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~~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~~120,850,046 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of January ~~31, 2021.~~28, 2022.

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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You can generally identify forward‑looking statements by our use of forward‑looking terminology such as “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “plan,” “progress,” “potential,” “predict,” “projection,” “seek,” “should,” ~~“will”~~“will,” or “would,” or the negative thereof, or other variations thereon or comparable terminology. In particular, statements about the markets in which we operate, including growth of our various markets, our expectations, beliefs, plans, strategies, objectives, prospects, assumptions, or future events or performance, statements regarding our restructuring actions and expected restructuring charges and cost savings, statements regarding our cash requirements, working capital needs and expected capital expenditures, statements regarding our expectations for fiscal ~~2021~~2022, customer demand, supply chain challenges, material availability, price/cost, labor shortages, inflation, and ~~beyond,~~general macroeconomic conditions, 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~~All of these forward‑looking statements are based on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward‑looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in Part I, Item ~~1A.~~1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020,~~2021, as filed with the Securities and Exchange Commission (“SEC”) on November ~~20, 2020,~~17, 2021, and Part I, Item 2.2, “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operation”~~Operations” 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;~~

•~~our ability to compete successfully in our markets;~~pandemic;

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

•material, freight, and labor inflation, commodity availability constraints, and disruptions in global supply chains and transportation services;

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

•our ability to meet our own and our customers’ safety ~~standards or the potential for adverse publicity affecting our reputation as a result of incidents such as workplace accidents, mechanical failures, spills, uncontrolled discharges, damage~~standards;

•failure to ~~customer or third‑party property or the transmission of contaminants or diseases;~~effectively treat emerging contaminants;

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

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

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

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

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

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

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

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

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

•risks associated with international sales and operations;

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

•risks related to our contracts with federal, state, and local governments, including risk of termination or modification prior to completion;

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

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

•risks related to our substantial indebtedness;

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

•risks ~~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 other applicable laws and regulations and the costs associated therewith;

•~~risks associated with international sales and operations, including our operations in China;~~

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

•~~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.~~1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020,~~2021, as filed with the SEC on November ~~20, 2020,~~17, 2021, 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~~3 1 , 2021 (Unaudited) and September 30, ~~2020~~20 21			4
Unaudited Consolidated Statements of Operations for the Three Months Ended December 31 , 2021 and 2020 ~~and 2019~~			5
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended ~~December~~Dece m ber 31 , 2021 and 2020 ~~and 2019~~			6
Unaudited Consolidated Statements of Changes in Equity for the Three ~~Months~~ Month s Ended December 31 , 2021 and 2020 ~~and 2019~~			7
Unaudited Consolidated Statements of Changes in Cash Flow for the Three Months Ended December 31 , 2021 and 2020 ~~and 2019~~			8
Unaudited Supplemental Disclosure of Cash Flow Information for the Three Months Ended December 31 , 2021 and 2020 ~~and 2019~~			9
Notes to Unaudited Consolidated Financial Statements			10

Evoqua Water Technologies Corp.

Consolidated Balance Sheets

(In thousands)


		(Unaudited)					(Unaudited)
		December 31, 2020		September 30, 2020			December 31, 2021		September 30, 2021
ASSETS	ASSETS					ASSETS
Current assets	Current assets	$	679,540	$	695,712	Current assets	$	681,902	$	678,458
Cash and cash equivalents	Cash and cash equivalents	197,920		193,001		Cash and cash equivalents	152,525		146,244
Receivables, net	Receivables, net	246,211		260,479		Receivables, net	236,923		277,995
Inventories, net	Inventories, net	155,026		142,379		Inventories, net	174,271		158,503
Contract assets	Contract assets	59,825		80,759		Contract assets	84,982		72,746
Prepaid and other current assets	Prepaid and other current assets	19,569		18,715		Prepaid and other current assets	32,092		21,871
Income tax receivable	Income tax receivable	989		379		Income tax receivable	1,109		1,099

Property, plant, and equipment, net	Property, plant, and equipment, net	369,915		364,461		Property, plant, and equipment, net	373,073		374,988
Goodwill	Goodwill	408,593		397,205		Goodwill	407,521		407,376
Intangible assets, net	Intangible assets, net	302,557		309,967		Intangible assets, net	281,357		290,075
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	8,192		8,285
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	43,474		45,521
Other non‑current assets	Other non‑current assets	33,166		27,509		Other non‑current assets	72,082		64,188

Total assets	Total assets	$	1,843,666	$	1,844,458	Total assets	$	1,867,601	$	1,868,891
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities	Current liabilities	$	326,126	$	349,555	Current liabilities	$	398,490	$	405,989
Accounts payable	Accounts payable	141,931		153,890		Accounts payable	175,873		164,535
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	13,296		12,775
Contract liabilities	Contract liabilities	34,445		26,259		Contract liabilities	53,022		55,883
Product warranties	Product warranties	5,577		6,115		Product warranties	7,893		8,138
Accrued expenses and other liabilities	Accrued expenses and other liabilities	120,668		143,389		Accrued expenses and other liabilities	144,444		160,367
Income tax payable	Income tax payable	5,079		5,563		Income tax payable	3,962		4,291

Non‑current liabilities	Non‑current liabilities	1,015,579		1,012,840		Non‑current liabilities	$	866,518	$	880,683
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	716,947		730,430
Product warranties	Product warranties	1,646		1,724		Product warranties	2,902		2,966
Obligation under operating leases	Obligation under operating leases	39,897		37,796		Obligation under operating leases	35,938		37,935
Other non‑current liabilities	Other non‑current liabilities	102,517		98,456		Other non‑current liabilities	94,029		92,909
Deferred income taxes	Deferred income taxes	11,304		13,169		Deferred income taxes	16,702		16,443

Total liabilities	Total liabilities	1,341,705		1,362,395		Total liabilities	$	1,265,008	$	1,286,672
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 122,372 shares, outstanding 120,708 at December 31, 2021; issued 122,173 shares, outstanding 120,509 at September 30, 2021						Common stock, par value $0.01: authorized 1,000,000 shares; issued 122,372 shares, outstanding 120,708 at December 31, 2021; issued 122,173 shares, outstanding 120,509 at September 30, 2021	$	1,225	$	1,223
Treasury stock: 1,664 shares at December 31, 2021 and 1,664 shares at September 30, 2021						Treasury stock: 1,664 shares at December 31, 2021 and 1,664 shares at September 30, 2021	(2,837)		(2,837)
Additional paid-in capital	Additional paid-in capital	582,197		564,928		Additional paid-in capital	588,077		582,052
Retained deficit	Retained deficit	(56,231)		(62,664)		Retained deficit	(5,195)		(11,182)
Accumulated other comprehensive loss, net of tax		(24,083)		(20,472)
Accumulated other comprehensive income, net of tax						Accumulated other comprehensive income, net of tax	19,774		11,415
Total Evoqua Water Technologies Corp. equity	Total Evoqua Water Technologies Corp. equity	500,248		480,144		Total Evoqua Water Technologies Corp. equity	$	601,044	$	580,671
Non-controlling interest	Non-controlling interest	1,713		1,919		Non-controlling interest	1,549		1,548
Total shareholders’ equity	Total shareholders’ equity	501,961		482,063		Total shareholders’ equity	$	602,593	$	582,219
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	1,843,666	$	1,844,458	Total liabilities and shareholders’ equity	$	1,867,601	$	1,868,891

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 December 31,
			2020		2019				2021		2020
Revenue from product sales	Revenue from product sales		$	180,015	$	196,560	Revenue from product sales		$	212,568	$	180,015
Revenue from services	Revenue from services		142,178		149,545		Revenue from services		153,700		142,178
Revenue from product sales and services	Revenue from product sales and services		322,193		346,105		Revenue from product sales and services		$	366,268	$	322,193
Cost of product sales	Cost of product sales		(131,061)		(140,456)		Cost of product sales		(153,795)		(131,061)
Cost of services	Cost of services		(95,787)		(99,934)		Cost of services		(101,965)		(95,787)
Cost of product sales and services	Cost of product sales and services		(226,848)		(240,390)		Cost of product sales and services		$	(255,760)	$	(226,848)
Gross profit	Gross profit		95,345		105,715		Gross profit		$	110,508	$	95,345
General and administrative expense	General and administrative expense		(42,283)		(45,770)		General and administrative expense		(57,829)		(42,283)
Sales and marketing expense	Sales and marketing expense		(33,928)		(38,014)		Sales and marketing expense		(36,449)		(33,928)
Research and development expense	Research and development expense		(3,123)		(3,684)		Research and development expense		(3,452)		(3,123)
Total operating expenses	Total operating expenses		(79,334)		(87,468)		Total operating expenses		$	(97,730)	$	(79,334)
Other operating income	Other operating income		480		51,720		Other operating income		1,657		480
Other operating expense	Other operating expense		(257)		(275)		Other operating expense		(147)		(257)
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		$	14,288	$	16,234
Interest expense	Interest expense		(8,673)		(13,583)		Interest expense		(6,579)		(8,673)
Income before income taxes	Income before income taxes		7,561		56,109		Income before income taxes		$	7,709	$	7,561
Income tax expense	Income tax expense		(1,084)		(2,603)		Income tax expense		(1,621)		(1,084)
Net income	Net income		6,477		53,506		Net income		$	6,088	$	6,477
Net income attributable to non‑controlling interest	Net income attributable to non‑controlling interest		44		361		Net income attributable to non‑controlling interest		101		44
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.		$	5,987	$	6,433
Basic income per common share	Basic income per common share		$	0.05	$	0.46	Basic income per common share		$	0.05	$	0.05
Diluted income per common share	Diluted income per common share		$	0.05	$	0.44	Diluted income per common share		$	0.05	$	0.05

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 December 31,
			2020		2019				2021		2020
Net income	Net income		$	6,477	$	53,506	Net income		$	6,088	$	6,477
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		1,609		(4,877)
Unrealized derivative gain (loss) on cash flow hedges, net of tax			1,002		(49)
Unrealized derivative gain on cash flow hedges, net of tax							Unrealized derivative gain on cash flow hedges, net of tax		6,581		1,002
Change in pension liability, net of tax	Change in pension liability, net of tax		264		236		Change in pension liability, net of tax		169		264
Total other comprehensive (loss) income			(3,611)		8,244
Total other comprehensive income (loss)							Total other comprehensive income (loss)		$	8,359	$	(3,611)
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		(101)		(44)
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.		$	14,346	$	2,822

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																							Three Months Ended December 31, 2021
		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 Income				Non‑controlling Interest				Total
		Shares	Cost		Shares	Cost										Shares								Cost			Shares			Cost
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, 2021																								Balance at September 30, 2021	122,173			$	1,223		1,664	$	(2,837)			$	582,052			$	(11,182)			$	11,415			$	1,548			$	582,219

Equity based compensation expense	Equity based compensation expense	—	—		—	—		3,019				—		—			—				$	3,019		Equity based compensation expense	—			—			—	—		5,203				—				—				—				$	5,203
Issuance of common stock, net	Issuance of common stock, net	1,264	13		1	—		14,250				—		—			—				$	14,263		Issuance of common stock, net	199			2			—	—		822				—				—				—				$	824

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

Dividends paid to non-controlling interest		—	—		—	—		—				—		—			(250)				$	(250)
Net income	Net income	—	—		—	—		—				6,433		—			44				$	6,477		Net income	—			—			—	—		—				5,987				—				101				$	6,088
Other comprehensive loss		—	—		—	—		—				—		(3,611)			—				$	(3,611)
Balance at December 31, 2020		120,750	$	1,202	2,196	$	(2,837)	$	582,197			$	(56,231)	$	(24,083)		$	1,713			$	501,961
Other comprehensive income																								Other comprehensive income	—			—			—	—		—				—				8,359				—				$	8,359
Balance at December 31, 2021																								Balance at December 31, 2021	122,372			$	1,225		1,664	$	(2,837)	$	588,077			$	(5,195)			$	19,774			$	1,549			$	602,593

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


	Three Months Ended December 31, 2020
	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, 2020	119,486	$	1,189	2,195	$	(2,837)	$	564,928	$	(62,664)	$	(20,472)	$	1,919	$	482,063

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

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

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

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,					Three Months Ended December 31,
		2020		2019			2021		2020
Operating activities	Operating activities					Operating activities
Net income	Net income	$	6,477	$	53,506	Net income	$	6,088	$	6,477
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	28,640		27,391
Amortization of deferred financing fees		526		701
Amortization of deferred financing fees (includes $0 and $0 write off of deferred financing fees)						Amortization of deferred financing fees (includes $0 and $0 write off of deferred financing fees)	467		526
Deferred income taxes	Deferred income taxes	258		(679)		Deferred income taxes	251		258
Share-based compensation	Share-based compensation	3,019		3,680		Share-based compensation	5,203		3,019
Loss on sale of property, plant and equipment		19		173
Gain on sale of business		0		(58,279)
Foreign currency exchange gains on intercompany loans and other non-cash items		(6,459)		(6,086)
(Gain) loss on sale of property, plant, and equipment						(Gain) loss on sale of property, plant, and equipment	(4)		19

Foreign currency exchange losses (gains) on intercompany loans and other non-cash items						Foreign currency exchange losses (gains) on intercompany loans and other non-cash items	1,502		(6,459)
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	41,309		18,083
Inventories	Inventories	(11,551)		(14,613)		Inventories	(16,021)		(11,551)
Contract assets	Contract assets	21,458		3,042		Contract assets	(12,189)		21,458
Prepaids and other current assets	Prepaids and other current assets	(465)		(631)		Prepaids and other current assets	(3,797)		(465)
Accounts payable	Accounts payable	(12,652)		(11,056)		Accounts payable	11,241		(12,652)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(32,356)		(9,378)		Accrued expenses and other liabilities	(16,953)		(24,701)
Contract liabilities	Contract liabilities	8,010		4,651		Contract liabilities	(2,887)		8,010
Income taxes	Income taxes	(1,271)		1,388		Income taxes	(338)		(1,271)
Other non‑current assets and liabilities	Other non‑current assets and liabilities	(4,873)		2,083		Other non‑current assets and liabilities	(6,132)		(4,873)
Net cash provided by operating activities	Net cash provided by operating activities	15,614		4,732		Net cash provided by operating activities	36,380		23,269
Investing activities	Investing activities					Investing activities
Purchase of property, plant and equipment		(17,260)		(17,572)
Purchase of property, plant, and equipment						Purchase of property, plant, and equipment	(15,540)		(17,260)
Purchase of intangibles	Purchase of intangibles	(81)		(210)		Purchase of intangibles	(664)		(81)
Proceeds from sale of property, plant and equipment		127		251
Proceeds from sale of business, net of cash of $0 and $12,117		0		108,921
Acquisitions		(8,743)		(11,160)
Net cash (used in) provided by investing activities		(25,957)		80,230
Proceeds from sale of property, plant, and equipment						Proceeds from sale of property, plant, and equipment	1,370		127

Acquisitions, net of cash received $0 and $0						Acquisitions, net of cash received $0 and $0	—		(8,743)
Net cash used in investing activities						Net cash used in investing activities	(14,834)		(25,957)
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	5,949		7,805
Borrowings under credit facility		0		13

Repayment of debt	Repayment of debt	(5,723)		(3,793)		Repayment of debt	(19,378)		(5,723)
Repayment of finance lease obligation	Repayment of finance lease obligation	(3,821)		(4,162)		Repayment of finance lease obligation	(3,174)		(3,821)
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	2,085		6,617

Taxes paid related to net share settlements of share-based compensation awards						Taxes paid related to net share settlements of share-based compensation awards	(1,261)		(9)

Distribution to non‑controlling interest	Distribution to non‑controlling interest	(250)		(1,250)		Distribution to non‑controlling interest	(100)		(250)
Net cash provided by (used in) financing activities		12,274		(1,789)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(15,879)		4,619
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	614		2,988

Change in cash and cash equivalents	Change in cash and cash equivalents	4,919		85,022		Change in cash and cash equivalents	6,281		4,919
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	146,244		193,001
End of period	End of period	$	197,920	$	194,903	End of period	$	152,525	$	197,920

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,					Three Months Ended December 31,
		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	$	1,654	$	1,334
Cash paid for interest	Cash paid for interest	$	7,624	$	12,268	Cash paid for interest	$	5,706	$	7,624
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	$	2,700	$	5,484
Operating lease transactions	Operating lease transactions	$	5,954	$	4,734	Operating lease transactions	$	1,152	$	5,954
Option and Purchase Right		$	—	$	7,673

See accompanying notes to these Unaudited Consolidated Financial Statements

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, EWT Holdings II Corp. and EWT Holdings III Corp. (“EWT III”), all of the outstanding shares of Siemens Water Technologies, a group of legal entity businesses 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. The Company did not receive any proceeds from the sale of shares by the selling shareholders in this secondary public offering.

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,~~2021, as filed with the SEC on November ~~20, 2020~~17, 2021 (“~~2020~~2021 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~~2021 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 $7,655 and an overstatement of net cash provided by financing activities of $7,655 for the period from October 1, 2020 to December 31, 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 $7,655 between financing and operating in the prior period.

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,~~October 2021, the Financial Accounting Standards Board ~~(“FASB”~~(the “FASB”) issued Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends Accounting Standards Codification (“ASC”) 805 to require an acquirer to, at the date of acquisition, recognize and measure contract assets and contract liabilities acquired in accordance with ASU 2014-9, Revenue from Contracts with Customers (Topic 606)(“Topic 606”), as if the entity had originated the contracts, rather than adjust them to fair value at the acquisition date. The guidance is effective for fiscal years beginning after December 15, 2022 and is to be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company is currently assessing the impact of adoption on the Company’s Unaudited Consolidated Financial Statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial

Reporting, and also issued subsequent amendments to the initial guidance (collectively, “Topic 848”). Topic 848 became effective immediately and expires on December 31, 2022. Topic 848 allows eligible contracts that are modified to be accounted for as ~~amended in January 2021 (“ASU 2021-01”), which~~a continuation of those contracts, permits companies to preserve their hedge accounting during the transition period and enables companies to make a one-time election to transfer or sell held-to-maturity debt securities that are affected by rate reform. Topic 848 provides optional expedients and exceptions for contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform if certain criteria are met. 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. The Company is currently assessing the impact of ~~the~~ adoption ~~of ASU 2020-04~~ 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 hav~~e 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, 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~~2021 and September 30, ~~2020,~~2021, and summarized financial information for the three months ended December 31, ~~2020~~2021 and ~~2019.~~2020.


		December 31, 2020		September 30, 2020			December 31, 2021		September 30, 2021
Current assets (includes cash of $1,743 and $2,088)		$	3,560	$	4,016
Property, plant and equipment		1,084		1,145
Current assets (includes cash of $1,363 and $1,380)						Current assets (includes cash of $1,363 and $1,380)	$	3,272	$	3,202
Property, plant, and equipment						Property, plant, and equipment	842		903
Goodwill	Goodwill	2,206		2,206		Goodwill	2,206		2,206

Total liabilities	Total liabilities	(1,219)		(1,324)		Total liabilities	(1,017)		(1,009)


		Three Months Ended December 31,						Three Months Ended December 31,
			2020		2019				2021		2020
Total revenues			$	834	$	2,642
Total revenue							Total revenue		$	845	$	834
Total operating expenses	Total operating expenses		(737)		(1,958)		Total operating expenses		(737)		(737)
Income from operations	Income from operations		$	97	$	684	Income from operations		$	108	$	97

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 a 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~~2021 and September 30, ~~2020,~~2021, and summarized financial information for the three months ended December 31, ~~2020~~2021 and ~~2019.~~2020.


		December 31, 2020		September 30, 2020			December 31, 2021		September 30, 2021
Current assets (includes cash of $2,143 and $1,675)		$	3,528	$	4,024
Property, plant and equipment		3,210		3,159
Current assets (includes cash of $4,790 and $2,095)						Current assets (includes cash of $4,790 and $2,095)	$	11,795	$	12,495
Property, plant, and equipment						Property, plant, and equipment	2,050		2,113
Goodwill	Goodwill	1,798		1,798		Goodwill	1,798		1,798
Intangible assets, net	Intangible assets, net	9,505		9,918		Intangible assets, net	7,852		8,265
Total liabilities	Total liabilities	(3,798)		(3,692)		Total liabilities	(7,248)		(9,425)

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 December 31,
		2021		2020
Total revenue		$	6,949	$	770
Total operating expenses		(5,986)		(1,738)
Income (loss) from operations		$	963	$	(968)

4. Acquisitions

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 December ~~17, 2020,~~20, 2021, the Company ~~acquired~~and its indirect wholly-owned subsidiaries Evoqua Water Technologies LLC (“EWT LLC”) and Evoqua Water Technologies Ltd. (together with EWT LLC, the ~~industrial water~~“Buyer”) entered into an Asset Purchase Agreement (the “Agreement”) with Cantel Medical LLC, Mar Cor Purification, Inc., and certain of their affiliates (collectively, the “Sellers”), each wholly-owned subsidiaries of Steris plc, pursuant to which the Buyer agreed to acquire certain assets of the Sellers and assume certain liabilities of the Sellers that are owned or used or arise in connection with the global operation of the Sellers’ renal business ~~of Ultrapure & Industrial Services, LLC (“Ultrapure”~~(the “Mar Cor Business”) for ~~$8,743~~an aggregate purchase price of $196,300 in cash at closing (the “Purchase Price”), subject to customary adjustments, including for working capital (the “Transaction”). The Transaction closed on January 3, 2022. See Note 23, “Subsequent Events” for further discussion. We utilized cash on hand and borrowed an additional $160,000 under our 2021 Revolving Credit Facility (as defined below) to fund the transaction.

The Purchase Price includes a $12,300 earn out, which is being held in escrow and will be paid, at closing. 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 strengthenpro rata, to the ~~Company’s service capabilities in~~Sellers if the ~~Houston and Dallas markets and is a part~~Mar Cor Business meets certain sales performance goals (the “Earn Out”). Any portion of the ~~Integrated Solutions~~Earn Out not paid to the Sellers during the first year following closing of the Transaction will be returned to the Buyer. In addition, approximately $12,965 of the Purchase Price was placed into an escrow account, of which $9,815 is to secure general indemnification claims against the Sellers and ~~Services segment.~~$3,150 is for net working capital adjustments. During the three months ended December 31, ~~2020,~~2021, the Company incurred approximately ~~$216~~$1,062 in acquisition costs, which are included in General and administrative ~~expenses.~~

~~The accounting for~~expense on the ~~acquisition has not yet been completed because the Company has not finalized the valuations~~Unaudited Consolidated Statements 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~~
~~Property, plant and equipment~~	~~900~~
~~Goodwill~~	~~6,088~~
~~Other non-current assets~~	22
~~Total assets acquired~~	~~9,049~~
~~Liabilities assumed~~	~~(306)~~
~~Net assets acquired~~	$	~~8,743~~

Operations.

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 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 months ended December 31, 2020 was insignificant.

For sales of aftermarket parts or products with a low level of customization and engineering time, the Company recognizes revenues 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, 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 from these contracts will not be recognized until construction is complete. Contract revenues 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~~$263,098 at December 31, ~~2020.~~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 ~~months.~~

~~The recording of assets recognized from the costs~~ to obtain and fulfill customer contracts primarily relate to the deferral of sales commissions. The Company’s costs incurred to obtain or fulfill a contract with a customer are classified as non-current assets and amortized to expense over the period of benefit of the related revenue. These costs are recorded within Cost of product sales and services. The amount of contract costs was insignificant at December 31, 2020.

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.twenty-four months.

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 December 31,
			2020		2019				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		$	317,771	$	285,188
Other (1)	Other (1)		37,005		37,503		Other(1)		48,497		37,005
Total	Total		$	322,193	$	346,105	Total		$	366,268	$	322,193

(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 December 31,
		2021		2020
Integrated Solutions and Services
Revenue from capital projects		$	67,102	$	50,626
Revenue from aftermarket		29,298		27,146
Revenue from service		148,646		136,945
Total		$	245,046	$	214,717
Applied Product Technologies
Revenue from capital projects		$	83,884	$	76,889
Revenue from aftermarket		32,284		25,354
Revenue from service		5,054		5,233
Total		$	121,222	$	107,476
Total Revenue
Revenue from capital projects		$	150,986	$	127,515
Revenue from aftermarket		61,582		52,500
Revenue from service		153,700		142,178
Total		$	366,268	$	322,193

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


		Three Months Ended December 31,						Three Months Ended December 31,
			2020		2019				2021		2020
United States	United States		$	264,131	$	277,717	United States		$	294,708	$	264,131
Asia	Asia		22,605		18,742		Asia		30,905		22,605
Europe	Europe		21,285		26,112		Europe		25,629		21,285
Canada	Canada		11,179		17,563		Canada		12,661		11,179
Australia	Australia		2,993		5,971		Australia		2,365		2,993
Total	Total		$	322,193	$	346,105	Total		$	366,268	$	322,193

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,					Three Months Ended December 31,
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	$	72,746	$	80,759

Recognized in current period	Recognized in current period	66,885		84,596		Recognized in current period	120,387		66,885
Reclassified to accounts receivable	Reclassified to accounts receivable	(88,560)		(87,046)		Reclassified to accounts receivable	(108,684)		(88,560)
Amounts related to sale of the Memcor product line		0		2,710

Foreign currency	Foreign currency	741		182		Foreign currency	533		741
Balance at end of period	Balance at end of period	$	59,825	$	73,909	Balance at end of period	$	84,982	$	59,825

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


		Three Months Ended December 31,					Three Months Ended December 31,
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	$	55,883	$	26,259

Recognized in current period	Recognized in current period	96,230		88,616		Recognized in current period	100,017		96,230
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	(43,266)		(24,895)
Current period amounts reclassified to revenue	Current period amounts reclassified to revenue	(62,730)		(46,083)		Current period amounts reclassified to revenue	(59,653)		(62,730)
Amounts related to sale of the Memcor product line		0		(700)

Foreign currency	Foreign currency	(419)		374		Foreign currency	41		(419)
Balance at end of period	Balance at end of period	$	34,445	$	43,634	Balance at end of period	$	53,022	$	34,445

6. Fair Value Measurements

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

The Company measures the fair value of pension plan assets and liabilities, deferred compensation 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 measure the fair value of these assets and liabilities, therefore all are classified as Level 2 within the valuation hierarchy.

1615


	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~~2021
Assets:
Pension plan
Cash	$	—	$	~~769~~756	$	—	$	—
Global Multi-Asset Fund	~~14,895~~15,093		—		—		—
Government Securities	~~3,034~~2,494		—		—		—
Liability Driven Investment	~~6,126~~6,201		—		—		—
Guernsey Unit Trust	~~2,100~~2,493		—		—		—
Global Absolute Return	~~2,223~~2,221		—		—		—
Deferred compensation plan assets
Cash	—		1,235		—		—
~~Insurance~~Mutual Funds	—		17,769		—		—
Total return swaps—deferred compensation	—		—		~~20,777~~55		—
Interest rate swaps	—		—		9,469		—

Foreign currency forward contracts	—		—		~~173~~19		—
Commodity swaps	—		—		1		—
Liabilities:
Pension plan	—		—		~~(49,599)~~(45,394)		—
Deferred compensation plan liabilities	—		—		~~(22,833)~~(25,331)		—

Long‑term debt	—		—		~~(885,971)~~(738,585)		—
Interest rate ~~swap~~swaps	—		—		~~(3,703)~~(156)		—
Foreign currency forward contracts	—		—		~~(53)~~(29)		—

Earn-outs related to acquisitions	—		—		—		~~(295)~~(50)
~~Option and~~ Purchase Right	—		—		—		~~(7,739)~~(8,305)


	Net Asset Value		Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of September 30, ~~2020~~2021
Assets:
Pension plan
Cash	$	—	$	~~15,061~~831	$	—	$	—
Global Multi-Asset Fund	15,244		—		—		—
Government Securities	~~4,924~~5,158		—		—		—
Liability Driven Investment	~~3,604~~2,793		—		—		—
Guernsey Unit Trust	~~1,881~~2,387		—		—		—
Global Absolute Return	~~2,060~~2,225		—		—		—
Deferred compensation plan assets
~~Trust Assets~~Cash	—		551,251		—		—
~~Insurance~~Mutual Funds	—		17,806		—		—
Interest rate swaps	—		—		~~19,804~~3,127		—

Foreign currency forward contracts	—		—		~~140~~24		—
Liabilities:
Pension plan	—		—		~~(47,389)~~(46,013)		—
Deferred compensation plan liabilities	—		—		~~(21,439)~~(24,382)		—
Total return swaps—deferred compensation	—		—		(130)		—
Long‑term debt	—		—		~~(872,441)~~(752,988)		—
Interest rate ~~swap~~swaps	—		—		~~(4,669)~~(303)		—
Foreign currency forward contracts	—		—		~~(47)~~(102)		—
Commodity swaps	—		—		(19)		—
Earn-outs related to acquisitions	—		—		—		~~(295)~~(150)
~~Option and~~ Purchase Right	—		—		—		~~(7,739)~~(8,305)

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~~2021 and September 30, ~~2020.~~

2021. The unrealized gain on mutual funds was $641 at December 31, 2021.

The Company records contingent consideration arrangements at fair value on a recurring basis, and the associated balances presented as of December 31, ~~2020~~2021 and September 30, ~~2020~~2021 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. ~~There were no changes in the fair value of earn-outs related to acquisitions during~~During the three months ended December 31, ~~2020.~~2021, the Company recorded a decrease in the fair value of the earn-out liability related to the prior year acquisition of Water Consulting Specialists, Inc. (“WCSI”) for $100. As of December 31, ~~2020~~2021 and September 30, ~~2020,~~2021, earn-outs related to acquisitions totaled ~~$295~~$50 and $150, respectively, and are included in Accrued expenses and other liabilities on the Consolidated Balance Sheets.

~~Pursuant to the acquisition of Frontier, the~~The Company ~~recorded~~has a liability recorded for the ~~Option and~~ Purchase Right to purchase the remaining ~~40% interest.~~32% interest of Frontier. The fair value of ~~the options~~this right is based upon significant unobservable inputs including future earnings and other market factors. Significant changes in these inputs would result in corresponding increases or decreases in the fair value of ~~the options~~this right 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 months ended December 31, ~~2020.~~2021. As ~~of each~~ of December 31, ~~2020~~2021 and September 30, ~~2020, $7,739~~2021, $8,305 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			December 31, 2021		September 30, 2021
Accounts receivable	Accounts receivable	$	250,534	$	264,536	Accounts receivable	$	242,699	$	282,819
Allowance for credit losses	Allowance for credit losses	(4,323)		(4,057)		Allowance for credit losses	(5,776)		(4,824)
Receivables, net	Receivables, net	$	246,211	$	260,479	Receivables, net	$	236,923	$	277,995

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


Balance at September 30, ~~2020~~2021	$	~~(4,057)~~(4,824)
Charged to costs and expenses	~~(405)~~(852)
Write-offs	~~179~~30
Foreign currency and other	~~(40)~~(130)
Balance at December 31, ~~2020~~2021	$	~~(4,323)~~(5,776)

8. Inventories

The major classes of Inventories, net are as follows:


		December 31, 2020		September 30, 2020			December 31, 2021		September 30, 2021
Raw materials and supplies	Raw materials and supplies	$	81,917	$	78,319	Raw materials and supplies	$	93,271	$	86,469
Work in progress	Work in progress	16,956		15,654		Work in progress	23,669		19,842
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	64,094		59,624
Costs of unbilled projects	Costs of unbilled projects	3,860		3,438		Costs of unbilled projects	2,887		2,277
Reserves for excess and obsolete	Reserves for excess and obsolete	(11,046)		(11,467)		Reserves for excess and obsolete	(9,650)		(9,709)
Inventories, net	Inventories, net	$	155,026	$	142,379	Inventories, net	$	174,271	$	158,503

9. Property, Plant, and Equipment

Property, plant, and equipment consists of the following:


		December 31, 2020		September 30, 2020			December 31, 2021		September 30, 2021
Machinery and equipment	Machinery and equipment	$	363,338	$	357,650	Machinery and equipment	$	388,303	$	388,352
Rental equipment	Rental equipment	230,027		221,953		Rental equipment	237,604		246,257
Land and buildings	Land and buildings	70,709		70,245		Land and buildings	69,522		70,048
Construction in process	Construction in process	51,923		48,325		Construction in process	64,310		59,737
		715,997		698,173			759,739		764,394
Less: accumulated depreciation	Less: accumulated depreciation	(346,082)		(333,712)		Less: accumulated depreciation	(386,666)		(389,406)
		$	369,915	$	364,461
Property, plant, and equipment, net						Property, plant, and equipment, net	$	373,073	$	374,988

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


		December 31, 2020				September 30, 2020					December 31, 2021				September 30, 2021
		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	$	73,749	$	55,641	$	73,632	$	57,036
Construction in process	Construction in process	13,978		13,978		8,098		8,098		Construction in process	22,164		22,164		30,504		30,504
		$	79,263	$	67,192	$	71,403	$	60,718		$	95,913	$	77,805	$	104,136	$	87,540

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


		Three Months Ended December 31,						Three Months Ended December 31,
			2020		2019				2021		2020
Depreciation expense	Depreciation expense		$	18,511	$	17,303	Depreciation expense		$	19,320	$	18,511
Maintenance and repair expense	Maintenance and repair expense		5,208		6,065		Maintenance and repair expense		6,119		5,208

10. Goodwill

Changes in the carrying amount of goodwill are as follows:

Integrated Solutions and Services Applied Product Technologies Total
Balance at September 30, 2020 $ 224,381 $ 172,824 $ 397,205
Business combinations 6,088 0 6,088
Measurement period adjustment 72 0 72
Foreign currency translation 1,990 3,238 5,228
Balance at December 31, 2020 $ 232,531 $ 176,062 $ 408,593


	Integrated Solutions and Services		Applied Product Technologies		Total
Balance at September 30, 2021	$	233,830	$	173,546	$	407,376


Foreign currency translation	222		(77)		145
Balance at December 31, 2021	$	234,052	$	173,469	$	407,521

As of December 31, ~~2020~~2021 and September 30, ~~2020, $159,240~~2021, $159,645 and ~~$153,004,~~$159,730, respectively, of goodwill was deductible for tax purposes.

11. Debt

Long‑term debt, including accrued interest, consists of the following:


		December 31, 2020		September 30, 2020			December 31, 2021		September 30, 2021
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)	$	472,650	$	473,837
2021 Revolving Credit Facility, due April 1, 2026 (2)						2021 Revolving Credit Facility, due April 1, 2026 (2)	27,269		37,268

Securitization Facility, due April 1, 2024 (3)						Securitization Facility, due April 1, 2024 (3)	144,168		150,061
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%	97,081		93,375
Notes Payable, due July 31, 2023	Notes Payable, due July 31, 2023	560		611		Notes Payable, due July 31, 2023	347		402
Mortgage (2)		0		1,665

Total debt	Total debt	887,552		885,470		Total debt	741,515		754,943
Less unamortized deferred financing fees	Less unamortized deferred financing fees	(8,911)		(9,436)		Less unamortized deferred financing fees	(11,272)		(11,738)
Total net debt	Total net debt	878,641		876,034		Total net debt	730,243		743,205
Less current portion	Less current portion	(18,426)		(14,339)		Less current portion	(13,296)		(12,775)
Total long‑term debt	Total long‑term debt	$	860,215	$	861,695	Total long‑term debt	$	716,947	$	730,430

(1)~~On December 30, 2020, the Company completed $3,905 of equipment financings due December 30, 2027 at a fixed~~The interest rate on the 2021 Term Loan was 2.63% as of ~~3.73%. On~~ December 31, ~~2020,~~2021, comprised of 0.13% LIBOR plus the ~~Company completed $3,899~~2.50% spread. Includes accrued interest of ~~equipment financings due February 28,~~$25 at both December 31, 2021 ~~at a fixed interest rate of 3.25%.~~and September 30, 2021.

(2)The interest rate on the 2021 Revolving Credit Facility was 2.33% as of December 31, 2021, comprised of 0.13% LIBOR plus the 2.20% spread. During the three months ended December 31, ~~2020,~~2021, the ~~Company paid off~~spread on the ~~outstanding balance of the mortgage due June 30, 2028.~~

~~Term Facilities and~~2021 Revolving Credit Facility

~~On January 15, 2014, EWT III entered into~~ was reduced from 2.25% at September 30, 2021 as a ~~First Lien~~result of a Sustainability Pricing Adjustment per the 2021 Credit ~~Agreement (as modified, amended or supplemented from time to time, the “Credit Agreement”)~~Agreement. Includes accrued interest of $269 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 Credit Agreement also makes available to the Company a revolving credit facility (the “Revolver”) of up to $125,000, with a letter of credit sublimit of up to $45,000. The term loans outstanding under the Credit Agreement (the “First Lien Term Loan”) mature on December 20, 2024, and the Revolver matures on December 20, 2022.

~~The Company makes quarterly principal payments of $2,369. At~~$268, at December 31, ~~2020, the~~2021 and September 30, 2021, respectively.

(3)The interest rate on ~~borrowings~~the Securitization Facility was ~~2.65%,~~1.35% as of December 31, 2021, comprised of ~~0.15%~~0.10% LIBOR plus the ~~2.50%~~1.25% spread. Includes accrued interest of $68 and $61 at December 31, 2021 and September 30, 2021, respectively.

2021 Credit Agreement

On April 1, 2021, EWT III entered into a Credit Agreement (the “2021 Credit Agreement”) among EWT III, as borrower, EWT II, as parent guarantor, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and ING Capital, LLC, as sustainability coordinator. The 2021 Credit Agreement provides for a multi-currency senior secured revolving credit facility in an aggregate principal amount not to exceed the U.S. dollar equivalent of $350,000 (the “2021 Revolving Credit Facility”) and a discounted senior secured term (the “2021 Term Loan”) in the amount of $475,000 (together with the 2021 Revolving Credit Facility, the “Senior Facilities”). The 2021 Credit Agreement also provides for a letter of credit sub-facility not to exceed $60,000.

The 2021 Credit Agreement contains customary representations, warranties, affirmative covenants, and negative covenants, including, among other things, a springing maximum first lien leverage ratio of 5.55 to 1.00. The Company did not exceed this ratio during the three months ended December 31, 2021, does not anticipate exceeding this ratio during the year ending September 30, 2022, and therefore does not anticipate any additional repayments during the year ending September 30, 2022.

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 December 31, 2021 and September 30, 2021.


	December 31, 2021		September 30, 2021
Borrowing availability	$	350,000	$	350,000
Outstanding borrowings	27,000		37,000
Outstanding letters of credit	9,828		10,112
Unused amounts	$	313,172	$	302,888

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, EWT LLC, 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”).

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 December 31, 2021, does not anticipate becoming noncompliant during the year ending September 30, 2022, and therefore does not anticipate any additional repayments during the year ending September 30, 2022.

Equipment Financings

During the three months ended December 31, 2021, the Company completed the following equipment financings:


Date Entered	Due	Interest Rate at 12/31/2021		Principal Amount
December 30, 2021	December 30, 2028	3.94	%	$	2,207
December 23, 2021	July 31, 2029(1)	4.75	%	3,742





				$	5,949

(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 ~~First Lien Term Loan~~Company’s long-term debt were included as a contra liability to debt on 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)


	December 31, 2021		September 30, 2021
Current portion of deferred financing fees and discounts(1)	$	(1,876)	$	(1,866)
Long-term portion of deferred financing fees and discounts(2)	(9,396)		(9,872)
Total deferred financing fees and discounts	$	(11,272)	$	(11,738)

(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.

Amortization of deferred financing fees and discounts included in interest expense ~~were~~was $467 and $526 ~~and $515~~ for the three months ended December 31, ~~2020~~2021 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 Credit Agreement contains limitations on incremental borrowings, is subject to leverage ratios and allows for optional prepayments. Under certain circumstances, the Company may be required to remit excess cash flows as defined based upon exceeding certain leverage ratios. The Company did not exceed such ratios during the three months ended December 31, 2020, does not anticipate exceeding such ratios during the year ending September 30, 2021, and therefore does not anticipate any additional repayments during the year ending September 30, 2021.

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,~~2021, are presented below:


Fiscal Year	Fiscal Year			Fiscal Year
Remainder of 2021		$	16,440
2022		17,002
Remainder of 2022				Remainder of 2022	$	11,236
2023	2023	17,295		2023	16,062
2024	2024	797,133		2024	158,712
2025	2025	7,754		2025	16,162
2026				2026	19,438
Thereafter	Thereafter	31,928		Thereafter	519,905
Total	Total	$	887,552	Total	$	741,515

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 May 22, 2020,~~As of December 31, 2021, 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 $500,000notional amount 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.swaps was $531,000.

Foreign Currency Risk Management

The Company’s functional currency is the U.S. dollar. By operating internationally, the Company is subject to foreign currency translation risk ~~from~~associated with converting the foreign operations’ financial statements into U.S. dollars transactions denominated in currencies other than the U.S. dollar (“foreign currencies”). The Company is also subject to currency risk from transactions denominated in 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,~~2021, the notional amount of the forward contracts ~~held~~was $5,494.

Equity Price Risk Management

The Company is exposed to ~~sell foreign currencies~~variability in compensation charges related to certain deferred compensation obligations to employees. Equity price movements affect the compensation expense as certain investments made by the Company’s employees in the deferred compensation plan are revalued. Although not designated as accounting hedges, the Company utilizes derivatives such as total return swaps to economically hedge this exposure and offset the related compensation expense. As of December 31, 2021, the notional amount of the total return swaps was ~~$4,268.~~$6,519.

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 No. 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 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. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in 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	December 31, 2021		September 30, 2021
Interest rate swaps	Prepaid and other current assets	$	9,469	$	3,127

Foreign currency forward contracts	Prepaid and other current assets	5		6
Commodity swaps	Prepaid and other current assets	1		—

2223


			Liability Derivative						Liability Derivatives
		Balance Sheet Location	December 31, 2020		September 30, 2020			Balance Sheet Location	December 31, 2021		September 30, 2021
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	$	156	$	303
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	29		102
Commodity swaps							Commodity swaps	Accrued expenses and other current liabilities	—		19

The following represents the amount of gain (loss) recognized in ~~AOCI~~Accumulated other comprehensive income (loss) (“AOCI”) (net of tax) during the periods presented:

Three Months Ended
December 31,
2020 2019
Interest rate swap $ 457 $ 0
Interest rate cap 0 (14)
Foreign currency forward contracts 3 19


	Three Months Ended December 31,
		2021		2020
Interest rate swaps		$	5,871	$	457

Foreign currency forward contracts		(18)		3
Commodity swaps		20		—
		$	5,873	$	460

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


		Three Months Ended December 31,						Three Months Ended December 31,
Location of (Loss) Gain	Location of (Loss) Gain		2020		2019		Location of (Loss) Gain		2021		2020

Cost of product sales and services							Cost of product sales and services		$	(85)	$	—
General and administrative expense	General and administrative expense		$	(32)	$	54	General and administrative expense		(7)		(32)

Selling and marketing expense							Selling and marketing expense		1		—

Interest expense	Interest expense		(510)		0		Interest expense		(617)		(510)
			$	(542)	$	54			$	(708)	$	(542)

Based on the fair value amounts of the Company’s cash flow hedges at December 31, ~~2020,~~2021, the Company expects that approximately ~~$124~~$4 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~~Hedging Instruments

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

December 31,
2021

September 30,
2021

Total return swaps—deferred compensation

Prepaid and other current assets

—

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

December 31,
2021

September 30,
2021

Foreign currency forward contracts

Accrued expenses and other current liabilities

Total return swaps—deferred compensation

Accrued expenses and other current liabilities

—

130

The following represents the amount of gain recognized in earnings for derivatives not designated as hedges during the periods presented:


	Three Months Ended December 31,
Location of Gain	2021		2020
General and administrative expense	$	311	$	—

	$	311	$	—

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,					Three Months Ended December 31,				Three Months Ended December 31,
		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	$	8,138	$	6,115	$	2,966	$	1,724

Warranty provision for sales	Warranty provision for sales	371		1,251		252		44		Warranty provision for sales	1,188		371		201		252
Settlement of warranty claims	Settlement of warranty claims	(978)		(1,989)		(374)		(1,076)		Settlement of warranty claims	(1,262)		(978)		(219)		(374)
Amounts related to sale of the Memcor product line		0		795		0		135

Foreign currency translation and other	Foreign currency translation and other	69		152		44		36		Foreign currency translation and other	(171)		69		(46)		44
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	$	7,893	$	5,577	$	2,902	$	1,646

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 in future periods approximately ~~$3,000~~$600 to ~~$5,000~~$2,000 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 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 to $1,700 of costs through the remainder of fiscal 2021 related to the restructuring within certain divisions of the Integrated Solutions and Services segment.programs initiated in prior periods.

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


		Three Months Ended December 31,					Three Months Ended December 31,
		2020		2019			2021		2020
Balance at beginning of the period	Balance at beginning of the period	$	970	$	655	Balance at beginning of the period	$	304	$	970
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	207		908
Restructuring charges related to two-segment realignment	Restructuring charges related to two-segment realignment	238		675		Restructuring charges related to two-segment realignment	164		238
Restructuring charges related to other initiatives	Restructuring charges related to other initiatives	29		245		Restructuring charges related to other initiatives	766		29
Release of prior reserves	Release of prior reserves	(9)		(53)		Release of prior reserves	(21)		(9)
Write off charges	Write off charges	(121)		0		Write off charges	—		(121)
Cash payments	Cash payments	(986)		(1,156)		Cash payments	(1,138)		(986)
Other adjustments	Other adjustments	92		(1)		Other adjustments	—		92
Balance at end of the period	Balance at end of the period	$	1,121	$	365	Balance at end of the period	$	282	$	1,121

The balances for accrued restructuring liabilities at December 31, ~~2020~~2021 and September 30, ~~2020,~~2021, 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~~2021 during the remainder of fiscal ~~2021.~~

2022.

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


		Three Months Ended December 31,					Three Months Ended December 31,
		2020		2019			2021		2020
Cost of product sales and services	Cost of product sales and services	$	826	$	384	Cost of product sales and services	$	222	$	826
General and administrative expense	General and administrative expense	138		480		General and administrative expense	894		138
Sales and marketing expense	Sales and marketing expense	218		3		Sales and marketing expense	—		218
Research and development expense	Research and development expense	(16)		0		Research and development expense	—		(16)

		$	1,166	$	867		$	1,116	$	1,166

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 December 31,
			2020		2019				2021		2020
Service cost	Service cost		$	284	$	261	Service cost		$	232	$	284
Interest cost	Interest cost		79		68		Interest cost		108		79
Expected return on plan assets	Expected return on plan assets		(87)		(30)		Expected return on plan assets		(132)		(87)
Amortization of actuarial losses	Amortization of actuarial losses		264		236		Amortization of actuarial losses		169		264
Pension expense for defined benefit plans	Pension expense for defined benefit plans		$	540	$	535	Pension expense for defined benefit plans		$	377	$	540

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~~Year-to-date income tax expense (benefit) is the product of the most current ~~PAETR~~projected annual effective tax rate (“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 PAETR, which excludes the impact of discrete items, was ~~13.8%~~23.1% and ~~4.9%~~13.8% as of the three months ended December 31, ~~2020~~2021 and ~~2019,~~2020, respectively. For the three months ended December 31, ~~2020,~~2021, the PAETR ~~of 13.8%~~ was ~~lower~~higher than the ~~U.S~~U.S. federal statutory rate of 21.0% primarily due to the mix of earnings between countries, most of which have higher statutory rates than the U.S., which was mostly offset by the impact of maintaining a ~~U.S.~~ valuation allowance that is provided on U.S. deferred tax ~~assets and is~~assets. The current year PAETR was higher than the prior year’s rate ~~which included the impact of the sale of the Memcor product line, and the impact on deferred~~due to an increase in projected pretax book income in countries with higher statutory tax ~~liabilities related to indefinite lived intangibles, a portion of which was reversed in relation to the sale of the Memcor product line.~~rates.

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 30,~~December 31, 2021 as a result of pretax losses incurred since the Company’s inception in early 2014. The Company reported positive pre-tax earnings for the first time in 2017 and is projecting positive pre-tax earnings in 2021, however, the Company generated pre-tax losses in all other years and was in a three-year cumulative loss position at September 30, 2019. 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, 2021, the Company recognized income tax expense of $1,621 on pretax income of $7,709. The rate of 21.0% was in line with the U.S. statutory rate of 21.0% as the mix of earnings between countries, most of which have higher statutory tax rates than the U.S., was mostly offset by the impact of maintaining a U.S. valuation allowance that is provided on U.S. deferred tax assets.

For the three months ended December 31, 2020, the Company recognized income tax expense of $1,084 on pretax income of $7,561. The rate of 14.3% differed from the U.S. statutory rate of 21.0% principally due to the impact of maintaining a U.S. valuation allowance against U.S. deferred tax assets.

For the three months ended December 31, 2019, the Company recognized income tax expense of $2,603 on pretax income of $56,109. The rate of 4.6% 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, ~~2020~~2021 and ~~2019,~~2020, the Company had gross unrecognized tax benefits of ~~$1,322~~$1,628 and ~~$1,289,~~$1,322 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~~

(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,~~on March 6, 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,~~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~~

On December 31, 2021 (the “Grant Date”), the Company granted 219 restricted stock units and 98 performance share units (measured at a target award level) under the Equity Incentive Plan ~~5,100 shares of common stock~~to certain employees of the ~~Company were reserved for issuance thereunder. On February 18, 2020,~~Company. The final number of performance share units that may be earned is dependent on the Company’s ~~shareholders approved~~achievement of performance goals related to organic revenue growth and adjusted EBITDA margin over a three-year measurement period ending September 30, 2024. The final number of performance share units that may be earned is also subject to a total stockholder return (“TSR”) modifier, which operates by increasing or decreasing the ~~amendment and restatement of the Equity Incentive Plan in order to increase the~~total number of shares earned by up to 25% based on the Company’s TSR relative to the TSR of ~~common stock reserved for issuance thereunder~~the U.S. constituents of the S&P Global Water Index. In order to receive shares earned at the end of each performance period, the recipient must remain employed by ~~5,000 shares and incorporate other changes.~~ the company at the end of the three-year period (except in the event of retirement, death, disability or, in certain circumstances, related to change in control).

As of December 31, ~~2020,~~2021, there were approximately ~~5,916~~4,016 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~~Outstanding 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~~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		7,430	$	10.30	5.9 years	$	83,152
Outstanding at September 30, 2021								Outstanding at September 30, 2021	5,090	$	13.87	5.9 years	$	120,611
Granted	Granted	1	23.18					Granted	2	46.75
Exercised	Exercised	(1,112)	5.75					Exercised	(64)	12.49

Forfeited	Forfeited	(4)	19.00					Forfeited	(18)	20.29

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 December 31, 2021								Outstanding at December 31, 2021	5,010	$	13.87	5.7 years	$	164,726
Options exercisable at December 31, 2021								Options exercisable at December 31, 2021	3,126	$	9.67	4.3 years	$	115,912
Options vested and expected to vest at December 31, 2021								Options vested and expected to vest at December 31, 2021	4,992	$	13.84	5.7 years	$	164,312

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 months ended December 31, ~~2020~~2021 was ~~$19,362.~~$1,949.

2728

A summary of the status of the Company's ~~non-vested~~unvested stock options as of and for the three months ended December 31, ~~2020~~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		2,166	$	5.56
Unvested at beginning of period					Unvested at beginning of period	1,901	$	6.69
Granted	Granted	1	8.12		Granted	2	24.22
Vested	Vested	(25)	2.27		Vested	(1)	8.12
Forfeited	Forfeited	(4)	6.47		Forfeited	(18)	6.47
Nonvested at end of period		2,138	$	5.60
Unvested at end of period					Unvested at end of period	1,884	$	6.73

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

~~Restricted Stock Units~~$4.

The following is a summary of the ~~RSU~~restricted stock units (“RSU”) activity for the three months ended December 31, ~~2020.~~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		750	$	17.86
Outstanding at September 30, 2021					Outstanding at September 30, 2021	1,209	$	22.77
Granted	Granted	114	24.51		Granted	261	45.81
Vested	Vested	(1)	24.25		Vested	(115)	24.48
Forfeited	Forfeited	(2)	16.31		Forfeited	(16)	23.03

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 December 31, 2021					Outstanding at December 31, 2021	1,339	$	27.11
Expected to vest at December 31, 2021					Expected to vest at December 31, 2021	1,292	$	26.75

The following is a summary of the performance share unit activity for the three months ended December 31, 2021, assuming target award level.


(In thousands, except per share amounts)	Shares	Weighted Average Grant Date Fair Value/Share
Unvested at beginning of period	469	$	16.92
Granted	98	52.57


Unvested at end of period	567	$	23.10
Expected to vest	518	$	23.01

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~~$5,334 and ~~$3,691~~$3,076 during the three months ended December 31, ~~2020~~2021 and ~~2019,~~2020, respectively, of which ~~$3,019~~$5,203 and ~~$3,680~~$3,019 was non-cash, respectively. The unrecognized compensation expense related to stock options, RSUs, and ~~RSUs~~performance share units (measured at a target award level) was ~~$7,653~~$7,501, $28,941 and ~~$11,736,~~$11,444, respectively at December 31, ~~2020,~~2021, and is expected to be recognized over a weighted average period of ~~2.1~~1.8 years, 2.2 years and ~~2.2~~2.5 years, respectively. The Company received ~~$14,263~~$2,085 from the exercise of stock options during the three months ended December 31, ~~2020.~~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, ~~2020~~2021 and ~~2019,~~2020, the Company incurred compensation expense of ~~$216~~$221 and ~~$39,~~$216, respectively, in salaries and wages inwith respect ofto the ESPP, representing the fair value of the discounted price of the shares. These amounts are included in the total share-based compensation expense above. On October ~~2, 2020, 120~~1, 2021, 60 shares 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~~2021 and September 30, ~~2020~~2021 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 months ended December 31, ~~2020~~2021 and ~~2019,~~2020, 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~~transacted with the Company ~~locations~~location that ~~maintain~~maintains the customer ~~relationship and transacts the external sale.~~relationship.

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~~2021 and September 30, ~~2020,~~2021, respectively.


		December 31, 2020		September 30, 2020			December 31, 2021		September 30, 2021
Revolving credit capacity	Revolving credit capacity	$	45,000	$	45,000	Revolving credit capacity	$	60,000	$	60,000
Letters of credit outstanding	Letters of credit outstanding	11,824		12,963		Letters of credit outstanding	9,828		10,112
Remaining revolving credit capacity	Remaining revolving credit capacity	$	33,176	$	32,037	Remaining revolving credit capacity	$	50,172	$	49,888

Surety capacity	Surety capacity	$	230,000	$	230,000	Surety capacity	$	250,000	$	250,000
Surety issuances	Surety issuances	144,647		152,990		Surety issuances	142,709		147,845
Remaining surety available	Remaining surety available	$	85,353	$	77,010	Remaining surety available	$	107,291	$	102,155

The longest maturity date of letters of credit and surety bonds in effect as of December 31, ~~2020~~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.~~20. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following:


		December 31, 2020		September 30, 2020			December 31, 2021		September 30, 2021
Salaries, wages and other benefits		$	45,716	$	67,766
Salaries, wages, and other benefits						Salaries, wages, and other benefits	$	62,154	$	79,110
Obligation under operating leases	Obligation under operating leases	12,890		12,767		Obligation under operating leases	13,066		13,316
Obligation under finance leases	Obligation under finance leases	11,611		11,362		Obligation under finance leases	12,124		12,093
Third party commissions	Third party commissions	8,490		9,270		Third party commissions	10,274		10,031
Taxes, other than income						Taxes, other than income	4,941		4,575
Insurance liabilities	Insurance liabilities	3,773		3,954		Insurance liabilities	3,845		3,720
Provisions for litigation						Provisions for litigation	3,078		2,938

Severance payments						Severance payments	282		304
Fair value of liability derivatives	Fair value of liability derivatives	3,756		4,716		Fair value of liability derivatives	185		554
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	Earn-outs related to acquisitions	295		295		Earn-outs related to acquisitions	50		150
Other	Other	27,520		24,393		Other	34,445		33,576
		$	120,668	$	143,389		$	144,444	$	160,367

~~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 months ended December 31, ~~2020~~2021 and ~~2019~~2020 were as follows:


		Three Months Ended December 31,						Three Months Ended December 31,
			2020		2019				2021		2020
Total sales
Total revenue							Total revenue
Integrated Solutions and Services	Integrated Solutions and Services		$	216,753	$	231,800	Integrated Solutions and Services		$	253,576	$	216,753
Applied Product Technologies	Applied Product Technologies		123,581		138,529		Applied Product Technologies		142,497		123,581
Total sales			340,334		370,329
Intersegment sales
Total revenue							Total revenue		396,073		340,334
Intersegment revenue							Intersegment revenue
Integrated Solutions and Services	Integrated Solutions and Services		2,036		3,662		Integrated Solutions and Services		8,530		2,036
Applied Product Technologies	Applied Product Technologies		16,105		20,562		Applied Product Technologies		21,275		16,105
Total intersegment sales			18,141		24,224
Sales to external customers
Total intersegment revenue							Total intersegment revenue		29,805		18,141
Revenue to external customers							Revenue to external customers
Integrated Solutions and Services	Integrated Solutions and Services		214,717		228,138		Integrated Solutions and Services		245,046		214,717
Applied Product Technologies	Applied Product Technologies		107,476		117,967		Applied Product Technologies		121,222		107,476
Total sales			$	322,193	$	346,105
Total revenue							Total revenue		$	366,268	$	322,193

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		$	35,300	$	26,357
Applied Product Technologies	Applied Product Technologies		13,380		63,142		Applied Product Technologies		17,827		13,380
Corporate	Corporate		(23,503)		(26,604)		Corporate		(38,839)		(23,503)
Total operating profit	Total operating profit		16,234		69,692		Total operating profit		14,288		16,234
Interest expense	Interest expense		(8,673)		(13,583)		Interest expense		(6,579)		(8,673)
Income before income taxes	Income before income taxes		7,561		56,109		Income before income taxes		7,709		7,561
Income tax expense	Income tax expense		(1,084)		(2,603)		Income tax expense		(1,621)		(1,084)
Net income	Net income		$	6,477	$	53,506	Net income		$	6,088	$	6,477


	December 31, 2021		September 30, 2021
Assets
Integrated Solutions and Services	$	870,124	$	887,265
Applied Product Technologies	636,832		656,362
Corporate	360,645		325,264
Total assets	$	1,867,601	$	1,868,891

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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 December 31,
			2020		2019				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.		$	5,987	$	6,433
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		120,632		117,768
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		4,315		3,790
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		124,947		121,558
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		$	0.05	$	0.05
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		$	0.05	$	0.05

~~24.~~23. Subsequent Events

~~None.~~On January 3, 2022, the Company completed the Transaction to acquire the Mar Cor Business for $194,977 paid in cash at closing. The Company utilized cash on hand and borrowed an additional $160,000 under its 2021 Revolving Credit Facility to fund the Transaction. On January 18, 2022, the Company paid $2,300 for a success fee to a third party, which was due upon consummation of the Transaction.

The Mar Cor Business is a leading manufacturer and servicer of medical water, commercial and industrial solutions in North America. Headquartered in Plymouth, Minnesota, the Mar Cor Business has 27 service and regeneration facilities in the U.S. and Canada. The Mar Cor Business offers significant technical expertise in designing, building, and servicing high-purity water treatment systems. In connection with the closing of the Transaction, EWT LLC entered into contract manufacturing agreements with the Sellers pursuant to which the Sellers will manufacture certain filtration and dialysis concentrates products for EWT LLC.

The preliminary purchase accounting has not yet been completed.

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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,~~2021, as filed with the SEC on November ~~20, 2020~~17, 2021 (the ~~“2020~~“2021 Annual Report”). You should review the disclosures in Part I, Item ~~1A.~~1A, “Risk Factors” in the ~~2020~~2021 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~~across various end markets. We are headquartered in ~~the industrial, commercial and municipal water treatment markets 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 outsourced water service contracts, capital systems, and related recurring aftermarket services, parts and consumables, and emergency services to enable recycle and reuse, improve operational reliability and performance, and promote environmental compliance; and

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

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~~

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

Our 2021 Annual Report includes a discussion of various key factors and trends that we ~~primarily provide tailored solutions~~believe have affected or may affect our operating results. The following discussion highlights recent developments, as well as significant changes in ~~collaboration with our customers backed by life‑cycle services including on‑demand water, outsourced water, recycle~~these key factors and ~~reuse and emergency response service alternatives to improve operational reliability, performance and environmental compliance.~~trends.

3335

•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. 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~~material adverse effect on our results of ~~products and technologies specified~~operations for the three months ended December 31, 2021. Vaccination requirements imposed by ~~global water treatment designers, OEMs, engineering firms and integrators.~~certain of our customers to allow our employees to enter their sites may further increase our costs or delay our performance of services for our customers, however this has not had a material impact on our results.

~~We evaluate~~To date, the pandemic has negatively impacted sales 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 these factors did not have a material adverse effect on our results ~~based~~of operations for the three months ended December 31, 2021. 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 December 31, 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 include~~pandemic on our business and the potential effects of recent spikes in COVID-19 cases in certain ~~unallocated charges that~~regions, as well as challenges created by the macroeconomic conditions associated with the reopening of global economies, including inflation and availability constraints, which are presented within Corporate activities. These unallocated 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 certain integration costs) and share-based compensation charges. EBITDA and adjusted EBITDA are non-GAAP financial measures. discussed in more detail below.

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~~condition as a ~~critical part~~result of ~~their~~the COVID-19 pandemic, see “Risk Factors-The COVID-19 pandemic has adversely affected, and may continue to adversely affect, our business, financial condition, results of operations, ~~or production processes, including pharmaceuticals~~ and ~~health sciences, microelectronics, food~~prospects” included in Part I, Item 1A, “Risk Factors” in the 2021 Annual Report.

Inflation, material availability and ~~beverage, hydrocarbon~~labor shortages.Material, freight, and ~~chemical processing, power, general manufacturing, municipal drinking~~labor inflation resulted in increased costs in the first quarter of fiscal 2022, and ~~wastewater, marine~~we expect this trend will continue throughout fiscal 2022.Although we have offset a portion of these increased costs through price increases and ~~aquatics. Water treatment is an essential, non‑discretionary market~~operational efficiencies to date, there can be no assurance that ~~is growing~~we will be able to continue to do so. If we are unable to manage commodity fluctuations through pricing actions, cost savings projects, and sourcing decisions as well as through consistent productivity improvements, it may adversely impact our gross profit and gross margin in ~~importance as access to clean water has become an international priority. Underpinning this growth are a number~~future periods. Additionally, supply chain disruptions and labor shortages have restricted and could further restrict availability of ~~global, long‑term trends that~~certain commodities and materials, which may result in delays in our execution of projects in fiscal 2022 and negatively impact revenues. Tight labor markets have resulted in ~~increasingly stringent effluent regulations, along with~~longer times to fill open positions and labor inflation. Continued delays in filling open positions, particularly among our service technician population, could impact our ability to provide timely service to our customers. We have taken and continue to take strategic actions focused on mitigating the impact of these challenges.Although these factors did not have a ~~growing demand~~material adverse effect on our results of operations for ~~cleaner and sustainable waste streams for reuse. These trends include~~ the ~~growing global population, increasing levels~~three months ended December 31, 2021, if sustained, they could have a material adverse effect on our results 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.operations going forward.

Acquisitions.~~Our Existing Customer Base~~

On December 20, 2021, the Company and its indirect wholly-owned subsidiaries Evoqua Water Technologies LLC (“EWT LLC”) and Evoqua Water Technologies Ltd. (together with EWT LLC, the “Buyer”) entered into an Asset Purchase Agreement (the “Agreement”) with Cantel Medical LLC, Mar Cor Purification, Inc., and certain of their affiliates (collectively, the “Sellers”), each wholly-owned subsidiaries of Steris plc, pursuant to which the Buyer agreed to acquire certain assets of the Sellers and assume certain liabilities of the Sellers that are owned or used or arise in connection with the global operation of the Sellers’ renal business (the “Mar Cor Business”) for an aggregate purchase price of $196.3 million in cash at closing (the “Purchase Price”), subject to customary adjustments, including for working capital (the “Transaction”). On January 3, 2022, we completed the Transaction to acquire the Mar Cor Business for $195.0 million paid in cash at closing. We ~~believe~~utilized cash on hand and borrowed an additional $160.0 million under our ~~strong brands,~~2021 Revolving Credit Facility (as defined below) to fund the Transaction. The Purchase Price includes a $12.3 million earn out, which is being held in escrow and will be paid, pro rata, to the Sellers if the Mar Cor Business meets certain sales performance goals (the “Earn Out”). Any portion of the Earn Out not paid to the Sellers during the first year following closing of the Transaction will be returned to the Buyers. In addition, approximately $13.0 million of the Purchase Price was placed into an escrow account, of which $9.8 million is to secure general indemnification claims against the Sellers and $3.2 million is for net working capital adjustments. The Mar Cor Business is a leading ~~position~~manufacturer and servicer of medical water, commercial and industrial solutions in ~~highly fragmented markets, scalable~~North America. Headquartered in Plymouth, Minnesota, the Mar Cor Business has 27 service and ~~global offerings, leading installed base~~regeneration facilities in the U.S. and ~~unique ability to provide complete treatment solutions will enable us to capture a larger share of our existing customers’~~Canada. The Mar Cor Business offers significant technical expertise in designing, building, and servicing high-purity 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~~systems. The addition 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 optimizewill expand our service ~~route network and on demand offerings through predictive analytics, which we believe will result~~footprint in ~~market share gains, improved service levels, increased barriers to entry and reduced costs.~~North America, furthering its reach into the

3436

~~Product~~healthcare vertical market. In connection with the closing of the Transaction, we entered into contract manufacturing agreements with the Sellers pursuant to which the Sellers will manufacture certain filtration 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 valuedialysis concentrates products for customers through reduced leadtimes, improved quality and superior customer support, while also creating value for shareholders through enhanced earnings growth. Furthermore, as a result of significant investments we have made in our footprint and facilities, we believe we have the capacity to support our planned growth without commensurate increases in fixed costs.

~~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.us. During the three months ended December 31, ~~2020,~~2021, we ~~acquired~~incurred approximately $1.1 million in acquisition costs, which are included in General and administrative expense on the ~~industrial water business~~Unaudited Consolidated Statements of ~~Ultrapure & Industrial Services, LLC (“Ultrapure”). See Note 4, “Acquisitions” in Item 1 in this Report~~Operations. On January 18, 2022, we paid $2.3 million for a ~~complete discussion.~~

~~During the three months ended December 31, 2019, we completed the sale~~success fee to a third party, which was due upon consummation of the ~~Memcor product line~~Transaction. Additionally, we expect to ~~DuPont de Nemours, Inc. (“DuPont”). The Company recognized a $49.0~~incur between $18.0 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~~$20.0 million in ~~transaction~~one-time integration costs ~~incurred during~~within the ~~three months ended December 31, 2019.~~following 18 to 24 months.

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 of the COVID-19 pandemic. Our business has been considered essential under federal and local standards, and we have maintained business continuity at our critical service branches and manufacturing facilities to~~

date. We have taken measures 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, 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.

In addition to the incremental costs and cost reduction actions described above, to date, the pandemic has impacted volume across our business, due primarily to site access restrictions, temporary site closures, and temporary delays in annual maintenance activities by customers in certain end markets. We have emphasized our focus 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 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” included 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.

~~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.

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 making financial, operational, and strategic decisions, and believes they are useful metrics for investors that help with performance comparability period over period. In addition, we consider certain non-GAAP financial measures such as adjusted EBITDA ~~(which is a non-GAAP financial measure,~~and organic revenue, 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 and Organic 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 our business. Organic revenue, which is a ~~function~~non-GAAP financial measure, is defined as revenue excluding the impact of foreign currency translation and inorganic revenue. Inorganic revenue represents the impact from acquisitions and divestitures during the first 12 months following the closing of the ~~mix of product and service sales, and consist primarily of:~~

•acquisition or divestiture. Divestitures include sales of tailored water treatment solutions and environmental products, services and solutions to our industrial customers, backed by lifecycle services including emergency response services and outsourced water alternatives, to a broad group of industrial customers in our U.S., Canada and Singapore markets;

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

•~~sales of a wide variety of differentiated products and technologies, to an array of OEM, distributor, end‑user, engineering firm and integrator customers in all~~insignificant portions 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~~business that did not meet the criteria for classification as a ~~percentage~~discontinued operation. We exclude the effect of ~~our combined product~~foreign currency translation from organic sales because foreign currency translation is not under management’s control, is subject to volatility and ~~services revenue.~~

~~Cost~~can obscure underlying business trends. We exclude the effect of ~~product sales consists of all manufacturing costs required to bring a product to a ready for sale condition, including direct~~acquisitions 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~~divestitures during the first 12 months following the closing of the ~~cost~~acquisition or divestiture because they can obscure underlying business trends and make comparisons of ~~personnel~~long-term performance difficult between the Company 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 expenses to increaseits peers due to the ~~anticipated~~varying nature, size, and number of transactions from period to period. Management believes that reporting organic revenue provides useful information to investors by helping identify underlying growth trends in our core business and facilitating easier comparisons of our ~~business~~revenue performance with prior and ~~related infrastructure as well as due~~future periods and to ~~the legal, accounting, insurance, investor relations and other costs associated with being~~our peers. See “Non-GAAP Reconciliations” in this Item 2 for a ~~public company.~~

~~Sales and Marketing.~~ ~~Sales and marketing expenses (“S&M expense”) consist primarily~~reconciliation 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 expensesorganic revenue to ~~increase as we continue to actively promote our products, services and solutions.~~revenue.

~~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)~~

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

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 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 this Item 2 for a reconciliation of adjusted EBITDA to net income. You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. In addition, in evaluating adjusted EBITDA, you should be aware that in the future, we may incur expenses similar to the adjustments in the presentation of adjusted EBITDA. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or ~~non‑recurring~~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.~~industries may calculate adjusted EBITDA differently.

~~The following is a reconciliation of our Net income to adjusted EBITDA (unaudited, amounts in millions):~~

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 %

~~(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 costs, relocation 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.~~

Three Months Ended
December 31,
(In millions) 2020 2019
Post Memcor divestiture restructuring(1)
$ 0.9 $ —
Cost of product sales and services ("Cost of sales") 0.8 —
S&M expense 0.2 —
Other operating (income) expense (0.1) —
Two-segment restructuring(2)
$ 0.2 $ 1.0
Cost of sales — 0.3
G&A expense 0.2 0.3
Other operating (income) expense — 0.4
Various other initiatives(3)
$ — $ 0.2
Cost of sales — 0.1
G&A expense — 0.1
Total $ 1.1 $ 1.2

~~(1)~~all of which 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.~~

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

Three Months Ended
December 31,
(In millions) 2020 2019
Cost of sales $ — $ 0.1
G&A expense 0.1 —
Total $ 0.1 $ 0.1

~~(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,
(In millions) 2020 2019
Cost of sales $ — $ 0.1
G&A expense 0.2 0.3
Total $ 0.2 $ 0.4

~~(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:

Three Months Ended
December 31,
(In millions) 2020 2019
G&A expense $ 0.4 $ —
Total $ 0.4 $ —

~~(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. This includes:

Three Months Ended
December 31,
(In millions) 2020 2019
Cost of sales $ 0.1 $ 0.1
G&A expense 0.5 0.4
Other operating (income) expense — (0.3)
Total $ 0.6 $ 0.2

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

Adjusted EBITDA is calculated prior to considering certain other significant (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 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;

~~(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.~~

~~Other (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.~~

4338

Results of Operations

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


		Three Months Ended December 31,						Three Months Ended December 31,
			2020	2019												2021	2020
(In millions, except per share amounts)	(In millions, except per share amounts)					% of Revenue					% of Revenue		% Variance		(In millions, except per share amounts)					% of Revenue				% of Revenue		% Variance
Revenue from product sales and services	Revenue from product sales and services			$	322.2	100.0	%		$	346.1	100.0	%	(6.9)	%	Revenue from product sales and services			$	366.3	100.0	%	$	322.2	100.0	%	13.7	%
Cost of product sales and services				(226.9)		(70.4)	%		(240.4)		(69.5)	%	(5.6)	%

Gross profit	Gross profit			95.3		29.6	%		105.7		30.5	%	(9.8)	%	Gross profit			$	110.5	30.2	%	$	95.3	29.6	%	15.9	%
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)	%

Total operating expenses															Total operating expenses			$	(97.7)	(26.7)	%	$	(79.3)	(24.6)	%	23.2	%

Other operating income, net	Other operating income, net			0.3		0.1	%		51.5		14.9	%	(99.4)	%	Other operating income, net			$	1.5	0.4	%	$	0.3	0.1	%	400.0	%
Interest expense	Interest expense			(8.7)		(2.7)	%		(13.6)		(3.9)	%	(36.0)	%	Interest expense			$	(6.6)	(1.8)	%	$	(8.7)	(2.7)	%	(24.1)	%
Income before income taxes	Income before income taxes			7.6		2.4	%		56.1		16.2	%	86.5	%	Income before income taxes			$	7.7	2.1	%	$	7.6	2.4	%	1.3	%
Income tax expense	Income tax expense			(1.1)		(0.3)	%		(2.6)		(0.8)	%	(57.7)	%	Income tax expense			$	(1.6)	(0.4)	%	$	(1.1)	(0.3)	%	45.5	%
Net income	Net income			6.5		2.0	%		53.5		15.5	%	87.9	%	Net income			$	6.1	1.7	%	$	6.5	2.0	%	(6.2)	%
Net income attributable to non‑controlling interest	Net income attributable to non‑controlling interest			0.1		—	%		0.4		0.1	%	(75.0)	%	Net income attributable to non‑controlling interest			$	0.1	—	%	$	0.1	—	%	—	%
Net income attributable to Evoqua Water Technologies Corp.	Net income attributable to Evoqua Water Technologies Corp.			$	6.4	2.0	%		$	53.1	15.3	%	87.9	%	Net income attributable to Evoqua Water Technologies Corp.			$	6.0	1.6	%	$	6.4	2.0	%	(6.3)	%

Weighted average shares outstanding	Weighted average shares outstanding														Weighted average shares outstanding
Basic	Basic			117.8					115.6						Basic			120.6				117.8
Diluted	Diluted			121.6					121.0						Diluted			124.9				121.6
Earnings per share	Earnings per share														Earnings per share
Basic	Basic			$	0.05				$	0.46					Basic			$	0.05			$	0.05
Diluted	Diluted			$	0.05				$	0.44					Diluted			$	0.05			$	0.05

Other financial data:	Other financial data:												Other financial data:
Adjusted EBITDA(1)				$	44.8	13.9	%		$	43.6	12.6	%	2.8	%
Adjusted EBITDA(1)															Adjusted EBITDA(1)			$	54.3	14.8	%	$	44.8	13.9	%	21.2	%

(1)~~For the definition of adjusted~~Adjusted EBITDA (ais a non-GAAP financial ~~measure) and~~measure. For a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see ~~“How We Assess the Performance~~“Non-GAAP Reconciliations” in Part I, Item 2 of ~~Our Business-Adjusted EBITDA.”~~this Report.

Consolidated Results for the Three Months Ended December 31, 2021 and 2020

~~Revenues~~Revenue~~-Revenues decreased $23.9~~-Revenue increased $44.1 million, or ~~6.9%~~13.7%, to $366.3 million in the three months ended December 31, 2021, from $322.2 million in the three months ended December 31, ~~2020,~~2020. Revenue from ~~$346.1~~product sales increased $32.6 million, or 18.1%, to $212.6 million in the three months ended December 31, ~~2019.~~

~~The following table provides the change in revenues~~2021, 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,~~2020. Revenue from ~~$196.6~~services increased $11.5 million, or 8.1%, to $153.7 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~~

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.

~~Revenues~~2021, 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~~2020.

The following tables provide the change in revenue by offering and the change in revenue by driver during the three months ended December 31, 2021 and 2020:


	Three Months Ended December 31,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Revenue from product sales:	$	212.6	58.0	%	$	180.0	55.9	%	$	32.6	18.1	%
Capital	151.0		41.2	%	127.5		39.6	%	23.5		18.4	%
Aftermarket	61.6		16.8	%	52.5		16.3	%	9.1		17.3	%
Revenue from services	153.7		42.0	%	142.2		44.1	%	11.5		8.1	%
	$	366.3	100.0	%	$	322.2	100.0	%	$	44.1	13.7	%


	Three Months Ended December 31,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Organic	$	363.3	99.2	%	$	321.5	99.8	%	$	41.8	13.0	%
Inorganic	2.5		0.7	%	0.7		0.2	%	1.8		0.6	%
Foreign currency translation	0.5		0.1	%	n/a		n/a		0.5		0.1	%
	$	366.3	100.0	%	$	322.2	100.0	%	$	44.1	13.7	%

The increase in organic revenue was primarily driven by improved sales volume and favorable price realization across all regions and most product lines.

Revenue in future periods could be negatively impacted by commodity and material availability constraints caused by global supply chain disruptions, skilled labor shortages, and the timing of projects.

Cost of sales and gross margin-Total gross margin increased slightly to 30.2% 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.

~~Cost of Sales and Gross Margin-Total gross margin decreased to~~2021, from 29.6% in the three months ended December 31, ~~2020, from 30.5% in the three months ended December 31, 2019.~~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 December 31,				Three Months Ended December 31,
			2020	2019					2021						2020
(In millions)	(In millions)						Gross Margin %					Gross Margin %		(In millions)			Gross Margin				Gross Margin
Cost of product sales	Cost of product sales			$	(131.1)		27.2	%		$	(140.5)	28.5	%	Cost of product sales	$	(153.8)	27.7	%	$	(131.1)	27.2	%
Cost of services	Cost of services			(95.8)			32.6	%		(99.9)		33.2	%	Cost of services	(102.0)		33.6	%	(95.8)		32.6	%
				$	(226.9)		29.6	%		$	(240.4)	30.5	%		$	(255.8)	30.2	%	$	(226.9)	29.6	%

Gross margin from product sales ~~decreased~~increased by ~~1.3%~~50 basis points (“bps”) to 27.7% in the three months ended December 31, 2021, from 27.2% in the three months ended December 31, ~~2020,~~2020. This increase was primarily driven by favorable volume, mix, and positive price/cost. This was slightly offset by labor inflation and increased freight costs.

Gross margin from ~~28.5%~~services increased by 100 bps to 33.6% 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~~2021, from ~~services decreased approximately 0.6% to~~ 32.6% in the three months ended December 31, ~~2020, from 33.2%~~2020. This increase was primarily driven by favorable price realization.

We expect continued pressure on gross margin in future periods due to material, freight and labor inflation. Although we expect to continue to partially offset those increasing costs with positive price realization, there can be no assurance that we will be able to do so.

Operating expenses-Operating expenses increased $18.4 million, or 23.2%, to $97.7 million 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~~2021, from $79.3 million in the three months ended December 31, ~~2020, from $87.5~~2020. Operating expenses are comprised of the following:


	Three Months Ended December 31,
	2021				2020
(In millions)			% of Revenue				% of Revenue		% Variance
General and administrative expense	$	(57.8)	(15.8)	%	$	(42.3)	(13.1)	%	36.6	%
Sales and marketing expense	(36.4)		(9.9)	%	(33.9)		(10.5)	%	7.4	%
Research and development expense	(3.5)		(1.0)	%	(3.1)		(1.0)	%	12.9	%
Total operating expenses	$	(97.7)	(26.7)	%	$	(79.3)	(24.6)	%	23.2	%

The increase period over period in operating expenses was primarily due to foreign currency translation losses in the current period, compared to foreign currency translation gains in the prior period, most of which is related to intercompany loans. In addition, there were increased employee related expenses as well as higher consulting and travel expenses. These increases were partially offset by a decrease in external legal fees compared to the prior period. Fluctuations in foreign currency translation and labor inflation could impact operating expenses in future periods.

Other operating income, net-Other operating income, net increased $1.2 million to $1.5 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.

~~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,~~2021, 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,~~2020. This increase was primarily due to income from ~~$51.5~~precious metal sales, mainly from scrapped anodes in China.

Interest expense-Interest expense decreased $2.1 million, or 24.1%, to $6.6 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~~2021, from $8.7 million in the three months ended December 31, ~~2020, from $13.6 million in the three months ended December 31, 2019.~~2020. The decrease in interest expense was primarily driven by a $100.0 million debt prepayment in conjunction with the April 2021 refinancing of our senior credit facility, as well as a reduction in the interest rate spread and LIBOR year over ~~year, in addition to a $100.0 million debt prepayment that occurred in January 2020.~~year.

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~~increased 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 net income of $6.5 million for the three months ended December 31, 2020, from net income of $53.5~~$1.6 million in the three months ended December 31, ~~2019,~~2021, as compared to income tax expense of $1.1 million in the three months ended December 31, 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.

Net income-Net income decreased $0.4 million, or 6.2%, to $6.1 million in the three months ended December 31, 2021, from $6.5 million in the three months ended December 31, 2020, as a result of the variances noted above.

Adjusted EBITDA~~-Adjusted~~-Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA for the three months ended December 31, ~~2020~~2021 increased by ~~$1.2~~$9.5 million, or 21.2%, to ~~$44.8~~$54.3 million, as compared to ~~$43.6~~$44.8 million for the three months ended December 31, ~~2019. Adjusted EBITDA~~2020, primarily driven by sales volume and related gross profit. See “Non-GAAP Reconciliations” in Item 2 of this Report 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.a reconciliation of adjusted EBITDA.

Segment Results


		Three Months Ended December 31,				Three Months Ended December 31,
			2020	2019					% Variance		2021						2020
(In millions)	(In millions)						% of Revenue					% of Revenue				(In millions)			% of Total				% of Total		% Variance
Revenues
Revenue																Revenue
Integrated Solutions and Services	Integrated Solutions and Services			$	214.7		66.6	%	$	228.1		65.9	%	(5.9)	%	Integrated Solutions and Services	$	245.1	66.9	%	$	214.7	66.6	%	14.2	%
Applied Product Technologies	Applied Product Technologies			107.5			33.4	%	118.0			34.1	%	(8.9)	%	Applied Product Technologies	121.2		33.1	%	107.5		33.4	%	12.7	%
Total Consolidated	Total Consolidated			322.2			100.0	%	346.1			100.0	%	(6.9)	%	Total Consolidated	$	366.3	100.0	%	$	322.2	100.0	%	13.7	%
Operating profit (loss)	Operating profit (loss)															Operating profit (loss)
Integrated Solutions and Services	Integrated Solutions and Services			26.4			8.2	%	33.2			9.6	%	(20.5)	%	Integrated Solutions and Services	$	35.3	246.9	%	$	26.4	162.0	%	33.7	%
Applied Product Technologies	Applied Product Technologies			13.4			4.2	%	63.1			18.2	%	(78.8)	%	Applied Product Technologies	17.8		124.5	%	13.4		82.2	%	32.8	%
Corporate	Corporate			(23.5)			(7.3)	%	(26.6)			(7.7)	%	(11.7)	%	Corporate	(38.8)		(271.3)	%	(23.5)		(144.2)	%	65.1	%
Total Consolidated	Total Consolidated			16.3			5.1	%	69.7			20.1	%	(76.6)	%	Total Consolidated	$	14.3	100.0	%	$	16.3	100.0	%	(12.3)	%
EBITDA
Adjusted EBITDA(1)																Adjusted EBITDA(1)
Integrated Solutions and Services	Integrated Solutions and Services			43.2			13.4	%	48.8			14.1	%	(11.5)	%	Integrated Solutions and Services	$	53.5	98.5	%	$	43.2	96.4	%	23.8	%
Applied Product Technologies	Applied Product Technologies			17.0			5.3	%	66.7			19.3	%	(74.5)	%	Applied Product Technologies	21.9		40.3	%	19.0		42.4	%	15.3	%
Corporate and unallocated costs				(16.5)			(5.1)	%	(20.7)			(6.0)	%	(20.3)	%
Corporate																Corporate	(21.1)		(38.9)	%	(17.4)		(38.8)	%	21.3	%
Total Consolidated	Total Consolidated			$	43.7		13.6	%	$	94.8		27.4	%	(53.9)	%	Total Consolidated	$	54.3	100.0	%	$	44.8	100.0	%	21.2	%

(1)

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA on a segment basis is defined as earnings before interest expense, income tax expense (benefit) and depreciation and amortization, adjusted for the impact of certain other items that have been reflected at the segment level. The following is a reconciliation of our segment adjusted EBITDA to operating profit, its most directly comparable financial measure presented in accordance with GAAP:

Three Months Ended December 31,
2020 2019
(In millions) Integrated Solutions and Services Applied Product Technologies Integrated Solutions and Services Applied Product Technologies
Operating Profit $ 26.4 $ 13.4 $ 33.2 $ 63.1
Depreciation and amortization 16.8 3.6 15.6 3.6
EBITDA $ 43.2 $ 17.0 $ 48.8 $ 66.7
Restructuring and related business transformation costs (a) — 1.6 — 0.7
Transaction costs (b) — — — (1.3)
Other losses (gains) and expenses (c) — 0.4 — (50.3)
Adjusted EBITDA (d) $ 43.2 $ 19.0 $ 48.8 $ 15.8

~~(a)~~Represents costs and expenses in connection with restructuring initiatives distinct to our Applied Product Technologies segment in the three months ended December 31, 2020 and 2019, respectively. Such expenses are primarily composed of severance and relocation 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 months ended December 31, 2019, 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 and Applied Product Technologies segments include the following:

Three Months Ended December 31,
2020 2019
(In millions) Integrated Solutions and Services Applied Product Technologies Integrated Solutions and Services Applied Product Technologies
Trailing costs from the sale of the Memcor product line $ — $ 0.2 $ — $ —
Net pre-tax benefit on sale of the Memcor product line — — — (49.0)
Remediation of manufacturing defects — — — (1.4)
Product rationalization in electro-chlorination business — 0.2 — 0.1
Total $ — $ 0.4 $ — $ (50.3)

~~(d)~~For ~~the definition of adjusted EBITDA (a non-GAAP financial measure) and~~ a reconciliation to ~~net income~~segment operating profit (loss), its most directly comparable financial measure presented in accordance with GAAP, see ~~“How We Assess the Performance~~“Non-GAAP Reconciliations” in Part I, Item 2 of ~~Our Business-Adjusted EBITDA.” Immaterial rounding differences may be present in the tables above.~~this Report.

Integrated Solutions and Services

~~Revenues~~Revenue in the Integrated Solutions and Services segment ~~decreased $13.4~~increased $30.4 million, or ~~5.9%~~14.2%, to $245.1 million in the three months ended December 31, 2021, from $214.7 million in the three months ended December 31, ~~2020, from $228.1 million~~2020.

The following tables provide the change in revenue by offering and the change in revenue by driver during the three months ended December 31, ~~2019. Service~~2021 and 2020 for the Integrated Solutions and Services segment:


	Three Months Ended December 31,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Revenue from product sales:	$	96.4	39.3	%	$	77.7	36.2	%	$	18.7	24.1	%
Capital	$	67.1	27.4	%	$	50.6	23.6	%	$	16.5	32.6	%
Aftermarket	29.3		12.0	%	27.1		12.6	%	2.2		8.1	%
Revenue from services	148.7		60.7	%	137.0		63.8	%	11.7		8.5	%
	$	245.1	100.0	%	$	214.7	100.0	%	$	30.4	14.2	%


	Three Months Ended December 31,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Organic	$	242.2	98.8	%	$	214.0	99.7	%	$	28.2	13.1	%
Inorganic	2.5		1.0	%	0.7		0.3	%	1.8		0.8	%
Foreign currency translation	0.4		0.2	%	n/a		n/a		0.4		0.3	%
	$	245.1	100.0	%	$	214.7	100.0	%	$	30.4	14.2	%

The increase in organic revenue ~~declined~~was driven by ~~$6.9 million,~~higher sales volume, primarily related to ~~temporary delays~~capital revenue in ~~annual maintenance in the oil~~chemical processing 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 pharmaceuticalsmicroelectronics end markets, ~~partially offset the period over period decline. In addition, there was a net decline~~and in

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

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

favorable price realization.

Operating profit in the Integrated Solutions and Services segment ~~decreased $6.8~~increased $8.9 million, or ~~20.5%~~33.7%, to $35.3 million in the three months ended December 31, 2021, from $26.4 million in the three months ended December 31, ~~2020, from $33.2~~2020.

Operating profit was favorably impacted by higher sales volume, and to a lesser extent, sales mix. Favorable price/cost also contributed to operating profit growth, which was partially offset by unfavorable productivity variances related to labor inflation and increased freight costs.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Integrated Solutions and Services segment increased $10.3 million, or 23.8%, to $53.5 million in the three months ended December 31, ~~2019. Segment profitability decreased by $7.3 million as~~2021, 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~~2020. The increase was driven by the same factors that impacted operating profit, other than the change in ~~the three months ended December 31, 2019.~~depreciation and amortization. Segment adjusted EBITDA also excludes restructuring and other non-recurring activity. See “Non-GAAP Reconciliations” in Part I, Item 2 of this Report for a reconciliation of adjusted EBITDA.

Applied Product Technologies

~~Revenues~~Revenue in the Applied Product Technologies segment ~~decreased $10.5~~increased $13.7 million, or ~~8.9%~~12.7%, to $121.2 million in the three months ended December 31, 2021, from $107.5 million in the three months ended December 31, ~~2020, from $118.0 million~~2020.

The following tables provide the change in revenue by offering and the change in revenue by driver during the three months ended December 31, ~~2019.~~ 2021 and 2020 for the Applied Product Technologies segment:


	Three Months Ended December 31,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Revenue from product sales:	$	116.2	95.9	%	$	102.3	95.2	%	$	13.9	13.6	%
Capital	83.9		69.2	%	76.9		71.5	%	7.0		9.1	%
Aftermarket	32.3		26.7	%	25.4		23.6	%	6.9		27.2	%
Revenue from services	5.0		4.1	%	5.2		4.8	%	(0.2)		(3.8)	%
	$	121.2	100.0	%	$	107.5	100.0	%	$	13.7	12.7	%


	Three Months Ended December 31,
	2021				2020				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Organic	$	121.1	99.9	%	$	107.5	100.0	%	$	13.6	12.7	%
Inorganic	—		—	%	—		—	%	—		—	%
Foreign currency translation	0.1		0.1	%	n/a		n/a		0.1		—	%
	$	121.2	100.0	%	$	107.5	100.0	%	$	13.7	12.7	%

The ~~divestiture of the Memcor product line reduced~~increase in organic revenue ~~by $14.4 million as compared to the prior year period. Organic revenue increased by $1.7 million,~~was driven by ~~$6.0 million growth in the~~strong sales volume across all regions, predominantly within Asia Pacific ~~region related to the Anodes~~ and ~~Electro-deionization product lines, partially offset by declines~~EMEA, and across multiple product ~~lines in both the Americas and~~

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

increased organic revenue.

Operating profit in the Applied Product Technologies segment ~~decreased $49.7~~increased $4.4 million, or ~~78.8%~~32.8%, to $17.8 million in the three months ended December 31, 2021, from $13.4 million in the three months ended December 31, ~~2020,~~2020.

The increase in operating profit was primarily due to favorable sales volume and mix across multiple product lines, partially offset by unfavorable productivity and operational variances related to increased freight costs, supply chain

challenges, warranty, and project variances. In addition, unfavorable price/cost, driven by material inflation, detracted from ~~$63.1~~operating profit growth.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Applied Product Technologies segment increased $2.9 million, or 15.3%, to $21.9 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~~2021, 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~~$19.0 million in the three months ended December 31, ~~2020, compared~~2020. The increase was driven by the same factors that impacted operating profit, other than the change in depreciation and amortization. Segment adjusted EBITDA also excludes other non-recurring activity. See “Non-GAAP Reconciliations” in Part I, Item 2 of this Report for a reconciliation of adjusted EBITDA.

Corporate

Operating loss in Corporate increased $15.3 million, or 65.1%, to ~~$66.7~~$38.8 million in the three months ended December 31, ~~2019.~~2021, from $23.5 million in the three months ended December 31, 2020. The increase period over period was primarily due to increased expenses associated with share-based compensation in the current year as well as foreign currency translation losses in the current period, compared to foreign currency translation gains in the prior period, most of which is related to intercompany loans.

Non-GAAP Reconciliations

The following is a reconciliation of total revenue to organic revenue for the three months ended December 31, 2021:


	Total Revenue				Foreign Currency				Inorganic Revenue(1)				Organic Revenue
	Three Months Ended December 31,		% Variance		Three Months Ended December 31,		% Variance		Three Months Ended December 31,		% Variance		Three Months Ended December 31,		% Variance
(In millions)	2021	2020			2021	2020			2021	2020			2021	2020
Evoqua Water Technologies	$366.3	$322.2	13.7	%	$0.5	n/a	0.1	%	$2.5	$0.7	0.6	%	$363.3	$321.5	13.0	%
Integrated Solutions & Services	$245.1	$214.7	14.2	%	$0.4	n/a	0.3	%	$2.5	$0.7	0.8	%	$242.2	$214.0	13.1	%
Applied Product Technologies	$121.2	$107.5	12.7	%	$0.1	n/a	—	%	$—	$—	—	%	$121.1	$107.5	12.7	%

(1)Includes divestiture of the Lange Product Line on March 1, 2021, 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. 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)		2021		2020		% Variance
Net income		$	6.1	$	6.5	(6.2)	%
Income tax expense		1.6		1.1		45.5	%
Interest expense		6.6		8.7		(24.1)	%
Operating profit		$	14.3	$	16.3	(12.3)	%
Depreciation and amortization		28.6		27.4		4.4	%
EBITDA		$	42.9	$	43.7	(1.8)	%
Restructuring and related business transformation costs(a)		1.4		1.8		(22.2)	%

Share-based compensation(b)		5.3		3.1		71.0	%

Transaction costs(c)		0.9		0.6		50.0	%
Other losses (gains) and expenses(d)		3.8		(4.4)		(186.4)	%
Adjusted EBITDA		$	54.3	$	44.8	21.2	%

(a)Restructuring and related business transformation costs

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

(A)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.


	Three Months Ended December 31,
(In millions)		2021		2020

Post Memcor divestiture restructuring		$	0.2	$	0.9
Cost of product sales and services (“Cost of sales”)		—		0.8

Sales and marketing expense (“S&M expense”)		—		0.2
General and administrative expense (“G&A expense”)		0.2		—
Other operating (income) expense		—		(0.1)
Two-segment restructuring		$	0.2	$	0.2
Cost of sales		0.1		—


G&A expense		0.1		0.2

Various other initiatives		$	0.7	$	—
Cost of sales		0.2		0.0


G&A expense		0.5		—

Total(1)		$	1.1	$	1.1

(1)Of which $1.1 million and $1.1 million for the three months ended December 31, 2021 and 2020, respectively, is reflected in restructuring charges in Note 14, “Restructuring and Related Charges,” in Part I, Item 1 of this Report.

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


	Three Months Ended December 31,
(In millions)		2021		2020
Cost of sales		$	0.1	$	—
G&A expense		0.2		0.1
Total		$	0.3	$	0.1

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


	Three Months Ended December 31,
(In millions)		2021		2020


G&A expense		$	—	$	0.2

Total		$	—	$	0.2

(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:


	Three Months Ended December 31,
(In millions)		2021		2020
G&A expense		$	—	$	0.4
Total		$	—	$	0.4

(b)Share-based compensation

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

(c)Transaction related costs


	Three Months Ended December 31,
(In millions)		2021		2020
Cost of sales		$	—	$	0.1
G&A expense		0.9		0.5

Total		$	0.9	$	0.6

(d)Other losses, (gains) and expenses

Adjusted EBITDA is calculated prior to considering certain other significant losses, (gains), and expenses. For the periods presented such events include the following:

(i)impact of foreign exchange gains and losses;

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

(iii)amounts related to the prior year sale of the Memcor product line;

(iv)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

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

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


Three Months Ended December 31, 2021
	Other Adjustments
(In millions)	(i)		(ii)		(iii)		(iv)		(v)		Total
Cost of sales	$	0.1	$	—	$	—	$	—	$	—	$	0.1


G&A expense	1.2		—		—		—		2.5		3.7

Total	$	1.3	$	—	$	—	$	—	$	2.5	$	3.8

Three Months Ended December 31, 2020
	Other Adjustments
(In millions)	(i)		(ii)		(iii)		(iv)		(v)		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)

We do not present net income on a segment basis because we do not allocate interest expense or income tax benefit (expense) to our segments, making operating profit the most comparable GAAP metric. The following is a reconciliation of our segment adjusted EBITDA to operating profit, its most directly comparable financial measure presented in accordance with GAAP:


	Three Months Ended December 31,				$ Variance						% Variance
		2021	2020
(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			$	35.3	$	17.8		$	26.4		$	13.4		$	8.9		$	4.4		34	%		33	%
Depreciation and amortization			17.8		3.5			16.8			3.6			1.0			(0.1)			6	%		(3)	%
EBITDA			$	53.1	$	21.3		$	43.2		$	17.0		$	9.9		$	4.3		23	%		25	%
Restructuring and related business transformation costs (a)			0.5		0.6			—			1.6			0.5			(1.0)			n/a			(63)	%
Transaction costs (b)			(0.1)		—			—			—			(0.1)			—			n/a			n/a
Other losses (gains) and expenses (c)			—		—			—			0.4			—			(0.4)			n/a			(100)	%
Adjusted EBITDA			$	53.5	$	21.9		$	43.2		$	19.0		$	10.3		$	2.9		24	%		15	%

(a)Represents costs and expenses in connection with restructuring initiatives in the three months ended December 31, 2021 and 2020, respectively. Such expenses are primarily composed of severance, relocation, and facility consolidation costs.

(b)Represents costs associated with a change in the current estimate of certain acquisitions achieving their earn-out targets.

(c)Other losses, (gains), and expenses as discussed above, distinct to our Integrated Solutions and Services (“ISS”) and Applied Product Technologies (“APT”) segments include the following:


	Three Months Ended December 31,
		2021	2020
(In millions)			ISS		APT		ISS		APT
Trailing costs from the sale of the Memcor product line			$	—	$	—	$	—	$	0.2


Product rationalization in electro-chlorination business			—		—		—		0.2




Total			$	—	$	—	$	—	$	0.4

Immaterial rounding differences may be present in the tables above.

Liquidity and Capital Resources

Liquidity describes the ability of a company to borrow or generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, other commitments and contractual obligations. ~~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 revolving credit facility (the “Revolver”) available to us under our First Lien~~2021 Revolving Credit ~~Agreement (as modified, amended or supplemented from time to time, the “Credit Agreement”)~~Facility, and financing arrangements related to capital expenditures for equipment used to provide services to our customers. Historically, we have financed our operations primarily from these sources. Our primary cash 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. We have considered the impacts of the COVID-19 pandemic on our liquidity and capital resources to date, and we do not currently expect it to impact our ability to meet future liquidity needs or affect our ability to continue to comply with our applicable debt covenants. We believe we are currently well-positioned to manage our business and have the ability and sufficient capacity to meet our cash requirements by using available cash, internally generated funds, and borrowing under the 2021 Revolving Credit Facility.

As part of our ongoing efforts to improve our cash flow and related liquidity, we work with suppliers to optimize our terms and conditions, including occasionally extending payment terms. We also facilitate a voluntary supply chain finance program (the “program”) to provide certain of our suppliers with the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. A third party administers the program; our responsibility is limited to making payment on the terms originally negotiated with our supplier, regardless of whether the supplier sells its receivable to a financial institution. We do not enter into agreements with any of the participating financial institutions in connection with the program. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program. The amounts settled through the program and paid to participating financial institutions were ~~$2.7~~$20.3 million and ~~$9.3~~$2.7 million in the three months ended December 31, ~~2020~~2021 and ~~2019,~~2020, 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~~2021 Revolving Credit Facility and equipment financing arrangements. We believe that our projected cash flows generated from operations, together with borrowings under the ~~Revolver~~2021 Revolving Credit Facility, and other financing arrangements are sufficient to fund our principal debt payments, interest expense, our working capital needs, and our expected capital expenditures for the next twelve months. Our capital expenditures for the three months ended December 31, 2021 and 2020 ~~and 2019~~ were ~~$17.3~~$15.5 million and ~~$17.6~~$17.3 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 three months ended December 31, 2021 and 2020, we entered into equipment financing arrangements totaling $5.9 million and $7.8 million, respectively. In addition, we may draw on the ~~Revolver~~2021 Revolving Credit Facility from time to time to fund or partially fund an acquisition.

As of December 31, ~~2020,~~2021, we had total indebtedness of ~~$887.6~~$741.5 million, including ~~$816.9~~$472.7 million of term loan borrowings under the 2021 Credit Agreement, ~~no borrowings~~$27.3 million outstanding under the ~~Revolver, $70.1~~2021 Revolving Credit Facility, $144.2 million outstanding under the Securitization Facility, which includes $0.1 million of accrued interest, $97.1 million in borrowings related to equipment financing, and ~~$0.6~~$0.3 million of notes payable related to certain equipment related contracts. We also had ~~$11.8~~$9.8 million of letters of credit issued under ~~the Revolver and an additional $33 thousand of letters of credit issued under a separate uncommitted facility~~our 2021 Revolving Credit Facility as of December 31, ~~2020.~~2021.

~~Our~~As of December 31, 2021 and September 30, 2021, we were in compliance with the covenants contained in the 2021 Credit Agreement, including the 2021 Revolving Credit Facility.

2021 Credit Agreement

On April 1, 2021, EWT III entered into a Credit Agreement (the “2021 Credit Agreement”) among EWT III, as borrower, EWT II, as parent guarantor, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and ING Capital, LLC, as sustainability coordinator. The 2021 Credit Agreement provides for a multi-currency senior secured revolving credit facility in an aggregate principal amount not to exceed the U.S. dollar equivalent of $350.0 million (the “2021 Revolving Credit Facility”) and a discounted senior secured term (the “2021 Term Loan”) in the amount of $475.0 million (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 $60.0 million.

The 2021 Credit Agreement contains customary representations, warranties, affirmative covenants, and negative covenants, including, among other things, a ~~number~~springing maximum first lien leverage ratio of 5.55 to 1.00. The Company did not exceed this ratio during the three months ended December 31, 2021, does not anticipate exceeding this ratio during the year ending September 30, 2022, and therefore does not anticipate any additional repayments during the year ending September 30, 2022.

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, EWT LLC, as initial servicer, and PNC Capital Markets LLC (“PNC Markets”), as structuring agent, pursuant to which the lenders have made available to Evoqua Finance a receivables finance facility (the “Securitization Facility”) in an amount up to $150.0 million 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”).

The Receivables Securitization Program contains certain customary representations, warranties, affirmative covenants, ~~imposing~~and negative covenants, subject to certain ~~restrictions on our business. These restrictions may affect our ability to operate our business~~cure periods in some cases, including the eligibility of the Receivables being sold by the Originators and ~~may limit our ability to take advantage~~securing the loans made by the Receivables Financing Lenders, as well as customary reserve requirements, events of ~~potential business opportunities as they arise.~~default, termination events, and servicer defaults. The ~~restrictions these~~Company was in compliance with all covenants ~~place on our business operations, include limitations on our or our subsidiaries’ ability to:~~

•~~incur or guarantee~~during the three months ended December 31, 2021, does not anticipate becoming noncompliant during the year ending September 30, 2022, and therefore does not anticipate any 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;~~

•~~enter into transactions with our affiliates;~~

•~~incur liens; or~~

•~~designate any of our subsidiaries as unrestricted subsidiaries.~~repayments during the year ending September 30, 2022.

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.

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Contractual Obligations

We presented our contractual obligations in Part II, Item 7, “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, as filed with the SEC on November 17, 2021. There were no significant changes in our contractual obligations during the three months ended December 31, 2021.

On January 3, 2022, we borrowed an additional $160 million under the 2021 Revolving Credit Facility. We are 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 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.

Cash Flows

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


		Three Months Ended December 31,					Three Months Ended December 31,
(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	$	36.4	$	23.3
Net cash (used in) provided by investing activities		(26.0)		80.2
Net cash provided by (used in) financing activities		12.3		(1.8)
Net cash used in investing activities						Net cash used in investing activities	(14.8)		(26.0)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(15.9)		4.6
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	0.6		3.0

Change in cash and cash equivalents	Change in cash and cash equivalents	$	4.9	$	85.0	Change in cash and cash equivalents	$	6.3	$	4.9

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~~$36.4 million in the three months ended December 31, ~~2020~~2021, and ~~$4.7~~$23.3 million in the three months ended December 31, ~~2019.~~2020.

•Operating cash flows in the three months ended December 31, ~~2020~~2021 reflect a decrease in net earnings of ~~$47.0~~$0.4 million as compared to the three months ended December 31, ~~2019, primarily driven by the sale of the Memcor product line.~~2020.

•The add back of non‑cash items increased operating cash flows by $36.1 million in the three months ended December 31, 2021, as compared to an increase to operating cash flows of $24.8 million in the three months ended December 31, 2020, ~~as compared to a decrease to operating cash flows of $35.3 million in the three months ended December 31, 2019,~~ resulting in an ~~overall~~ increase of ~~$60.1~~$11.3 million. This increase was primarily related to foreign currency losses in the ~~non-recurrence of gain on sale of the Memcor product line, which was reflected as a reduction of operating cash flows~~current period, compared to foreign currency gains in the prior ~~year,~~period, as well as ~~increased depreciation and amortization~~an increase in share-based compensation expenses in the current period. Non-cash changes also include, ~~the foreign currency translation gain or loss~~deferred income taxes, depreciation and ~~share-based compensation.~~amortization, amortization of deferred financing fees, and gains and losses on sale of property, plant, and equipment.

•The aggregate of receivables, inventories, contract assets and liabilities, and accounts payable provided ~~$23.3~~$21.4 million in operating cash flows in the three months ended December 31, ~~2020,~~2021, compared to ~~a use of $6.9~~providing $23.3 million in the three months ended December 31, ~~2019.~~

◦~~Accounts receivable and payable was~~2020, resulting in a ~~source~~decrease to cash flows of ~~$5.4 million.~~

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

◦~~Contract assets and liabilities was a source of $21.8 million.~~$1.9 million as compared to the prior year period.

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~~$26.8 million of operating cash flows in the three months ended December 31, ~~2020~~2021, compared to ~~$7.9~~using $30.0 million in the three months ended December 31, ~~2019.~~2020, resulting in an increase to cash flows of $3.2 million. This is mainly due to timing of payments.

◦•~~Prepaids and other current assets and Other non‑current assets and liabilities~~Income taxes used ~~$5.3~~$0.4 million during the three months ended December 31, 2021, as compared to using $1.3 million during the three months ended December 31, 2020, ~~as compared to providing $1.5 million during the three months ended December 31, 2019,~~ resulting in ~~a decrease~~an increase to cash flows of ~~$6.8~~$0.9 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 $14.8 million in the three months ended December 31, 2021, as compared to net cash used in investing activities of $26.0 million in the three months ended December 31, 2020, ~~as compared to providing cash of $80.2 million in the three months ended December 31, 2019,~~ resulting in a net ~~decrease~~increase of ~~$106.2~~$11.2 million as compared to the prior year period. This ~~decrease~~increase was largely driven by ~~proceeds from the sale of the Memcor product line during the three months ended December 31, 2019, partially offset by lower~~ cash outflow associated with the Ultrapure acquisition in the ~~current~~prior year ~~period than the Frontier acquisition that occurred in the prior~~ period. ~~Other activity related~~In addition, this increase was due to lower cash outflow associated with purchase of capital ~~or intangible~~ assets ~~remained relatively consistent with~~compared to the prior period as well as higher proceeds from the sale of property, plant, and equipment compared to the prior period.

Financing Activities

Net cash ~~provided by~~used in financing activities was ~~$12.3~~$15.9 million in the three months ended December 31, 2021, as compared to providing $4.6 million in the three months ended December 31, 2020, ~~as compared to a use of $1.8 million in the three months ended December 31, 2019,~~ resulting in a net ~~increase~~decrease of ~~$14.1~~$20.5 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 months ended December 31, ~~2020~~2021 was primarily due to increased repayments of debt compared to the prior period. Additionally, cash received from the issuance of common stock in connection with the exercise of stock options ~~and~~declined compared to the ~~issuance of debt. In addition, there~~prior period. There was ~~a decrease in the amount of distributions of dividends to non-controlling interest~~also an increase in the current ~~period. These cash inflows were partially offset by higher repayments~~period of ~~debt in~~taxes paid related to net share settlements of share-based compensation awards compared to the ~~current~~prior period.

Seasonality

Our business ~~has historically exhibited~~may exhibit seasonality resulting from our customers’ increasing demand for our products and services during the spring and summer months as compared to the fall and winter months. For example, ~~our business servicing municipal customers experiences~~we generally experience increased demand for our odor control product lines and services in the warmer months which, together with other factors, ~~has historically resulted~~typically results in improved performance in the second half of our fiscal year. Inclement weather and extreme weather events, such as hurricanes, winter storms, droughts, and floods, can also have varying impacts on our business. Certain events may cause customer shutdowns that prevent or defer our performance of services or sale of equipment,

while other events may drive increased demand for our products and services, particularly emergency response services. As a result, our results from operations may vary from period to period.

Seasonal trends historically displayed by our business ~~have been~~could be 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~~2021 and September 30, ~~2020:~~2021:


(In millions)	(In millions)	December 31, 2020		September 30, 2020		(In millions)	December 31, 2021		September 30, 2021
Letters of credit	Letters of credit	$	11.9	$	13.0	Letters of credit	$	9.8	$	10.1
Surety bonds	Surety bonds	$	144.6	$	153.0	Surety bonds	$	142.7	$	147.8

The longest maturity date of the letters of credit and surety bonds in effect as of December 31, ~~2020~~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” and Item 7., “Critical Accounting Policies and Estimates” included in the 2021 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.~~2021 Annual Report.

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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~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

5654

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 Investors LP (“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.~~Act. The claims that ~~remain are~~remained were those brought under the Securities ~~Act of 1933.~~Act. 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 was paid by insurance. On November 1, 2021, the Court granted final approval of the settlement and ~~intends to vigorously defend itself against~~entered a judgment dismissing the ~~allegations.~~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 & CFO,~~Chief Executive Officer and Chief Financial Officer, as well as members of the Company’s board of directors, and it names the Company as a nominal defendant. The complaint alleges, among other things, that the individual defendants violated federal securities laws by issuing false, misleading, and/or omissive disclosures in the period leading up to the Company’s October 30, 2018 disclosures, and that they breached their fiduciary duties to the Company. The lawsuit seeks compensatory damages in an unspecified amount, an award of costs and expenses, restitution from the individual defendants, and an order directing the Company and the individual defendants to take unspecified actions to reform and improve the Company’s corporate governance and internal procedures. 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 was stayed in June 2019 pending resolution of the Securities Litigation.

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

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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. On November 2, 2021, the Court granted final approval of the settlement and entered a judgment dismissing the Derivative Litigation.

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

Item 1A. Risk Factors

There have been no material changes to the information concerning risk factors as stated in our 2021 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.

5856

Item 6. Exhibits

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


Exhibit No.			Exhibit Description
~~10.1~~10.1*†			~~Amendment No. 2 to the Second Amended~~Asset Purchase Agreement by and ~~Restated Registration Rights Agreement,~~ among Cantel Medical LLC, Cantel (Can ada) Inc., Medivators Inc., Mar Cor Purification, Inc., Evoqua Water Technologies LLC, Evoqua Water Technologies Ltd., and, solely for pur poses of Section 10.16, Evoqua Water Technologies Corp., ~~AEA Investors Fund V LP, AEA Investors Fund V-A LP, AEA Investors Fund V-B LP, AEA Investors Participant Fund V LP, AEA Investors QP Participant Fund V LP and the 2020 Amending Investors,~~ dated ~~November 25, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on November 25, 2020 (File No. 001-38272))~~December 20, 2021 .
10.2*†			Form of Restricted Stock Unit Award -Notice of Grant under the Amended and Restated Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (for awards made after fiscal 2021).
10.3*†			Form of Performance Share Unit Award -Notice of Grant under the Amended and Restated Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (for awards made after fiscal 2021).
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.
101.INS*			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*			Inline XBRL Taxonomy Extension Schema Document.
101.CAL*			Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*			Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*			Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith

** Furnished herewith

† Certain annexes to these agreements have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted annex upon request.

5957

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, 2021~~1, 2022	/s/ RONALD C. KEATING
	By:	Ronald C. Keating
		Chief Executive Officer (Principal Executive Officer)





February ~~2, 2021~~1, 2022	/s/ BENEDICT J. STAS
	By:	Benedict J. Stas
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

6058


	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