	%	140.2		40.3	%	11.1		7.9	%
	$	369.7	100.0	%	$	347.8	100.0	%	$	21.9	6.3	%


	Three Months Ended June 30,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Organic	$	358.1	96.9	%	$	347.0	99.8	%	$	11.1	3.2	%
Inorganic	4.1		1.1	%	0.8		0.2	%	3.3		0.9	%
Foreign currency translation	7.5		2.0	%	n/a		n/a		7.5		2.1	%
	$	369.7	100.0	%	$	347.8	100.0	%	$	21.9	6.3	%

The increase in organic revenue was primarily driven by increased pricing across all offerings. The increase was also driven by higher service sales volume as demand improved, primarily in North America, following economic closures and delays that occurred in the prior year period due to the COVID-19 pandemic. In addition, higher sales volume from product sales across multiple product lines, primarily in the Asia Pacific and EMEA regions, partially offset a decline in capital sales volume from projects in the microelectronics end market as compared to the prior year period. Revenue also increased due to contributions from acquisitions and favorable foreign currency translation.

Cost of sales and gross margin-Total gross margin decreased slightly to 31.6% in the three months ended June 30, 2021, from 31.7% in the three months ended June 30, 2020.

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


	Three Months Ended June 30,
	2021				2020
(In millions)			Gross Margin				Gross Margin
Cost of product sales	$	(152.6)	30.1	%	$	(143.5)	30.9	%
Cost of services	(100.1)		33.8	%	(94.1)		32.9	%
	$	(252.7)	31.6	%	$	(237.6)	31.7	%

Gross margin from product sales decreased by 80 basis points (“bps”) to 30.1% in the three months ended June 30, 2021, from 30.9% in the three months ended June 30, 2020. This decrease was primarily driven by product mix, which was influenced by delays and economic closures related to the COVID-19 pandemic, coupled with timing of large projects. This was partially offset by positive price realization.

Gross margin from services increased by 90 bps to 33.8% in the three months ended June 30, 2021, from 32.9% in the three months ended June 30, 2020. This increase was primarily driven by increased service productivity as negative impacts from the COVID-19 pandemic lessened in the current year period.

Operating expenses-Operating expenses increased $12.6 million, or 16.3%, to $90.1 million in the three months ended June 30, 2021, from $77.5 million in the three months ended June 30, 2020. Operating expenses are comprised of the following:


	Three Months Ended June 30,
	2021				2020
(In millions)			% of Revenue				% of Revenue		% Variance
General and administrative expense	$	(50.8)	(13.7)	%	$	(44.9)	(12.9)	%	13.1	%
Sales and marketing expense	(35.9)		(9.7)	%	(29.8)		(8.6)	%	20.5	%
Research and development expense	(3.4)		(0.9)	%	(2.8)		(0.8)	%	21.4	%
Total operating expenses	$	(90.1)	(24.4)	%	$	(77.5)	(22.3)	%	16.3	%

The increase period over period in operating expenses was primarily due to increased employee related expenses as well as a reduction in foreign currency translation gains from the prior period, most of which is related to intercompany loans. In addition, there was an increase in amortization expense from acquisitions in the current period, increased sales and marketing expenses, and higher consulting expenses. The above increases were partially offset by reduced spending across various areas as well as favorable settlement on outstanding insurance claims in the current period.

Other operating income, net-Other operating income, net increased $1.0 million to $1.4 million in the three months ended June 30, 2021, from $0.4 million in the three months ended June 30, 2020. This increase was primarily due to COVID-19 pandemic subsidies received from the Canadian government.

Interest expense-Interest expense increased $0.7 million, or 6.7%, to $11.2 million in the three months ended June 30, 2021, from $10.5 million in the three months ended June 30, 2020. The increase in interest expense was primarily due to an additional $3.1 million of fees incurred as a result of the April 2021 refinancing of our senior credit facility, which also resulted in the write off of $1.3 million of deferred financing fees. This was partially offset by a reduction in ongoing interest expense due to the change in the interest rate spread and LIBOR year over year as well as debt reduction undertaken in the April 2021 refinancing.

Income tax expense-Income tax expense increased to $3.9 million in the three months ended June 30, 2021, as compared to income tax expense of $0.8 million in the three months ended June 30, 2020. The increase in tax expense was primarily due to higher earnings in non-U.S. tax jurisdictions, which increases tax expense, and lower earnings in the U.S., which does not impact tax expense due to the U.S. valuation allowance. Additionally, the prior period benefited from the impact of the Memcor disposal, which created a low PAETR and tax expense for the three months ended June 30, 2020.

Net income-Net income decreased $8.6 million, or 39.4%, to $13.2 million in the three months ended June 30, 2021, from $21.8 million in the three months ended June 30, 2020, as a result of the variances noted above.

Adjusted EBITDA-Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA for the three months ended June 30, 2021 increased by $2.4 million, or 3.8%, to $66.2 million, as compared to $63.8 million for the three months ended June 30, 2020, primarily driven by higher sales volume in the current period. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Segment Results


	Three Months Ended June 30,
	2021				2020
(In millions)			% of Revenue				% of Revenue		% Variance
Revenue
Integrated Solutions and Services	$	239.7	64.8	%	$	228.7	65.8	%	4.8	%
Applied Product Technologies	130.0		35.2	%	119.1		34.2	%	9.2	%
Total Consolidated	$	369.7	100.0	%	$	347.8	100.0	%	6.3	%
Operating profit (loss)
Integrated Solutions and Services	$	37.8	10.2	%	$	32.6	9.4	%	16.0	%
Applied Product Technologies	22.7		6.1	%	23.6		6.8	%	(3.8)	%
Corporate	(32.2)		(8.7)	%	(23.1)		(6.6)	%	39.4	%
Total Consolidated	$	28.3	7.7	%	$	33.1	9.5	%	(14.5)	%
Adjusted EBITDA (1)
Integrated Solutions and Services	$	56.3	15.2	%	$	50.6	14.5	%	11.3	%
Applied Product Technologies	28.4		7.7	%	28.9		8.3	%	(1.7)	%
Corporate	(18.5)		(5.0)	%	(15.7)		(4.5)	%	17.8	%
Total Consolidated	$	66.2	17.9	%	$	63.8	18.3	%	3.8	%

(1)Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation to segment operating profit (loss), its most directly comparable financial measure presented in accordance with GAAP, see “Non-GAAP Reconciliations” in Item 2 of this Report.

Integrated Solutions and Services

Revenue in the Integrated Solutions and Services segment increased $11.0 million, or 4.8%, to $239.7 million in the three months ended June 30, 2021, from $228.7 million in the three months ended June 30, 2020.

The following tables provide the change in revenue by offering and the change in revenue by driver during the three months ended June 30, 2021 and 2020 for the Integrated Solutions and Services segment:


	Three Months Ended June 30,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Revenue from product sales:
Capital	$	63.3	26.4	%	$	64.7	28.3	%	$	(1.4)	(2.2)	%
Aftermarket	31.9		13.3	%	29.1		12.7	%	2.8		9.6	%
Revenue from services	144.5		60.3	%	134.9		59.0	%	9.6		7.1	%
	$	239.7	100.0	%	$	228.7	100.0	%	$	11.0	4.8	%


	Three Months Ended June 30,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Organic	$	234.1	97.7	%	$	227.9	99.7	%	$	6.2	2.7	%
Inorganic	4.1		1.7	%	0.8		0.3	%	3.3		1.4	%
Foreign currency translation	1.5		0.6	%	n/a		n/a		1.5		0.7	%
	$	239.7	100.0	%	$	228.7	100.0	%	$	11.0	4.8	%

The increase in organic revenue was driven by higher sales volume across a variety of end markets, primarily in service and aftermarket revenue as demand improved following economic closures and delays that occurred in the prior

year period due to the COVID-19 pandemic. Favorable pricing also contributed to the increase. Lower capital sales volume was driven by a decline in projects in the microelectronics end market, which was mostly offset by new projects primarily in the chemical processing end market as compared to the prior year period.

Operating profit in the Integrated Solutions and Services segment increased $5.2 million, or 16.0%, to $37.8 million in the three months ended June 30, 2021, from $32.6 million in the three months ended June 30, 2020.

Operating profit was favorably impacted by higher sales volume, favorable price/cost, and productivity improvements as the negative impacts from the COVID-19 pandemic lessened in the current year period. Operating profit was unfavorably impacted by higher employee-related expenses, which included increased compensation and travel spending as compared to the prior year period, partially offset by favorable settlement of insurance claims.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Integrated Solutions and Services segment increased $5.7 million, or 11.3%, to $56.3 million in the three months ended June 30, 2021, compared to $50.6 million in the three months ended June 30, 2020. The increase was driven by the same factors that impacted operating profit, other than the change in depreciation and amortization, and also excludes restructuring and other non-recurring activity recognized in the period. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Applied Product Technologies

Revenue in the Applied Product Technologies segment increased $10.9 million, or 9.2%, to $130.0 million in the three months ended June 30, 2021, from $119.1 million in the three months ended June 30, 2020.

The following tables provide the change in revenue by offering and the change in revenue by driver during the three months ended June 30, 2021 and 2020 for the Applied Product Technologies segment:


	Three Months Ended June 30,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Revenue from product sales:
Capital	$	92.7	71.3	%	$	85.7	72.0	%	$	7.0	8.2	%
Aftermarket	30.5		23.5	%	28.1		23.6	%	2.4		8.5	%
Revenue from services	6.8		5.2	%	5.3		4.5	%	1.5		28.3	%
	$	130.0	100.0	%	$	119.1	100.0	%	$	10.9	9.2	%


	Three Months Ended June 30,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Organic	$	124.0	95.4	%	$	119.1	100.0	%	$	4.9	4.2	%
Inorganic	—		—	%	—		—	%	—		—	%
Foreign currency translation	6.0		4.6	%	n/a		n/a		6.0		4.9	%
	$	130.0	100.0	%	$	119.1	100.0	%	$	10.9	9.2	%

The increase in organic revenue as compared to the prior year period was primarily due to price realization. The increase was also due to sales volume increases in the Asia Pacific and EMEA regions, compared to the prior year period resulting from growth across multiple product lines, which was offset by sales volume declines in the Americas region due to continued customer site access challenges and delays.

Operating profit in the Applied Product Technologies segment decreased $0.9 million, or 3.8%, to $22.7 million in the three months ended June 30, 2021, from $23.6 million in the three months ended June 30, 2020.

The decline in operating profit was primarily due to unfavorable operational variances, including additional warranty reserves and production variances, offsetting favorable price/cost and product mix. Higher employee related expenses also reduced segment profitability as compared to the prior year period, which was driven by increased compensation and travel spending.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Applied Product Technologies segment decreased $0.5 million, or 1.7%, to $28.4 million in the three months ended June 30, 2021, compared to $28.9 million in the three months ended June 30, 2020. The decrease was driven by the same factors that impacted operating profit, other than the change in depreciation and amortization, and also excludes restructuring and other non-recurring activity. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Corporate

Operating loss in Corporate increased $9.1 million, or 39.4%, to $32.2 million in the three months ended June 30, 2021, from $23.1 million in the three months ended June 30, 2020. The increase period over period was primarily due to higher employee related expenses as compared to the prior year period. In addition, there were lower foreign currency translation gains compared to the prior period, most of which is related to intercompany loans. Finally, share-based compensation expenses increased compared to the prior period due primarily to special one-time restricted stock unit and performance share unit awards granted to our executive leadership team in May 2021 to promote retention, reward performance and incentivize further stockholder return.

Consolidated Results for the Nine Months Ended June 30, 2021 and 2020

Revenue-Revenue decreased $7.2 million, or 0.7%, to $1,038.4 million in the nine months ended June 30, 2021, from $1,045.6 million in the nine months ended June 30, 2020. Revenue from product sales decreased $9.2 million, or 1.5%, to $600.9 million in the nine months ended June 30, 2021, from $610.1 million in the nine months ended June 30, 2020. Revenue from services increased $2.0 million, or 0.5%, to $437.5 million in the nine months ended June 30, 2021, from $435.5 million in the nine months ended June 30, 2020.

The following tables provide the change in revenue by offering and the change in revenue by driver during the nine months ended June 30, 2021 and 2020:


	Nine Months Ended June 30,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Revenue from product sales:
Capital	$	425.9	41.0	%	$	421.2	40.3	%	$	4.7	1.1	%
Aftermarket	175.0		16.9	%	188.9		18.1	%	(13.9)		(7.4)	%
Revenue from services	437.5		42.1	%	435.5		41.7	%	2.0		0.5	%
	$	1,038.4	100.0	%	$	1,045.6	100.0	%	$	(7.2)	(0.7)	%


	Nine Months Ended June 30,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Organic	$	1,017.0	97.9	%	$	1,030.3	98.5	%	$	(13.3)	(1.3)	%
Inorganic	6.5		0.6	%	15.3		1.5	%	(8.8)		(0.8)	%
Foreign currency translation	14.9		1.4	%	n/a		n/a		14.9		1.4	%
	$	1,038.4	100.0	%	$	1,045.6	100.0	%	$	(7.2)	(0.7)	%

The decrease in organic revenue was driven by lower sales volume, primarily in product sales in the Americas and EMEA regions, due to continued customer site access challenges and delays in the first half of fiscal 2021 as a result of the COVID-19 pandemic. In addition, lower sales volume in capital revenue was related to the timing of completion of prior year projects in the microelectronics end market. These decreases were partially offset by sales volume growth from product sales in the Asia Pacific region across multiple product lines, as demand improved following prior year economic closures, and favorable price realization related to established service contracts.

Favorable foreign currency translation more than offset the reduction in revenue due to the prior year divestiture of the Memcor product line.

Cost of sales and gross margin-Total gross margin decreased to 30.7% in the nine months ended June 30, 2021, from 31.3% in the nine months ended June 30, 2020.

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


	Nine Months Ended June 30,
		2021	2020
(In millions)					Gross Margin				Gross Margin
Cost of product sales			$	(428.2)	28.7	%	$	(428.0)	29.8	%
Cost of services			(291.9)		33.3	%	(290.4)		33.3	%
			$	(720.1)	30.7	%	$	(718.4)	31.3	%

Gross margin from product sales decreased by 110 bps to 28.7% in the nine months ended June 30, 2021, from 29.8% in the nine months ended June 30, 2020. The decrease in gross margin was primarily driven by product mix, which was influenced by delays and economic closures related to the COVID-19 pandemic, coupled with timing of large projects. This was partially offset by positive price realization.

Gross margin from services was 33.3% in both the nine months ended June 30, 2021 and 2020.

Operating expenses-Operating expenses decreased $4.7 million, or 1.8%, to $259.6 million in the nine months ended June 30, 2021, from $264.3 million in the nine months ended June 30, 2020. Operating expenses are comprised of the following:


	Nine Months Ended June 30,
		2021	2020
(In millions)					% of Revenue				% of Revenue		% Variance
General and administrative expense			$	(146.1)	(14.1)	%	$	(152.8)	(14.6)	%	(4.4)	%
Sales and marketing expense			(103.6)		(10.0)	%	(101.8)		(9.7)	%	1.8	%
Research and development expense			(9.9)		(1.0)	%	(9.7)		(0.9)	%	2.1	%
Total operating expenses			$	(259.6)	(25.0)	%	$	(264.3)	(25.3)	%	(1.8)	%

The decrease period over period in operating expenses was primarily due to efforts taken by the Company to reduce spending across various areas in response to uncertainties related to the COVID-19 pandemic, such as reduced travel, particularly in the first half of fiscal 2021. In addition, there was improved collection experience in the current period, as well as a write off of accounts receivable that occurred in the prior year, which did not reoccur in the current year. Finally, general and administrative expenses include foreign currency translation gains of approximately $4.6 million in the nine months ended June 30, 2021 compared to foreign currency translation gains of approximately $2.4 million in the prior year period, most of which were related to intercompany loans. These decreases were partially offset by increased employee related expenses, increased amortization expense due to acquisitions in the current period, an increase in external legal fees, as well as a benefit in the prior year related to changes in the estimates of certain acquisitions achieving their earn-out targets.

Other operating income, net-Other operating income, net decreased $59.0 million to $2.0 million in the nine months ended June 30, 2021, from $61.0 million in the nine months ended June 30, 2020. The decrease is primarily due to the net pre-tax benefit on the sale of the Memcor product line of $58.0 million, which is net of $8.3 million of discretionary compensation payments to employees in connection with the transaction and $1.0 million in transaction costs incurred in the first quarter of 2020. In the nine months ended June 30, 2021, other operating income, net includes COVID-19 pandemic subsidies received from the Canadian government.

Interest expense-Interest expense decreased $9.0 million, or 24.1%, to $28.3 million in the nine months ended June 30, 2021, from $37.3 million in the nine months ended June 30, 2020. The decrease in interest expense was primarily driven by a reduction in the interest rate spread and LIBOR year over year, in addition to a $100.0 million debt prepayment that occurred in January 2020 and decreased debt as a result of the April 2021 refinancing of our senior credit facility.

Income tax expense-Income tax expense increased $4.4 million to $7.7 million in the nine months ended June 30, 2021, from $3.3 million in the nine months ended June 30, 2020. Income tax expense increased due to the recognition of discrete items in the current period related to an adjustment for prepaid income taxes and an uncertain tax position in connection with a tax audit in a foreign jurisdiction, Additionally, income tax expense increased due to higher earnings innon-U.S. tax jurisdictions, which increases tax expense, and lower earnings in the U.S., which does not impact tax expense due to the U.S. valuation allowance.

Net income-Net income decreased $58.6 million, or 70.3%, to $24.7 million in the nine months ended June 30, 2021, from $83.3 million in the nine months ended June 30, 2020, as a result of the variances noted above.

Adjusted EBITDA-Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA for the nine months ended June 30, 2021 increased by $4.9 million, or 3.0%, to $169.0 million, as compared to $164.1 million for the nine months ended June 30, 2020, primarily driven by operational efficiencies and cost savings, offset by the changes as compared to the prior year period in non-recurring expenses and benefits. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Segment Results


	Nine Months Ended June 30,
		2021	2020
(In millions)					% of Revenue				% of Revenue		% Variance
Revenue
Integrated Solutions and Services			$	678.5	65.3	%	$	694.7	66.4	%	(2.3)	%
Applied Product Technologies			359.9		34.7	%	350.9		33.6	%	2.6	%
Total Consolidated			$	1,038.4	100.0	%	$	1,045.6	100.0	%	(0.7)	%
Operating profit (loss)
Integrated Solutions and Services			$	94.9	9.1	%	$	102.5	9.8	%	(7.4)	%
Applied Product Technologies			54.2		5.2	%	110.5		10.6	%	(51.0)	%
Corporate			(88.4)		(8.5)	%	(89.1)		(8.5)	%	(0.8)	%
Total Consolidated			$	60.7	5.8	%	$	123.9	11.8	%	(51.0)	%
Adjusted EBITDA (1)
Integrated Solutions and Services			$	148.8	14.3	%	$	153.5	14.7	%	(3.1)	%
Applied Product Technologies			72.6		7.0	%	66.5		6.4	%	9.2	%
Corporate			(52.4)		(5.0)	%	(55.9)		(5.3)	%	(6.3)	%
Total Consolidated			$	169.0	16.3	%	$	164.1	15.7	%	3.0	%

Integrated Solutions and Services

Revenue in the Integrated Solutions and Services segment decreased $16.2 million, or 2.3%, to $678.5 million in the nine months ended June 30, 2021, from $694.7 million in the nine months ended June 30, 2020.

The following tables provide the change in revenue by offering and the change in revenue by driver during the nine months ended June 30, 2021 and 2020 for the Integrated Solutions and Services segment:


	Nine Months Ended June 30,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Revenue from product sales:
Capital	$	166.0	24.5	%	$	185.4	26.7	%	$	(19.4)	(10.5)	%
Aftermarket	91.5		13.5	%	90.7		13.1	%	0.8		0.9	%
Revenue from services	421.0		62.0	%	418.6		60.3	%	2.4		0.6	%
	$	678.5	100.0	%	$	694.7	100.0	%	$	(16.2)	(2.3)	%


	Nine Months Ended June 30,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Organic	$	670.0	98.7	%	$	693.8	99.9	%	$	(23.8)	(3.4)	%
Inorganic	6.5		1.0	%	0.9		0.1	%	5.6		0.8	%
Foreign currency translation	2.0		0.3	%	n/a		n/a		2.0		0.3	%
	$	678.5	100.0	%	$	694.7	100.0	%	$	(16.2)	(2.3)	%

The decrease in organic revenue was driven by lower sales volume, primarily in capital revenue, related to the timing of completion of projects in the microelectronics end market and temporary customer site closures and delays in annual maintenance in the oil and gas refining end markets in the first half of fiscal 2021 due to the COVID-19 pandemic in North America. This was partially offset by growth in service and aftermarket revenue, including sales volume growth in a variety of end markets, as well as favorable price realization related to established service contracts.

Operating profit in the Integrated Solutions and Services segment decreased $7.6 million, or 7.4%, to $94.9 million in the nine months ended June 30, 2021, from $102.5 million in the nine months ended June 30, 2020.

Operating profit was unfavorably impacted by sales volume and mix, lower productivity due to customer shutdowns and enhanced safety protocols as a result of the COVID-19 pandemic in the first half of fiscal 2021, as well as some challenges filling open positions. In addition, operating profit was negatively impacted by increased operating costs based on changes in allocation methodologies for corporate expenses. These declines were partially offset by favorable price/cost and reductions in travel and other discretionary spending in the current period.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Integrated Solutions and Services segment decreased $4.7 million, or 3.1%, to $148.8 million in the nine months ended June 30, 2021, compared

to $153.5 million in the nine months ended June 30, 2020. The decline was driven by the same factors that impacted operating profit, other than the change in depreciation and amortization, and also excludes restructuring and other non-recurring activity. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Applied Product Technologies

Revenue in the Applied Product Technologies segment increased $9.0 million, or 2.6%, to $359.9 million in the nine months ended June 30, 2021, from $350.9 million in the nine months ended June 30, 2020.

The following tables provide the change in revenue by offering and the change in revenue by driver during the nine months ended June 30, 2021 and 2020 for the Applied Product Technologies segment:


	Nine Months Ended June 30,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Revenue from product sales:
Capital	$	259.9	72.2	%	$	235.8	67.2	%	$	24.1	10.2	%
Aftermarket	83.5		23.2	%	98.2		28.0	%	(14.7)		(15.0)	%
Revenue from services	16.5		4.6	%	16.9		4.8	%	(0.4)		(2.4)	%
	$	359.9	100.0	%	$	350.9	100.0	%	$	9.0	2.6	%


	Nine Months Ended June 30,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Organic	$	347.0	96.4	%	$	336.5	95.9	%	$	10.5	3.1	%
Inorganic	—		—	%	14.4		4.1	%	(14.4)		(4.1)	%
Foreign currency translation	12.9		3.6	%	n/a		n/a		12.9		3.6	%
	$	359.9	100.0	%	$	350.9	100.0	%	$	9.0	2.6	%

The increase in organic revenue was driven by sales volume growth from product sales in the Asia Pacific region across multiple product lines, as demand improved following economic closures that occurred in the prior year due to the COVID-19 pandemic. This growth was partially offset by declines across multiple product lines in the Americas and EMEA regions as a result of continued customer site access challenges and delays. In addition, the divestiture of the Memcor product line reduced revenue by $14.4 million as compared to the prior year period while foreign currency was favorable by $12.9 million.

Operating profit in the Applied Product Technologies segment decreased $56.3 million, or 51.0%, to $54.2 million in the nine months ended June 30, 2021, from $110.5 million in the nine months ended June 30, 2020.

The decline in operating profit was primarily related to the net pre-tax benefit on the sale of the Memcor product line of $58.0 million recognized in the prior year, which was net of $8.3 million of discretionary compensation payments to employees in connection with the transaction and $1.0 million in transaction costs incurred. Operating profit was also impacted by the reduction in sales volume as a result of the sale of the Memcor product line. These declines were partially offset by favorable organic sales volume, product mix and price, which offset inflation, as well as improvement in operational efficiencies due to global plant consolidations and cost containment measures.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Applied Product Technologies segment increased $6.1 million, or 9.2%, to $72.6 million in the nine months ended June 30, 2021, compared to $66.5 million in the nine months ended June 30, 2020. The increase was driven by the same factors that impacted operating profit, other than the change in depreciation and amortization, and also excludes other non-recurring activity, including the $58.0 million gain recognized in the prior year related to the divestiture of the Memcor product line. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Corporate

Operating loss in Corporate decreased $0.7 million, or 0.8%, to $88.4 million in the nine months ended June 30, 2021, from $89.1 million in the nine months ended June 30, 2020. The decrease period over period was primarily due to foreign currency translation gains of approximately $5.1 million in the nine months ended June 30, 2021 compared to foreign currency translation gains of approximately $2.5 million in the prior year period, most of which were related to intercompany loans. Additionally, the decrease was driven by reductions in discretionary spending compared to the prior period. This was partially offset by increases in expenses associated with share-based compensation and shareholder litigation in the current period.

Non-GAAP Reconciliations

The following is a reconciliation of total revenue to organic revenue for the three months ended June 30, 2021:


	Total Revenue				Foreign Currency				Inorganic Revenue(1)				Organic Revenue
	Three Months Ended June 30,		% Variance		Three Months Ended June 30,		% Variance		Three Months Ended June 30,		% Variance		Three Months Ended June 30,		% Variance
(In millions)	2020	2021			2020	2021			2020	2021			2020	2021
Evoqua Water Technologies	$347.8	$369.7	6.3	%	n/a	$7.5	2.1	%	$0.8	$4.1	0.9	%	$347.0	$358.1	3.2	%
Integrated Solutions & Services	$228.7	$239.7	4.8	%	n/a	$1.5	0.7	%	$0.8	$4.1	1.4	%	$227.9	$234.1	2.7	%
Applied Product Technologies	$119.1	$130.0	9.2	%	n/a	$6.0	4.9	%	$—	$—	—	%	$119.1	$124.0	4.2	%

(1)Includes divestiture of the Lange Product Line on March 1, 2021, acquisition of Aquapure Technologies on September 3, 2020, acquisition of Ultrapure & Industrial Services on December 17, 2020 and acquisition of WCSI on April 1, 2021.

The following is a reconciliation of total revenue to organic revenue for the nine months ended June 30, 2021:


	Total Revenue				Foreign Currency				Inorganic Revenue(1)				Organic Revenue
	Nine Months Ended June 30,		% Variance		Nine Months Ended June 30,		% Variance		Nine Months Ended June 30,		% Variance		Nine Months Ended June 30,		% Variance
(In millions)	2020	2021			2020	2021			2020	2021			2020	2021
Evoqua Water Technologies	$1,045.6	$1,038.4	(0.7)	%	n/a	$14.9	1.4	%	$15.3	$6.5	(0.8)	%	$1,030.3	$1,017.0	(1.3)	%
Integrated Solutions & Services	$694.7	$678.5	(2.3)	%	n/a	$2.0	0.3	%	$0.9	$6.5	0.8	%	$693.8	$670.0	(3.4)	%
Applied Product Technologies	$350.9	$359.9	2.6	%	n/a	$12.9	3.6	%	$14.4	$—	(4.1)	%	$336.5	$347.0	3.1	%

(1)Includes divestiture of the Memcor product line on December 31, 2019, divestiture of the Lange Product Line on March 1, 2021, acquisition of Aquapure Technologies on September 3, 2020, acquisition of Ultrapure & Industrial Services on December 17, 2020 and acquisition of WCSI on April 1, 2021.

The following is a reconciliation of our Net income to adjusted ~~EBITDA (unaudited, amounts in millions):~~EBITDA. Amounts excluded relate to items that management believes do not reflect the underlying, ongoing operational performance of the business as a result of their nature or size and/or are non-recurring and would not be expected to occur as part of our normal business on a regular basis:

Three Months Ended
December 31,
(In millions) 2020 2019 % Variance
Net income $ 6.5 $ 53.5 (87.9) %
Income tax expense 1.1 2.6 (57.7) %
Interest expense 8.7 13.6 (36.0) %
Operating profit 16.3 69.7 (76.6) %
Depreciation and amortization 27.4 25.1 9.2 %
EBITDA 43.7 94.8 (53.9) %
Restructuring and related business transformation costs (a) 1.8 1.7 5.9 %
Share-based compensation (b) 3.1 3.7 (16.2) %
Transaction costs (c) 0.6 0.2 200.0 %
Other (gains) losses and expenses (d) (4.4) (56.8) (92.3) %
Adjusted EBITDA $ 44.8 $ 43.6 2.8 %


	Three Months Ended June 30,						Nine Months Ended June 30,
(In millions)	2021		2020		% Variance		2021		2020		% Variance
Net income	$	13.2	$	21.8	(39.4)	%	$	24.8	$	83.3	(70.2)	%
Income tax expense	3.9		0.8		387.5%		7.7		3.3		133.3	%
Interest expense	11.2		10.5		6.7	%	28.3		37.3		(24.1)	%
Operating profit	$	28.3	$	33.1	(14.5)	%	$	60.8	$	123.9	(50.9)	%
Depreciation and amortization	29.1		27.6		5.4	%	83.6		80.1		4.4	%
EBITDA	$	57.4	$	60.7	(5.4)	%	$	144.4	$	204.0	(29.2)	%
Restructuring and related business transformation costs (a)	1.8		3.1		(41.9)	%	9.0		11.0		(18.2)	%

Share-based compensation (b)	5.5		2.6		111.5	%	11.8		8.6		37.2	%

Transaction costs (c)	0.3		0.3		—	%	1.6		1.0		60.0	%
Other losses (gains) and expenses (d)	1.2		(2.9)		(141.4)	%	2.2		(60.5)		(103.6)	%
Adjusted EBITDA	$	66.2	$	63.8	3.8	%	$	169.0	$	164.1	3.0	%

(a)Restructuring and related business transformation costs

Adjusted EBITDA is calculated prior to considering certain restructuring or business transformation events. These events may occur over extended periods of time, and in some cases it is reasonably possible that they could reoccur in future periods based on reorganizations of the business, cost reduction or productivity improvement needs, or in response to economic conditions. For the periods presented such events include the following:

(i)Certain costs and expenses in connection with various restructuring initiatives, including severance and other employee-related costs, relocation and facility consolidation costs, ~~recruiting expenses,~~ and third-party consultant costs to assist with these initiatives. This includes:

(A)amounts related to the Company’s restructuring initiatives to reduce the cost structure and rationalize location footprint following the sale of the Memcor product line;

(B)amounts related to the Company’s transition from a three-segment structure to a two-segment operating model designed to better serve the needs of customers worldwide; and

(C)amounts related to various other initiatives implemented to restructure and reorganize our business with the appropriate management team and cost structure.

4058


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
(In millions)	(In millions)		2020			2019		(In millions)	2021		2020		2021		2020

Post Memcor divestiture restructuring~~(1)~~	Post Memcor divestiture restructuring~~(1)~~		$	0.9		$	—	Post Memcor divestiture restructuring~~(1)~~	$	0.7	$	1.2	$	4.6	$	4.9
Cost of product sales and services ("Cost of sales")			0.8			—
Cost of product sales and services (“Cost of sales”)								Cost of product sales and services (“Cost of sales”)	0.3		0.8		3.4		3.7

S&M expense			0.2			—

Sales and marketing expense (“S&M expense”)								Sales and marketing expense (“S&M expense”)	—		(0.1)		0.2		—
General and administrative expense (“G&A expense”)								General and administrative expense (“G&A expense”)	0.4		0.5		0.7		1.2
Other operating (income) expense	Other operating (income) expense		(0.1)			—		Other operating (income) expense	—		—		0.3		—
Two-segment restructuring~~(2)~~	Two-segment restructuring~~(2)~~		$	0.2		$	1.0	Two-segment restructuring~~(2)~~	$	0.2	$	0.6	$	0.8	$	1.9
Cost of sales	Cost of sales		—			0.3		Cost of sales	0.1		0.4		0.3		1.0

G&A expense	G&A expense		0.2			0.3		G&A expense	0.1		0.2		0.5		0.9
Other operating (income) expense	Other operating (income) expense		—			0.4		Other operating (income) expense	—		—		—		—
Various other initiatives~~(3)~~	Various other initiatives~~(3)~~		$	—		$	0.2	Various other initiatives~~(3)~~	$	0.5	$	0.5	$	2.0	$	1.0
Cost of sales	Cost of sales		—			0.1		Cost of sales	0.5		0.3		1.0		0.7

S&M expense								S&M expense	0.1		0.1		0.2		0.1
G&A expense	G&A expense		—			0.1		G&A expense	—		0.1		0.4		0.2

Other operating (income) expense								Other operating (income) expense	(0.1)		—		0.4		—
Total(1)	Total(1)		$	1.1		$	1.2	Total(1)	$	1.4	$	2.3	$	7.4	$	7.8

(1)~~all of~~Of which $7.0 million and $7.7 million for the nine months ended June 30, 2021 and 2020, respectively, is reflected in restructuring charges in Note 14, “Restructuring and Related Charges,” in Part I, Item 1 of this ~~Quarterly Report on Form 10-Q (the “Restructuring Footnote”) in the three months ended December 31, 2020.~~

~~(2)of which $0.2 million and $0.7 million is reflected in the Restructuring Footnote in the three months ended December 31, 2020 and 2019, respectively.~~

~~(3)all of which is reflected in the Restructuring Footnote in the three months ended December 31, 2019.~~Report.

(ii)Legal settlement costs and intellectual property related fees ~~associated with legacy matters prior to the AEA Acquisition,~~ including fees and settlement costs associated with legacy matters, related to product warranty litigation on MEMCOR® products and certain discontinued products. This includes:


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
(In millions)	(In millions)		2020			2019		(In millions)	2021		2020		2021		2020
Cost of sales	Cost of sales		$	—		$	0.1	Cost of sales	$	0.1	$	0.3	$	0.3	$	0.5
G&A expense	G&A expense		0.1			—		G&A expense	0.3		0.1		0.5		0.3
Total	Total		$	0.1		$	0.1	Total	$	0.4	$	0.4	$	0.8	$	0.8

(iii)Expenses associated with our information technology and functional infrastructure transformation, ~~subsequent to the AEA Acquisition,~~ including activities to optimize information technology systems and functional infrastructure processes. This includes:


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
(In millions)	(In millions)		2020			2019		(In millions)	2021		2020		2021		2020
Cost of sales	Cost of sales		$	—		$	0.1	Cost of sales	$	—	$	—	$	0.1	$	0.1

G&A expense	G&A expense		0.2			0.3		G&A expense	—		(0.1)		0.1		0.6

Total	Total		$	0.2		$	0.4	Total	$	—	$	(0.1)	$	0.2	$	0.7

(iv)Costs associated with the secondary public offering of common stock held by certain shareholders of the Company, as well as costs incurred by us in connection with establishment of our public company compliance structure and processes, including consultant costs. This includes:

4159


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
(In millions)	(In millions)		2020			2019		(In millions)	2021		2020		2021		2020
G&A expense	G&A expense		$	0.4		$	—	G&A expense	$	—	$	0.5	$	0.6	$	1.7
Total	Total		$	0.4		$	—	Total	$	—	$	0.5	$	0.6	$	1.7

(b)Share-based compensation

Adjusted EBITDA is calculated prior to considering ~~non‑cash~~ share‑based compensation expenses related to equity awards. See Note 17, “Share-Based Compensation,” in Part I, Item 1 of this ~~Quarterly~~ Report ~~on Form 10-Q~~ for further detail.

(c)Transaction related costs

Adjusted EBITDA is calculated prior to considering transaction, integration and restructuring costs associated with business combinations because these costs are unique to each transaction and represent costs that were incurred as a result of the transaction decision. Such costs may include, without limitation, consulting and legal costs associated with due diligence and closing a transaction, restructuring and integration costs such as severance, facility consolidation costs, product rationalization or inventory obsolescence charges, system integration or conversion costs, fair value changes associated with contingent consideration, and costs associated with any litigation matters that arise subsequent to our acquisition of a business for which the matter in question preceded the transaction, but was not known, not probable or unresolved at the date of acquisition. We believe that viewing earnings prior to considering these charges provides investors with useful additional perspective because the significant costs incurred in connection with business combinations result primarily from the need to eliminate duplicate assets, activities or employees - a natural result of acquiring or disposing a fully integrated set of activities. Integration and restructuring costs associated with a business combination may occur over several ~~years.~~years and include, but are not limited to, consulting fees, legal fees, certain employee-related costs, facility consolidation and product rationalization costs, and fair value changes associated with contingent consideration. This includes:


		Three Months Ended December 31,			Three Months Ended June 30,						Nine Months Ended June 30,
(In millions)	(In millions)		2020			2019		(In millions)	2021		2020		2021		2020
Cost of sales	Cost of sales		$	0.1		$	0.1	Cost of sales	$	0.1	$	0.1	$	0.3	$	(0.1)
G&A expense	G&A expense		0.5			0.4		G&A expense	0.2		0.2		1.3		1.1
Other operating (income) expense			—			(0.3)

Total	Total		$	0.6		$	0.2	Total	$	0.3	$	0.3	$	1.6	$	1.0

(d)Other losses, (gains)~~, losses~~ and expenses

Adjusted EBITDA is calculated prior to considering certain other significant losses, (gains)~~, losses~~ and expenses. Such significant items represent substantive and/or unusual items that are evaluated on an individual basis. Such evaluation considers both the quantitative and qualitative aspects of their nature and they may be highly variable and difficult to predict. Unusual items may represent items that are not part of our ongoing business, items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis, items that would be non-recurring, or items related to products we no longer sell. While not all-inclusive, examples of items that could be included as other (gains), losses and expenses would be amounts related to non-cash foreign currency exchange gains and losses on intercompany loans, significant warranty events, and certain disposals of businesses, products or facilities that do not qualify as discontinued operations under GAAP. For the periods presented such events include the following:

(i)impact of foreign exchange gains and losses;

(ii)foreign exchange impact related to headquarter allocations;

(iii)net expense reduction related to the remediation of manufacturing defects caused by a third-party vendor for which partial restitution was received;

(iv)charges incurred by the Company related to product rationalization in its electro-chlorination business;

(v)~~trailing costs incurred in the three months ended December 31, 2020~~amounts related to the prior year sale of the Memcor product line and the net pre-tax benefit on the sale of the Memcor product line, which is net of $8.3 million of discretionary compensation payments to employees in connection with the transaction and $1.0 million in transaction costs incurred in the three months ended December 31, 2019;line;

(vi)expenses incurred by the Company as a result of the COVID-19 pandemic, including additional charges for personal protective equipment, increased costs for facility sanitization and one-time payments to certain employees; ~~and~~

(vii)legal fees incurred in excess of amounts covered by the Company’s insurance related to the Securities Litigation and SEC ~~investigation.~~investigation; and

(viii)loss on divestiture of the Lange Product Line.

Other losses, (gains)~~, losses~~ and expenses include the following for the periods presented below:

Three Months Ended December 31, 2020
Other Adjustments
(In millions) (i) (ii) (iii) (iv) (v) (vi) (vii) Total
Cost of sales $ — $ — $ — $ 0.2 $ 0.2 $ — $ — $ 0.4
G&A expense (6.8) — — — — 0.1 1.9 (4.8)
Total $ (6.8) $ — $ — $ 0.2 $ 0.2 $ 0.1 $ 1.9 $ (4.4)

Three Months Ended December 31, 2019
Other Adjustments
(In millions) (i) (ii) (iii) (iv) (v) (vi) (vii) Total
Cost of sales $ (0.4) $ — $ 0.2 $ 0.1 $ 0.1 $ — $ — $ —
G&A expense (6.2) 0.1 — — 0.9 — — (5.2)
Other operating (income) expense — — (1.6) — (50.0) — — (51.6)
Total $ (6.6) $ 0.1 $ (1.4) $ 0.1 $ (49.0) $ — $ — $ (56.8)

~~Immaterial rounding differences may be present in the tables above.~~

~~Results of Operations~~

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

Three Months Ended December 31,
2020 2019
(In millions, except per share amounts) % of Revenue % of Revenue % Variance
Revenue from product sales and services $ 322.2 100.0 % $ 346.1 100.0 % (6.9) %
Cost of product sales and services (226.9) (70.4) % (240.4) (69.5) % (5.6) %
Gross profit 95.3 29.6 % 105.7 30.5 % (9.8) %
General and administrative expense (42.3) (13.1) % (45.8) (13.2) % (7.6) %
Sales and marketing expense (33.9) (10.5) % (38.0) (11.0) % (10.8) %
Research and development expense (3.1) (1.0) % (3.7) (1.1) % (16.2) %
Other operating income, net 0.3 0.1 % 51.5 14.9 % (99.4) %
Interest expense (8.7) (2.7) % (13.6) (3.9) % (36.0) %
Income before income taxes 7.6 2.4 % 56.1 16.2 % 86.5 %
Income tax expense (1.1) (0.3) % (2.6) (0.8) % (57.7) %
Net income 6.5 2.0 % 53.5 15.5 % 87.9 %
Net income attributable to non‑controlling interest 0.1 — % 0.4 0.1 % (75.0) %
Net income attributable to Evoqua Water Technologies Corp. $ 6.4 2.0 % $ 53.1 15.3 % 87.9 %
Weighted average shares outstanding
Basic 117.8 115.6
Diluted 121.6 121.0
Earnings per share
Basic $ 0.05 $ 0.46
Diluted $ 0.05 $ 0.44
Other financial data:
Adjusted EBITDA(1) $ 44.8 13.9 % $ 43.6 12.6 % 2.8 %

~~(1)~~For the definition of adjusted EBITDA (a non-GAAP financial measure) 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 decreased $23.9 million, or 6.9%, to $322.2 million in the three months ended December 31, 2020, from $346.1 million in the three months ended December 31, 2019.~~

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

Three Months Ended December 31,
2020 2019 % Variance
(In millions)
% of
Revenue
% of
Revenue
Revenue from product sales $ 180.0 55.9 % $ 196.6 56.8 % (8.4) %
Revenue from services 142.2 44.1 % 149.5 43.2 % (4.9) %
$ 322.2 100.0 % $ 346.1 100.0 % (6.9) %

Revenues from product sales decreased $16.6 million, or 8.4%, to $180.0 million in the three months ended December 31, 2020, from $196.6 million in the three months ended December 31, 2019. The decrease was related to a decline in aftermarket revenues of $14.6 million, of which $7.0 million was driven by the divestiture of the Memcor

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product line that occurred in the prior period. The remainder of the decrease was mainly due to temporary site closures and delays due to the COVID-19 pandemic in the current period. In addition to the decrease in aftermarket revenue, capital revenues declined by $2.0 million in the current period. This decline was primarily related to the divestiture of the Memcor product line, which represented capital revenues of $6.9 million in the prior period, as well as a net decline across our end markets, driven primarily by microelectronics. This was partially offset by an increase in revenues in the Asia Pacific region of the Applied Product Technologies segment.


Three Months Ended June 30, 2021
	Other Adjustments
(In millions)	(i)		(ii)		(iii)		(iv)		(v)		(vi)		(vii)		(viii)		Total
Cost of sales	$	0.1	$	—	$	—	$	1.5	$	—	$	0.1	$	—	$	—	$	1.7


G&A expense	(1.3)		—		—		—		—		—		0.8		—		(0.5)

Total	$	(1.2)	$	—	$	—	$	1.5	$	—	$	0.1	$	0.8	$	—	$	1.2

Revenues from services decreased $7.3 million, or 4.9%, to $142.2 million in the three months ended December 31, 2020, from $149.5 million in the three months ended December 31, 2019. This decrease was primarily driven by temporary delays in annual maintenance in the oil and gas refining end market, the timing of completion of certain large projects in the prior year and shutdowns and delays due to the COVID-19 pandemic. Price realization related to established service contracts as well as service growth in the healthcare and pharmaceuticals end markets partially offset these declines.


Three Months Ended June 30, 2020
	Other Adjustments
(In millions)	(i)		(ii)		(iii)		(iv)		(v)		(vi)		(vii)		(viii)		Total
Cost of sales	$	—	$	—	$	—	$	0.1	$	—	$	0.7	$	—	$	—	$	0.8


G&A expense	(4.0)		(0.1)		—		—		—		0.4		—		—		(3.7)

Total	$	(4.0)	$	(0.1)	$	—	$	0.1	$	—	$	1.1	$	—	$	—	$	(2.9)

~~Cost of Sales and Gross Margin-Total gross margin decreased to 29.6% in the three months ended December 31, 2020, from 30.5% in the three months ended December 31, 2019.~~


Nine Months Ended June 30, 2021
	Other Adjustments
(In millions)	(i)		(ii)		(iii)		(iv)		(v)		(vi)		(vii)		(viii)		Total
Cost of sales	$	0.1	$	—	$	—	$	2.4	$	0.2	$	0.2	$	—	$	—	$	2.9


G&A expense	(5.2)		—		—		—		—		0.2		4.1		—		(0.9)
Other operating (income) expense	—		—		—		—		—		—		—		0.2		0.2
Total	$	(5.1)	$	—	$	—	$	2.4	$	0.2	$	0.4	$	4.1	$	0.2	$	2.2

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

Three Months Ended December 31,
2020 2019
(In millions)
Gross
Margin %
Gross
Margin %
Cost of product sales $ (131.1) 27.2 % $ (140.5) 28.5 %
Cost of services (95.8) 32.6 % (99.9) 33.2 %
$ (226.9) 29.6 % $ (240.4) 30.5 %

Gross margin from product sales decreased by 1.3% to 27.2% in the three months ended December 31, 2020, from 28.5% in the three months ended December 31, 2019. The decrease in gross margin was primarily driven by lower volume and product mix, both of which were influenced by delays and closures related to the COVID-19 pandemic, coupled with timing of large projects, which was partially offset by positive price realization.

Gross margin from services decreased approximately 0.6% to 32.6% in the three months ended December 31, 2020, from 33.2% in the three months ended December 31, 2019. This decrease is mainly driven by lower volume, as well as decreased labor productivity due to COVID-19 factors.

~~Operating Expenses~~-Operating expenses decreased $8.2 million, or 9.4%, to $79.3 million in the three months ended December 31, 2020, from $87.5 million in the three months ended December 31, 2019. The decrease is mainly due to various efforts taken by the Company to reduce costs across various areas in response to uncertainties related to the COVID-19 pandemic, such as reduced travel, employee related costs, and consulting costs. The change in foreign currency translation, most of which is related to intercompany loans, also resulted in a net decrease in operating expenses of $0.3 million period over period.

~~A discussion of operating expenses by category is as follows:~~

~~Research and Development Expense~~ - Research and development expenses decreased $0.6 million during the three months ended December 31, 2020 as compared to December 31, 2019 due to the Company’s timing of research and development projects.

~~Sales and Marketing Expense~~ - Sales and marketing expenses decreased $4.1 million during the three months ended December 31, 2020 mainly due to a $3.4 million reduction in travel-related expenses, certain marketing initiatives, and employee-related expenses. In addition, improved collection experience in the current period resulted in a decrease to bad debt expense of $0.6 million.


Nine Months Ended June 30, 2020
	Other Adjustments
(In millions)	(i)		(ii)		(iii)		(iv)		(v)		(vi)		(vii)		(viii)		Total
Cost of sales	$	(0.1)	$	—	$	0.1	$	0.4	$	0.2	$	0.7	$	—	$	—	$	1.3


G&A expense	(2.4)		—		—		—		0.1		0.4		—		—		(1.9)
Other operating (income) expense	—		—		(1.6)		—		(58.3)		—		—		—		(59.9)
Total	$	(2.5)	$	—	$	(1.5)	$	0.4	$	(58.0)	$	1.1	$	—	$	—	$	(60.5)

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~~General and Administrative Expense~~ - General and administrative expenses decreased $3.5 million, or 7.6%, to $42.3 million in the three months ended December 31, 2020, from $45.8 million in the three months ended December 31, 2019. The decrease is primarily due to:

•~~reduction in employee-related expenses of $2.2 million;~~

•~~reduction in travel expenses of $2.1 million;~~

•~~net reductions in costs associated with timing and cost controls of $0.8 million; and~~

•~~favorable change in foreign currency translation on the intercompany loans of $0.5 million~~

~~The above decreases were partially offset by:~~

•~~a benefit of $1.3 million in the prior year related to changes in the estimate of certain acquisitions achieving their earn-out targets;~~

•~~increased amortization expense of $1.0 million driven by continued acquisitions~~

~~Other operating income, net-~~Other operating income, net decreased $51.2 million to $0.3 million in the three months ended December 31, 2020, from $51.5 million in the three months ended December 31, 2019. The decrease is mainly due to the inclusion in the prior year period of the net pre-tax benefit on sale of the Memcor product line of $49.0 million, which was net of $8.3 million of discretionary compensation payments to employees in connection with the transaction and $1.0 million in transaction costs incurred in the three months ended December 31, 2019.

~~Interest Expense~~-Interest expense decreased $4.9 million, or 36.0%, to $8.7 million in the three months ended December 31, 2020, from $13.6 million in the three months ended December 31, 2019. The decrease in interest expense was primarily driven by a reduction in the spread and LIBOR year over year, in addition to a $100.0 million debt prepayment that occurred in January 2020.

~~Income tax expense~~-Income tax expense of $1.1 million and $2.6 million was recorded for the three months ended December 31, 2020 and 2019, respectively. The decrease in tax expense from the prior year was principally due to the significant income earned in the prior year, primarily from the sale of the Memcor product line, as compared to the current year.

~~Net Income-Net income decreased by $47.0 million, or 87.9%, to~~We do not present net income ~~of $6.5 million for the three months ended December 31, 2020, from net income of $53.5 million in the three months ended December 31, 2019, as a result of the variances noted above.~~

~~Adjusted EBITDA~~-Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA for the three months ended December 31, 2020 increased by $1.2 million to $44.8 million, as compared to $43.6 million for the three months ended December 31, 2019. Adjusted EBITDA for the quarter as compared to the prior year period was driven primarily by operational efficiencies and cost savings, offset by the changes as compared to the prior year period in non-recurring expenses and benefits.

~~Segment Results~~

Three Months Ended December 31,
2020 2019 % Variance
(In millions) % of Revenue % of Revenue
Revenues
Integrated Solutions and Services $ 214.7 66.6 % $ 228.1 65.9 % (5.9) %
Applied Product Technologies 107.5 33.4 % 118.0 34.1 % (8.9) %
Total Consolidated 322.2 100.0 % 346.1 100.0 % (6.9) %
Operating profit (loss)
Integrated Solutions and Services 26.4 8.2 % 33.2 9.6 % (20.5) %
Applied Product Technologies 13.4 4.2 % 63.1 18.2 % (78.8) %
Corporate (23.5) (7.3) % (26.6) (7.7) % (11.7) %
Total Consolidated 16.3 5.1 % 69.7 20.1 % (76.6) %
EBITDA
Integrated Solutions and Services 43.2 13.4 % 48.8 14.1 % (11.5) %
Applied Product Technologies 17.0 5.3 % 66.7 19.3 % (74.5) %
Corporate and unallocated costs (16.5) (5.1) % (20.7) (6.0) % (20.3) %
Total Consolidated $ 43.7 13.6 % $ 94.8 27.4 % (53.9) %

~~Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA~~ on a segment basis ~~is defined as earnings before~~because we do not allocate interest expense or income tax ~~expense (benefit) and depreciation and amortization, adjusted for~~benefit (expense) to our segments, making operating profit the ~~impact of certain other items that have been reflected at the segment level.~~most comparable GAAP metric. The following is a reconciliation of our segment adjusted EBITDA to operating profit, its most directly comparable financial measure presented in accordance with GAAP:


		Three Months Ended December 31,				Three Months Ended June 30,											Nine Months Ended June 30,
			2020	2019					2021						2020				2021				2020
(In millions)	(In millions)			Integrated Solutions and Services			Applied Product Technologies			Integrated Solutions and Services		Applied Product Technologies		(In millions)	Integrated Solutions and Services		Applied Product Technologies		Integrated Solutions and Services		Applied Product Technologies		Integrated Solutions and Services		Applied Product Technologies		Integrated Solutions and Services		Applied Product Technologies
Operating Profit				$	26.4		$	13.4		$	33.2	$	63.1
Operating profit														Operating profit	$	37.8	$	22.7	$	32.6	$	23.6	$	94.9	$	54.2	$	102.5	$	110.5
Depreciation and amortization	Depreciation and amortization			16.8			3.6			15.6		3.6		Depreciation and amortization	18.2		3.5		17.8		3.5		52.3		10.6		50.7		10.7
EBITDA	EBITDA			$	43.2		$	17.0		$	48.8	$	66.7	EBITDA	$	56.0	$	26.2	$	50.4	$	27.1	$	147.2	$	64.8	$	153.2	$	121.2
Restructuring and related business transformation costs (a)	Restructuring and related business transformation costs (a)			—			1.6			—		0.7		Restructuring and related business transformation costs (a)	0.3		0.7		0.2		1.6		1.4		5.2		0.3		5.6
Transaction costs (b)	Transaction costs (b)			—			—			—		(1.3)		Transaction costs (b)	—		—		—		0.1		—		—		—		(1.2)
Other losses (gains) and expenses (c)	Other losses (gains) and expenses (c)			—			0.4			—		(50.3)		Other losses (gains) and expenses (c)	—		1.5		—		0.1		0.2		2.6		—		(59.1)
Adjusted EBITDA ~~(d)~~	Adjusted EBITDA ~~(d)~~			$	43.2		$	19.0		$	48.8	$	15.8	Adjusted EBITDA ~~(d)~~	$	56.3	$	28.4	$	50.6	$	28.9	$	148.8	$	72.6	$	153.5	$	66.5

(a)Represents costs and expenses in connection with restructuring initiatives ~~distinct to our Applied Product Technologies segment~~ in the three and nine months ended ~~December 31,~~June 30, 2021 and 2020, ~~and 2019,~~ respectively. Such expenses are primarily composed of severance, relocation and ~~relocation~~facility consolidation costs.

(b)Represents costs associated with a change in the current estimate of certain acquisitions achieving their earn-out targets, which resulted in a decrease to the fair valued amount of the earn-out recorded upon acquisition, in the ~~three~~nine months ended ~~December 31, 2019,~~June 30, 2020, distinct to our Applied Product Technologies segment.

(c)Other losses, (gains) and expenses as discussed above in “How We Assess the Performance of Our Business-Adjusted EBITDA” distinct to our Integrated Solutions and Services (“ISS”) and Applied Product Technologies (“APT”) segments include the following:


		Three Months Ended December 31,				Three Months Ended June 30,											Nine Months Ended June 30,
			2020	2019					2021						2020				2021				2020
(In millions)	(In millions)			Integrated Solutions and Services			Applied Product Technologies			Integrated Solutions and Services		Applied Product Technologies		(In millions)	ISS		APT		ISS		APT		ISS		APT		ISS		APT
Trailing costs from the sale of the Memcor product line	Trailing costs from the sale of the Memcor product line			$	—		$	0.2		$	—	$	—	Trailing costs from the sale of the Memcor product line	$	—	$	—	$	—	$	—	$	—	$	0.2	$	—	$	—
Net pre-tax benefit on sale of the Memcor product line	Net pre-tax benefit on sale of the Memcor product line			—			—			—		(49.0)		Net pre-tax benefit on sale of the Memcor product line	—		—		—		—		—		—		—		(58.0)
Remediation of manufacturing defects	Remediation of manufacturing defects			—			—			—		(1.4)		Remediation of manufacturing defects	—		—		—		—		—		—		—		(1.5)
Product rationalization in electro-chlorination business	Product rationalization in electro-chlorination business			—			0.2			—		0.1		Product rationalization in electro-chlorination business	—		1.5		—		0.1		—		2.4		—		0.4

Loss on divestiture of Lange Product Line														Loss on divestiture of Lange Product Line	—		—		—		—		0.2		—		—		—
Total	Total			$	—		$	0.4		$	—	$	(50.3)	Total	$	—	$	1.5	$	—	$	0.1	$	0.2	$	2.6	$	—	$	(59.1)

~~(d)~~For the definition of adjusted EBITDA (a non-GAAP financial measure) and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see “How We Assess the Performance of Our Business-Adjusted EBITDA.” Immaterial rounding differences may be present in the tables above.

~~Integrated Solutions and Services~~

Revenues in the Integrated Solutions and Services segment decreased $13.4 million, or 5.9%, to $214.7 million in the three months ended December 31, 2020, from $228.1 million in the three months ended December 31, 2019. Service revenue declined by $6.9 million, primarily related to temporary delays in annual maintenance in the oil and gas refining end market, the timing of completion of certain large projects in the prior year and shutdowns and delays due to the COVID-19 pandemic. Price realization related to established service contracts and service growth in the healthcare and pharmaceuticals end markets partially offset the period over period decline. In addition, there was a net decline in

capital revenues of $4.0 million, primarily related to the timing of projects in the microelectronics end market, partially offset by new projects across a variety of end markets. The remaining decline was due to reduced aftermarket revenue of $2.5 million.

~~There was an immaterial impact on revenue from foreign currency translation and acquisitions compared to the prior period.~~

Operating profit in the Integrated Solutions and Services segment decreased $6.8 million, or 20.5%, to $26.4 million in the three months ended December 31, 2020, from $33.2 million in the three months ended December 31, 2019. Segment profitability decreased by $7.3 million as compared to the prior year period related to volume and mix impacts, lower productivity due to customer shutdowns and enhanced safety protocols as a result of the COVID-19 pandemic, and increased operating costs based on changes in allocation methodologies for corporate expenses. These declines were partially offset by additional price realization in the current period. In addition, depreciation and amortization expense increased by $1.2 million in the current period. Positive drivers to profitability were associated with decreased travel and discretionary spending of $1.7 million.

EBITDA in the Integrated Solutions and Services segment decreased $5.6 million, or 11.5%, to $43.2 million in the three months ended December 31, 2020, compared to $48.8 million in the three months ended December 31, 2019.

~~Applied Product Technologies~~

Revenues in the Applied Product Technologies segment decreased $10.5 million, or 8.9%, to $107.5 million in the three months ended December 31, 2020, from $118.0 million in the three months ended December 31, 2019. The divestiture of the Memcor product line reduced revenue by $14.4 million as compared to the prior year period. Organic revenue increased by $1.7 million, driven by $6.0 million growth in the Asia Pacific region related to the Anodes and Electro-deionization product lines, partially offset by declines across multiple product lines in both the Americas and

EMEA regions of $0.6 million and $3.7 million, respectively, due to continued customer site access challenges and delays. The segment saw a favorable foreign currency translation impact of $2.2 million.

Operating profit in the Applied Product Technologies segment decreased $49.7 million, or 78.8%, to $13.4 million in the three months ended December 31, 2020, from $63.1 million in the three months ended December 31, 2019. The decrease was mainly related to the inclusion in the prior year period of the net pre-tax benefit on sale of the Memcor product line of $49.0 million, which was net of $8.3 million of discretionary compensation payments to employees in connection with the transaction and $1.0 million in transaction costs incurred in the three months ended December 31, 2019. Operating profit was also impacted by $1.2 million related to the reduction in revenue volume as a result of the sale of the Memcor product line, as well as inflation and employee related costs of $0.9 million. Further decreases in operating profit were due to nonrecurring costs of $3.8 million related to:

•A net recovery of costs incurred by the Company from a settlement with a third-party vendor associated with remediation of manufacturing defects caused by the vendor in an amount of $1.3 million in the prior period;

•~~Reductions in costs in the prior period related to the achievement of earn-out targets associated with certain acquisitions in an amount of $1.3 million;~~

•~~Increase in product rationalization costs related to charges incurred by the Company in its electro-chlorination business in an amount of $0.1 million;~~

•~~Trailing costs associated with the sale of the Memcor product line in an amount of $0.2 million in the current period; and~~

•~~Increases in restructuring charges in an amount of $0.9 million primarily due to costs incurred following the sale of the Memcor product line.~~

Organic revenue volume as well as operational efficiencies and cost containment measures, partially offset by the impact of variances in product mix, contributed a net $4.7 million in profitability as compared to the prior year period. Operating profit also benefited $0.5 million from favorable foreign currency translation.

EBITDA in the Applied Product Technologies segment decreased $49.7 million, or 74.5%, to $17.0 million in the three months ended December 31, 2020, compared to $66.7 million in the three months ended December 31, 2019.

Liquidity and Capital Resources

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, other commitments and contractual

obligations. We consider liquidity in terms of cash flows from operations and their sufficiency to fund our operating and investing activities.

Our principal sources of liquidity are cash generated by our operating activities, borrowings under ~~the $125.0 million~~our revolving credit facility ~~(the “Revolver”) available to us under our First Lien Credit Agreement (as modified, amended or supplemented from time to time, the “Credit Agreement”)~~ and financing arrangements related to capital expenditures for equipment used to provide services to our customers. Historically, we have financed our operations primarily from these sources. Our primary cash needs are for day to day operations, to pay interest and principal on our indebtedness, to fund working capital requirements and to make capital expenditures.

Our ability to fund our capital needs depends on our ongoing ability to generate cash from operations and access to bank financing and the capital markets. Although the COVID-19 pandemic has not materially impacted our liquidity to date, we plan to continue to evaluate aspects of our spending, including capital expenditures, discretionary spending, and strategic investments, as the year progresses. We have considered the impacts of the COVID-19 pandemic on our liquidity and capital resources to date, and we do not currently expect it to impact our ability to meet future liquidity needs or continue to comply with our applicable debt covenants. We believe we are currently well-positioned to manage our business and have the ability and sufficient capacity to meet our cash requirements by using available cash, internally generated funds, and borrowing under our revolving credit facility. We are committed to maintaining a solid liquidity position.

As part of our ongoing efforts to improve our cash flow and related liquidity, we work with suppliers to optimize our terms and conditions, including occasionally extending payment terms. We also facilitate a voluntary supply chain finance program (the “program”) to provide certain of our suppliers with the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. A third party administers the program; our responsibility is limited to making payment on the terms originally negotiated with our supplier, regardless of whether the supplier sells its receivable to a financial institution. We do not enter into agreements with any of the participating financial institutions in connection with the program. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program. The amounts settled through the program and paid to participating financial institutions were ~~$2.7~~$27.4 million and ~~$9.3~~$26.4 million in the ~~three~~nine months ended ~~December 31,~~June 30, 2021 and 2020, ~~and 2019,~~ respectively. A downgrade in our credit rating or changes in the financial markets could limit the financial institutions’ willingness to commit to participation in the program.

We expect to continue to finance our liquidity requirements through internally generated funds, borrowings under ~~the Revolver~~our revolving credit facility and equipment financing arrangements. We believe that our projected cash flows generated from operations, together with borrowings under ~~the Revolver~~our revolving credit facility and other financing arrangements are sufficient to fund our principal debt payments, interest expense, our working capital needs, and our expected capital expenditures for the next twelve months. Our capital expenditures for the ~~three~~nine months ended ~~December 31,~~June 30, 2021 and 2020 ~~and 2019~~ were ~~$17.3~~$54.1 million and ~~$17.6~~$65.9 million, respectively. However, our budgeted capital expenditures can vary from period to period based on the nature of capital intensive project awards. Our focus on customer outsourced water projects will continue to be a driver of capital expenditures. From time to time, we may enter into financing arrangements related to capital expenditures for

equipment used to provide services to our customers. During the nine months ended June 30, 2021 and 2020, we entered into equipment financing arrangements totaling $25.4 million and $12.9 million, respectively. In addition, we may draw on ~~the Revolver~~our revolving credit facility from time to time to fund or partially fund an acquisition.

As of ~~December 31, 2020,~~June 30, 2021, we had total indebtedness of ~~$887.6~~$801.9 million, including ~~$816.9~~$475.0 million of term loan borrowings under the 2021 Credit Agreement, ~~no borrowings~~$95.0 million outstanding under the ~~Revolver, $70.1~~2021 Revolving Credit Facility, $148.2 million outstanding under the Securitization Facility, $83.3 million in borrowings related to equipment financing and ~~$0.6~~$0.5 million of notes payable related to certain equipment related contracts. We also had ~~$11.8~~$11.5 million of letters of credit issued under our 2021 Revolving Credit Facility as of June 30, 2021.

As of June 30, 2021 and September 30, 2020, we were in compliance with the ~~Revolver~~covenants contained in the Credit Agreement, including the revolving credit facility under the Credit Agreement.

2021 Credit Agreement

On April 1, 2021, EWT III entered into the 2021 Credit Agreement among EWT III, as borrower, EWT II, as parent guarantor, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and

collateral agent, and ING Capital, LLC, as sustainability coordinator. The 2021 Credit Agreement provides for a multi-currency senior secured revolving credit facility in an ~~additional $33 thousand~~aggregate principal amount not to exceed the U.S. dollar equivalent of ~~letters~~$350.0 million and a discounted senior secured term loan facility relating to a term loan in the amount of $475.0 million (together, the “Senior Facilities”). The 2021 Credit Agreement also provides for a letter of credit ~~issued~~sub-facility not to exceed $60.0 million. On April 1, 2021, EWT III borrowed the full amount of $475.0 million under the 2021 Term Loan and $105.0 under the 2021 Revolving Credit Facility. At June 30, 2021, the Company had $475.0 million outstanding under the 2021 Term Loan and $95.0 million outstanding on the 2021 Revolving Credit Facility.

The Senior Facilities are guaranteed by EWT II and certain existing and future direct or indirect wholly-owned domestic subsidiaries of EWT III (together with EWT III, collectively, the “Loan Parties”), and collateralized by a ~~separate uncommitted facility as of December 31, 2020.~~

~~Our Credit Agreement contains a number of covenants imposing certain restrictions~~first lien on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. The restrictions these covenants place on our business operations, include limitations on our or our subsidiaries’ ability to:

•~~incur or guarantee additional indebtedness;~~

•~~make certain investments;~~

•~~pay dividends or make distributions on our capital stock;~~

•~~sell assets, including capital stock of restricted subsidiaries;~~

•~~agree to payment restrictions affecting our restricted subsidiaries;~~

•~~consolidate, merge, sell or otherwise dispose of all or~~ substantially all of ~~our assets;~~the assets of the Loan Parties, with certain exceptions, including: (i) any equity interest in, and any assets sold to or held by, Evoqua Finance in connection with the Receivables Securitization Program, (ii) any equity interest in, and any assets sold to or held by, any other special purpose entity that is an indirect subsidiary of the Company in connection with any other securitization facility permitted under the 2021 Credit Agreement, and (iii) any real property with a fair market value of $5.0 million or less, when considered individually, or $30.0 million or less when taken together with all other real property owned by the Loan Parties.

With respect to the 2021 Revolving Credit Facility, EWT III is required to pay a commitment fee based on the daily unused portion of the 2021 Revolving Credit Facility, as well as certain other fees to the agents and the arrangers under the Senior Facilities. Subject to the terms of the 2021 Credit Agreement, to the extent not previously paid, any amount owed under the 2021 Revolving Credit Facility will become due and payable in full on April 1, 2026.

With respect to the 2021 Term Loan, EWT III will pay quarterly installments of principal of approximately $1.2 million beginning in the fourth quarter of 2021. Subject to the terms of the 2021 Credit Agreement, to the extent not previously paid, any amount owed under the 2021 Term Loan will become due and payable in full on April 1, 2028.

•
~~enter into transactions~~

Amounts outstanding under the Senior Facilities, at EWT III’s option, will bear interest at either (i) a Base Rate determined in accordance with ~~our affiliates;~~

•~~incur liens;~~the terms of the 2021 Credit Agreement, (ii) with respect to any amounts denominated in U.S. dollars or

•~~designate any~~ Sterling, a LIBO rate, or replacement thereof, as determined in accordance with the terms of ~~our~~the 2021 Credit Agreement, or (iii) with respect to amounts denominated in Euros, the EURIBOR rate, or replacement thereof, as determined in accordance with the terms of the 2021 Credit Agreement. In the case of the 2021 Revolving Credit Facility, an applicable margin based on the consolidated total leverage of EWT III and its restricted subsidiaries, as ~~unrestricted subsidiaries.~~calculated in accordance with the terms of the 2021 Credit Agreement, will be added to the interest rate elected by EWT III; provided that the interest rate may be adjusted if EWT III meets certain metrics for a sustainability price adjustment prior to December 31, 2021. In the case of the 2021 Term Loan, a fixed applicable margin, calculated in accordance with the terms of the 2021 Credit Agreement, will be added to the interest rate elected by EWT III.

The net proceeds of the Senior Facilities, together with the net proceeds of the Receivables Securitization Program and cash on hand, were used to repay all outstanding indebtedness, in an aggregate principal amount of approximately $814.5 million, under the 2014 Credit Agreement. The proceeds of the 2021 Revolving Credit Facility may also be used to finance or refinance the working capital and capital expenditures needs of EWT III and certain of its subsidiaries and for general corporate purposes.

The 2021 Credit Agreement is subject to acceleration upon various events of default and contains customary representations, warranties, affirmative covenants, and negative covenants, each substantially similar to those included in the Credit Agreement, including, among other things, a springing maximum first lien leverage ratio of 5.55 to 1.00.

As a result of the refinancing, the Company wrote off approximately $1.3 million of deferred financing fees related to the 2014 Term Loan. In addition, the Company incurred approximately $5.0 million of fees as a result of the refinancing, of which $1.9 million were recorded as deferred financing fees on the Consolidated Balance Sheets and $3.1 million were expensed.

Receivables Securitization Program

On April 1, 2021, Evoqua Finance entered into the Receivables Securitization Program consisting of, among other agreements, (i) the Receivables Financing Agreement among Evoqua Finance, as the borrower, the Receivables

Financing Lenders, PNC Bank, as administrative agent, EWT LLC, as initial servicer, and PNC Markets, as structuring agent, pursuant to which the lenders have made available to Evoqua Finance the Securitization Facility in an amount up to $150.0 million and (ii) the Sale Agreement among Evoqua Finance, as purchaser, EWT LLC, as initial servicer and as an originator, and Neptune Benson, Inc., an indirectly wholly-owned subsidiary of the Company, as an originator. Under the Receivables Securitization Program, the Originators, pursuant to the Sale Agreement, are required to sell substantially all of their trade receivables and certain related rights to payment and obligations of the Originators with respect to such receivables (the “Receivables”) to Evoqua Finance, which, in turn, will obtain loans secured by the Receivables from the Receivables Financing Lenders pursuant to the Receivables Financing Agreement. On April 1, 2021, Evoqua Finance borrowed $142.2 million under the Securitization Facility. During the third quarter of 2021, Evoqua Finance borrowed an additional amount under the Securitization Facility and had $148.2 million outstanding at June 30, 2021.

Pursuant to the Receivables Securitization Program, the aggregate principal amount of the loans made by the Receivables Financing Lenders will not exceed $150.0 million outstanding, subject to the borrowing base restrictions, unless so increased under the Receivables Financing Agreement. The Receivables Financing Lenders under the Receivables Securitization Program receive interest at LIBOR or LMIR as selected by Evoqua Finance. The Receivables Financing Agreement contains customary LIBOR benchmark replacement language. Additionally, PNC Bank and PNC Markets will receive certain fees as agents, and EWT LLC will receive a fee as servicer of the Receivables.

The Receivables Securitization Program contains certain customary representations, warranties, affirmative covenants, and negative covenants, subject to certain cure periods in some cases, including the eligibility of the Receivables being sold by the Originators and securing the loans made by the Receivables Financing Lenders, as well as customary reserve requirements, events of default, termination events, and servicer defaults. The Receivables Securitization Program matures on April 1, 2024. As of June 30, 2021, we were in compliance with the covenants contained in the Receivables Securitization Program.

Evoqua Water Technologies Corp. is a holding company and does not conduct any business operations of its own. As a result, our ability to pay cash dividends on our common stock, if any, is dependent upon cash dividends and distributions and other transfers from our operating subsidiaries. Under the terms of the 2021 Credit Agreement, our operating subsidiaries are currently limited in their ability to pay cash dividends to us, and we expect these limitations to continue in the future under the terms of any future credit agreement or any future debt or preferred equity securities of ours or of our subsidiaries.

In addition, our Revolver, but not the Credit Agreement, contains a financial covenant which requires us to comply with the maximum first lien net leverage ratio of 5.55 to 1.00 as of the last day of any quarter on which the aggregate amount of revolving loans and letters of credit outstanding under the Revolver (net of cash collateralized letters of credit and undrawn outstanding letters of credit in an amount of up to 50% of the Revolver) exceeds 25% of the total commitments thereunder.

~~As of December 31, 2020 and September 30, 2020, we were in compliance with the covenants contained in the Credit Agreement, including the Revolver.~~

Our indebtedness could adversely affect our ability to raise additional capital, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk and prevent us from meeting our obligations.

Cash Flows

The following table summarizes the changes to our cash flows for the periods presented:


		Three Months Ended December 31,					Nine Months Ended June 30,
(In millions)	(In millions)	2020		2019		(In millions)	2021		2020
Statement of Cash Flows Data	Statement of Cash Flows Data					Statement of Cash Flows Data
Net cash provided by operating activities	Net cash provided by operating activities	$	15.6	$	4.7	Net cash provided by operating activities	$	102.9	$	100.7
Net cash (used in) provided by investing activities	Net cash (used in) provided by investing activities	(26.0)		80.2		Net cash (used in) provided by investing activities	(74.4)		41.8
Net cash provided by (used in) financing activities		12.3		(1.8)
Net cash used in financing activities						Net cash used in financing activities	(83.0)		(110.4)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	3.0		1.9		Effect of exchange rate changes on cash	3.0		0.8

Change in cash and cash equivalents	Change in cash and cash equivalents	$	4.9	$	85.0	Change in cash and cash equivalents	$	(51.5)	$	32.9

Operating Activities

Cash flows from operating activities can fluctuate significantly from period‑to‑period as working capital needs and the timing of payments for restructuring activities and other items impact reported cash flows.

Net cash provided by operating activities totaled ~~$15.6~~$102.9 million in the ~~three~~nine months ended ~~December 31, 2020~~June 30, 2021, and ~~$4.7~~$100.7 million in the ~~three~~nine months ended ~~December 31, 2019.~~June 30, 2020.

•Operating cash flows in the ~~three~~nine months ended ~~December 31, 2020~~June 30, 2021 reflect a decrease in net earnings of ~~$47.0~~$58.5 million as compared to the ~~three~~nine months ended ~~December 31, 2019,~~June 30, 2020, primarily driven by the gain on the sale of the Memcor product ~~line.~~line in the prior year.

•The add back of non‑cash items increased operating cash flows by ~~$24.8~~$96.0 million in the ~~three~~nine months ended ~~December 31, 2020,~~June 30, 2021, as compared to ~~a decrease~~an increase to operating cash flows of ~~$35.3~~$20.9 million in the ~~three~~nine months ended ~~December 31, 2019,~~June 30, 2020, resulting in an ~~overall~~ increase of ~~$60.1~~$75.1 million. This increase was primarily related to the ~~non-recurrence of~~ gain on sale of the Memcor product line, which was reflected as a reduction of operating cash flows in the prior year, as well as increased depreciation and amortization in the current period. Non-cash changes also include the foreign currency translation gain or loss, deferred income taxes, amortization of deferred financing fees, and share-based compensation.

•The aggregate of receivables, inventories, contract assets and liabilities, and accounts payable provided ~~$23.3~~$11.5 million in operating cash flows in the ~~three~~nine months ended ~~December 31, 2020,~~June 30, 2021, compared to a use of ~~$6.9~~$17.3 million in the ~~three~~nine months ended ~~December 31, 2019.~~

◦~~Accounts receivable and payable was a source of $5.4 million.~~

◦~~Inventories was a source of $3.1 million.~~

◦~~Contract assets and liabilities was a source of $21.8 million.~~June 30, 2020.

The amount of cash flow generated from or used by the above mentioned accounts depends upon how effectively we manage our cash conversion cycle, which is a representation of the number of days that elapse from the date of purchase of raw materials and components to the collection of cash from customers. Our cash conversion cycle can be significantly impacted by the timing of collections and payments in a period.

•Income taxes used $1.3 million during the three months ended December 31, 2020, as compared to providing $1.4 million during the three months ended December 31, 2019, resulting in a decrease to cash flows of $2.7 million as compared to the prior year period.

•The aggregate of the remaining assets and liabilities used ~~$37.7~~$26.9 million of operating cash flows in the ~~three~~nine months ended ~~December 31, 2020~~June 30, 2021, compared to ~~$7.9~~providing $12.2 million in the ~~three~~nine months ended ~~December 31, 2019. This is mainly due to timing of payments.~~

◦~~Prepaids and other current assets and Other non‑current assets and liabilities used $5.3 million during the three months ended December 31,~~June 30, 2020, ~~as compared to providing $1.5 million during the three months ended December 31, 2019,~~ resulting in a decrease to cash flows of ~~$6.8~~$39.1 million. This decrease was primarily due to an increase in customer long term receivables and timing of payments, including vendor prepayments.

•Income taxes used $2.5 million during the nine months ended June 30, 2021, as compared to providing $1.6 million during the nine months ended June 30, 2020, resulting in a decrease to cash flows of $4.1 million as compared to the prior year period.

◦Accrued expenses and other liabilities used $32.4 million in operating cash flows in the three months ended December 31, 2020, compared to a use of $9.4 million in the three months ended December 31, 2019, resulting in a decrease to cash flows of $23.0 million as compared to the prior year period. This decrease was primarily related to payouts in the current period associated with employee incentive compensation and the defined contribution 401(k) plan.

Investing Activities

Net cash used in investing activities was ~~$26.0~~$74.4 million in the ~~three~~nine months ended ~~December 31, 2020~~June 30, 2021, as compared to ~~providing~~net cash provided by investing activities of ~~$80.2~~$41.8 million in the ~~three~~nine months ended ~~December 31, 2019,~~June 30, 2020, resulting in a net

decrease of ~~$106.2~~$116.2 million as compared to the prior year period. This decrease was largely driven by proceeds from the sale of the Memcor product line during the ~~three~~nine months ended ~~December 31, 2019, partially offset by lower~~June 30, 2020, in addition to higher cash outflow associated with the Ultrapure ~~acquisition~~and WCSI acquisitions in the current year period ~~than~~as compared to the Frontier acquisition that occurred in the prior period. This was decrease was partially offset by lower cash outflow associated with purchase of capital assets compared to the prior period. Other activity related to purchase of ~~capital or~~ intangible assets remained relatively consistent with the prior period.

Financing Activities

Net cash ~~provided by~~used in financing activities was ~~$12.3~~$83.0 million in the ~~three~~nine months ended ~~December 31, 2020~~June 30, 2021, as compared to a use of ~~$1.8~~$110.4 million in the ~~three~~nine months ended ~~December 31, 2019,~~June 30, 2020, resulting in a net ~~increase~~decrease of ~~$14.1~~$27.4 million as compared to the prior year period. ~~This additional amount of~~The decrease in cash ~~provided by~~used in financing activities for the ~~three~~nine months ended ~~December 31, 2020~~June 30, 2021 was primarily due to ~~increased~~the debt refinancing activities that occurred in the three months ended June 30, 2021. Additionally, cash received from the issuance of common stock in connection with the exercise of stock options ~~and the issuance of debt. In addition, there was a decrease~~increased in the ~~amount~~current period and taxes paid related to net share settlements of ~~distributions~~share-based compensation awards and distribution of dividends to non-controlling interest indeclined compared to the ~~current period. These cash inflows were partially offset by higher repayments of debt in the current~~prior period.

Seasonality

Our business has historically exhibited 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 business servicing municipal customers experiences increased demand for our odor control product lines and services in the warmer months which, together with other factors, has historically resulted in improved performance in the second half of our fiscal year. Inclement weather, such as hurricanes, droughts and floods, can also drive increased demand for our products and services. As a result, our results from operations may vary from period to period.

Seasonal trends historically displayed by our business have been impacted by the COVID-19 pandemic, and past performance should not be considered indicative of future results. For example, decreased customer demand resulting from the economic slowdown caused by the pandemic and the measures taken to control its spread mitigated the seasonal factors that have historically resulted in improved performance in the second half of ~~our fiscal year in~~ fiscal 2020 and could have a similar impact in fiscal 2021.

Off‑Balance Sheet Arrangements

We had the following outstanding under our credit arrangements at ~~December 31, 2020~~June 30, 2021 and September 30, 2020:


(In millions)	(In millions)	December 31, 2020		September 30, 2020		(In millions)	June 30, 2021		September 30, 2020
Letters of credit	Letters of credit	$	11.9	$	13.0	Letters of credit	$	11.5	$	13.0
Surety bonds	Surety bonds	$	144.6	$	153.0	Surety bonds	$	141.8	$	153.0

The longest maturity date of the letters of credit and surety bonds in effect as of ~~December 31, 2020~~June 30, 2021 was March 20, 2030.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are described in Item 8., Note 2, “Summary of Significant Accounting Policies” included in the 2020 Annual ~~Report on Form 10-K for the fiscal year ended September 30, 2020, as filed with the SEC on November 20, 2020.~~Report. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in the Notes to the Unaudited Consolidated Financial Statements in Part I, Item 1 of this Report. The application of the Company’s accounting policies may require the use of estimates and assumptions. Management uses historical experience and all available information to make these estimates and assumptions. Estimates are revised as additional information becomes available. Actual results could differ from these estimates.

See Note 2, “Recent Accounting Pronouncements” in the Unaudited Consolidated Financial Statements in Item 1 of this Report for a discussion of recently issued accounting guidance.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the ~~Company’s~~information concerning exposure to market risks ~~during~~as stated in Part I, Item 7A of the ~~first quarter of fiscal 2021.~~2020 Annual Report.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the ~~Securities and Exchange Commission (the “SEC”)~~SEC and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of such date.

While our disclosure controls and procedures are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarterly period ended ~~December 31, 2020~~June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

5668

Part II - Other Information

Item 1. Legal Proceedings

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

In November 2018, a purported shareholder of the Company filed a class action lawsuit, captioned McWilliams v. Evoqua Water Technologies Corp., Case No. 1:18-CV-10320, in the United States District Court for the Southern District of New York alleging that the Company and senior management violated federal securities laws by issuing false, misleading, and/or omissive disclosures in the period leading up to the Company’s October 30, 2018 announcement of, among other things, (a) preliminary results for the full-year fiscal 2018 that were below previous expectations and (b) a transition from a three-segment structure to a two-segment operating model. In January 2019, the court appointed lead plaintiffs and lead counsel and re-captioned the action as In re Evoqua Water Technologies Corp. Securities Litigation (the “Securities Litigation”). In March 2019, lead plaintiffs filed an amended complaint, which ~~asserts~~asserted claims pursuant to the Securities Exchange Act of 1934 and the Securities Act of 1933 against the Company, members of the Company’s board of directors, senior management, a former executive, AEA, and the underwriters of the Company’s IPO and secondary public offering. The amended complaint ~~alleges~~alleged that the defendants violated federal securities laws by issuing false, misleading, and/or omissive disclosures concerning the Company’s integration of acquired companies, the Company’s reduction-in-force, and the Company’s financial results of operations. The lawsuit ~~seeks~~sought compensatory damages in an unspecified amount and an award of costs and expenses to the plaintiff and class counsel. In March 2020, the Court granted the defendants’ motion to dismiss a portion of the claims, dismissing all claims predicated on supposedly intentional misstatements or omissions, which were brought under the Securities Exchange Act of 1934. The claims that ~~remain are~~remained were those brought under the Securities Act of 1933. The Company ~~has~~ filed an answer denying the material allegations of the complaint, the parties engaged in discovery, and ~~discovery is now underway. The Company believes that this lawsuit is without merit~~lead plaintiffs filed a motion for class certification in December 2020.

On June 1, 2021, following mediation, the parties filed a stipulation agreeing to settle the Securities Litigation (subject to Court approval) for $16.65 million, all of which will be covered by insurance.On July 8, 2021, the Court entered an order preliminarily approving the settlement and ~~intends~~scheduling a hearing for November 1, 2021 to ~~vigorously defend itself against~~determine whether to grant final approval to the ~~allegations.~~settlement and dismiss the Securities Litigation.

In April 2019, another purported shareholder of the Company filed a derivative lawsuit in the United States District Court for the Western District of Pennsylvania, captioned Dallas Torgersen v. Ronald C. Keating, Case No. 2:19-CV-410. The complaint names as defendants the Company’s CEO &and CFO, as well as members of the Company’s board of directors, and it names the Company as a nominal defendant. The complaint alleges, among other things, that the individual defendants violated federal securities laws by issuing false, misleading, and/or omissive disclosures in the period leading up to the Company’s October 30, 2018 disclosures, and that they breached their fiduciary duties to the Company. The lawsuit seeks compensatory damages in an unspecified amount, an award of costs and expenses, restitution from the individual defendants, and an order directing the Company and the individual defendants to take unspecified actions to reform and improve the Company’s corporate governance and internal procedures. The Company believes that this lawsuit is without merit and intends to vigorously defend itself against the allegations. In June 2019, the Court entered an order staying the lawsuit pending resolution of the Securities Litigation.

In July 2020, a different purported shareholder of the Company filed a second shareholder derivative lawsuit ostensibly on behalf of the Company in the ~~United States District Court for the Western District of Pennsylvania,~~same court, captioned Robert Hyams v. Ronald C. Keating, Case No. 2:20-CV-1112. The complaint is similar to the one in Torgersen but also names as defendants AEA and a number of its affiliated entities. In September 2020, the court ~~issued an order consolidating~~consolidated the Torgersen and Hyams cases under the caption In re Evoqua Water Technologies Corp. Derivative Litigation (the “Derivative Litigation”)~~, and staying the consolidated lawsuit~~. The Derivative Litigation has been stayed since June 2019 pending resolution of the Securities Litigation.

In February 2020, yet another purported shareholder of the Company sent a letter to the board of directors demanding that it investigate and bring claims against various directors and officers for the same matters that were already the subject of the Securities Litigation and the ~~Torgersen~~ ~~derivative litigation.~~Derivative Litigation. Although no lawsuit has yet been filed by

this purported shareholder, the shareholder agreed to stay matters on terms similar to what was agreed in the Derivative Litigation.

On July 28, 2021, following mediation, the parties signed an agreement, subject to Court approval, to settle the Derivative Litigation and the stockholder demand for non-cash consideration, including certain enhancements to corporate governance practices and internal procedures.

In October 2020, the Company learned that the SEC and the United States Attorney’s Office for the District of Massachusetts are investigating whether financial misstatements were made in the Company’s public filings and earnings announcements prior to October 2018, similar to what is alleged in the Securities Litigation. The Company is cooperating with those investigations. Although the Company is unable to predict the outcome or reasonably estimate any potential loss, we currently believe that this matter will not have a material adverse effect on our business, financial condition, results of operations or prospects.

Item 1A. Risk Factors

There have been no material changes to the information concerning risk factors as stated in our 2020 Annual ~~Report on Form 10-K for the fiscal year ended September 30, 2020, as filed with the SEC on November 20, 2020.~~Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

5870

Item 6. Exhibits

The following exhibits are filed or furnished as a part of this report:


Exhibit No.			Exhibit Description
10.1			~~Amendment No. 2 to the Second Amended and Restated Registration Rights~~Credit Agreement among ~~Evoqua Water Technologies~~EWT Holdings III Corp., ~~AEA Investors Fund V LP, AEA Investors Fund V-A LP, AEA Investors Fund V-B LP, AEA Investors Participant Fund V LP, AEA Investors QP Participant Fund V LP~~as the borrower, EWT Holdings II Corp., as parent guarantor, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and ~~the 2020 Amending Investors,~~collateral agent, and ING Capital, LLC, as sustainability coordinator, dated ~~November 25, 2020~~April 1, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on ~~November 25, 2020~~April 1, 2021 (File No. 001-38272)).
10.2			Receivables Financing Agreement among Evoqua Finance LLC, as the borrower, the lenders from time to time party thereto, PNC Bank, National Association, as administrative agent, Evoqua Water Technologies LLC, as initial servicer, and PNC Capital Markets LLC, as structuring agent, dated April 1, 2021 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on April 1, 2021 (File No. 001-38272)).
10.3			Sale and Contribution Agreement among Evoqua Finance LLC, as the purchaser, Evoqua Water Technologies LLC, as initial servicer and as an originator, and Neptune Benson, Inc., as an originator, dated April 1, 2021 (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on April 1, 2021 (File No. 001-38272)).
10.4			Form of Special Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on May 19, 2021 (File No. 001-38272)).
10.5			Form of Special Performance Share Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on May 19, 2021 (File No. 001-38272)).
31.1*			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1**			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.LAB*			Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith

** Furnished herewith

5971

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	EVOQUA WATER TECHNOLOGIES CORP.





~~February 2,~~August 3, 2021	/s/ RONALD C. KEATING
	By:	Ronald C. Keating
		Chief Executive Officer (Principal Executive Officer)





~~February 2,~~August 3, 2021	/s/ BENEDICT J. STAS
	By:	Benedict J. Stas
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

6072


	Three Months Ended December 31, 2019
	Common Stock			Treasury Stock			Additional Paid‑in Capital		Retained Deficit		Accumulated Other Comprehensive Loss		Non‑controlling Interest		Total
	Shares	Cost		Shares	Cost
Balance at September 30, 2019	116,008	$	1,154	1,664	$	(2,837)	$	552,422	$	(174,976)	$	(13,004)	$	3,063	$	365,822
Cumulative effect of adoption of new accounting standards	—	—		—	—		—		(2,023)		—		—		$	(2,023)
Equity based compensation expense	—	—		—	—		3,680		—		—		—		$	3,680
Issuance of common stock, net	1,645	16		419	—		4,030		—		—		—		$	4,046


Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(1,250)		$	(1,250)
Divestiture of Memcor product line	—	—		—	—		(16,895)		—		—		—		$	(16,895)
Net income	—	—		—	—		—		53,145		—		361		$	53,506
Other comprehensive income	—	—		—	—		—		—		8,244		—		$	8,244
Balance at December 31, 2019	117,653	$	1,170	2,083	$	(2,837)	$	543,237	$	(123,854)	$	(4,760)	$	2,174	$	415,130


	December 31, 2020		September 30, 2020
Borrowing availability under the Revolver	$	125,000	$	125,000
Outstanding borrowings under the Revolver	0		0
Outstanding letters of credit under the Revolver	11,824		12,963
Unused amounts under the Revolver	$	113,176	$	112,037

Additional letters of credit under a separate arrangement	$	33	$	52