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
~~June 30, 2021~~March 31, 2022
orOr
☐						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 ~~120,232,936~~121,282,642 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of ~~July 30, 2021.~~April 29, 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, ~~for fiscal 2021 and beyond,~~ statements regarding our cash requirements, working capital needs and expected capital expenditures, statements regarding our expectations for fiscal 2022, customer demand, supply chain challenges, material availability, price/cost, labor shortages, inflation, and 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 supply chains;~~

•~~our ability to compete successfully in our markets;~~geopolitical conflicts, such as the conflict between Russia and Ukraine;

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

•material, freight, and labor inflation, commodity and component 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;

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

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

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

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

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

•risks associated with international sales and operations;

•our ability to ~~retain~~adequately protect our ~~senior management~~intellectual property from third-party infringement;

•risks related to our contracts with federal, state, and ~~other key personnel~~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 ~~attract key talent in increasingly competitive labor markets;~~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 the People’s Republic of China;~~

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

•~~risks~~strategies related to ~~our substantial indebtedness;~~

•~~our need for~~environmental, social, and governance (“ESG”) matters, and achieve related goals and targets, including as a ~~significant amount~~result of ~~cash, which depends on many factors beyond our control;~~evolving standards, laws, regulations, processes, and assumptions, delayed scientific and technological developments, increased costs, and changes in carbon markets; 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 ~~June 30, 2021~~March 31, 202 2 (Unaudited) and September 30, ~~2020~~2021			4
Unaudited Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~June 30, 2021~~March 31, 202 2 and ~~2020~~20 21			5
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three and ~~Nine~~ Six Months Ended ~~June 30, 2021~~M arch 31 , 202 2 and ~~2020~~20 21			6
Unaudited Consolidated Statements of Changes in Equity for the Three and ~~Nine~~Six Months Ended ~~June 30, 2021~~Marc h 31, 202 2 and ~~2020~~20 21			7
Unaudited Consolidated Statements of Changes in Cash Flow for the ~~Nine~~Six Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~			98
Unaudited Supplemental Disclosure of Cash Flow Information for the ~~Nine~~Six Months Ended ~~June 30, 2021~~March 31, 202 2 and ~~2020~~20 21			109
Notes to Unaudited Consolidated Financial Statements			1110

Evoqua Water Technologies Corp.

Consolidated Balance Sheets

(In thousands)


		(Unaudited)					(Unaudited)
		June 30, 2021		September 30, 2020			March 31, 2022		September 30, 2021
ASSETS	ASSETS					ASSETS
Current assets	Current assets	$	664,060	$	695,712	Current assets	$	777,532	$	678,458
Cash and cash equivalents	Cash and cash equivalents	141,524		193,001		Cash and cash equivalents	129,500		146,244
Receivables, net	Receivables, net	246,619		260,479		Receivables, net	283,092		277,995
Inventories, net	Inventories, net	161,228		142,379		Inventories, net	216,933		158,503
Contract assets	Contract assets	69,343		80,759		Contract assets	99,502		72,746
Prepaid and other current assets	Prepaid and other current assets	43,444		18,715		Prepaid and other current assets	47,923		21,871
Income tax receivable	Income tax receivable	1,902		379		Income tax receivable	582		1,099

Property, plant, and equipment, net	Property, plant, and equipment, net	372,399		364,461		Property, plant, and equipment, net	395,290		374,988
Goodwill	Goodwill	409,756		397,205		Goodwill	476,259		407,376
Intangible assets, net	Intangible assets, net	297,674		309,967		Intangible assets, net	328,024		290,075
Deferred income taxes, net of valuation allowance	Deferred income taxes, net of valuation allowance	1,710		3,639		Deferred income taxes, net of valuation allowance	7,769		8,285
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	47,307		45,965		Operating lease right-of-use assets, net	49,395		45,521
Other non‑current assets	Other non‑current assets	50,252		27,509		Other non‑current assets	98,292		64,188

Total assets	Total assets	$	1,843,158	$	1,844,458	Total assets	$	2,132,561	$	1,868,891
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities	Current liabilities	$	370,703	$	349,555	Current liabilities	$	430,839	$	405,989
Accounts payable	Accounts payable	144,426		153,890		Accounts payable	191,122		164,535
Current portion of debt, net of deferred financing fees and discounts	Current portion of debt, net of deferred financing fees and discounts	11,474		14,339		Current portion of debt, net of deferred financing fees and discounts	14,219		12,775
Contract liabilities	Contract liabilities	36,915		26,259		Contract liabilities	55,593		55,883
Product warranties	Product warranties	8,063		6,115		Product warranties	7,498		8,138
Accrued expenses and other liabilities	Accrued expenses and other liabilities	165,127		143,389		Accrued expenses and other liabilities	158,510		160,367
Income tax payable	Income tax payable	4,698		5,563		Income tax payable	3,897		4,291

Non‑current liabilities	Non‑current liabilities	$	927,276	$	1,012,840	Non‑current liabilities	$	1,063,651	$	880,683
Long-term debt, net of deferred financing fees and discounts	Long-term debt, net of deferred financing fees and discounts	778,170		861,695		Long-term debt, net of deferred financing fees and discounts	920,343		730,430
Product warranties	Product warranties	2,629		1,724		Product warranties	3,191		2,966
Obligation under operating leases	Obligation under operating leases	38,541		37,796		Obligation under operating leases	39,995		37,935
Other non‑current liabilities	Other non‑current liabilities	95,924		98,456		Other non‑current liabilities	83,418		92,909
Deferred income taxes	Deferred income taxes	12,012		13,169		Deferred income taxes	16,704		16,443

Total liabilities	Total liabilities	$	1,297,979	$	1,362,395	Total liabilities	$	1,494,490	$	1,286,672
Commitments and Contingent Liabilities (Note 19)	Commitments and Contingent Liabilities (Note 19)	0		0		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 121,837 shares, outstanding 120,173 at June 30, 2021; issued 119,486 shares, outstanding 117,291 at September 30, 2020		$	1,219	$	1,189
Treasury stock: 1,664 shares at June 30, 2021 and 2,195 shares at September 30, 2020		(2,837)		(2,837)
Common stock, par value $0.01: authorized 1,000,000 shares; issued 122,766 shares, outstanding 121,102 at March 31, 2022; issued 122,173 shares, outstanding 120,509 at September 30, 2021						Common stock, par value $0.01: authorized 1,000,000 shares; issued 122,766 shares, outstanding 121,102 at March 31, 2022; issued 122,173 shares, outstanding 120,509 at September 30, 2021	$	1,229	$	1,223
Treasury stock: 1,664 shares at March 31, 2022 and 1,664 shares at September 30, 2021						Treasury stock: 1,664 shares at March 31, 2022 and 1,664 shares at September 30, 2021	(2,837)		(2,837)
Additional paid-in capital	Additional paid-in capital	573,892		564,928		Additional paid-in capital	592,105		582,052
Retained deficit		(38,040)		(62,664)
Accumulated other comprehensive income (loss), net of tax		9,342		(20,472)
Retained earnings (deficit)						Retained earnings (deficit)	2,135		(11,182)
Accumulated other comprehensive income, net of tax						Accumulated other comprehensive income, net of tax	43,846		11,415
Total Evoqua Water Technologies Corp. equity	Total Evoqua Water Technologies Corp. equity	$	543,576	$	480,144	Total Evoqua Water Technologies Corp. equity	$	636,478	$	580,671
Non-controlling interest	Non-controlling interest	1,603		1,919		Non-controlling interest	1,593		1,548
Total shareholders’ equity	Total shareholders’ equity	$	545,179	$	482,063	Total shareholders’ equity	$	638,071	$	582,219
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	1,843,158	$	1,844,458	Total liabilities and shareholders’ equity	$	2,132,561	$	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 June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenue from product sales	Revenue from product sales	$	218,427	$	207,575	$	600,908	$	610,104	Revenue from product sales	$	259,775	$	202,466	$	472,343	$	382,481
Revenue from services	Revenue from services	151,254		140,252		437,530		435,491		Revenue from services	166,953		144,098		320,653		286,276
Revenue from product sales and services	Revenue from product sales and services	$	369,681	$	347,827	$	1,038,438	$	1,045,595	Revenue from product sales and services	$	426,728	$	346,564	$	792,996	$	668,757
Cost of product sales	Cost of product sales	(152,591)		(143,457)		(428,173)		(428,069)		Cost of product sales	(185,330)		(144,521)		(339,125)		(275,582)
Cost of services	Cost of services	(100,061)		(94,136)		(291,972)		(290,371)		Cost of services	(112,512)		(96,124)		(214,477)		(191,911)
Cost of product sales and services	Cost of product sales and services	$	(252,652)	$	(237,593)	$	(720,145)	$	(718,440)	Cost of product sales and services	$	(297,842)	$	(240,645)	$	(553,602)	$	(467,493)
Gross profit	Gross profit	$	117,029	$	110,234	$	318,293	$	327,155	Gross profit	$	128,886	$	105,919	$	239,394	$	201,264
General and administrative expense	General and administrative expense	(50,837)		(44,867)		(146,048)		(152,767)		General and administrative expense	(66,976)		(52,928)		(124,805)		(95,211)
Sales and marketing expense	Sales and marketing expense	(35,871)		(29,855)		(103,629)		(101,845)		Sales and marketing expense	(39,859)		(33,830)		(76,308)		(67,758)
Research and development expense	Research and development expense	(3,413)		(2,782)		(9,929)		(9,655)		Research and development expense	(3,751)		(3,393)		(7,203)		(6,516)
Total operating expenses	Total operating expenses	$	(90,121)	$	(77,504)	$	(259,606)	$	(264,267)	Total operating expenses	$	(110,586)	$	(90,151)	$	(208,316)	$	(169,485)
Other operating income	Other operating income	1,662		621		2,653		61,859		Other operating income	1,415		511		3,072		991
Other operating expense	Other operating expense	(260)		(285)		(618)		(834)		Other operating expense	(143)		(101)		(290)		(358)
Income before interest expense and income taxes	Income before interest expense and income taxes	$	28,310	$	33,066	$	60,722	$	123,913	Income before interest expense and income taxes	$	19,572	$	16,178	$	33,860	$	32,412
Interest expense	Interest expense	(11,224)		(10,485)		(28,292)		(37,320)		Interest expense	(9,950)		(8,395)		(16,529)		(17,068)
Income before income taxes	Income before income taxes	$	17,086	$	22,581	$	32,430	$	86,593	Income before income taxes	$	9,622	$	7,783	$	17,331	$	15,344
Income tax expense	Income tax expense	(3,887)		(740)		(7,672)		(3,336)		Income tax expense	(2,248)		(2,701)		(3,869)		(3,785)
Net income	Net income	$	13,199	$	21,841	$	24,758	$	83,257	Net income	$	7,374	$	5,082	$	13,462	$	11,559
Net income attributable to non‑controlling interest	Net income attributable to non‑controlling interest	44		457		134		916		Net income attributable to non‑controlling interest	44		46		145		90
Net income attributable to Evoqua Water Technologies Corp.	Net income attributable to Evoqua Water Technologies Corp.	$	13,155	$	21,384	$	24,624	$	82,341	Net income attributable to Evoqua Water Technologies Corp.	$	7,330	$	5,036	$	13,317	$	11,469
Basic income per common share	Basic income per common share	$	0.11	$	0.18	$	0.21	$	0.71	Basic income per common share	$	0.06	$	0.04	$	0.11	$	0.10
Diluted income per common share	Diluted income per common share	$	0.11	$	0.18	$	0.20	$	0.68	Diluted income per common share	$	0.06	$	0.04	$	0.11	$	0.09

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 June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Net income	Net income	$	13,199	$	21,841	$	24,758	$	83,257	Net income	$	7,374	$	5,082	$	13,462	$	11,559
Other comprehensive income (loss)	Other comprehensive income (loss)									Other comprehensive income (loss)
Foreign currency translation adjustments	Foreign currency translation adjustments	591		1,366		22,605		(5,301)		Foreign currency translation adjustments	2,176		26,891		3,785		22,014
Unrealized derivative (loss) gain on cash flow hedges, net of tax		(3,524)		(3,314)		6,569		(3,525)
Unrealized derivative gain on cash flow hedges, net of tax										Unrealized derivative gain on cash flow hedges, net of tax	21,730		9,091		28,311		10,093
Change in pension liability, net of tax	Change in pension liability, net of tax	266		235		640		706		Change in pension liability, net of tax	166		110		335		374
Total other comprehensive (loss) income		$	(2,667)	$	(1,713)	$	29,814	$	(8,120)
Total other comprehensive income										Total other comprehensive income	$	24,072	$	36,092	$	32,431	$	32,481
Less: Comprehensive income attributable to non‑controlling interest	Less: Comprehensive income attributable to non‑controlling interest	(44)		(457)		(134)		(916)		Less: Comprehensive income attributable to non‑controlling interest	(44)		(46)		(145)		(90)
Comprehensive income attributable to Evoqua Water Technologies Corp.	Comprehensive income attributable to Evoqua Water Technologies Corp.	$	10,488	$	19,671	$	54,438	$	74,221	Comprehensive income attributable to Evoqua Water Technologies Corp.	$	31,402	$	41,128	$	45,748	$	43,950

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Changes in Equity

(In thousands)


			Common Stock				Treasury Stock						Additional Paid‑in Capital					Retained (Deficit) Earnings					Accumulated Other Comprehensive Income					Non‑controlling Interest						Total
		Common Stock				Treasury Stock				Additional Paid‑in Capital						Retained Deficit					Accumulated Other Comprehensive (Loss) Income					Non‑controlling Interest					Total				Cost		Shares	Cost		Additional Paid‑in Capital		Retained (Deficit) Earnings		Accumulated Other Comprehensive Income		Non‑controlling Interest		Total
		Shares		Cost		Shares		Cost				Retained Deficit					Accumulated Other Comprehensive (Loss) Income					Non‑controlling Interest					Total
Balance at September 30, 2020		119,486		$	1,189	2,195		$	(2,837)				$	564,928

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
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	—		—		—		—		3,214				—					—					—					$	3,214		Equity based compensation expense		—	—		—	—		5,203		—		—		—		$	5,203
Issuance of common stock, net	Issuance of common stock, net	692		13		(532)		—		(21,377)				—					—					—					$	(21,364)		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		—	—		—	—		—		—		—		(100)		$	(100)

Net income	Net income	—		—		—		—		—				5,036					—					46					$	5,082		Net income		—	—		—	—		—		5,987		—		101		$	6,088
Other comprehensive income	Other comprehensive income	—		—		—		—		—				—					36,092					—					$	36,092		Other comprehensive income		—	—		—	—		—		—		8,359		—		$	8,359
Balance at March 31, 2021		121,442		$	1,215	1,664		$	(2,837)	$	564,034			$	(51,195)				$	12,009				$	1,659				$	524,885
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

Equity based compensation expense	Equity based compensation expense	—		—		—		—		4,228				—					—					—					$	4,228		Equity based compensation expense		—	—		—	—		5,386		—		—		—		$	5,386
Issuance of common stock, net	Issuance of common stock, net	395		4		0		—		5,630				—					—					—					$	5,634		Issuance of common stock, net		394	4		—	—		(1,358)		—		—		—		$	(1,354)

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

Net income	Net income	—		—		—		—		—				13,155					—					44					$	13,199		Net income		—	—		—	—		—		7,330		—		44		$	7,374
Other comprehensive loss		—		—		—		—		—				—					(2,667)					—					$	(2,667)
Balance at June 30, 2021		121,837		$	1,219	1,664		$	(2,837)	$	573,892			$	(38,040)				$	9,342				$	1,603				$	545,179
Other comprehensive income																																Other comprehensive income		—	—		—	—		—		—		24,072		—		$	24,072
Balance at March 31, 2022																																Balance at March 31, 2022		122,766	$	1,229	1,664	$	(2,837)	$	592,105	$	2,135	$	43,846	$	1,593	$	638,071


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

Dividends paid to non-controlling interest		—	—		—	—		—				—		—			(1,250)				$	(1,250)
Divestiture of Memcor product line		—	—		—	—		(16,895)				—		—			—				$	(16,895)
Net income		—	—		—	—		—				53,145		—			361				$	53,506
Other comprehensive income		—	—		—	—		—				—		8,244			—				$	8,244
Balance at December 31, 2019		117,653	$	1,170	2,083	$	(2,837)	$	543,237			$	(123,854)	$	(4,760)		$	2,174			$	415,130
Cumulative effect of adoption of new accounting standards		—	—		—	—		—				686		—			—				$	686
Equity based compensation expense	Equity based compensation expense	—	—		—	—		2,304				—		—			—				$	2,304		Equity based compensation expense	—			—			—	—		3,019				—				—				—				$	3,019
Issuance of common stock, net	Issuance of common stock, net	1,417	15		111	—		11,309				—		—			—				$	11,324		Issuance of common stock, net	1,264			13			1	—		14,250				—				—				—				$	14,263

Dividends paid to non-controlling interest	Dividends paid to non-controlling interest	—	—		—	—		—				—		—			(200)				$	(200)		Dividends paid to non-controlling interest	—			—			—	—		—				—				—				(250)				$	(250)

Net income	Net income	—	—		—	—		—				7,812		—			98				$	7,910		Net income	—			—			—	—		—				6,433				—				44				$	6,477
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—				—		(14,651)			—				$	(14,651)		Other comprehensive loss	—			—			—	—		—				—				(3,611)				—				$	(3,611)
Balance at March 31, 2020		119,070	$	1,185	2,194	$	(2,837)	$	556,850			$	(115,356)	$	(19,411)		$	2,072			$	422,503
Balance at December 31, 2020																								Balance at December 31, 2020	120,750			$	1,202		2,196	$	(2,837)	$	582,197			$	(56,231)			$	(24,083)			$	1,713			$	501,961

Equity based compensation expense	Equity based compensation expense	—	—		—	—		2,520				—		—			—				$	2,520		Equity based compensation expense	—			—			—	—		3,214				—				—				—				$	3,214
Issuance of common stock, net	Issuance of common stock, net	322	2		1	—		2,577				—		—			—				$	2,579		Issuance of common stock, net	692			13			(532)	—		(21,377)				—				—				—				$	(21,364)

Dividends paid to non-controlling interest	Dividends paid to non-controlling interest	—	—		—	—		—				—		—			(400)				$	(400)		Dividends paid to non-controlling interest	—			—			—	—		—				—				—				(100)				$	(100)

Net income	Net income	—	—		—	—		—				21,384		—			457				$	21,841		Net income	—			—			—	—		—				5,036				—				46				$	5,082
Other comprehensive loss		—	—		—	—		—				—		(1,713)			—				$	(1,713)
Balance at June 30, 2020		119,392	$	1,187	2,195	$	(2,837)	$	561,947			$	(93,972)	$	(21,124)		$	2,129			$	447,330
Other comprehensive income																								Other comprehensive income	—			—			—	—		—				—				36,092				—				$	36,092
Balance at March 31, 2021																								Balance at March 31, 2021	121,442			$	1,215		1,664	$	(2,837)	$	564,034			$	(51,195)			$	12,009			$	1,659			$	524,885

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Changes in Cash Flows

(In thousands)


		Nine Months Ended June 30,					Six Months Ended March 31,
		2021		2020			2022		2021
Operating activities	Operating activities					Operating activities
Net income	Net income	$	24,758	$	83,257	Net income	$	13,462	$	11,559
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	83,707		80,056		Depreciation and amortization	61,156		54,607
Amortization of deferred financing fees (includes $1,333 and $1,795 write off of deferred financing fees)		2,814		3,504
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)	926		1,044
Deferred income taxes	Deferred income taxes	994		(1,422)		Deferred income taxes	592		476
Share-based compensation	Share-based compensation	10,461		8,504		Share-based compensation	10,589		6,233
Loss on sale of property, plant and equipment		2,456		767
Loss (gain) on sale of business		193		(68,051)
Foreign currency exchange gains on intercompany loans and other non-cash items		(4,628)		(2,438)
(Gain) loss on sale of property, plant, and equipment						(Gain) loss on sale of property, plant, and equipment	(61)		807
(Gain) loss on sale of business						(Gain) loss on sale of business	(193)		191
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	3,728		(3,659)
Changes in assets and liabilities	Changes in assets and liabilities					Changes in assets and liabilities
Accounts receivable	Accounts receivable	18,931		8,685		Accounts receivable	16,554		36,221
Inventories	Inventories	(18,261)		(25,523)		Inventories	(26,754)		(14,091)
Contract assets	Contract assets	12,059		(1,486)		Contract assets	(26,910)		6,553
Prepaids and other current assets	Prepaids and other current assets	(21,869)		1,359		Prepaids and other current assets	(14,049)		(9,921)
Accounts payable	Accounts payable	(10,587)		8,938		Accounts payable	19,589		(9,799)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	23,065		(1,738)		Accrued expenses and other liabilities	(13,648)		(9,089)
Contract liabilities	Contract liabilities	9,337		(7,893)		Contract liabilities	(382)		9,829
Income taxes	Income taxes	(2,489)		1,620		Income taxes	135		(3,948)
Other non‑current assets and liabilities	Other non‑current assets and liabilities	(28,083)		12,528		Other non‑current assets and liabilities	(15,586)		(13,955)
Net cash provided by operating activities	Net cash provided by operating activities	102,858		100,667		Net cash provided by operating activities	29,148		63,058
Investing activities	Investing activities					Investing activities
Purchase of property, plant and equipment		(54,147)		(65,924)
Purchase of property, plant, and equipment						Purchase of property, plant, and equipment	(36,320)		(36,297)
Purchase of intangibles	Purchase of intangibles	(1,206)		(708)		Purchase of intangibles	(1,582)		(539)
Proceeds from sale of property, plant and equipment		1,108		379
Proceeds from sale of business, net of cash of $0 and $12,117		897		118,894
Acquisitions		(21,059)		(10,884)
Net cash (used in) provided by investing activities		(74,407)		41,757
Proceeds from sale of property, plant, and equipment						Proceeds from sale of property, plant, and equipment	1,940		640
Proceeds from sale of business, net of cash of $0 and $0						Proceeds from sale of business, net of cash of $0 and $0	356		897
Acquisitions, net of cash received $0 and $0						Acquisitions, net of cash received $0 and $0	(194,976)		(8,743)
Net cash used in investing activities						Net cash used in investing activities	(230,582)		(44,042)
Financing activities	Financing activities					Financing activities
Issuance of debt, net of deferred issuance costs	Issuance of debt, net of deferred issuance costs	747,877		12,859		Issuance of debt, net of deferred issuance costs	223,793		13,993
Borrowings under credit facility		0		2,597

Repayment of debt	Repayment of debt	(837,082)		(113,572)		Repayment of debt	(33,362)		(10,036)
Repayment of finance lease obligation	Repayment of finance lease obligation	(10,173)		(9,988)		Repayment of finance lease obligation	(6,571)		(6,901)
Payment of earn-out related to previous acquisitions		0		(175)

Proceeds from issuance of common stock	Proceeds from issuance of common stock	18,096		9,596		Proceeds from issuance of common stock	5,274		13,430
Taxes paid related to net share settlements of share-based compensation awards	Taxes paid related to net share settlements of share-based compensation awards	(1,315)		(9,828)		Taxes paid related to net share settlements of share-based compensation awards	(5,144)		(1,863)

Distribution to non‑controlling interest	Distribution to non‑controlling interest	(450)		(1,850)		Distribution to non‑controlling interest	(100)		(350)
Net cash used in financing activities		(83,047)		(110,361)
Net cash provided by financing activities						Net cash provided by financing activities	183,890		8,273
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	3,119		793		Effect of exchange rate changes on cash	800		2,428

Change in cash and cash equivalents	Change in cash and cash equivalents	(51,477)		32,856		Change in cash and cash equivalents	(16,744)		29,717
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	$	141,524	$	142,737	End of period	$	129,500	$	222,718

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Supplemental Disclosure of Cash Flow Information

(In thousands)


		Nine Months Ended June 30,					Six Months Ended March 31,
		2021		2020			2022		2021
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	$	7,536	$	3,865	Cash paid for taxes	$	2,889	$	5,457
Cash paid for interest	Cash paid for interest	$	20,643	$	31,200	Cash paid for interest	$	12,537	$	14,647
Non‑cash investing and financing activities	Non‑cash investing and financing activities					Non‑cash investing and financing activities

Finance lease transactions	Finance lease transactions	$	12,300	$	8,401	Finance lease transactions	$	6,199	$	9,044
Operating lease transactions	Operating lease transactions	$	11,699	$	12,085	Operating lease transactions	$	11,385	$	7,993
Purchase Right		$	0	$	7,167

See accompanying notes to these Unaudited Consolidated Financial Statements

109

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 subsidiaries, EWT Holdings II Corp. (“EWT II”) and EWT Holdings III Corp. (“EWT III”), Siemens Water Technologies, a group of legal entities formerly owned by Siemens AG (“Siemens”). The stock purchase closed on January 15, 2014 and was effective January 16, 2014 (the “Acquisition”). On November 6, 2017, the Company completed its initial public offering (“IPO”).

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

The Business

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

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

Basis of Presentation

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

The interim Unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. In our opinion, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. We consistently applied the accounting policies described in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020,~~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.

1110

~~Correction of Immaterial Errors~~

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

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

2. Recent Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

In ~~March 2020,~~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~~(“ASU 2020-04”)~~, ~~which was amended by~~and also issued subsequent amendments to the ~~subsequent issuance in January 2021 of ASU 2021-01,~~ ~~Reference Rate Reform (Topic 848): Scope~~ ~~(“ASU 2021-01”~~initial guidance (collectively, “Topic 848”). ~~ASU 2020-04~~Topic 848 became effective immediately and expires on December ~~21,~~31, 2022. ~~ASU 2020-04~~Topic 848 allows eligible contracts that are modified to be accounted for as a continuation of those contracts, permits companies to preserve their ~~hedging~~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. ~~ASU 2021-01~~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. The Company is currently assessing the impact of ~~the~~ adoption ~~of ASU 2020-04 and ASU 2021-01~~ on the Company’s Unaudited Consolidated Financial Statements and related disclosures.

~~Accounting Pronouncements Recently Adopted~~

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


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

3. Variable Interest Entities

Treated Water Outsourcing (“TWO”) is a joint venture between the Company and Nalco Water, an Ecolab company (“Nalco”), in which the Company ~~holds~~held a 50% partnership ~~interest.~~interest as of March 31, 2022. 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 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 ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020,~~2021, and summarized financial information for the three and ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.


		June 30, 2021		September 30, 2020			March 31, 2022		September 30, 2021
Current assets (includes cash of $1,580 and $2,088)		$	3,529	$	4,016
Property, plant and equipment		963		1,145
Current assets (includes cash of $1,165 and $1,380)						Current assets (includes cash of $1,165 and $1,380)	$	3,195	$	3,202
Property, plant, and equipment						Property, plant, and equipment	782		903
Goodwill	Goodwill	2,206		2,206		Goodwill	2,206		2,206

Total liabilities	Total liabilities	(1,287)		(1,324)		Total liabilities	(791)		(1,009)


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Total revenue	Total revenue	$	843	$	1,328	$	2,511	$	5,180	Total revenue	$	796	$	834	$	1,641	$	1,668
Total operating expenses	Total operating expenses	(748)		(803)		(2,217)		(3,847)		Total operating expenses	(703)		(732)		(1,440)		(1,469)
Income from operations	Income from operations	$	95	$	525	$	294	$	1,333	Income from operations	$	93	$	102	$	201	$	199

On April 1, 2022, the Company acquired the remaining 50% partnership interest in TWO from Nalco. See Note 23, “Subsequent Events” for further discussion.

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 40% 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%. In January 2022, the Minority Owners exercised the Purchase Right, and on April 1, 2022, the Company purchased the remaining outstanding equity in Frontier. See Note 23, “Subsequent Events” for further discussion.

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 ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020,~~2021, and summarized financial information for the three and ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.


		June 30, 2021		September 30, 2020			March 31, 2022		September 30, 2021
Current assets (includes cash of $2,947 and $1,675)		$	10,034	$	4,024
Property, plant and equipment		2,974		3,159
Current assets (includes cash of $5,959 and $2,095)						Current assets (includes cash of $5,959 and $2,095)	$	13,278	$	12,495
Property, plant, and equipment						Property, plant, and equipment	1,955		2,113
Goodwill	Goodwill	1,798		1,798		Goodwill	1,798		1,798
Intangible assets, net	Intangible assets, net	8,678		9,918		Intangible assets, net	7,439		8,265
Total liabilities	Total liabilities	(9,039)		(3,692)		Total liabilities	(7,911)		(9,425)


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Total revenue	Total revenue	$	4,945	$	1,411	$	7,793	$	4,134	Total revenue	$	6,414	$	2,078	$	13,363	$	2,848
Total operating expenses	Total operating expenses	(4,448)		(2,003)		(8,587)		(6,304)		Total operating expenses	(6,149)		(2,401)		(12,135)		(4,139)
Income (loss) from operations	Income (loss) from operations	$	497	$	(592)	$	(794)	$	(2,170)	Income (loss) from operations	$	265	$	(323)	$	1,228	$	(1,291)

4. Acquisitions and Divestitures

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

1412

On ~~April 1,~~December 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 “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 ~~Water Consulting Specialists, Inc. (“WCSI”~~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 ~~$12,025~~an aggregate purchase price of $196,300 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 $194,976 paid in cash at ~~closing. In addition,~~closing, following adjustments. The Company utilized cash on hand and borrowed an additional $160,000 under our 2021 Revolving Credit Facility (as defined below) to fund the ~~Company recorded a liability of $761 associated with an earn-out related to the WCSI acquisition, which~~Transaction. The Mar Cor Business is included in Accrued expenses and other liabilities on the Consolidated Balance Sheets. WCSI is a leader in the design, manufacturing, and service of industrial high-purity water treatment systems. The acquisition strengthens the Company’s portfolio of high-purity water treatment systems and provides the opportunity to further expand its digitally enabled solutions and services in key industrial markets. WCSI is a part ofwithin the Integrated Solutions and Services segment.

The Purchase Price includes a $12,300 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 through December 31, 2022 (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 Buyer. A Monte Carlo simulation was performed to determine the fair value of an Earn Out asset for the amount expected to be received back from escrow based on the forecasted achievement of the sales performance goals associated with the Earn Out. See Note 6, Fair Value Measurements, for further discussion. 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 $3,150 is for net working capital adjustments. During the ~~nine~~three and six months ended ~~June 30, 2021,~~March 31, 2022, the Company incurred approximately ~~$117~~$2,116 and $3,178, respectively, in acquisition costs, which are included in General and administrative expense on the Unaudited Consolidated Statements of Operations.

The ~~Company has not finalized the valuations~~acquisition of the Mar Cor Business has been accounted for using the acquisition method of accounting which requires the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed ~~liabilities,~~as of the acquisition date. These preliminary estimates are subject to revision during the measurement period as additional analyses are performed and ~~identifiable intangible assets, including goodwill. The preliminary opening balance sheet~~third-party valuations are finalized, and these differences could have a material impact on the accounting for ~~WCSI is summarized as follows:~~the business combination.


~~Current assets~~Receivables, net	$	~~1,813~~21,418
Inventories, net	32,560
Earn Out asset	7,824
Other current assets	1,732
Property, plant, and equipment, net	~~221~~18,747
Goodwill	~~4,361~~68,370
Intangible assets, net	~~7,336~~57,152
Other non-current assets	867,434
Total assets acquired	~~13,817~~215,237
~~Liabilities~~Current liabilities	(14,719)
Non-current liabilities	(5,542)
Total liabilities assumed	~~(1,792)~~(20,261)
Net assets acquired	$	~~12,025~~194,976

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

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


~~Current assets~~	$	~~2,366~~
~~Property, plant and equipment~~	~~963~~
~~Goodwill~~	~~2,836~~
~~Intangible assets, net~~	~~3,751~~
~~Other non-current assets~~	21
~~Total assets acquired~~	~~9,937~~
~~Liabilities assumed~~	~~(904)~~
~~Net assets acquired~~	$	~~9,033~~

On March ~~1, 2021,~~31, 2022, the Company completed the divestiture of the ~~Lange containment system, geomembrane and geosynthetic liner product line~~resin regeneration assets in Germany (the ~~“Lange Product Line”~~“Germany Regen Business”) for ~~$897~~$356 in cash at ~~closing.~~closing, resulting in a gain of $193 recognized on the sale. The ~~Lange Product Line~~Germany Regen Business was a part of the ~~Integrated Solutions and Services~~Applied Product Technologies segment. ~~During the nine months ended June 30, 2021, the Company recognized a loss of $193 on the divestiture.~~

1513

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 is based on the relative standalone selling prices for the goods and services contained in a particular performance obligation. The transaction price is adjusted for the Company’s estimate of variable consideration, which may include discounts if the Company would fail to meet certain performance requirements, volume discounts or early payment discounts. To estimate variable consideration, the Company utilizes historical experience and known terms. Variable consideration in contracts for the three and nine months ended June 30, 2021 was insignificant.

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

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

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

Performance Obligations

The Company elects to apply the practical expedient to exclude from this disclosure revenue related to performance obligations if the product has an alternative use and the Company does not have an enforceable right to payment for the performance completed to date, including a normal profit margin, in the event of termination for convenience. The Company maintains a backlog of confirmed orders, which totaled approximately ~~$250,887~~$269,814 at ~~June 30, 2021.~~March 31, 2022. This backlog represents the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of the end of the reporting period. The Company estimates that the majority of these performance obligations will be satisfied within the next twelve to twenty-four months.

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

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

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

Disaggregation of Revenue

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

Information regarding the source of revenue:


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenue from contracts with customers recognized under Topic 606	Revenue from contracts with customers recognized under Topic 606	$	320,218	$	310,525	$	903,325	$	934,121	Revenue from contracts with customers recognized under Topic 606	$	382,758	$	297,919	$	700,529	$	583,107
Other (1)	Other (1)	49,463		37,302		135,113		111,474		Other(1)	43,970		48,645		92,467		85,650
Total	Total	$	369,681	$	347,827	$	1,038,438	$	1,045,595	Total	$	426,728	$	346,564	$	792,996	$	668,757

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

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


		Three Months Ended June 30,													Three Months Ended March 31,				Six Months Ended March 31,
		2021						2020							2022		2021		2022		2021
		Integrated Solutions and Services		Applied Product Technologies		Total		Integrated Solutions and Services		Applied Product Technologies		Total
Integrated Solutions and Services														Integrated Solutions and Services
Revenue from capital projects	Revenue from capital projects	$	63,336	$	92,692	$	156,028	$	64,692	$	85,654	$	150,346	Revenue from capital projects	$	70,702	$	52,093	$	137,804	$	102,719
Revenue from aftermarket	Revenue from aftermarket	31,852		30,547		62,399		29,143		28,086		57,229		Revenue from aftermarket	62,271		32,501		91,569		59,647
Revenue from service	Revenue from service	144,499		6,755		151,254		134,876		5,376		140,252		Revenue from service	161,867		139,540		310,513		276,485
Total	Total	$	239,687	$	129,994	$	369,681	$	228,711	$	119,116	$	347,827	Total	$	294,840	$	224,134	$	539,886	$	438,851
Applied Product Technologies														Applied Product Technologies
Revenue from capital projects														Revenue from capital projects	$	91,778	$	90,296	$	175,662	$	167,185
Revenue from aftermarket														Revenue from aftermarket	35,024		27,576		67,308		52,930
Revenue from service														Revenue from service	5,086		4,558		10,140		9,791
Total														Total	$	131,888	$	122,430	$	253,110	$	229,906
Total Revenue														Total Revenue
Revenue from capital projects														Revenue from capital projects	$	162,480	$	142,389	$	313,466	$	269,904
Revenue from aftermarket														Revenue from aftermarket	97,295		60,077		158,877		112,577
Revenue from service														Revenue from service	166,953		144,098		320,653		286,276
Total														Total	$	426,728	$	346,564	$	792,996	$	668,757

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

Information regarding revenue disaggregated by geographic area is as follows:


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
United States	United States	$	291,113	$	285,077	$	829,925	$	853,067	United States	$	352,639	$	274,681	$	647,347	$	538,812
Asia	Asia	31,987		19,806		81,568		51,268		Asia	28,042		26,976		58,947		49,581
Europe	Europe	28,749		23,413		81,561		79,906		Europe	28,641		31,527		54,270		52,812
Canada	Canada	14,210		16,536		36,025		50,418		Canada	13,748		10,636		26,409		21,815
Australia	Australia	3,622		2,995		9,359		10,936		Australia	3,658		2,744		6,023		5,737
Total	Total	$	369,681	$	347,827	$	1,038,438	$	1,045,595	Total	$	426,728	$	346,564	$	792,996	$	668,757

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:


		Nine Months Ended June 30,					Six Months Ended March 31,
Contract assets (a)	Contract assets (a)	2021		2020		Contract assets(a)	2022		2021
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	232,750		255,623		Recognized in current period	206,859		147,593
Reclassified to accounts receivable	Reclassified to accounts receivable	(244,766)		(253,199)		Reclassified to accounts receivable	(179,967)		(153,964)
Amounts related to sale of the Memcor product line		0		2,710

Foreign currency	Foreign currency	600		(1,011)		Foreign currency	(136)		413
Balance at end of period	Balance at end of period	$	69,343	$	77,590	Balance at end of period	$	99,502	$	74,801

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


		Nine Months Ended June 30,					Six Months Ended March 31,
Contract Liabilities	Contract Liabilities	2021		2020		Contract Liabilities	2022		2021
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	245,049		241,468		Recognized in current period	174,518		158,452
Amounts in beginning balance reclassified to revenue	Amounts in beginning balance reclassified to revenue	(18,496)		(37,508)		Amounts in beginning balance reclassified to revenue	(44,292)		(20,703)
Current period amounts reclassified to revenue	Current period amounts reclassified to revenue	(216,972)		(210,985)		Current period amounts reclassified to revenue	(130,629)		(127,684)
Amounts related to sale of the Memcor product line		0		(700)

Foreign currency	Foreign currency	1,075		(485)		Foreign currency	113		570
Balance at end of period	Balance at end of period	$	36,915	$	30,841	Balance at end of period	$	55,593	$	36,894

6. Fair Value Measurements

As of ~~June 30, 2021~~March 31, 2022 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.

1916


	Net Asset Value		Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of ~~June~~March 31, 2022
Assets:
Pension plan
Cash	$	—	$	441	$	—	$	—
Global Multi-Asset Fund	14,182		—		—		—
Government Securities	1,966		—		—		—
Liability Driven Investment	5,687		—		—		—
Guernsey Unit Trust	2,423		—		—		—
Global Absolute Return	2,106		—		—		—
Deferred compensation plan assets
Cash	—		1,052		—		—
Mutual Funds	—		15,432		—		—
Earn-out assets related to acquisitions	—		—		—		7,824
Total return swaps—deferred compensation	—		—		250		—
Interest rate swaps	—		—		30,940		—

Foreign currency forward contracts	—		—		112		—
Commodity swaps	—		—		9		—
Liabilities:
Pension plan	—		—		(44,344)		—
Deferred compensation plan liabilities	—		—		(24,191)		—

Long‑term debt	—		—		(942,133)		—

Foreign currency forward contracts	—		—		(33)		—

Earn-out liabilities related to acquisitions	—		—		—		(25)
Purchase Right	—		—		—		(10,396)


	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, 2021
Assets:
Pension plan
Cash	$	—		$	~~448~~831		$	—		$	—
Global Multi-Asset Fund	~~15,303~~15,244			—			—			—
Government Securities	~~2,557~~5,158			—			—			—
Liability Driven Investment	~~5,930~~2,793			—			—			—
Guernsey Unit Trust	~~2,381~~2,387			—			—			—
Global Absolute Return	~~2,275~~2,225			—			—			—
Deferred compensation plan assets
Cash	—			~~1,240~~1,251			—			—
Mutual Funds	—			~~17,964~~17,806			—			—
Interest rate swaps	—			—			~~2,443~~3,127			—

Foreign currency forward contracts	—			—			5924			—
Liabilities:
Pension plan	—			—			~~(48,524)~~(46,013)			—
Deferred compensation plan liabilities	—			—			~~(23,980)~~(24,382)			—
Total return swaps—deferred compensation	—			—			(130)			—
Long‑term debt	—			—			~~(799,922)~~(752,988)			—
Interest rate ~~swap~~swaps	—			—			~~(376)~~(303)			—
Foreign currency forward contracts	—			—			~~(120)~~(102)			—
Commodity swaps			—			~~(16)~~—			(19)			—
~~Earn-outs~~Earn-out liabilities related to acquisitions	—			—			—			~~(1,056)~~(150)
Purchase Right	—			—			—			~~(6,249)~~

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

~~Foreign currency forward contracts~~	—			—			~~140~~			—
~~Liabilities:~~
~~Pension plan~~	—			—			~~(47,389)~~			—
~~Deferred compensation plan liabilities~~	—			—			~~(21,439)~~			—
~~Long‑term debt~~	—			—			~~(872,441)~~			—
~~Interest rate swap~~	—			—			~~(4,669)~~			—
~~Foreign currency forward contracts~~	—			—			~~(47)~~			—
~~Earn-outs related to acquisitions~~	—			—			—			~~(295)~~
~~Option and Purchase Right~~	—			—			—			~~(7,739)~~(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 ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020.~~2021. The unrealized ~~gain~~loss on mutual funds was ~~$532~~$418 at ~~June 30, 2021.~~March 31, 2022.

The Company records contingent consideration arrangements at fair value on a recurring basis, and the associated balances presented as of ~~June 30, 2021~~March 31, 2022 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 and assets can result from adjustments in the probability of achieving future development steps, sales targets and profitability and are recorded in General and administrative expenses in the Unaudited Consolidated Statements of Operations. During the three and ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, the Company recorded a liability of $761 associated with an earn-out related to the WCSI acquisition, which is included in Accrued expenses and other liabilities on the Consolidated Balance Sheets. There were no other changesdecrease in the fair value of ~~earn-outs~~the earn-out liability related to ~~acquisitions.~~the prior year acquisition of Water Consulting Specialists, Inc. (“WCSI”) of $25 and $125, respectively. As a result of the Mar Cor Business acquisition on January 3, 2022, the Company recorded an Earn Out asset for $7,824 which represents the fair value of amounts expected to be received back from escrow based on the forecasted achievement of certain sales performance goals. As of ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020, earn-outs~~2021, earn-out liabilities related to acquisitions totaled ~~$1,056~~$25 and $150, respectively, and are included in Accrued expenses and other liabilities on the Consolidated Balance Sheets. As of March 31, 2022 and September 30, 2021, earn-out assets related to acquisitions total $7,824 and $0, respectively, and are included in Prepaid and other current assets on the Consolidated Balance Sheets.

~~Pursuant to the acquisition~~

As of ~~Frontier,~~March 31, 2022, the Company ~~recorded~~had a liability recorded for the ~~Option and~~ Purchase Right to purchase the remaining ~~40% interest.~~32% interest of Frontier. The fair value of ~~these 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 ~~these options~~this right each period until the purchase of the remaining 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~~On April 1, 2022, the Minority Owners exercised the Purchase Right, and the Company purchased the remaining 32% interest in Frontier for $10,396. See Note 23, “Subsequent Events” for further discussion. As a result, during the three and six months ended March 31, 2022, the Company recorded an increase in the fair value of the ~~Option and~~ Purchase Right liability of $2,091, which was recorded ~~during~~to Interest expense on the ~~three and nine months ended June 30, 2021. The Minority Owners exercised the Option, and on April 8, 2021 the Company completed the purchase~~Unaudited Consolidated Statements of ~~an additional 8% of the outstanding equity in Frontier for approximately $1,490.~~Operations. As of ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020, $6,249~~2021, $10,396 and ~~$7,739,~~$0, respectively, is included in Accrued expenses and other liabilities related to the Purchase Right on the Consolidated Balance Sheets. As of March 31, 2022 and September 30, 2021, $0 and $8,305, respectively is included in Other non‑current liabilities related to the 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:


		June 30, 2021		September 30, 2020			March 31, 2022		September 30, 2021
Accounts receivable	Accounts receivable	$	250,608	$	264,536	Accounts receivable	$	289,462	$	282,819
Allowance for credit losses	Allowance for credit losses	(3,989)		(4,057)		Allowance for credit losses	(6,370)		(4,824)
Receivables, net	Receivables, net	$	246,619	$	260,479	Receivables, net	$	283,092	$	277,995

The movement in the allowance for credit losses was as follows for the ~~nine~~six months ended ~~June 30, 2021:~~March 31, 2022:


Balance at September 30, ~~2020~~2021	$	~~(4,057)~~(4,824)
Charged to costs and expenses	~~(460)~~(1,134)
Write-offs	~~562~~146
Foreign currency and other	~~(34)~~(558)
Balance at ~~June 30, 2021~~March 31, 2022	$	~~(3,989)~~(6,370)

8. Inventories

The major classes of Inventories, net are as follows:


		June 30, 2021		September 30, 2020			March 31, 2022		September 30, 2021
Raw materials and supplies	Raw materials and supplies	$	85,671	$	78,319	Raw materials and supplies	$	115,340	$	86,469
Work in progress	Work in progress	19,489		15,654		Work in progress	31,599		19,842
Finished goods and products held for resale	Finished goods and products held for resale	63,493		56,435		Finished goods and products held for resale	79,766		59,624
Costs of unbilled projects	Costs of unbilled projects	3,789		3,438		Costs of unbilled projects	2,545		2,277
Reserves for excess and obsolete	Reserves for excess and obsolete	(11,214)		(11,467)		Reserves for excess and obsolete	(12,317)		(9,709)
Inventories, net	Inventories, net	$	161,228	$	142,379	Inventories, net	$	216,933	$	158,503

9. Property, Plant, and Equipment

Property, plant, and equipment consists of the following:


		June 30, 2021		September 30, 2020			March 31, 2022		September 30, 2021
Machinery and equipment	Machinery and equipment	$	386,458	$	357,650	Machinery and equipment	$	395,017	$	388,352
Rental equipment	Rental equipment	238,953		221,953		Rental equipment	253,800		246,257
Land and buildings	Land and buildings	70,591		70,245		Land and buildings	77,498		70,048
Construction in process	Construction in process	53,975		48,325		Construction in process	62,142		59,737
		749,977		698,173			788,457		764,394
Less: accumulated depreciation	Less: accumulated depreciation	(377,578)		(333,712)		Less: accumulated depreciation	(393,167)		(389,406)
		$	372,399	$	364,461
Property, plant, and equipment, net						Property, plant, and equipment, net	$	395,290	$	374,988

The Company entered into secured financing agreements that require providing a security interest in specified ~~equipment.~~equipment and, in some cases, the underlying contract. As of ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020,~~2021, the gross and net amounts of those assets are as follows:


		June 30, 2021				September 30, 2020					March 31, 2022				September 30, 2021
		Gross		Net		Gross		Net			Gross		Net		Gross		Net
Machinery and equipment	Machinery and equipment	$	71,012	$	55,956	$	63,305	$	52,620	Machinery and equipment	$	86,033	$	65,752	$	73,632	$	57,036
Construction in process	Construction in process	22,760		22,760		8,098		8,098		Construction in process	9,668		9,668		30,504		30,504
		$	93,772	$	78,716	$	71,403	$	60,718		$	95,701	$	75,420	$	104,136	$	87,540

Depreciation expense and maintenance and repairs expense for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ were as follows:


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Depreciation expense	Depreciation expense	$	19,170	$	18,992	$	56,450	$	54,480	Depreciation expense	$	20,722	$	18,769	$	40,042	$	37,280
Maintenance and repair expense	Maintenance and repair expense	4,603		4,601		14,565		15,915		Maintenance and repair expense	7,475		4,754		13,594		9,962

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 and divestitures 10,349 0 10,349
Measurement period adjustment (3,194) 0 (3,194)
Foreign currency translation 3,232 2,164 5,396
Balance at June 30, 2021 $ 234,768 $ 174,988 $ 409,756


	Integrated Solutions and Services		Applied Product Technologies		Total
Balance at September 30, 2021	$	233,830	$	173,546	$	407,376
Business combinations and divestitures	68,370		(34)		68,336

Foreign currency translation	714		(167)		547
Balance at March 31, 2022	$	302,914	$	173,345	$	476,259

As of ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020, $159,620~~2021, $228,037 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:


		June 30, 2021		September 30, 2020			March 31, 2022		September 30, 2021
2021 Term Loan, due April 1, 2028 (1)	2021 Term Loan, due April 1, 2028 (1)	$	475,000	$	0	2021 Term Loan, due April 1, 2028 (1)	$	471,438	$	473,837
2021 Revolving Credit Facility, due April 1, 2026 ~~(1)~~(2)	2021 Revolving Credit Facility, due April 1, 2026 ~~(1)~~(2)	95,000		0		2021 Revolving Credit Facility, due April 1, 2026 ~~(1)~~(2)	221,106		37,268
2014 Term Loan, due December 20, 2024 (1)		0		819,276
2014 Revolving Credit Facility (1)		0		0

Securitization Facility, due April 1, 2024(3)	Securitization Facility, due April 1, 2024(3)	148,151		0		Securitization Facility, due April 1, 2024(3)	150,078		150,061
Equipment Financing, due September 30, 2023 to July 5, 2029, interest rates ranging from 3.13% to 8.07%		83,255		63,918
Equipment Financing, due September 30, 2023 to July 31, 2029, interest rates ranging from 3.13% to 8.07%						Equipment Financing, due September 30, 2023 to July 31, 2029, interest rates ranging from 3.13% to 8.07%	102,752		93,375
Notes Payable, due July 31, 2023(4)	Notes Payable, due July 31, 2023(4)	455		611		Notes Payable, due July 31, 2023(4)	—		402
Mortgage (2)		0		1,665

Total debt	Total debt	801,861		885,470		Total debt	945,374		754,943
Less unamortized deferred financing fees	Less unamortized deferred financing fees	(12,217)		(9,436)		Less unamortized deferred financing fees	(10,812)		(11,738)
Total net debt	Total net debt	789,644		876,034		Total net debt	934,562		743,205
Less current portion	Less current portion	(11,474)		(14,339)		Less current portion	(14,219)		(12,775)
Total long‑term debt	Total long‑term debt	$	778,170	$	861,695	Total long‑term debt	$	920,343	$	730,430

(1)~~On April 1,~~The interest rate on the 2021 Term Loan was 2.75% as of March 31, 2022, comprised of 0.25% LIBOR plus the ~~Company paid off~~2.50% spread. Includes accrued interest of $0 and $25 at March 31, 2022 and September 30, 2021, respectively.

(2)The 2021 Revolving Credit Facility includes $187,000 with an interest rate of 2.20% as of March 31, 2022, comprised of 0.25% LIBOR plus the 1.95% spread, and $34,000 with an interest rate of 4.45%. as of March 31, 2022, comprised of 3.50% Prime Rate plus the 0.95% spread. During the three months ended March 31, 2022, the spread on the 2021 Revolving Credit Facility was reduced from 2.25% at September 30, 2021 as a result of a Sustainability Pricing Adjustment per the 2021 Credit Agreement. Includes accrued interest of $106 and $268, at March 31, 2022 and September 30, 2021, respectively.

(3)The interest rate on the Securitization Facility was 1.70% as of March 31, 2022, comprised of 0.45% LIBOR plus the 1.25% spread. Includes accrued interest of $78 and $61 at March 31, 2022 and September 30, 2021, respectively.

(4)In March 2022, the outstanding balance of the ~~2014 Term Loan (as defined below) and entered into~~Notes Payable due July 31, 2023, was repaid in conjunction with the ~~2021 Credit Agreement (as defined below).~~Company’s acquisition of TWO. See Note 23, “Subsequent Events” for further discussion.

~~(2)~~
~~In November 2020, the Company paid off the outstanding balance of the mortgage due June 30, 2028.~~

~~2014 Credit Agreement~~

On January 15, 2014, EWT III entered into a First Lien Credit Agreement (as modified, amended or supplemented from time to time, the “2014 Credit Agreement”) and a Second Lien Credit Agreement among EWT III, EWT II, the lenders party thereto and Credit Suisse AG as administrative agent and collateral agent. The term loans outstanding under the Second Lien Credit Agreement were prepaid on October 28, 2016. The 2014 Credit Agreement also made available to the Company a revolving credit facility (the “ 2014 Revolving Credit Facility”) of up to $125,000, with a letter of credit sublimit of up to $45,000. The term loan outstanding under the 2014 Credit Agreement (the “2014 Term Loan”) was scheduled to mature on December 20, 2024, and the 2014 Revolving Credit Facility was scheduled to mature on December 20, 2022. As described below, on April 1, 2021, we completed a refinancing of the outstanding 2014 Term Loan and terminated the 2014 Credit Agreement.

2321

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 Senior Facilities are guaranteed by EWT II and certain existing and future direct or indirect wholly-owned domestic subsidiaries of EWT III (together with EWT III, collectively, the “Loan Parties”), and collateralized by a first lien on substantially all of the assets of the Loan Parties, with certain exceptions. In connection with entering into the 2021 Credit Agreement, on April 1, 2021, EWT III repaid all outstanding indebtedness under the 2014 Credit Agreement and terminated that facility.

The 2021 Credit Agreement contains customary representations, warranties, affirmative covenants, and negative covenants, ~~each substantially similar to those included in the 2014 Credit Agreement,~~ including, among other things, a springing maximum first lien leverage ratio of 5.55 to 1.00. The Company did not exceed this ratio during the ~~three~~six months ended ~~June 30, 2021,~~March 31, 2022, does not anticipate exceeding this ratio during the year ending September 30, ~~2021,~~2022, and therefore does not anticipate any additional repayments during the year ending September 30, ~~2021. In addition, the Company did not exceed this ratio as noted in the 2014 Credit Agreement during the six months ended March 31, 2021.~~

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

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

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

At June 30, 2021, the Company had (a) $475,000 outstanding under the 2021 Term Loan at an interest rate of 2.63%, comprised of 0.13% LIBOR plus the 2.50% spread, and (b) $95,000 outstanding under the 2021 Revolving Credit Facility at an interest rate of 2.38%, comprised of 0.13% LIBOR plus the 2.25% spread.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 ~~June 30, 2021,~~March 31, 2022 and ~~under the 2014 Revolving Credit Facility as of~~ September 30, ~~2020.~~2021.


		June 30, 2021		September 30, 2020			March 31, 2022		September 30, 2021
Borrowing availability	Borrowing availability	$	350,000	$	125,000	Borrowing availability	$	350,000	$	350,000
Outstanding borrowings	Outstanding borrowings	95,000		0		Outstanding borrowings	221,000		37,000
Outstanding letters of credit	Outstanding letters of credit	11,504		12,963		Outstanding letters of credit	9,604		10,112
Unused amounts	Unused amounts	$	243,496	$	112,037	Unused amounts	$	119,396	$	302,888

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

Receivables Securitization Program

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

The Receivables Securitization Program contains certain customary representations, warranties, affirmative covenants, and negative covenants, subject to certain cure periods in some cases, including the eligibility of the Receivables being sold by the Originators and securing the loans made by the Receivables Financing Lenders, as well as customary reserve requirements, events of default, termination events, and servicer defaults. The Company was in compliance with all covenants during the ~~three~~six months ended ~~June 30, 2021,~~March 31, 2022, does not anticipate becoming noncompliant during the year ending September 30, ~~2021,~~2022, and therefore, subject to limitations arising from collateral availability, does not anticipate any additional repayments during the year ending September 30, ~~2021.~~

The Receivables Financing Lenders under the Receivables Securitization Program receive interest at LIBOR or LMIR as selected by Evoqua Finance. The Receivables Financing Agreement contains customary LIBOR benchmark replacement language. The interest rate on the Securitization Facility was 1.35% as of June 30, 2021, comprised of 0.10% LIBOR plus the 1.25% spread. The Receivables Securitization Program matures on April 1, 2024.2022.

2522

Equipment Financings

During the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, the Company completed the following equipment financings:

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


Date Entered	Due	Interest Rate at March 31, 2022		Principal Amount
March 18, 2022	March 17, 2029	4.67	%	$	1,839
March 16, 2022	July 31, 2029(1)	4.75	%	1,317
March 15, 2022	April 1, 2029	4.74	%	4,788
December 30, 2021	December 30, 2028	3.94	%	2,207
December 23, 2021	July 31, 2029(1)	4.75	%	3,742




				$	13,893

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

Deferred Financing Fees and Discounts

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

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


	March 31, 2022		September 30, 2021
Current portion of deferred financing fees and discounts(1)	$	(1,883)	$	(1,866)
Long-term portion of deferred financing fees and discounts(2)	(8,929)		(9,872)
Total deferred financing fees and discounts	$	(10,812)	$	(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.

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

Amortization of deferred financing fees and discounts included in interest expense ~~were $437~~was $459 and ~~$277~~$518 for the three months ended ~~June 30,~~March 31, 2022 and 2021 and ~~2020, respectively~~$926 and ~~$1,481 and $1,213~~$1,044 for the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

2623

Repayment Schedule

Aggregate maturities of all long‑term debt, including current portion of long‑term debt and excluding finance lease obligations as of ~~June 30, 2021,~~March 31, 2022, are presented below:


Fiscal Year	Fiscal Year			Fiscal Year
Remainder of 2021		$	3,372
2022		13,612
Remainder of 2022				Remainder of 2022	$	7,886
2023	2023	14,536		2023	16,748
2024	2024	161,158		2024	165,512
2025	2025	14,579		2025	17,100
2026				2026	20,417
Thereafter	Thereafter	594,604		Thereafter	717,711
Total	Total	$	801,861	Total	$	945,374

12. Derivative Financial Instruments

Interest Rate Risk Management

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

~~To accomplish these objectives, on June 30, 2021,~~ As of March 31, 2022, the Company entered into an interest rate swap with an effective date of August 1, 2022 to mitigate risk associated with a variable rate equipment financing. The interest rate swap provides for a fixed rate of 5.25%, has a notional amount of ~~$31,000 and a term of seven years. The~~the Company’s interest rate ~~swap has been designated as a cash flow hedge.~~swaps was $531,000.

On May 22, 2020, the Company entered into an interest rate swap to mitigate risks associated with variable rate debt. The interest rate swap became effective on June 30, 2020, has a term of five years to hedge the variability of interest payments on the first $500,000 of the Company’s senior secured debt and fixes LIBOR on this portion of the senior secured debt at 0.55%. The interest rate swap has been designated as a cash flow hedge.

Foreign Currency Risk Management

The Company’s functional currency is the U.S. dollar. By operating internationally, the Company is subject to foreign currency 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 ~~June 30, 2021,~~March 31, 2022, the notional amount of the forward contracts ~~held to sell foreign currencies~~ was ~~$7,392.~~$9,460.

~~Commodity~~

Equity Price Risk Management

The Company is ~~subject~~exposed to ~~changes~~variability in ~~index pricing of platinum. To mitigate~~compensation charges related to certain deferred compensation obligations to employees. Equity price ~~risk of~~movements affect the compensation expense as certain ~~platinum purchase contracts,~~investments made by the Company’s employees in the deferred compensation plan are revalued. Although not designated as accounting hedges, the Company ~~has entered into~~utilizes derivatives such as total return swaps to economically hedge a ~~financially settled platinum swap designated as a cash flow hedge.~~portion of this exposure and offset the related compensation expense. As of March 31, 2022, the notional amount of the total return swaps was $5,488.

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 swaps are valued based on readily-observable market inputs, such as quotations on interest rates and LIBOR yield curves at the reporting date. The Company’s foreign currency forward contracts are valued based on quoted forward foreign exchange prices and spot rates at the reporting date. The Company’s platinum swap is valued using the LBMA Platinum Price PM Index at the reporting date. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in Accumulated other comprehensive income (loss), net of tax (“AOCI”) until the hedged item affects earnings. The Company does not use derivative financial instruments for trading or speculative purposes.

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


			Asset Derivatives						Asset Derivatives
		Balance Sheet Location	June 30, 2021		September 30, 2020			Balance Sheet Location	March 31, 2022		September 30, 2021
Interest rate swaps	Interest rate swaps	Prepaid and other current assets	$	2,443	$	0	Interest rate swaps	Prepaid and other current assets	$	5,996	$	3,127

Foreign currency forward contracts	Foreign currency forward contracts	Prepaid and other current assets	48		133		Foreign currency forward contracts	Prepaid and other current assets	112		6

Commodity swaps							Commodity swaps	Prepaid and other current assets	9		—
Interest rate swaps							Interest rate swaps	Other non‑current assets	24,944		—


			Liability Derivatives						Liability Derivatives
		Balance Sheet Location	June 30, 2021		September 30, 2020			Balance Sheet Location	March 31, 2022		September 30, 2021
Interest rate swaps	Interest rate swaps	Accrued expenses and other current liabilities	$	376	$	4,669	Interest rate swaps	Accrued expenses and other current liabilities	$	—	$	303
Foreign currency forward contracts	Foreign currency forward contracts	Accrued expenses and other current liabilities	113		47		Foreign currency forward contracts	Accrued expenses and other current liabilities	33		102
Commodity swaps	Commodity swaps	Accrued expenses and other current liabilities	16		0		Commodity swaps	Accrued expenses and other current liabilities	—		19

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


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Interest rate swaps	$	21,077	$	8,811	$	26,948	$	9,268

Foreign currency forward contracts	100		(335)		82		(332)
Commodity swaps	8		—		28		—
	$	21,185	$	8,476	$	27,058	$	8,936

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

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

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


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
Location of (Loss) Gain	Location of (Loss) Gain	2021		2020		2021		2020		Location of (Loss) Gain	2022		2021		2022		2021
Cost of product sales and services	Cost of product sales and services	$	9	$	(2)	$	(4)	$	(8)	Cost of product sales and services	$	6	$	(13)	$	(79)	$	(13)
General and administrative expense	General and administrative expense	0		48		(72)		$	78	General and administrative expense	—		(40)		(7)		(72)
Selling and marketing expense	Selling and marketing expense	0		0		(39)		28		Selling and marketing expense	(1)		(39)		—		(39)

Interest expense	Interest expense	(591)		0		(1,624)		0		Interest expense	(550)		(523)		(1,167)		(1,033)
		$	(582)	$	46	$	(1,739)	$	98		$	(545)	$	(615)	$	(1,253)	$	(1,157)

Based on the fair value amounts of the Company’s cash flow hedges at ~~June 30, 2021,~~March 31, 2022, the Company expects that approximately ~~$56~~$76 of pre-tax net ~~losses~~gains 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 June 30,
2021 September 30,
2020
Foreign currency forward contracts Prepaid and other current assets $ 11 $ 7
Liability Derivatives
Balance Sheet Location June 30,
2021 September 30,
2020
Foreign currency forward contracts Accrued expenses and other current liabilities $ 7 $ 0


		Asset Derivatives
	Balance Sheet Location	March 31, 2022		September 30, 2021
Total return swaps—deferred compensation	Prepaid and other current assets	$	250	$	—
Foreign currency forward contracts	Prepaid and other current assets	—		18

		Liability Derivatives
	Balance Sheet Location	March 31, 2022		September 30, 2021
Total return swaps—deferred compensation	Accrued expenses and other current liabilities	$	—	$	130

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


	Three Months Ended March 31,				Six Months Ended March 31,
Location of Loss	2022		2021		2022		2021
General and administrative expense	$	(352)	$	—	$	(41)	$	—

	$	(352)	$	—	$	(41)	$	—

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
		Nine Months Ended June 30,				Nine Months Ended June 30,					Six Months Ended March 31,				Six Months Ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
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	5,680		2,496		1,577		481		Warranty provision for sales	2,797		2,188		609		714
Settlement of warranty claims	Settlement of warranty claims	(3,826)		(3,243)		(701)		(1,298)		Settlement of warranty claims	(3,345)		(1,699)		(338)		(471)
Amounts related to sale of the Memcor product line		0		795		0		136

Foreign currency translation and other	Foreign currency translation and other	94		276		29		(51)		Foreign currency translation and other	(92)		110		(46)		22
Balance at end of the period	Balance at end of the period	$	8,063	$	5,246	$	2,629	$	1,600	Balance at end of the period	$	7,498	$	6,714	$	3,191	$	1,989

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 ~~$1,300~~$100 to ~~$2,300~~$1,100 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 $200 to $400 of cash costs through the remainder of fiscal 2021 as a result of its transition to a two-segment operating model related to other non-employee related business optimizations. The Company currently expects to incur approximately $1,000 to $1,400 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:


		Nine Months Ended June 30,					Six Months Ended March 31,
		2021		2020			2022		2021
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	4,649		4,758		Restructuring charges following the sale of the Memcor product line	754		3,808
Restructuring charges related to two-segment realignment	Restructuring charges related to two-segment realignment	830		1,866		Restructuring charges related to two-segment realignment	297		562
Restructuring charges related to other initiatives	Restructuring charges related to other initiatives	1,856		1,141		Restructuring charges related to other initiatives	1,817		1,444
Release of prior reserves	Release of prior reserves	(296)		(62)		Release of prior reserves	(66)		(283)
Write off charges	Write off charges	(966)		0		Write off charges	—		(966)
Cash payments	Cash payments	(6,349)		(7,314)		Cash payments	(2,220)		(4,359)
Other adjustments	Other adjustments	8		0		Other adjustments	2		9
Balance at end of the period	Balance at end of the period	$	702	$	1,044	Balance at end of the period	$	888	$	1,185

The balances for accrued restructuring liabilities at ~~June 30, 2021~~March 31, 2022 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 ~~June 30, 2021~~March 31, 2022 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:


		Nine Months Ended June 30,					Six Months Ended March 31,
		2021		2020			2022		2021
Cost of product sales and services	Cost of product sales and services	$	4,341	$	5,198	Cost of product sales and services	$	867	$	3,428
General and administrative expense	General and administrative expense	1,675		2,310		General and administrative expense	1,719		1,089
Sales and marketing expense	Sales and marketing expense	348		173		Sales and marketing expense	—		340
Research and development expense	Research and development expense	(15)		22		Research and development expense	1		(16)
Other operating expense, net	Other operating expense, net	690		0		Other operating expense, net	215		690
		$	7,039	$	7,703		$	2,802	$	5,531

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 June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Service cost	Service cost	$	287	$	259	$	858	$	779	Service cost	$	227	$	287	$	459	$	571
Interest cost	Interest cost	81		67		240		203		Interest cost	107		80		215		159
Expected return on plan assets	Expected return on plan assets	(88)		(30)		(262)		(89)		Expected return on plan assets	(129)		(87)		(261)		(174)
Amortization of actuarial losses	Amortization of actuarial losses	266		235		640		706		Amortization of actuarial losses	166		110		335		374
Pension expense for defined benefit plans	Pension expense for defined benefit plans	$	546	$	531	$	1,476	$	1,599	Pension expense for defined benefit plans	$	371	$	390	$	748	$	930

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 ~~updated~~ PAETR, which excludes the impact of discrete items, was ~~19.7%~~22.6% and ~~3.9%~~14.6% as of the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. For the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, the PAETR was ~~lower~~higher than the 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 offset by changes in the mix of earnings between countries, some of which have higher statutory rates, and it 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 period ending ~~June 30, 2021~~March 31, 2022 as a result of pretax losses incurred since the Company’s inception in early 2014. The Company reported positive U.S. pre-tax earnings for the first time in 2017 and again in 2020 and is projecting positive pre-tax earnings in 2021, however, the Company generated pre-tax losses in all other years. The Company was in a three-year cumulative loss position at September 30, 2019, but was no longer in a three-year cumulative loss position at September 30, 2020. The Company believes it is prudent to retain a valuation allowance until a more consistent pattern of earnings is established and net operating loss carryforwards begin to be utilized.

Current and Prior Period Tax Expense

For the three months ended ~~June 30,~~March 31, 2022, the Company recognized income tax expense of $2,248 on pretax income of $9,622. The rate of 23.4% differed from 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 March 31, 2021, the Company recognized income tax expense of ~~$3,887~~$2,701 on pretax income of ~~$17,086.~~$7,783. The rate of ~~22.7%~~34.7% differed from the U.S. statutory rate of 21.0% principally due to the impact of ~~higher earnings in non-U.S. tax jurisdictions, some with higher statutory rates, which increases overall tax expense, and lower earnings in the U.S., which does not impact tax expense due to the~~maintaining a U.S. valuation ~~allowance.~~allowance against U.S. deferred tax assets.

For the ~~three~~six months ended ~~June 30, 2020,~~March 31, 2022, the Company recognized income tax expense of ~~$740~~$3,869 on pretax income of ~~$22,581.~~$17,331. The rate of ~~3.3%~~22.3% differed from the U.S. statutory rate of 21.0% ~~principally due to~~as the ~~favorable~~mix of earnings between countries, most of which have higher statutory tax rates than the U.S., was mostly offset by the impact ~~to the PAETR~~ of ~~the gain on the sale of the Memcor product line which did not generate significant tax expense due to the combination of the~~maintaining a U.S. valuation allowance ~~and favorable foreign tax regimes, as well as the favorable impact of the reversal of a portion of~~that is provided on U.S. deferred tax ~~liabilities related to indefinite lived intangibles.~~assets.

For the ~~nine~~six months ended ~~June 30,~~March 31, 2021, the Company recognized income tax expense of ~~$7,672~~$3,785 on pretax income of ~~$32,430.~~$15,344. The rate of ~~23.7%~~24.7% differed from the U.S. statutory rate of 21.0% principally due to the unfavorable impact of discrete items related to an adjustment for prior periods and recording an uncertain tax position related to a tax audit in a foreign jurisdiction ~~as well as~~which were partially offset by the impact of ~~higher earnings in non-U.S. tax jurisdictions, which increases overall tax expense, and lower earnings in the U.S., which does not impact tax expense due to the U.S. valuation allowance.~~

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

At ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company had gross unrecognized tax benefits of ~~$1,805~~$2,071 and ~~$1,313~~$1,752 respectively.

17. Share-Based Compensation

The Company designs equity compensation plans to attract and retain employees while also aligning employees’ interests with the interests of the Company’s shareholders. In addition, members of the Company’s Board of Directors (the “Board”) participate in equity compensation plans in connection with their service on the 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 ~~June 30, 2021,~~March 31, 2022, there were approximately 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 (“RSUs”), stock appreciation rights, dividend equivalent rights, share awards, and performance-based awards (including performance share units and performance-based restricted stock). Upon adoption of the Equity Incentive Plan, 5,100 shares of common stock of the Company were reserved for issuance thereunder. On February 18, 2020, the Company’s shareholders approved the amendment and restatement of the Equity Incentive Plan in order to increase the number of shares of common stock reserved for issuance thereunder by 5,000 shares and incorporate other changes.

~~On May 18, 2021 (the “Grant Date”),~~During the ~~Compensation Committee of the Board approved and~~six months ended March 31, 2022, the Company granted ~~special one-time awards of 234 restricted stock units (“Special RSUs”)~~RSUs and ~~469~~ performance share units ~~(“Special PSUs”)~~(measured at a target award level) under the Equity Incentive Plan to certain ~~executive officers~~employees of the Company. ~~Subject~~The final number of performance share units that may be earned is dependent on the Company’s achievement of performance goals related to ~~the applicable executive officer’s continued employment with the Company~~organic revenue growth dollars and ~~the terms and conditions of the Equity Incentive Plan and the related award agreement, the Special RSUs will vest ratably~~average adjusted EBITDA margin over a three-year measurement period ~~on each annual anniversary~~ending September 30, 2024. The final number of ~~the Grant Date, and the Special PSUs will~~performance share units that may be earned incrementally in three tranches of 25%, 25%, and 50% after one-, two-, and three-year performance periods, respectively, and will cumulatively be paid, if earned, after the end of the three-year performance period ending on May 18, 2024, based on the Company’sis also subject to a total stockholder return (“TSR”) ~~compared~~modifier, which operates by increasing or decreasing the total number of shares earned by up to ~~peer water companies, including certain U.S.-listed companies included in~~25% based on the Company’s TSR relative to the TSR of the U.S. constituents of the S&P Global Water ~~Index (the “Peer Companies”). Each tranche~~Index. In order to receive shares earned at the end of the ~~Special PSUs reflects~~performance period, the ~~right to receive between 50%~~recipient must remain employed by the Company and ~~100%~~its subsidiaries through the end of the shares underlying such tranche based on the Company’s TSR as compared to the Peer Companies (“Relative TSR”) for the applicable performance period. Subject to certain exceptions provided in the award agreementsthree-year period (except in the event of retirement, death, disability or, in certain circumstances, related to change in control, for each tranche, Special PSUs will be earned as follows: 100% if Relative TSR for the period is at the 80th percentile or above; 50% if Relative TSR for the period is at the 60th percentile; and 0% if Relative TSR is below the 60th percentile. Linear interpolation will be used to determine the percentage of each tranche earned when Relative TSR is between the 60th percentile and the 80th percentile for the applicable performance period. The payout for each tranche of the Special PSUs is capped at 100% even if Relative TSR exceeds the 80th percentile for the applicable period. If the Company’s TSR is negative for any performance period, the number of Special PSUs that may vest for the corresponding tranche will be capped at 50% of the amount that otherwise would have been earned for the period.control).

As of ~~June 30, 2021,~~March 31, 2022, there were approximately ~~4,336~~3,950 shares available for grants under the Equity Incentive Plan.

~~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 contractual term.

3329

A summary of the stock option activity as of ~~June 30, 2021~~March 31, 2022 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	611	24.76					Granted	2	46.75
Exercised	Exercised	(2,548)	6.50					Exercised	(249)	15.87

Forfeited	Forfeited	(42)	20.70					Forfeited	(28)	20.76

Outstanding at June 30, 2021		5,450	$	13.61	6.1 years	$	109,936
Options exercisable at June 30, 2021		3,505	$	9.66	4.9 years	$	84,548
Options vested and expected to vest at June 30, 2021		5,388	$	13.50	6.1 years	$	109,276
Outstanding at March 31, 2022								Outstanding at March 31, 2022	4,815	$	13.73	5.4 years	$	160,085
Options exercisable at March 31, 2022								Options exercisable at March 31, 2022	3,752	$	11.51	4.6 years	$	133,087
Options vested and expected to vest at March 31, 2022								Options vested and expected to vest at March 31, 2022	4,805	$	13.71	5.4 years	$	159,838

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 ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 was ~~$51,448.~~$6,873.

A summary of the status of the Company's ~~non-vested~~unvested stock options as of and for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 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	611	8.98		Granted	2	24.22
Vested	Vested	(790)	5.53		Vested	(812)	6.55
Forfeited	Forfeited	(42)	6.73		Forfeited	(28)	6.60
Nonvested at end of period		1,945	$	6.62
Unvested at end of period					Unvested at end of period	1,063	$	6.87

The total fair value of options vested during the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, was ~~$4,371.~~$5,317.

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The following is a summary of the RSU activity for the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022.


(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	729	25.94		Granted	321	45.10
Vested	Vested	(239)	17.55		Vested	(417)	21.09
Forfeited	Forfeited	(23)	20.38		Forfeited	(27)	23.73

Cancelled		(7)	21.22
Outstanding at June 30, 2021		1,210	$	22.72
Expected to vest at June 30, 2021		1,147	$	22.57

Outstanding at March 31, 2022					Outstanding at March 31, 2022	1,086	$	29.99
Expected to vest at March 31, 2022					Expected to vest at March 31, 2022	1,049	$	29.64

The following is a summary of the ~~Special PSU~~performance share unit activity for the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022, assuming target award level.


(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

Unvested at beginning of period					Unvested at beginning of period	469	$	16.92
Granted	Granted	469	$	16.92	Granted	124	52.50

Nonvested at end of period		469	$	16.92
Unvested at end of period					Unvested at end of period	593	$	23.39
Expected to vest	Expected to vest	422	$	16.92	Expected to vest	546	$	23.28

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 ~~$5,526~~$6,068 and ~~$2,542~~$3,214 during the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, of which ~~$4,228~~$5,386 and ~~$2,520~~$3,214 was non-cash, respectively. Total share-based compensation expense was ~~$11,816~~$11,402 and ~~$8,559~~$6,290 during the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, of which ~~$10,461~~$10,589 and ~~$8,504~~$6,233 was non-cash, respectively. The unrecognized compensation expense related to stock options, RSUs, and ~~Special PSUs~~performance share units (measured at a target award level) was ~~$10,309, $22,934~~$6,565, $27,863 and ~~$7,611,~~$11,063, respectively at ~~June 30, 2021,~~March 31, 2022, and is expected to be recognized over a weighted average period of ~~2.3~~1.9 years, ~~2.4~~2.2 years and ~~2.9~~2.3 years, respectively. The Company received ~~$18,096~~$5,274 from the exercise of stock options during the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022.

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 or last business day of the applicable ~~offering period or on the last business day of a~~ ~~six-month purchase period within the~~six-month 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 ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company incurred compensation expense of ~~$249~~$198 and ~~$153,~~$187, respectively, in salaries and wages with respect to the ESPP, representing the fair value of the discounted price of the shares. During the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company incurred compensation expense of ~~$652~~$419 and ~~$227,~~$403, respectively. These amounts are included in the total share-based compensation expense above. On October ~~2, 2020~~1, 2021 and April 1, ~~2021, 120~~2022, 60 and 6248 shares, respectively, were issued under the 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

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generally do not require collateral. The Company’s trade receivables do not represent a significant concentration of credit risk at ~~June 30, 2021~~March 31, 2022 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 and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ no customer accounted for more than 10% of net sales or net accounts receivable.

The Company operates predominantly in 109 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 transact the external sale.~~relationship.

19. 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 ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020,~~2021, respectively.


		June 30, 2021		September 30, 2020			March 31, 2022		September 30, 2021
Revolving credit capacity	Revolving credit capacity	$	60,000	$	45,000	Revolving credit capacity	$	60,000	$	60,000
Letters of credit outstanding	Letters of credit outstanding	11,504		12,963		Letters of credit outstanding	9,604		10,112
Remaining revolving credit capacity	Remaining revolving credit capacity	$	48,496	$	32,037	Remaining revolving credit capacity	$	50,396	$	49,888

Surety capacity	Surety capacity	$	250,000	$	230,000	Surety capacity	$	252,225	$	250,000
Surety issuances	Surety issuances	141,837		152,990		Surety issuances	122,086		147,845
Remaining surety available	Remaining surety available	$	108,163	$	77,010	Remaining surety available	$	130,139	$	102,155

The longest maturity date of letters of credit and surety bonds in effect as of ~~June 30, 2021~~March 31, 2022 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.

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

20. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following:

June 30,
2021 September 30,
2020
Salaries, wages and other benefits $ 67,648 $ 67,766
Provisions for litigation(1)
19,439 2,580
Obligation under operating leases 13,293 12,767
Obligation under finance leases 12,097 11,362
Third party commissions 9,415 9,270
Taxes, other than income 5,675 5,316
Insurance liabilities 3,377 3,954
Earn-outs related to acquisitions 1,056 295
Severance payments 702 970
Fair value of liability derivatives 512 4,716
Other 31,913 24,393
$ 165,127 $ 143,389

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


	March 31, 2022		September 30, 2021
Salaries, wages, and other benefits	$	60,552	$	79,110
Obligation under operating leases	14,668		13,316
Obligation under finance leases	12,263		12,093
Third party commissions	10,563		10,031
Frontier Purchase Right liability	10,396		—
Taxes, other than income	6,811		4,575
Provisions for litigation	6,153		2,938
Insurance liabilities	3,557		3,720
Severance payments	888		304
Fair value of liability derivatives	33		554
Earn-outs related to acquisitions	25		150
Other	32,601		33,576
	$	158,510	$	160,367

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,), 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 revenue and operating profit for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ were as follows:


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Total revenue	Total revenue									Total revenue
Integrated Solutions and Services	Integrated Solutions and Services	$	245,414	$	230,314	$	690,370	$	702,938	Integrated Solutions and Services	$	304,499	$	228,203	$	558,075	$	444,956
Applied Product Technologies	Applied Product Technologies	149,434		136,350		419,122		404,303		Applied Product Technologies	154,861		146,107		297,358		269,688
Total revenue	Total revenue	394,848		366,664		1,109,492		1,107,241		Total revenue	459,360		374,310		855,433		714,644
Intersegment revenue	Intersegment revenue									Intersegment revenue
Integrated Solutions and Services	Integrated Solutions and Services	5,727		1,603		11,832		8,204		Integrated Solutions and Services	9,659		4,069		18,189		6,105
Applied Product Technologies	Applied Product Technologies	19,440		17,234		59,222		53,442		Applied Product Technologies	22,973		23,677		44,248		39,782
Total intersegment revenue	Total intersegment revenue	25,167		18,837		71,054		61,646		Total intersegment revenue	32,632		27,746		62,437		45,887
Revenue to external customers	Revenue to external customers									Revenue to external customers
Integrated Solutions and Services	Integrated Solutions and Services	239,687		228,711		678,538		694,734		Integrated Solutions and Services	294,840		224,134		539,886		438,851
Applied Product Technologies	Applied Product Technologies	129,994		119,116		359,900		350,861		Applied Product Technologies	131,888		122,430		253,110		229,906
Total revenue	Total revenue	$	369,681	$	347,827	$	1,038,438	$	1,045,595	Total revenue	$	426,728	$	346,564	$	792,996	$	668,757

Operating profit (loss)	Operating profit (loss)									Operating profit (loss)
Integrated Solutions and Services	Integrated Solutions and Services	$	37,793	$	32,608	$	94,934	$	102,457	Integrated Solutions and Services	$	38,105	$	30,784	$	73,405	$	57,141
Applied Product Technologies	Applied Product Technologies	22,735		23,588		54,218		110,480		Applied Product Technologies	22,993		18,103		40,820		31,483
Corporate	Corporate	(32,218)		(23,130)		(88,430)		(89,024)		Corporate	(41,526)		(32,709)		(80,365)		(56,212)
Total operating profit	Total operating profit	28,310		33,066		60,722		123,913		Total operating profit	19,572		16,178		33,860		32,412
Interest expense	Interest expense	(11,224)		(10,485)		(28,292)		(37,320)		Interest expense	(9,950)		(8,395)		(16,529)		(17,068)
Income before income taxes	Income before income taxes	17,086		22,581		32,430		86,593		Income before income taxes	9,622		7,783		17,331		15,344
Income tax expense	Income tax expense	(3,887)		(740)		(7,672)		(3,336)		Income tax expense	(2,248)		(2,701)		(3,869)		(3,785)
Net income	Net income	$	13,199	$	21,841	$	24,758	$	83,257	Net income	$	7,374	$	5,082	$	13,462	$	11,559


		June 30, 2021		September 30, 2020			March 31, 2022		September 30, 2021
Assets	Assets					Assets
Integrated Solutions and Services	Integrated Solutions and Services	$	862,288	$	835,307	Integrated Solutions and Services	$	1,119,669	$	887,265
Applied Product Technologies	Applied Product Technologies	611,785		598,701		Applied Product Technologies	651,991		656,362
Corporate	Corporate	369,085		410,450		Corporate	360,901		325,264
Total assets	Total assets	$	1,843,158	$	1,844,458	Total assets	$	2,132,561	$	1,868,891

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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 June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
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.	$	13,155	$	21,384	$	24,624	$	82,341	Numerator for basic and diluted earnings per common share—Net income attributable to Evoqua Water Technologies Corp.	$	7,330	$	5,036	$	13,317	$	11,469
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	119,015		116,621		119,015		116,621		Denominator for basic net income per common share—weighted average shares	120,942		118,882		120,785		118,882
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Share‑based compensation	Share‑based compensation	3,245		3,595		3,312		4,432		Share‑based compensation	4,012		3,041		4,145		3,393
Denominator for diluted net income per common share—adjusted weighted average shares	Denominator for diluted net income per common share—adjusted weighted average shares	122,260		120,216		122,327		121,053		Denominator for diluted net income per common share—adjusted weighted average shares	124,954		121,923		124,930		122,275
Basic earnings attributable to Evoqua Water Technologies Corp. per common share	Basic earnings attributable to Evoqua Water Technologies Corp. per common share	$	0.11	$	0.18	$	0.21	$	0.71	Basic earnings attributable to Evoqua Water Technologies Corp. per common share	$	0.06	$	0.04	$	0.11	$	0.10
Diluted earnings attributable to Evoqua Water Technologies Corp. per common share	Diluted earnings attributable to Evoqua Water Technologies Corp. per common share	$	0.11	$	0.18	$	0.20	$	0.68	Diluted earnings attributable to Evoqua Water Technologies Corp. per common share	$	0.06	$	0.04	$	0.11	$	0.09

23. Subsequent Events

~~None.~~On April 1, 2022, the Company acquired the remaining 32% interest in Frontier from the Minority Owners for an aggregate purchase price of $10,396, which is included in Accrued expenses and other liabilities on the Consolidated Balance Sheets at March 31, 2022.

Also on April 1, 2022, the Company acquired the remaining 50% partnership interest in TWO from Nalco for an aggregate purchase price of $1,099.

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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

We are a leading provider of mission-critical water and wastewater treatment solutions, offering a broad portfolio of products, services, and expertise to support ~~industrial, municipal, and recreational~~ customers ~~who value water. With over 200,000 installations worldwide, we hold leading positions in the industrial, commercial and municipal water treatment~~across various end markets. We are headquartered in Pittsburgh, Pennsylvania, with locations across ~~ten~~nine countries. We have a comprehensive portfolio of differentiated, proprietary technologies offered under market‑leading and well‑established brands. Our core technologies are primarily focused on removing impurities from water, rather than neutralizing them through the addition of chemicals.

Our solutions are designed to provide our customers with the quantity and quality of water necessary to meet their unique specifications. We enable our customers to achieve lower costs through greater uptime, throughput and efficiency in their operations while supporting their regulatory compliance and environmental sustainability requirements. We deliver and maintain these mission critical solutions through our extensive North American service network, and we sell our products and technologies internationally through direct and indirect sales channels. We have worked to protect water, the environment, and our employees for more than 100 years. As a result, we have earned a reputation for quality, safety, and reliability around the world. Our employees are united by a common purpose: Transforming water. Enriching life.®

Our vision “to be the world’s first choice for water solutions” and our values of “integrity, customers, sustainable, and performance” foster a culture that is focused on establishing a workforce that is enabled, empowered and accountable, creating a highly dynamic work environment.

We serve our customers through the following two segments:

•Integrated Solutions and Services segment, which provides application-specific solutions and full lifecycle services for critical water and wastewater applications across numerous end markets, including ~~on‑demand~~outsourced water ~~outsourced water,~~service contracts, capital systems, and related recurring aftermarket services, parts and consumables, and emergency services to enable recycle and reuse, ~~and emergency response service alternatives to~~ improve operational reliability and performance, and promote environmental compliance; and

•Applied Product Technologies segment, which provides a highly differentiated and scalable ~~range of~~ water and wastewater products and technologies ~~that can be~~as stand-alone offerings or as components in integrated solutions to a diverse set of system ~~specifiers,~~ integrators and end-users ~~around the globe.~~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. We expect to drive growth in our segments through market expansion, leveraging our existing customer base and recurring service model, innovation through new product technology development, a focus on operational excellence, and strategic acquisitions. For a detailed discussion of our growth drivers, see our 2020 Annual Report.

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

Our ~~2020~~2021 Annual Report includes a discussion of various key factors and trends that we believe have affected or may affect our operating results. The following discussion highlights recent developments, as well as significant changes in these key factors and trends.

Impact of the COVID-19 pandemic. ~~Our business has~~We continue to monitor the ongoing effects of the COVID-19 pandemic, particularly as new shutdowns and restrictions in parts of China have recently been ~~considered essential under federal~~imposed in response to an increase in the spread of COVID-19 variants. These shutdowns and ~~local standards,~~restrictions did not have a material adverse effect on our operations or financial results for the three and ~~we have maintained business continuity at our critical service branches and manufacturing facilities to date. We have taken measures throughout~~six months ended March 31, 2022. However, if the duration of these shutdowns and restrictions extends, or if similar shutdowns and restrictions are imposed in other regions, it could impact our sales into those regions and our ability to source materials from those regions.

Although the pandemic to protect our employees, including implementation of remote working practices where possible and enhanced safety procedures for employees on site at our facilities and our customers’ facilities, and to manage our supply chain to ensure that necessary personal protective equipment is available to our personnel. These measures have resulted in additional incremental costs and reductions in service productivity over the course of the pandemic, although neither had a significant impact on our financial results in the three months ended June 30, 2021.

~~To date, the pandemic has~~ negatively impacted sales volume across our business in earlier periods, due primarily to customer site access restrictions, temporary customer site closures, and temporary delays in annual maintenance activities by customers in certain end markets, although we have started to see volume rebound in certain end markets during the third quarter, as further discussed below in the discussion of our results of operations. Along with this increase in volume, in the third quarter we experienced increases in certain discretionary costs that were the subject of cost reduction actions earlier in the pandemic, particularly employee travel expenses. We have continued to focus on collecting outstanding customer account balances, and, through June 30, 2021, we havethese factors did not experienced any deterioration in collections from our customers. We continue to evaluate the impact of the pandemic on our business and the potential effects of recent spikes in COVID-19 cases in certain regions, as well as challenges created by the macro-economic conditions associated with the reopening and reacceleration of global economies. These challenges include disruptions in our supply chain, material price inflation, shortages of and delays in obtaining certain materials and component parts, labor shortages, and wage inflation. We have taken and continue to take measures to mitigate the impact of these challenges, but if sustained, they could have a material adverse effect on our results of ~~operations.~~operations for the three and six months ended March 31, 2022. Vaccination requirements imposed by certain of our customers to allow our employees to enter their sites may increase our costs or delay our performance of services for our customers, however this has not materially impacted our results to date.

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~~Factors-The COVID-19 pandemic has adversely affected, and may continue to ~~the COVID-19 Pandemic”~~adversely affect, our business, financial condition, results of operations, and prospects” included in Part I, Item ~~1A.~~1A, “Risk Factors” in the ~~2020~~2021 Annual Report.

Inflation, material availability and labor shortages.Material, freight, and labor inflation resulted in increased costs in the first half of fiscal 2022, and we expect this trend will continue throughout fiscal 2022. Although we have offset a portion of these increased costs through price increases and operational efficiencies to date, there can be no assurance that 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 future periods. Additionally, supply chain disruptions and labor shortages have restricted and could further restrict availability of 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 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. Although these factors did not have a material adverse effect on our results of operations for the three and six months ended March 31, 2022, if sustained, they could have a material adverse effect on our results of operations going forward.

Russia-Ukraine war. We have no operations in Russia or Ukraine, and our sales into these regions are minimal. However, the conflict in Ukraine has exacerbated the material inflation and availability challenges described above, particularly with respect to the impact it has had on energy and fuel prices and the price of steel and other precious metals that we procure in our supply chain. Although these factors did not have a material adverse effect on our results of operations for the three and six months ended March 31, 2022, we expect the inflationary impact on energy, fuel and steel prices to continue throughout fiscal 2022. If these factors are sustained, or if the duration of the conflict is extended or the conflict spreads into a larger geographic portion of Europe, our results of operations in future periods could be materially and adversely impacted.

Acquisitions and ~~divestitures~~.Divestitures. On December ~~17, 2020, we acquired~~20, 2021, the ~~industrial water~~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 ~~of Ultrapure & Industrial Services, LLC (“Ultrapure”~~(the “Mar Cor Business”) for ~~$8.7~~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. On April 1, 2021, we paid~~closing, following adjustments. We utilized cash on hand and borrowed an additional ~~$0.3~~$160.0 million asunder our 2021 Revolving Credit Facility (as defined below) to fund the Transaction. The Purchase Price includes a ~~result~~$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 us. 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. ~~Ultrapure, based out~~The Mar Cor Business

is a leading manufacturer and servicer of ~~Texas, provides customers across multiple end markets with a variety 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 products and services, including service deionization, reverse osmosis, UV, and ozonation. Ultrapure will strengthen the Company’s service capabilities in the Houston and Dallas markets and is a partsystems. The addition of the ~~Integrated Solutions and Services segment.~~business expands our service footprint in North America, furthering our reach into the healthcare vertical market. During the ~~nine~~six months ended ~~June 30, 2021, the Company~~March 31, 2022, we incurred approximately ~~$0.2~~$3.2 million in acquisition costs, which are included in General and administrative expense on the Unaudited Consolidated Statements of Operations. On January 18, 2022, we paid $2.3 million for a success fee to a third party, which was due upon consummation of the Transaction. Additionally, we expect to incur between $18.0 million to $20.0 million in one-time integration costs within the following 18 to 24 months. The Mar Cor Business is included within the Integrated Solutions and Services segment.

OnDuring the three months ended March ~~1, 2021,~~31, 2022, we completed the divestiture of ~~the Lange containment system, geomembrane, and geosynthetic liner product line~~certain resin regeneration assets in Germany (the ~~“Lange Product Line”~~“Germany Regen Business”) for ~~$0.9~~$0.4 million in cash at ~~closing.~~closing, resulting in a gain of $0.2 million recognized on the sale. The ~~Lange Product Line~~Germany Regen Business was a part of the ~~Integrated Solutions and Services~~Applied Product Technologies segment. ~~During the nine months ended June 30, 2021, the Company recognized a loss of $0.2 million on the divestiture.~~

On April 1, ~~2021,~~2022, we acquired ~~Water Consulting Specialists, Inc (“WCSI”) for $12.0 million cash paid at closing. In addition, we recorded a liability of $0.8 million associated with an earn-out related to~~ the ~~acquisition, which is included~~remaining 32% equity interest in Accrued expenses and other liabilities on the Consolidated Balance Sheets. WCSI is a leader in the design, manufacturing, and service of industrial high-purity water treatment systems. The acquisition strengthens the Company’s portfolio of high-purity water treatment systems and provides the opportunity to further expand its digitally enabled solutions and services in key industrial markets. WCSI is a part of the Integrated Solutions and Services segment. During the nine months ended June 30, 2021, the Company incurred approximately $0.1 million in acquisition costs, which are included in General and administrative expense on the Unaudited Consolidated Statements of Operations.

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

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

~~On October 1, 2019, we acquired a 60% investment position in San Diego-based~~ Frontier Water Systems, LLC (“Frontier”)~~, which included~~ for an ~~agreement to~~aggregate purchase price of $10.4 million, making Frontier a wholly-owned subsidiary of the ~~remaining 40%~~Company. This followed our initial acquisition of a 60% equity interest in Frontier ~~on or prior to March 30, 2024. This agreement gave holders of the remaining 40% interest~~ in Frontier (the “Minority Owners”) the right to sell to Evoqua up to approximately 10% of the outstanding equity in Frontier at a predetermined price, which right was exercisable by the Minority Owners between January 1, 2021October 2019 and ~~February 28, 2021 (the “Option”). The Minority Owners exercised the Option, and on April 8, 2021, the Company completed the purchase~~our acquisition of an additional 8% ~~of the outstanding~~ equity interest in Frontier in April 2021. San Diego-based Frontier is a leading supplier of engineered equipment packages for ~~approximately $1.5~~high-rate treatment of selenium, nitrate, and metals in water and wastewater. The business adds to Evoqua’s portfolio of advanced wastewater treatment technologies and is part of our Integrated Solutions and Services segment.

Also on April 1, 2022, we acquired the remaining 50% partnership interest in Treated Water Outsourcing, a joint venture between the Company and Nalco Water, an Ecolab company (“Nalco”), from Nalco for an aggregate purchase price of $1.1 million. ~~As a result, the Company’s ownership position in Frontier increased to 68%.~~

We 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.

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

On April 1, 2021, Evoqua Finance LLC (“Evoqua Finance”) entered into an accounts receivable securitization program (the “Receivables Securitization Program”) consisting of, among other agreements, (i) a Receivables Financing Agreement (the “Receivables Financing Agreement”) among Evoqua Finance, as the borrower, the lenders from time to time party thereto (the “Receivables Financing Lenders”), PNC Bank, National Association (“PNC Bank”), as administrative agent, Evoqua Water Technologies LLC (“EWT LLC”), an indirect wholly-owned subsidiary of the Company, as initial servicer, and PNC Capital Markets LLC (“PNC Markets”), as structuring agent, pursuant to which the lenders have made available to Evoqua Finance a receivables finance facility (the “Securitization Facility”) in an amount up to $150.0 million maturing on April 1, 2024, and (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”).

On April 1, 2021, we borrowed $475.0 million under the 2021 Term Loan, $105.0 million under the 2021 Revolving Credit Facility and $142.2 million under the Securitization Facility. The net proceeds of these facilities, together with cash on hand, were used to repay all outstanding indebtedness under our 2014 Credit Agreement, in an aggregate principal amount of approximately $814.5 million. The reduction in the outstanding principal amount of our term loan of approximately $340.0 million was funded by draws on the 2021 Revolving Credit Facility, the Securitization Facility and $100.0 million of cash on hand. In addition to extending the maturities of our term loan and previous revolving credit facility, the refinancing reduced our weighted average cash borrowing cost and improved liquidity. See “Liquidity and Capital Resources” below for additional information. At June 30, 2021, the Company had $475.0 million outstanding under the 2021 Term Loan, $95.0 million outstanding on the 2021 Revolving Credit Facility, and $148.2 million outstanding under the Securitization Facility.

~~Legal Settlement.~~ As of June 30, 2021, an accrued liability of $16.7 million relating to the proposed settlement of securities litigation and a corresponding asset for the related insurance coverage of $16.7 million is included in Accrued expenses and other liabilities and Prepaid and other current assets on the Consolidated Balance Sheets, respectively. See Part II, Item 1, “Legal Proceedings,” for additional information regarding legal proceedings in which we are engaged.

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, 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 and organic revenue, as described more fully below. We evaluate our business segments’ operating results based on revenue, income from operations (“operating profit”), and adjusted EBITDA on a segment basis. We believe these financial measures are helpful in understanding and evaluating the segments’ core operating results and facilitates comparison of our performance on a consistent basis period over period.

Revenue and Organic Revenue

Our revenue is a function of sales volumes and selling 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 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 acquisition or divestiture. Divestitures include sales of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. Management believes that reporting organic revenue provides useful information to investors by helping identify underlying growth trends in our core business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers. We exclude the effect of foreign currency translation from organic sales because foreign currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. We exclude the effect of acquisitions and divestitures during the first 12 months following the closing of the acquisition or divestiture because they can obscure underlying business trends and make comparisons of long-term performance difficult between the Company and its peers due to the varying nature, size, and number of transactions from period to period. 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 revenue performance with prior and future periods and to our peers. See “Non-GAAP Reconciliations” in this Item 2 ~~of this Report~~ for a reconciliation of organic revenue to revenue.

~~Gross profit~~EBITDA and ~~gross margin~~Adjusted EBITDA

~~Gross profit~~EBITDA, which is ~~determined by subtracting cost of product sales and cost of services from our product and services revenue. Gross margin measures gross profit~~a non-GAAP financial measure, is defined as a percentage of our combined product and services revenue. Gross profit and gross margin provide a comparable metric to help investors evaluate the cost efficiency and ability of the Company to convert revenue to profit.

~~Net income (loss)~~

~~Net~~net income (loss) ~~is determined by subtracting operating expenses and~~before interest expense, ~~from, and adding other operating income (expense), equity income (loss) from our partnership interest in Treated Water Outsourcing and~~ income tax benefit (expense) ~~to, gross profit. Net income (loss) is used by the Company to measure profitability as well as the overall health of the business.~~

~~Adjusted EBITDA~~

, and depreciation and amortization. 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, share-based compensation, transaction costs, and other gains, losses, and expenses that we believe do not directly reflect our underlying business operations. We present adjusted EBITDA because we believe it is frequently used by analysts, investors, and other interested parties to evaluate and compare operating performance and value companies within our industry. Further, we believe it is helpful in highlighting trends in our operating results and provides greater clarity and comparability period over period to management and our investors regarding the operational impact of long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate, and capital investments. In addition, adjusted EBITDA highlights true business performance by removing the impact of certain items that management believes do not directly

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

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

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

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

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

•to evaluate the effectiveness of our business strategies;

•to make budgeting decisions; and

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

In addition to the above, our chief operating decision maker uses adjusted EBITDA of each reportable operating segment as a supplement to segment income from operations and segment revenue 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 and adjusted EBITDA should not be considered ~~a substitute~~substitutes 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 ~~of this Report~~ for a reconciliation of EBITDA and adjusted ~~EBITDA.~~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 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.

4439

Results of Operations

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


		Three Months Ended June 30,										Nine Months Ended June 30,											Three Months Ended March 31,
		2021				2020						2021				2020							2022				2021
(In millions, except per share amounts)	(In millions, except per share amounts)			% of Revenue				% of Revenue		% Variance				% 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	$	369.7	100.0	%	$	347.8	100.0	%	6.3	%	$	1,038.4	100.0	%	$	1,045.6	100.0	%	(0.7)	%	Revenue from product sales and services	$	426.7	100.0	%	$	346.6	100.0	%	23.1	%

Gross profit	Gross profit	$	117.0	31.6	%	$	110.2	31.7	%	6.2	%	$	318.3	30.7	%	$	327.2	31.3	%	(2.7)	%	Gross profit	$	128.9	30.2	%	$	105.9	30.6	%	21.7	%

Total operating expenses	Total operating expenses	$	(90.1)	(24.4)	%	$	(77.5)	(22.3)	%	16.3	%	$	(259.6)	(25.0)	%	$	(264.3)	(25.3)	%	(1.8)	%	Total operating expenses	$	(110.6)	(25.9)	%	$	(90.1)	(26.0)	%	22.8	%

Other operating income, net	Other operating income, net	$	1.4	0.4	%	$	0.4	0.1	%	250.0	%	$	2.0	0.2	%	$	61.0	5.8	%	(96.7)	%	Other operating income, net	$	1.3	0.3	%	$	0.4	0.1	%	225.0	%
Interest expense	Interest expense	$	(11.2)	(3.0)	%	$	(10.5)	(3.0)	%	6.7	%	$	(28.3)	(2.7)	%	$	(37.3)	(3.6)	%	(24.1)	%	Interest expense	$	(10.0)	(2.3)	%	$	(8.4)	(2.4)	%	19.0	%
Income before income taxes	Income before income taxes	$	17.1	4.6	%	$	22.6	6.5	%	(24.3)	%	$	32.4	3.1	%	$	86.6	8.3	%	(62.6)	%	Income before income taxes	$	9.6	2.2	%	$	7.8	2.3	%	23.1	%
Income tax expense	Income tax expense	$	(3.9)	(1.1)	%	$	(0.8)	(0.2)	%	387.5%		$	(7.7)	(0.7)	%	$	(3.3)	(0.3)	%	133.3	%	Income tax expense	$	(2.2)	(0.5)	%	$	(2.7)	(0.8)	%	(18.5)%
Net income	Net income	$	13.2	3.6	%	$	21.8	6.3	%	(39.4)	%	$	24.7	2.4	%	$	83.3	8.0	%	(70.3)	%	Net income	$	7.4	1.7	%	$	5.1	1.5	%	45.1	%
Net income attributable to non‑controlling interest	Net income attributable to non‑controlling interest	$	—	—	%	$	0.4	0.1	%	(100.0)	%	$	0.1	—	%	$	1.0	0.1	%	(90.0)	%	Net income attributable to non‑controlling interest	$	0.1	—	%	$	0.1	—	%	—	%
Net income attributable to Evoqua Water Technologies Corp.	Net income attributable to Evoqua Water Technologies Corp.	$	13.2	3.6	%	$	21.4	6.2	%	(38.3)	%	$	24.6	2.4	%	$	82.3	7.9	%	(70.1)	%	Net income attributable to Evoqua Water Technologies Corp.	$	7.3	1.7	%	$	5.0	1.4	%	46.0	%

Weighted average shares outstanding	Weighted average shares outstanding																					Weighted average shares outstanding
Basic	Basic	119.0				116.6						119.0				116.6						Basic	120.9				118.9
Diluted	Diluted	122.3				120.2						122.3				121.1						Diluted	125.0				121.9
Earnings per share	Earnings per share																					Earnings per share
Basic	Basic	$	0.11			$	0.18					$	0.21			$	0.71					Basic	$	0.06			$	0.04
Diluted	Diluted	$	0.11			$	0.18					$	0.20			$	0.68					Diluted	$	0.06			$	0.04

Other financial data:	Other financial data:																					Other financial data:
Adjusted EBITDA(1)		$	66.2	17.9	%	$	63.8	18.3	%	3.8	%	$	169.0	16.3	%	$	164.1	15.7	%	3.0	%
Adjusted EBITDA(1)																						Adjusted EBITDA(1)	$	73.2	17.2	%	$	58.0	16.7	%	26.2	%

																							Six Months Ended March 31,
																							2022				2021
(In millions, except per share amounts)																						(In millions, except per share amounts)			% of Revenue				% of Revenue		% Variance
Revenue from product sales and services																						Revenue from product sales and services	$	793.0	100.0	%	$	668.8	100.0	%	18.6	%

Gross profit																						Gross profit	$	239.4	30.2	%	$	201.3	30.1	%	18.9	%

Total operating expenses																						Total operating expenses	$	(208.3)	(26.3)	%	$	(169.5)	(25.3)	%	22.9	%

Other operating income, net																						Other operating income, net	$	2.8	0.4	%	$	0.6	0.1	%	366.7	%
Interest expense																						Interest expense	$	(16.5)	(2.1)	%	$	(17.1)	(2.6)	%	(3.5)	%
Income before income taxes																						Income before income taxes	$	17.4	2.2	%	$	15.3	2.3	%	13.7	%
Income tax expense																						Income tax expense	$	(3.9)	(0.5)	%	$	(3.7)	(0.6)	%	5.4	%
Net income																						Net income	$	13.5	1.7	%	$	11.6	1.7	%	16.4	%
Net income attributable to non‑controlling interest																						Net income attributable to non‑controlling interest	$	0.2	—	%	$	0.1	—	%	100.0	%
Net income attributable to Evoqua Water Technologies Corp.																						Net income attributable to Evoqua Water Technologies Corp.	$	13.3	1.7	%	$	11.5	1.7	%	15.7	%

Weighted average shares outstanding																						Weighted average shares outstanding
Basic																						Basic	120.8				118.9
Diluted																						Diluted	124.9				122.3
Earnings per share																						Earnings per share
Basic																						Basic	$	0.11			$	0.10
Diluted																						Diluted	$	0.11			$	0.09

Other financial data:																						Other financial data:
Adjusted EBITDA(1)																						Adjusted EBITDA(1)	$	127.5	16.1	%	$	102.8	15.4	%	24.0	%

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

Consolidated Results for the Three Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~

Revenue-Revenue increased ~~$21.9~~$80.1 million, or ~~6.3%~~23.1%, to ~~$369.7~~$426.7 million in the three months ended ~~June 30, 2021,~~March 31, 2022, from ~~$347.8~~$346.6 million in the three months ended ~~June 30, 2020.~~March 31, 2021. Revenue from product sales increased ~~$10.8~~$57.3 million, or ~~5.2%~~28.3%, to ~~$218.4~~$259.8 million in the three months ended ~~June 30, 2021,~~March 31, 2022, from ~~$207.6~~$202.5 million in the three months ended ~~June 30, 2020.~~March 31, 2021. Revenue from services increased ~~$11.1~~$22.8 million, or ~~7.9%~~15.8%, to ~~$151.3~~$166.9 million in the three months ended ~~June 30, 2021,~~March 31, 2022, from ~~$140.2~~$144.1 million in the three months ended ~~June 30, 2020.~~March 31, 2021.

The following tables provide the change in revenue by offering and the change in revenue by driver during the three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:


		Three Months Ended June 30,												Three Months Ended March 31,
		2021				2020				$ Variance		% Variance			2022			2021						$ Variance				% Variance
(In millions)	(In millions)			% of Revenue				% of Revenue								(In millions)		% of Revenue									$ Variance					% Variance
Revenue from product sales:	Revenue from product sales:																			Revenue from product sales:	$	259.8		60.9		%				$	202.5			58.4	%
Capital	Capital	$	156.0	42.2	%	$	150.4	43.2	%	$	5.6	3.7	%				Capital	162.5			38.1		%	142.4				41.1	%			20.1		14.1	%
Aftermarket	Aftermarket	62.4		16.9	%	57.2		16.4	%	5.2		9.1	%				Aftermarket	97.3			22.8		%	60.1				17.3	%			37.2		61.9	%
Revenue from services	Revenue from services	151.3		40.9	%	140.2		40.3	%	11.1		7.9	%				Revenue from services	166.9			39.1		%	144.1				41.6	%			22.8		15.8	%
		$	369.7	100.0	%	$	347.8	100.0	%	$	21.9	6.3	%					$	426.7		100.0		%	$	346.6			100.0	%			$	80.1	23.1	%


		Three Months Ended June 30,																Three Months Ended March 31,
		2021				2020				$ Variance				% Variance					2022			2021						$ Variance				% Variance
(In millions)	(In millions)			% of Revenue				% of Revenue												(In millions)		% of Revenue									$ Variance					% Variance
Organic(1)	Organic(1)	$	358.1	96.9	%	$	347.0	99.8	%			$	11.1			3.2	%							Organic(1)	$	383.0		89.8		%				$	346.3			99.9	%
Inorganic	Inorganic	4.1		1.1	%	0.8		0.2	%	3.3				0.9	%						Inorganic	45.4			10.6		%	0.3				0.1	%			45.1		13.0	%
Foreign currency translation	Foreign currency translation	7.5		2.0	%	n/a		n/a		7.5				2.1	%						Foreign currency translation	(1.7)			(0.4)		%	n/a				n/a				(1.7)		(0.5)	%
		$	369.7	100.0	%	$	347.8	100.0	%	$	21.9			6.3	%							$	426.7		100.0		%	$	346.6			100.0	%			$	80.1	23.1	%

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

The increase in organic revenue was primarily driven by ~~increased pricing across all offerings. The increase was also driven by higher service~~improved sales volume ~~as demand improved, primarily in North America, following economic closures~~ and ~~delays that occurred in the prior year period due to the COVID-19 pandemic. In addition, higher sales volume from product sales~~favorable price realization across ~~multiple~~most product lines ~~primarily~~and regions.

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 Asia Pacific and EMEA regions, partially offset a decline in capital sales volume from projects in the microelectronics end market as compared to the prior year period. Revenue also increased due to contributions from acquisitions and favorable foreign currency translation.timing of projects.

Cost of sales and gross margin-Total gross margin decreased slightly to ~~31.6%~~30.2% in the three months ended ~~June 30, 2021,~~March 31, 2022, from ~~31.7%~~30.6% in the three months ended ~~June 30, 2020.~~March 31, 2021.

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


		Three Months Ended June 30,								Three Months Ended March 31,
		2021				2020					2022		2021
(In millions)	(In millions)			Gross Margin				Gross Margin				(In millions)			Gross Margin				Gross Margin
Cost of product sales	Cost of product sales	$	(152.6)	30.1	%	$	(143.5)	30.9	%			Cost of product sales	$	(185.3)	28.7	%	$	(144.5)	28.6	%
Cost of services	Cost of services	(100.1)		33.8	%	(94.1)		32.9	%			Cost of services	(112.5)		32.6	%	(96.2)		33.2	%
		$	(252.7)	31.6	%	$	(237.6)	31.7	%				$	(297.8)	30.2	%	$	(240.7)	30.6	%

Gross margin from product sales ~~decreased~~increased by 8010 basis points (“bps”) to ~~30.1%~~28.7% in the three months ended ~~June 30, 2021,~~March 31, 2022, from ~~30.9%~~28.6% in the three months ended June 30, 2020. This decrease was primarily driven by product mix, which was influenced by delays and economic closures related to the COVID-19 pandemic, coupled with timing of large projects. This was partially offset by positive price realization.

~~Gross margin from services increased by 90 bps to 33.8% in the three months ended June 30, 2021, from 32.9% in the three months ended June 30, 2020.~~March 31, 2021. This increase was primarily driven by favorable volume, mix, and positive price realization, which was offset by labor inflation and increased ~~service productivity as negative impacts~~material costs.

Gross margin from ~~the COVID-19 pandemic lessened~~services decreased by 60 bps to 32.6% in the ~~current year period.~~three months ended March 31, 2022, from 33.2% in the three months ended March 31, 2021. This decrease was driven by labor resource constraints resulting in increased labor rates.

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 ~~$12.6~~$20.5 million, or ~~16.3%~~22.8%, to $110.6 million in the three months ended March 31, 2022, from $90.1 million in the three months ended ~~June 30, 2021, from $77.5 million in the three months ended June 30, 2020.~~March 31, 2021. Operating expenses are comprised of the following:


		Three Months Ended June 30,										Three Months Ended March 31,
		2021				2020							2022		2021
(In millions)	(In millions)			% of Revenue				% of Revenue		% Variance				(In millions)			% of Revenue				% of Revenue		% Variance
General and administrative expense	General and administrative expense	$	(50.8)	(13.7)	%	$	(44.9)	(12.9)	%	13.1	%			General and administrative expense	$	(67.0)	(15.7)	%	$	(52.9)	(15.3)	%	26.7	%
Sales and marketing expense	Sales and marketing expense	(35.9)		(9.7)	%	(29.8)		(8.6)	%	20.5	%			Sales and marketing expense	(39.8)		(9.3)	%	(33.8)		(9.8)	%	17.8	%
Research and development expense	Research and development expense	(3.4)		(0.9)	%	(2.8)		(0.8)	%	21.4	%			Research and development expense	(3.8)		(0.9)	%	(3.4)		(1.0)	%	11.8	%
Total operating expenses	Total operating expenses	$	(90.1)	(24.4)	%	$	(77.5)	(22.3)	%	16.3	%			Total operating expenses	$	(110.6)	(25.9)	%	$	(90.1)	(26.0)	%	22.8	%

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

Other operating income, net-Other operating income, net, increased ~~$1.0~~$0.9 million to ~~$1.4~~$1.3 million in the three months ended ~~June 30, 2021,~~March 31, 2022, from $0.4 million in the three months ended ~~June 30, 2020.~~March 31, 2021. This increase was ~~primarily due to~~driven by income from the disposal of fixed assets, as well as an increase in income from precious metal sales, mainly from scrapped anodes in China. Additionally, we received a refund of certain taxes paid from the Chinese government in the current period, which partially offset COVID-19 pandemic subsidies received from the Canadian ~~government.~~government in the prior period, which did not reoccur in the current period.

Interest expense-Interest expense increased ~~$0.7~~$1.6 million, or ~~6.7%~~19.0%, to ~~$11.2~~$10.0 million in the three months ended ~~June 30, 2021,~~March 31, 2022, from ~~$10.5~~$8.4 million in the three months ended ~~June 30, 2020.~~March 31, 2021. The increase in interest expense was primarily ~~due to an additional $3.1~~driven by a fair value increase of $2.1 million ~~of fees incurred as a result of the April 2021 refinancing of our senior credit facility, which also resulted~~ in the ~~write off~~Purchase Right Liability to acquire the remaining equity interest of ~~$1.3 million of deferred financing fees.~~Frontier. This increase was partially offset by a reduction in ~~ongoing~~ interest expense ~~due to~~associated with the ~~change~~$100.0 million debt prepayment in ~~the interest rate spread and LIBOR year over year as well as debt reduction undertaken in~~conjunction with the April 2021 ~~refinancing.~~refinancing/ of our senior credit facility.

Income tax expense-Income tax expense ~~increased~~decreased to ~~$3.9~~$2.2 million in the three months ended ~~June 30, 2021,~~March 31, 2022, as compared to income tax expense of ~~$0.8~~$2.7 million in the three months ended ~~June 30, 2020.~~March 31, 2021. The ~~increase~~decrease in tax expense was primarily due to discreet tax expense in the prior year that did not reoccur in the current year which was partially offset by higher earnings in non-U.S. tax jurisdictions, which increases tax expense, and lower earnings in the U.S., which does not impact tax expense due to the U.S. valuation allowance. ~~Additionally, the prior period benefited from the impact of the Memcor disposal, which created a low PAETR and tax expense for the three months ended June 30, 2020.~~

Net income-Net income ~~decreased $8.6~~increased $2.3 million, or ~~39.4%~~45.1%, to ~~$13.2~~$7.4 million in the three months ended ~~June 30, 2021,~~March 31, 2022, from ~~$21.8~~$5.1 million in the three months ended ~~June 30, 2020,~~March 31, 2021, as a result of the variances noted above.

Adjusted EBITDA-Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA for the three months ended ~~June 30, 2021~~March 31, 2022 increased by ~~$2.4~~$15.2 million, or ~~3.8%~~26.2%, to ~~$66.2~~$73.2 million, as compared to ~~$63.8~~$58.0 million for the three months ended ~~June 30, 2020,~~March 31, 2021, primarily driven by ~~higher~~ sales volume ~~in the current period.~~and related gross profit. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Segment Results


		Three Months Ended June 30,										Three Months Ended March 31,
		2021				2020							2022		2021
(In millions)	(In millions)			% of Revenue				% of Revenue		% Variance				(In millions)			% of Total				% of Total		% Variance
Revenue	Revenue													Revenue
Integrated Solutions and Services	Integrated Solutions and Services	$	239.7	64.8	%	$	228.7	65.8	%	4.8	%			Integrated Solutions and Services	$	294.8	69.1	%	$	224.2	64.7	%	31.5	%
Applied Product Technologies	Applied Product Technologies	130.0		35.2	%	119.1		34.2	%	9.2	%			Applied Product Technologies	131.9		30.9	%	122.4		35.3	%	7.8	%
Total Consolidated	Total Consolidated	$	369.7	100.0	%	$	347.8	100.0	%	6.3	%			Total Consolidated	$	426.7	100.0	%	$	346.6	100.0	%	23.1	%
Operating profit (loss)	Operating profit (loss)													Operating profit (loss)
Integrated Solutions and Services	Integrated Solutions and Services	$	37.8	10.2	%	$	32.6	9.4	%	16.0	%			Integrated Solutions and Services	$	38.1	194.4	%	$	30.8	190.1	%	23.7	%
Applied Product Technologies	Applied Product Technologies	22.7		6.1	%	23.6		6.8	%	(3.8)	%			Applied Product Technologies	23.0		117.3	%	18.1		111.7	%	27.1	%
Corporate	Corporate	(32.2)		(8.7)	%	(23.1)		(6.6)	%	39.4	%			Corporate	(41.5)		(211.7)	%	(32.7)		(201.9)	%	26.9	%
Total Consolidated	Total Consolidated	$	28.3	7.7	%	$	33.1	9.5	%	(14.5)	%			Total Consolidated	$	19.6	100.0	%	$	16.2	100.0	%	21.0	%
Adjusted EBITDA (1)	Adjusted EBITDA (1)													Adjusted EBITDA(1)
Integrated Solutions and Services	Integrated Solutions and Services	$	56.3	15.2	%	$	50.6	14.5	%	11.3	%			Integrated Solutions and Services	$	63.8	87.2	%	$	49.3	85.0	%	29.4	%
Applied Product Technologies	Applied Product Technologies	28.4		7.7	%	28.9		8.3	%	(1.7)	%			Applied Product Technologies	27.3		37.3	%	25.3		43.6	%	7.9	%
Corporate	Corporate	(18.5)		(5.0)	%	(15.7)		(4.5)	%	17.8	%			Corporate	(17.9)		(24.5)	%	(16.6)		(28.6)	%	7.8	%
Total Consolidated	Total Consolidated	$	66.2	17.9	%	$	63.8	18.3	%	3.8	%			Total Consolidated	$	73.2	100.0	%	$	58.0	100.0	%	26.2	%

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

Integrated Solutions and Services

Revenue in the Integrated Solutions and Services segment increased ~~$11.0~~$70.6 million, or ~~4.8%~~31.5%, to ~~$239.7~~$294.8 million in the three months ended ~~June 30, 2021,~~March 31, 2022, from ~~$228.7~~$224.2 million in the three months ended ~~June 30, 2020.~~March 31, 2021.

The following tables provide the change in revenue by offering and the change in revenue by driver during the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ for the Integrated Solutions and Services segment:


		Three Months Ended June 30,												Three Months Ended March 31,
		2021				2020				$ Variance		% Variance			2022			2021						$ Variance				% Variance
(In millions)	(In millions)			% of Revenue				% of Revenue								(In millions)		% of Revenue									$ Variance					% Variance
Revenue from product sales:	Revenue from product sales:																			Revenue from product sales:	$	133.0		45.1		%				$	84.6			37.7	%
Capital	Capital	$	63.3	26.4	%	$	64.7	28.3	%	$	(1.4)	(2.2)	%				Capital	$	70.7		24.0		%	$	52.1			23.2	%			$	18.6	35.7	%
Aftermarket	Aftermarket	31.9		13.3	%	29.1		12.7	%	2.8		9.6	%				Aftermarket	62.3			21.1		%	32.5				14.5	%			29.8		91.7	%
Revenue from services	Revenue from services	144.5		60.3	%	134.9		59.0	%	9.6		7.1	%				Revenue from services	161.8			54.9		%	139.6				62.3	%			22.2		15.9	%
		$	239.7	100.0	%	$	228.7	100.0	%	$	11.0	4.8	%					$	294.8		100.0		%	$	224.2			100.0	%			$	70.6	31.5	%

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


	Three Months Ended March 31,
	2022				2021				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Organic(1)	$	249.5	84.6	%	$	223.9	99.9	%	$	25.6	11.4	%
Inorganic	45.4		15.4	%	0.3		0.1	%	45.1		20.1	%
Foreign currency translation	(0.1)		—	%	n/a		n/a		(0.1)		—	%
	$	294.8	100.0	%	$	224.2	100.0	%	$	70.6	31.5	%

(1)Segment organic revenue is a non-GAAP financial measure. For a reconciliation to total segment revenue, its most directly comparable financial measure presented in accordance with GAAP, see “Non-GAAP Reconciliations” in Item 2 of this Report.

The increase in organic revenue was driven by higher sales volume, primarily related to aftermarket revenue across ~~a variety of~~most end markets, ~~primarily~~capital revenue in microelectronics, life sciences, and food and beverage end markets, and service revenue in life sciences and ~~aftermarket~~light and general industry end markets. Organic revenue ~~as demand improved following economic closures and delays that occurred in the prior~~

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

Operating profit in the Integrated Solutions and Services segment increased ~~$5.2~~$7.3 million, or ~~16.0%~~23.7%, to ~~$37.8~~$38.1 million in the three months ended ~~June 30, 2021,~~March 31, 2022, from ~~$32.6~~$30.8 million in the three months ended ~~June 30, 2020.~~March 31, 2021.

Operating profit was favorably impacted by higher organic sales volume and favorable price/cost, and productivity improvements as the negative impacts from the COVID-19 pandemic lessened in the current year period. Operating profit was unfavorably impacted by higher employee-related expenses, which included increased compensation and travel spending as compared to the prior year period, partially offset by ~~favorable settlement~~labor inflation and higher discretionary spending. Acquisitions also contributed to the increase in operating profit, primarily associated with the impact of ~~insurance claims.~~the Mar Cor Business.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Integrated Solutions and Services segment increased ~~$5.7~~$14.5 million, or ~~11.3%~~29.4%, to ~~$56.3~~$63.8 million in the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$50.6~~$49.3 million in the three months ended ~~June 30, 2020.~~March 31, 2021. The increase was driven by the same factors that impacted operating profit, other than the change in depreciation and ~~amortization, and~~amortization. Segment adjusted EBITDA also excludes restructuring and other non-recurring ~~activity recognized in the period.~~activity. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Applied Product Technologies

Revenue in the Applied Product Technologies segment increased ~~$10.9~~$9.5 million, or ~~9.2%~~7.8%, to ~~$130.0~~$131.9 million in the three months ended ~~June 30, 2021,~~March 31, 2022, from ~~$119.1~~$122.4 million in the three months ended ~~June 30, 2020.~~March 31, 2021.


		Three Months Ended June 30,												Three Months Ended March 31,
		2021				2020				$ Variance		% Variance			2022			2021						$ Variance				% Variance
(In millions)	(In millions)			% of Revenue				% of Revenue								(In millions)		% of Revenue									$ Variance					% Variance
Revenue from product sales:	Revenue from product sales:																			Revenue from product sales:	$	126.8		96.1		%				$	117.9			96.3	%
Capital	Capital	$	92.7	71.3	%	$	85.7	72.0	%	$	7.0	8.2	%				Capital	91.8			69.6		%	90.3				73.8	%			1.5		1.7	%
Aftermarket	Aftermarket	30.5		23.5	%	28.1		23.6	%	2.4		8.5	%				Aftermarket	35.0			26.5		%	27.6				22.5	%			7.4		26.8	%
Revenue from services	Revenue from services	6.8		5.2	%	5.3		4.5	%	1.5		28.3	%				Revenue from services	5.1			3.9		%	4.5				3.7	%			0.6		13.3	%
		$	130.0	100.0	%	$	119.1	100.0	%	$	10.9	9.2	%					$	131.9		100.0		%	$	122.4			100.0	%			$	9.5	7.8	%


	Three Months Ended March 31,
	2022				2021				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Organic(1)	$	133.5	101.2	%	$	122.4	100.0	%	$	11.1	9.1	%
Inorganic	—		—	%	—		—	%	—		—	%
Foreign currency translation	(1.6)		(1.2)	%	n/a		n/a		(1.6)		(1.3)	%
	$	131.9	100.0	%	$	122.4	100.0	%	$	9.5	7.8	%

(1)

Three Months Ended June 30,
2021 2020 $ Variance % Variance
(In millions)
% of
Revenue
% of
Revenue
Organic $ 124.0 95.4 % $ 119.1 100.0 % $ 4.9 4.2 %
Inorganic — — % — — % — — %
Foreign currency translation 6.0 4.6 % n/a n/a 6.0 4.9 %
$ 130.0 100.0 % $ 119.1 100.0 % $ 10.9 9.2 %
Segment organic revenue is a non-GAAP financial measure. For a reconciliation to total segment revenue, its most directly comparable financial measure presented in accordance with GAAP, see “Non-GAAP Reconciliations” in Item 2 of this Report.

The increase in organic revenue ~~as compared to the prior year period~~ was ~~primarily due to price realization. The increase was also due to~~driven by strong sales volume ~~increases~~and price realization in North America and Asia Pacific, which was partially offset by a decline in revenue in the ~~Asia Pacific~~Europe, Middle East, and ~~EMEA regions, compared to the prior year period resulting from growth across multiple product lines, which was offset by sales volume declines in the Americas~~Africa (“EMEA”) region ~~due to continued customer site access challenges~~ and ~~delays.~~unfavorable foreign currency translation.

Operating profit in the Applied Product Technologies segment ~~decreased $0.9~~increased $4.9 million, or ~~3.8%~~27.1%, to ~~$22.7~~$23.0 million in the three months ended ~~June 30, 2021,~~March 31, 2022, from ~~$23.6~~$18.1 million in the three months ended ~~June 30, 2020.~~March 31, 2021.

The ~~decline~~increase in operating profit was primarily due to favorable sales volume and mix across multiple product lines and regions, which were partially offset by unfavorable operational variances, ~~including additional warranty reserves~~labor inflation, and ~~production variances, offsetting favorable~~ price/cost ~~and product mix. Higher employee related expenses also reduced segment profitability as compared to the prior year period, which was~~ driven by ~~increased compensation and travel spending.~~material inflation.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Applied Product Technologies segment ~~decreased $0.5~~increased $2.0 million, or ~~1.7%~~7.9%, to ~~$28.4~~$27.3 million in the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$28.9~~$25.3 million in the three months ended ~~June 30, 2020.~~March 31, 2021. The ~~decrease~~increase was driven by the same factors that impacted operating profit, other than the change in depreciation and ~~amortization, and~~amortization. Segment adjusted EBITDA also excludes ~~restructuring and~~ other non-recurring activity. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Corporate

Operating loss in Corporate increased ~~$9.1~~$8.8 million, or ~~39.4%~~26.9%, to ~~$32.2~~$41.5 million in the three months ended ~~June 30, 2021,~~March 31, 2022, from ~~$23.1~~$32.7 million in the three months ended ~~June 30, 2020.~~March 31, 2021. The increase period over period was primarily due to ~~higher employee related~~increased employment expenses, ~~as compared to the prior year period. In addition, there were lower foreign currency translation gains compared to the prior period, most of which is related to intercompany loans. Finally,~~including share-based compensation, ~~expenses increased compared to~~and higher costs associated with legal matters in the prior period due primarily to special one-time restricted stock unit and performance share unit awards granted to our executive leadership team in May 2021 to promote retention, reward performance and incentivize further stockholder return.current year.

Consolidated Results for the ~~Nine~~Six Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~

Revenue-Revenue ~~decreased $7.2~~increased $124.2 million, or ~~0.7%~~18.6%, to ~~$1,038.4~~$793.0 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~$1,045.6~~$668.8 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. Revenue from product sales ~~decreased $9.2~~increased $89.8 million, or ~~1.5%~~23.5%, to ~~$600.9~~$472.3 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~$610.1~~$382.5 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. Revenue from services increased ~~$2.0~~$34.4 million, or ~~0.5%~~12.0%, to ~~$437.5~~$320.7 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~$435.5~~$286.3 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021.

The following tables provide the change in revenue by offering and the change in revenue by driver during the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:


		Nine Months Ended June 30,												Six Months Ended March 31,
		2021				2020				$ Variance		% Variance			2022			2021						$ Variance				% Variance
(In millions)	(In millions)			% of Revenue				% of Revenue								(In millions)		% of Revenue									$ Variance					% Variance
Revenue from product sales:	Revenue from product sales:																			Revenue from product sales:	$	472.3		59.6		%				$	382.5			57.2	%
Capital	Capital	$	425.9	41.0	%	$	421.2	40.3	%	$	4.7	1.1	%				Capital	$	313.5		39.5		%	$	270.0			40.4	%			$	43.5	16.1	%
Aftermarket	Aftermarket	175.0		16.9	%	188.9		18.1	%	(13.9)		(7.4)	%				Aftermarket	158.8			20.0		%	112.5				16.8	%			46.3		41.2	%
Revenue from services	Revenue from services	437.5		42.1	%	435.5		41.7	%	2.0		0.5	%				Revenue from services	320.7			40.4		%	286.3				42.8	%			34.4		12.0	%
		$	1,038.4	100.0	%	$	1,045.6	100.0	%	$	(7.2)	(0.7)	%					$	793.0		100.0		%	$	668.8			100.0	%			$	124.2	18.6	%


		Nine Months Ended June 30,																Six Months Ended March 31,
		2021				2020				$ Variance				% Variance					2022			2021						$ Variance				% Variance
(In millions)	(In millions)			% of Revenue				% of Revenue												(In millions)		% of Revenue									$ Variance					% Variance
Organic(1)	Organic(1)	$	1,017.0	97.9	%	$	1,030.3	98.5	%			$	(13.3)			(1.3)	%							Organic(1)	$	746.6		94.1		%				$	668.1			99.9	%
Inorganic	Inorganic	6.5		0.6	%	15.3		1.5	%	(8.8)				(0.8)	%						Inorganic	47.7			6.0		%	0.7				0.1	%			47.0		7.0	%
Foreign currency translation	Foreign currency translation	14.9		1.4	%	n/a		n/a		14.9				1.4	%						Foreign currency translation	(1.3)			(0.2)		%	n/a				n/a				(1.3)		(0.1)	%
		$	1,038.4	100.0	%	$	1,045.6	100.0	%	$	(7.2)			(0.7)	%							$	793.0		100.0		%	$	668.8			100.0	%			$	124.2	18.6	%

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

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

Cost of sales and gross margin-Total gross margin ~~decreased~~increased to ~~30.7%~~30.2% in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~31.3%~~30.1% in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021.

5146

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


		Nine Months Ended June 30,						Six Months Ended March 31,
			2021	2020										2022	2021
(In millions)	(In millions)					Gross Margin					Gross Margin		(In millions)					Gross Margin				Gross Margin
Cost of product sales	Cost of product sales			$	(428.2)	28.7	%		$	(428.0)	29.8	%	Cost of product sales			$	(339.1)	28.2	%	$	(275.6)	27.9	%
Cost of services	Cost of services			(291.9)		33.3	%		(290.4)		33.3	%	Cost of services			(214.5)		33.1	%	(191.9)		33.0	%
				$	(720.1)	30.7	%		$	(718.4)	31.3	%				$	(553.6)	30.2	%	$	(467.5)	30.1	%

Gross margin from product sales ~~decreased~~increased by ~~110~~30 bps to ~~28.7%~~28.2% in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~29.8%~~27.9% in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. The ~~decrease~~increase in gross margin was primarily driven by favorable price realization and product ~~mix, which was influenced by delays and economic closures related to the COVID-19 pandemic, coupled with timing of large projects. This was~~mix. These factors were partially offset by ~~positive price realization.~~increased material and freight costs, as well as labor inflation.

Gross margin from services ~~was 33.3%~~increased by 10 bps to 33.1% in ~~both~~ the ~~nine~~six months ended ~~June 30, 2021 and 2020.~~March 31, 2022, from 33.0% in the six months ended March 31, 2021.

Operating expenses-Operating expenses ~~decreased $4.7~~increased $38.8 million, or ~~1.8%~~22.9%, to ~~$259.6~~$208.3 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~$264.3~~$169.5 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. Operating expenses are comprised of the following:


		Nine Months Ended June 30,						Six Months Ended March 31,
			2021	2020												2022	2021
(In millions)	(In millions)					% of Revenue					% of Revenue		% Variance		(In millions)					% of Revenue				% of Revenue		% Variance
General and administrative expense	General and administrative expense			$	(146.1)	(14.1)	%		$	(152.8)	(14.6)	%	(4.4)	%	General and administrative expense			$	(124.8)	(15.7)	%	$	(95.2)	(14.2)	%	31.1	%
Sales and marketing expense	Sales and marketing expense			(103.6)		(10.0)	%		(101.8)		(9.7)	%	1.8	%	Sales and marketing expense			(76.3)		(9.6)	%	(67.8)		(10.1)	%	12.5	%
Research and development expense	Research and development expense			(9.9)		(1.0)	%		(9.7)		(0.9)	%	2.1	%	Research and development expense			(7.2)		(0.9)	%	(6.5)		(1.0)	%	10.8	%
Total operating expenses	Total operating expenses			$	(259.6)	(25.0)	%		$	(264.3)	(25.3)	%	(1.8)	%	Total operating expenses			$	(208.3)	(26.3)	%	$	(169.5)	(25.3)	%	22.9	%

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

Fluctuations in ~~the estimates of certain acquisitions achieving their earn-out targets.~~foreign currency translation and labor inflation could impact operating expenses in future periods.

Other operating income, net-Other operating income, net, ~~decreased $59.0~~increased $2.2 million to ~~$2.0~~$2.8 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~$61.0~~$0.6 million in the ~~nine~~six months ended ~~June 30, 2020. The decrease is primarily due~~March 31, 2021. This increase was driven by gains on the disposal of fixed assets, as well as an increase in income from precious metal sales, mainly from scrapped anodes in China, compared to the ~~net pre-tax benefit on~~prior period. Additionally, we received a refund of certain taxes paid from the sale of the Memcor product line of $58.0 million, which is net of $8.3 million of discretionary compensation payments to employees in connection with the transaction and $1.0 million in transaction costs incurredChinese government in the ~~first quarter of 2020. In the nine months ended June 30, 2021, other operating income, net includes~~current period, which partially offset COVID-19 pandemic subsidies received from the Canadian ~~government.~~government in the prior period, which did not reoccur in the current period.

Interest expense-Interest expense decreased ~~$9.0~~$0.6 million, or ~~24.1%~~3.5%, to ~~$28.3~~$16.5 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~$37.3~~$17.1 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. 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,~~year. This decrease was partially offset by a fair value increase of $2.1 million in ~~addition~~the Purchase Right Liability to ~~a $100.0 million debt prepayment that occurred in January 2020 and decreased debt as a result~~acquire the remaining equity interest of ~~the April 2021 refinancing of our senior credit facility.~~Frontier.

Income tax expense-Income tax expense increased ~~$4.4~~$0.2 million to ~~$7.7~~$3.9 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~$3.3~~$3.7 million in the ~~nine~~six months ended ~~June 30, 2020. Income~~March 31, 2021. The increase in tax expense increased due to the recognition of discrete items in the current period related to an adjustment for prepaid income taxes and an uncertain tax position in connection with a tax audit in a foreign jurisdiction, Additionally, income tax expense increasedwas primarily due to higher earnings innon-U.S. tax jurisdictions, which increases tax expense, and lower earnings in the U.S., which does not

impact tax expense due to the U.S. valuation ~~allowance.~~allowance, partially offset by discreet tax expense in the prior year that did not reoccur in the current year.

Net income-Net income ~~decreased $58.6~~increased $1.9 million, or ~~70.3%~~16.4%, to ~~$24.7~~$13.5 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~$83.3~~$11.6 million in the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, as a result of the variances noted above.

Adjusted EBITDA-Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 increased by ~~$4.9~~$24.7 million, or ~~3.0%~~24.0%, to ~~$169.0~~$127.5 million, as compared to ~~$164.1~~$102.8 million for the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, primarily driven by ~~operational efficiencies~~sales volume and ~~cost savings, offset by the changes as compared to the prior year period in non-recurring expenses and benefits.~~related gross profit. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Segment Results


		Nine Months Ended June 30,						Six Months Ended March 31,
			2021	2020												2022	2021
(In millions)	(In millions)					% of Revenue					% of Revenue		% Variance		(In millions)					% of Total				% of Total		% Variance
Revenue	Revenue														Revenue
Integrated Solutions and Services	Integrated Solutions and Services			$	678.5	65.3	%		$	694.7	66.4	%	(2.3)	%	Integrated Solutions and Services			$	539.9	68.1	%	$	438.9	65.6	%	23.0	%
Applied Product Technologies	Applied Product Technologies			359.9		34.7	%		350.9		33.6	%	2.6	%	Applied Product Technologies			253.1		31.9	%	229.9		34.4	%	10.1	%
Total Consolidated	Total Consolidated			$	1,038.4	100.0	%		$	1,045.6	100.0	%	(0.7)	%	Total Consolidated			$	793.0	100.0	%	$	668.8	100.0	%	18.6	%
Operating profit (loss)	Operating profit (loss)														Operating profit (loss)
Integrated Solutions and Services	Integrated Solutions and Services			$	94.9	9.1	%		$	102.5	9.8	%	(7.4)	%	Integrated Solutions and Services			$	73.4	216.5	%	$	57.1	176.2	%	28.5	%
Applied Product Technologies	Applied Product Technologies			54.2		5.2	%		110.5		10.6	%	(51.0)	%	Applied Product Technologies			40.8		120.4	%	31.5		97.2	%	29.5	%
Corporate	Corporate			(88.4)		(8.5)	%		(89.1)		(8.5)	%	(0.8)	%	Corporate			(80.3)		(236.9)	%	(56.2)		(173.5)	%	42.9	%
Total Consolidated	Total Consolidated			$	60.7	5.8	%		$	123.9	11.8	%	(51.0)	%	Total Consolidated			$	33.9	100.0	%	$	32.4	100.0	%	4.6	%
Adjusted EBITDA (1)	Adjusted EBITDA (1)														Adjusted EBITDA(1)
Integrated Solutions and Services	Integrated Solutions and Services			$	148.8	14.3	%		$	153.5	14.7	%	(3.1)	%	Integrated Solutions and Services			$	117.3	92.0	%	$	92.5	90.0	%	26.8	%
Applied Product Technologies	Applied Product Technologies			72.6		7.0	%		66.5		6.4	%	9.2	%	Applied Product Technologies			49.2		38.6	%	44.2		43.0	%	11.3	%
Corporate	Corporate			(52.4)		(5.0)	%		(55.9)		(5.3)	%	(6.3)	%	Corporate			(39.0)		(30.6)	%	(33.9)		(33.0)	%	15.0	%
Total Consolidated	Total Consolidated			$	169.0	16.3	%		$	164.1	15.7	%	3.0	%	Total Consolidated			$	127.5	100.0	%	$	102.8	100.0	%	24.0	%

Integrated Solutions and Services

Revenue in the Integrated Solutions and Services segment ~~decreased $16.2~~increased $101.0 million, or ~~2.3%~~23.0%, to ~~$678.5~~$539.9 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~$694.7~~$438.9 million in the ~~nine~~six months ended ~~June 30, 2020.~~

March 31, 2021.

The following tables provide the change in revenue by offering and the change in revenue by driver during the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ for the Integrated Solutions and Services segment:


		Nine Months Ended June 30,												Six Months Ended March 31,
		2021				2020				$ Variance		% Variance			2022			2021						$ Variance				% Variance
(In millions)	(In millions)			% of Revenue				% of Revenue								(In millions)		% of Revenue									$ Variance					% Variance
Revenue from product sales:	Revenue from product sales:																			Revenue from product sales:	$	229.4		42.5		%				$	162.3			37.0	%
Capital	Capital	$	166.0	24.5	%	$	185.4	26.7	%	$	(19.4)	(10.5)	%				Capital	137.8			25.5		%	102.7				23.4	%			35.1		34.2	%
Aftermarket	Aftermarket	91.5		13.5	%	90.7		13.1	%	0.8		0.9	%				Aftermarket	91.6			17.0		%	59.6				13.6	%			32.0		53.7	%
Revenue from services	Revenue from services	421.0		62.0	%	418.6		60.3	%	2.4		0.6	%				Revenue from services	310.5			57.5		%	276.6				63.0	%			33.9		12.3	%
		$	678.5	100.0	%	$	694.7	100.0	%	$	(16.2)	(2.3)	%					$	539.9		100.0		%	$	438.9			100.0	%			$	101.0	23.0	%

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


	Six Months Ended March 31,
	2022				2021				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Organic	$	492.0	91.1	%	$	438.2	99.8	%	$	53.8	12.3	%
Inorganic	47.7		8.8	%	0.7		0.2	%	47.0		10.7	%
Foreign currency translation	0.2		—	%	n/a		n/a		0.2		—	%
	$	539.9	100.0	%	$	438.9	100.0	%	$	101.0	23.0	%

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

Operating profit in the Integrated Solutions and Services segment ~~decreased $7.6~~increased $16.3 million, or ~~7.4%~~28.5%, to ~~$94.9~~$73.4 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~$102.5~~$57.1 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021.

Operating profit growth was ~~unfavorably impacted~~driven by higher organic sales volume and mix ~~lower productivity due to customer shutdowns and enhanced safety protocols as a result of the COVID-19 pandemic in the first half of fiscal 2021,~~ as well as ~~some challenges filling open positions. In addition, operating profit was negatively impacted by increased operating costs based on changes in allocation methodologies for corporate expenses.~~favorable price realization. These ~~declines~~increases were partially offset by ~~favorable price/cost~~increased material and ~~reductions~~freight costs as well as labor inflation and higher discretionary spending. Acquisitions also contributed to the increase in ~~travel and other discretionary spending in~~operating profit, primarily associated with the ~~current period.~~impact of the Mar Cor Business.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Integrated Solutions and Services segment ~~decreased $4.7~~increased $24.8 million, or ~~3.1%~~26.8%, to ~~$148.8~~$117.3 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, compared

to ~~$153.5~~$92.5 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. The decline was driven by the same factors that impacted operating profit, other than the change in depreciation and amortization, and also excludes restructuring and other non-recurring activity. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Applied Product Technologies

Revenue in the Applied Product Technologies segment increased ~~$9.0~~$23.2 million, or ~~2.6%~~10.1%, to ~~$359.9~~$253.1 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~$350.9~~$229.9 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021.


		Nine Months Ended June 30,												Six Months Ended March 31,
		2021				2020				$ Variance		% Variance			2022			2021						$ Variance				% Variance
(In millions)	(In millions)			% of Revenue				% of Revenue								(In millions)		% of Revenue									$ Variance					% Variance
Revenue from product sales:	Revenue from product sales:																			Revenue from product sales:	$	242.9		96.0		%				$	220.2			95.8	%
Capital	Capital	$	259.9	72.2	%	$	235.8	67.2	%	$	24.1	10.2	%				Capital	$	175.7		69.4		%	$	167.3			72.8	%			$	8.4	5.0	%
Aftermarket	Aftermarket	83.5		23.2	%	98.2		28.0	%	(14.7)		(15.0)	%				Aftermarket	67.2			26.6		%	52.9				23.0	%			14.3		27.0	%
Revenue from services	Revenue from services	16.5		4.6	%	16.9		4.8	%	(0.4)		(2.4)	%				Revenue from services	10.2			4.0		%	9.7				4.2	%			0.5		5.2	%
		$	359.9	100.0	%	$	350.9	100.0	%	$	9.0	2.6	%					$	253.1		100.0		%	$	229.9			100.0	%			$	23.2	10.1	%


		Nine Months Ended June 30,																Six Months Ended March 31,
		2021				2020				$ Variance				% Variance					2022			2021						$ Variance				% Variance
(In millions)	(In millions)			% of Revenue				% of Revenue												(In millions)		% of Revenue									$ Variance					% Variance
Organic	Organic	$	347.0	96.4	%	$	336.5	95.9	%			$	10.5			3.1	%							Organic	$	254.6		100.6		%				$	229.9			100.0	%
Inorganic	Inorganic	—		—	%	14.4		4.1	%	(14.4)				(4.1)	%						Inorganic	—			—		%	—				—	%			—		—	%
Foreign currency translation	Foreign currency translation	12.9		3.6	%	n/a		n/a		12.9				3.6	%						Foreign currency translation	(1.5)			(0.6)		%	n/a				n/a				(1.5)		(0.6)	%
		$	359.9	100.0	%	$	350.9	100.0	%	$	9.0			2.6	%							$	253.1		100.0		%	$	229.9			100.0	%			$	23.2	10.1	%

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

lines.

Operating profit in the Applied Product Technologies segment ~~decreased $56.3~~increased $9.3 million, or ~~51.0%~~29.5%, to ~~$54.2~~$40.8 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~$110.5~~$31.5 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021.

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

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Applied Product Technologies segment increased ~~$6.1~~$5.0 million, or ~~9.2%~~11.3%, to ~~$72.6~~$49.2 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$66.5~~$44.2 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. The increase was driven by the same factors that impacted operating profit, other than the change in depreciation and amortization, and also excludes other non-recurring ~~activity, including the $58.0 million gain recognized in the prior year related to the divestiture of the Memcor product line.~~activity. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Corporate

Operating loss in Corporate ~~decreased $0.7~~increased $24.1 million, or ~~0.8%~~42.9%, to ~~$88.4~~$80.3 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, from ~~$89.1~~$56.2 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. The ~~decrease period over period~~increase was primarily due to foreign currency translation ~~gains of approximately $5.1 million~~losses in the ~~nine months ended June 30, 2021~~current period, compared to foreign currency translation gains ~~of approximately $2.5 million~~ in the prior ~~year~~ period, most of which ~~were~~is related to intercompany loans. Additionally, ~~the decrease was driven by reductions in discretionary spending compared to the prior period. This was partially offset by increases in~~there were increased employment expenses, ~~associated with~~including share-based compensation, and ~~shareholder litigation~~higher costs associated with legal matters in the current ~~period.~~year.

Non-GAAP Reconciliations

The following is a reconciliation of total revenue to organic revenue for the three months ended ~~June 30, 2021:~~March 31, 2022:


		Total Revenue				Foreign Currency				Inorganic Revenue(1)				Organic Revenue					Total Revenue				Foreign Currency				Inorganic Revenue(1)				Organic Revenue
		Three Months Ended June 30,		% Variance		Three Months Ended June 30,		% Variance		Three Months Ended June 30,		% Variance		Three Months Ended June 30,		% Variance			Three Months Ended March 31,		% Variance		Three Months Ended March 31,		% Variance		Three Months Ended March 31,		% Variance		Three Months Ended March 31,		% Variance
(In millions)	(In millions)	2020	2021			2020	2021			2020	2021			2020	2021			(In millions)	2022	2021			2022	2021			2022	2021			2022	2021
Evoqua Water Technologies	Evoqua Water Technologies	$347.8	$369.7	6.3	%	n/a	$7.5	2.1	%	$0.8	$4.1	0.9	%	$347.0	$358.1	3.2	%	Evoqua Water Technologies	$426.7	$346.6	23.1	%	$(1.7)	n/a	(0.5)	%	$45.4	$0.3	13.0	%	$383.0	$346.3	10.6	%
Integrated Solutions & Services	Integrated Solutions & Services	$228.7	$239.7	4.8	%	n/a	$1.5	0.7	%	$0.8	$4.1	1.4	%	$227.9	$234.1	2.7	%	Integrated Solutions & Services	$294.8	$224.2	31.5	%	$(0.1)	n/a	—	%	$45.4	$0.3	20.1	%	$249.5	$223.9	11.4	%
Applied Product Technologies	Applied Product Technologies	$119.1	$130.0	9.2	%	n/a	$6.0	4.9	%	$—		—	%	$119.1	$124.0	4.2	%	Applied Product Technologies	$131.9	$122.4	7.8	%	$(1.6)	n/a	(1.3)	%	$—		—	%	$133.5	$122.4	9.1	%

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

2021 and the acquisition of the Mar Cor Business on January 3, 2022.

The following is a reconciliation of total revenue to organic revenue for the ~~nine~~six months ended ~~June 30, 2021:~~March 31, 2022:


		Total Revenue				Foreign Currency				Inorganic Revenue(1)				Organic Revenue					Total Revenue				Foreign Currency				Inorganic Revenue(1)				Organic Revenue
		Nine Months Ended June 30,		% Variance		Nine Months Ended June 30,		% Variance		Nine Months Ended June 30,		% Variance		Nine Months Ended June 30,		% Variance			Six Months Ended March 31,		% Variance		Six Months Ended March 31,		% Variance		Six Months Ended March 31,		% Variance		Six Months Ended March 31,		% Variance
(In millions)	(In millions)	2020	2021			2020	2021			2020	2021			2020	2021			(In millions)	2022	2021			2022	2021			2022	2021			2022	2021
Evoqua Water Technologies	Evoqua Water Technologies	$1,045.6	$1,038.4	(0.7)	%	n/a	$14.9	1.4	%	$15.3	$6.5	(0.8)	%	$1,030.3	$1,017.0	(1.3)	%	Evoqua Water Technologies	$793.0	$668.8	18.6	%	$(1.3)	n/a	(0.1)	%	$47.7	$0.7	7.0	%	$746.6	$668.1	11.7	%
Integrated Solutions & Services	Integrated Solutions & Services	$694.7	$678.5	(2.3)	%	n/a	$2.0	0.3	%	$0.9	$6.5	0.8	%	$693.8	$670.0	(3.4)	%	Integrated Solutions & Services	$539.9	$438.9	23.0	%	$0.2	n/a	—	%	$47.7	$0.7	10.7	%	$492.0	$438.2	12.3	%
Applied Product Technologies	Applied Product Technologies	$350.9	$359.9	2.6	%	n/a	$12.9	3.6	%	$14.4	$—	(4.1)	%	$336.5	$347.0	3.1	%	Applied Product Technologies	$253.1	$229.9	10.1	%	$(1.5)	n/a	(0.6)	%	$—		—	%	$254.6	$229.9	10.7	%

(1)Includes divestiture of the ~~Memcor~~Lange product line on ~~December 31, 2019, divestiture of the Lange Product Line on~~ March 1, 2021, ~~acquisition of Aquapure Technologies on September 3, 2020,~~ acquisition of Ultrapure & Industrial Services on December 17, 2020, ~~and~~ acquisition of WCSI on April 1, ~~2021.~~2021, and the acquisition of the Mar Cor Business on January 3, 2022.

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 June 30,						Nine Months Ended June 30,							Three Months Ended March 31,						Six Months Ended March 31,
(In millions)	(In millions)	2021		2020		% Variance		2021		2020		% Variance		(In millions)	2022		2021		% Variance		2022		2021		% Variance
Net income	Net income	$	13.2	$	21.8	(39.4)	%	$	24.8	$	83.3	(70.2)	%	Net income	$	7.4	$	5.1	45.1	%	$	13.5	$	11.6	16.4	%
Income tax expense	Income tax expense	3.9		0.8		387.5%		7.7		3.3		133.3	%	Income tax expense	2.2		2.7		(18.5)	%	3.9		3.7		5.4	%
Interest expense	Interest expense	11.2		10.5		6.7	%	28.3		37.3		(24.1)	%	Interest expense	10.0		8.4		19.0	%	16.5		17.1		(3.5)	%
Operating profit	Operating profit	$	28.3	$	33.1	(14.5)	%	$	60.8	$	123.9	(50.9)	%	Operating profit	$	19.6	$	16.2	21.0	%	$	33.9	$	32.4	4.6	%
Depreciation and amortization	Depreciation and amortization	29.1		27.6		5.4	%	83.6		80.1		4.4	%	Depreciation and amortization	32.6		27.1		20.3	%	61.2		54.6		12.1	%
EBITDA	EBITDA	$	57.4	$	60.7	(5.4)	%	$	144.4	$	204.0	(29.2)	%	EBITDA	$	52.2	$	43.3	20.6	%	$	95.1	$	87.0	9.3	%
Restructuring and related business transformation costs (a)	Restructuring and related business transformation costs (a)	1.8		3.1		(41.9)	%	9.0		11.0		(18.2)	%	Restructuring and related business transformation costs(a)	1.8		5.4		(66.7)	%	3.2		7.2		(55.6)	%

Purchase accounting adjustment costs(b)														Purchase accounting adjustment costs(b)	2.6		—		n/a		2.6		—		n/a
Share-based compensation ~~(b)~~(c)	Share-based compensation ~~(b)~~(c)	5.5		2.6		111.5	%	11.8		8.6		37.2	%	Share-based compensation ~~(b)~~(c)	6.1		3.2		90.6	%	11.4		6.3		81.0	%

Transaction costs ~~(c)~~(d)	Transaction costs ~~(c)~~(d)	0.3		0.3		—	%	1.6		1.0		60.0	%	Transaction costs ~~(c)~~(d)	4.0		0.7		471.4	%	4.9		1.3		276.9	%
Other losses (gains) and expenses ~~(d)~~(e)	Other losses (gains) and expenses ~~(d)~~(e)	1.2		(2.9)		(141.4)	%	2.2		(60.5)		(103.6)	%	Other losses (gains) and expenses ~~(d)~~(e)	6.5		5.4		20.4	%	10.3		1.0		930.0	%
Adjusted EBITDA	Adjusted EBITDA	$	66.2	$	63.8	3.8	%	$	169.0	$	164.1	3.0	%	Adjusted EBITDA	$	73.2	$	58.0	26.2	%	$	127.5	$	102.8	24.0	%

(a)Restructuring and related business transformation costs

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

(i)Certain costs and expenses in connection with various restructuring initiatives, including severance and other employee-related costs, relocation and facility consolidation costs, 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.

5852


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
(In millions)	(In millions)	2021		2020		2021		2020		(In millions)	2022		2021		2022		2021

Post Memcor divestiture restructuring	Post Memcor divestiture restructuring	$	0.7	$	1.2	$	4.6	$	4.9	Post Memcor divestiture restructuring	$	0.6	$	3.0	$	0.8	$	3.9
Cost of product sales and services (“Cost of sales”)	Cost of product sales and services (“Cost of sales”)	0.3		0.8		3.4		3.7		Cost of product sales and services (“Cost of sales”)	0.1		2.3		0.1		3.1

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

G&A expense	G&A expense	0.1		0.2		0.5		0.9		G&A expense	0.1		0.2		0.2		0.4
Other operating (income) expense		—		—		—		—

Various other initiatives	Various other initiatives	$	0.5	$	0.5	$	2.0	$	1.0	Various other initiatives	$	1.0	$	1.5	$	1.7	$	1.5
Cost of sales	Cost of sales	0.5		0.3		1.0		0.7		Cost of sales	0.5		0.5		0.7		0.5

S&M expense	S&M expense	0.1		0.1		0.2		0.1		S&M expense	—		0.1		—		0.1
G&A expense	G&A expense	—		0.1		0.4		0.2		G&A expense	0.3		0.4		0.8		0.4
Other operating (income) expense	Other operating (income) expense	(0.1)		—		0.4		—		Other operating (income) expense	0.2		0.5		0.2		0.5
Total(1)	Total(1)	$	1.4	$	2.3	$	7.4	$	7.8	Total(1)	$	1.7	$	4.9	$	2.8	$	6.0

(1)Of which ~~$7.0~~$2.8 million and ~~$7.7~~$5.5 million for the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 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 June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
(In millions)	(In millions)	2021		2020		2021		2020		(In millions)	2022		2021		2022		2021
Cost of sales	Cost of sales	$	0.1	$	0.3	$	0.3	$	0.5	Cost of sales	$	0.1	$	0.2	$	0.2	$	0.2
G&A expense	G&A expense	0.3		0.1		0.5		0.3		G&A expense	—		0.1		0.2		0.2
Total	Total	$	0.4	$	0.4	$	0.8	$	0.8	Total	$	0.1	$	0.3	$	0.4	$	0.4

(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 June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
(In millions)	(In millions)	2021		2020		2021		2020		(In millions)	2022		2021		2022		2021
Cost of sales	Cost of sales	$	—	$	—	$	0.1	$	0.1	Cost of sales	$	—	$	0.1	$	—	$	0.1

G&A expense	G&A expense	—		(0.1)		0.1		0.6		G&A expense	—		(0.1)		$	—	$	0.1

Total	Total	$	—	$	(0.1)	$	0.2	$	0.7	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 June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
(In millions)	(In millions)	2021		2020		2021		2020		(In millions)	2022		2021		2022		2021
G&A expense	G&A expense	$	—	$	0.5	$	0.6	$	1.7	G&A expense	$	—	$	0.2	$	—	$	0.6
Total	Total	$	—	$	0.5	$	0.6	$	1.7	Total	$	—	$	0.2	$	—	$	0.6

(b)Purchase accounting adjustment costs

Adjusted EBITDA is calculated prior to considering adjustments for the effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of the acquisition of the Mar Cor Business. See Note 4, “Acquisitions,” in Part I, Item 1 of this Report for further detail.

(c)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)~~(d)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. Integration and restructuring costs associated with a business combination may occur over several years and include, but are not limited to, consulting fees, legal fees, certain employee-related costs, facility consolidation and product rationalization costs, and fair value changes associated with contingent consideration. This includes:


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended March 31,				Six Months Ended March 31,
(In millions)	(In millions)	2021		2020		2021		2020		(In millions)	2022		2021		2022		2021
Cost of sales	Cost of sales	$	0.1	$	0.1	$	0.3	$	(0.1)	Cost of sales	$	0.5	$	0.1	$	0.5	$	0.2
G&A expense	G&A expense	0.2		0.2		1.3		1.1		G&A expense	3.5		0.6		4.4		1.1

Total	Total	$	0.3	$	0.3	$	1.6	$	1.0	Total	$	4.0	$	0.7	$	4.9	$	1.3

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

~~(vi)~~(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;

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

~~(viii)~~

(vi)loss on divestiture of the Lange ~~Product Line.~~product line.

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

Three Months Ended June 30, 2021
Other Adjustments
(In millions) (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Total
Cost of sales $ 0.1 $ — $ — $ 1.5 $ — $ 0.1 $ — $ — $ 1.7
G&A expense (1.3) — — — — — 0.8 — (0.5)
Total $ (1.2) $ — $ — $ 1.5 $ — $ 0.1 $ 0.8 $ — $ 1.2

Three Months Ended June 30, 2020
Other Adjustments
(In millions) (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Total
Cost of sales $ — $ — $ — $ 0.1 $ — $ 0.7 $ — $ — $ 0.8
G&A expense (4.0) (0.1) — — — 0.4 — — (3.7)
Total $ (4.0) $ (0.1) $ — $ 0.1 $ — $ 1.1 $ — $ — $ (2.9)

Nine Months Ended June 30, 2021
Other Adjustments
(In millions) (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Total
Cost of sales $ 0.1 $ — $ — $ 2.4 $ 0.2 $ 0.2 $ — $ — $ 2.9
G&A expense (5.2) — — — — 0.2 4.1 — (0.9)
Other operating (income) expense — — — — — — — 0.2 0.2
Total $ (5.1) $ — $ — $ 2.4 $ 0.2 $ 0.4 $ 4.1 $ 0.2 $ 2.2


Nine Months Ended June 30, 2020
Three Months Ended March 31, 2022																					Three Months Ended March 31, 2022
																							Other Adjustments
(In millions)																					(In millions)		(i)			(ii)			(iii)			(iv)			(v)			(vi)			Total
Cost of sales																					Cost of sales		$	(0.1)		$	—		$	—		$	—		$	—		$	—		$	(0.1)

G&A expense																					G&A expense		2.1			—			—			0.1			4.4			—			6.6

Total																					Total		$	2.0		$	—		$	—		$	0.1		$	4.4		$	—		$	6.5

Three Months Ended March 31, 2021																					Three Months Ended March 31, 2021
		Other Adjustments														Other Adjustments
(In millions)	(In millions)	(i)		(ii)		(iii)		(iv)		(v)		(vi)		(vii)			(viii)		Total			(In millions)		(i)			(ii)			(iii)			(iv)			(v)			(vi)			Total
Cost of sales	Cost of sales	$	(0.1)	$	—	$	0.1	$	0.4	$	0.2	$	0.7	$	—		$	—	$	1.3		Cost of sales		$	—		$	0.7		$	—		$	0.1		$	—		$	—		$	0.8

G&A expense	G&A expense	(2.4)		—		—		—		0.1		0.4		—			—		(1.9)			G&A expense		2.9			—			—			0.1			1.4			—			4.4
Other operating (income) expense	Other operating (income) expense	—		—		(1.6)		—		(58.3)		—		—			—		(59.9)			Other operating (income) expense		—			—			—			—			—			0.2			0.2
Total	Total	$	(2.5)	$	—	$	(1.5)	$	0.4	$	(58.0)	$	1.1	$	—		$	—	$	(60.5)		Total		$	2.9		$	0.7		$	—		$	0.2		$	1.4		$	0.2		$	5.4

Six Months Ended March 31, 2022																					Six Months Ended March 31, 2022
																							Other Adjustments
(In millions)																					(In millions)		(i)			(ii)			(iii)			(iv)			(v)			(vi)			Total

G&A expense																					G&A expense		$	3.3		$	—		$	—		$	0.1		$	6.9		$	—		$	10.3

Total																					Total		$	3.3		$	—		$	—		$	0.1		$	6.9		$	—		$	10.3

Six Months Ended March 31, 2021																					Six Months Ended March 31, 2021
																							Other Adjustments
(In millions)																					(In millions)		(i)			(ii)			(iii)			(iv)			(v)			(vi)			Total
Cost of sales																					Cost of sales		$	—		$	0.9		$	0.2		$	0.1		$	—		$	—		$	1.2

G&A expense																					G&A expense		(3.9)			—			—			0.2			3.3			—			(0.4)
Other operating (income) expense																					Other operating (income) expense		—			—			—			—			—			0.2			0.2
Total																					Total		$	(3.9)		$	0.9		$	0.2		$	0.3		$	3.3		$	0.2		$	1.0

6155

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 EBITDA and segment adjusted EBITDA to operating profit, ~~its~~their most directly comparable financial measure presented in accordance with GAAP:


		Three Months Ended June 30,								Nine Months Ended June 30,									Three Months Ended March 31,								$ Variance						% Variance
		2021				2020				2021				2020					2022				2021
(In millions)	(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		(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	Operating profit	$	37.8	$	22.7	$	32.6	$	23.6	$	94.9	$	54.2	$	102.5	$	110.5	Operating profit	$	38.1	$	23.0	$	30.8	$	18.1	$	7.3		$	4.9		24	%		27	%
Depreciation and amortization	Depreciation and amortization	18.2		3.5		17.8		3.5		52.3		10.6		50.7		10.7		Depreciation and amortization	21.4		3.4		17.2		3.6		4.2			(0.2)			24	%		(6)	%
EBITDA	EBITDA	$	56.0	$	26.2	$	50.4	$	27.1	$	147.2	$	64.8	$	153.2	$	121.2	EBITDA	$	59.5	$	26.4	$	48.0	$	21.7	$	11.5		$	4.7		24	%		22	%
Restructuring and related business transformation costs (a)	Restructuring and related business transformation costs (a)	0.3		0.7		0.2		1.6		1.4		5.2		0.3		5.6		Restructuring and related business transformation costs (a)	0.2		0.9		1.1		2.9		(0.9)			(2.0)			(82)	%		(69)	%
Transaction costs (b)		—		—		—		0.1		—		—		—		(1.2)
Other losses (gains) and expenses (c)		—		1.5		—		0.1		0.2		2.6		—		(59.1)
Purchase accounting adjustment costs (b)																		Purchase accounting adjustment costs (b)	2.6		—		—		—		2.6			—			n/a			n/a
Transaction costs (c)																		Transaction costs (c)	1.5		—		—		—		1.5			—			n/a			n/a
Other losses (gains) and expenses (d)																		Other losses (gains) and expenses (d)	—		—		0.2		0.7		(0.2)			(0.7)			(100)	%		(100)	%
Adjusted EBITDA	Adjusted EBITDA	$	56.3	$	28.4	$	50.6	$	28.9	$	148.8	$	72.6	$	153.5	$	66.5	Adjusted EBITDA	$	63.8	$	27.3	$	49.3	$	25.3	$	14.5		$	2.0		29	%		8	%

																			Six Months Ended March 31,								$ Variance						% Variance
																			2022				2021
(In millions)																		(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																		Operating profit	$	73.4	$	40.8	$	57.1	$	31.5	$	16.3		$	9.3		29	%		30	%
Depreciation and amortization																		Depreciation and amortization	39.2		6.9		34.1		7.1		5.1			(0.2)			15	%		(3)	%
EBITDA																		EBITDA	$	112.6	$	47.7	$	91.2	$	38.6	$	21.4		$	9.1		23	%		24	%
Restructuring and related business transformation costs (a)																		Restructuring and related business transformation costs (a)	0.7		1.5		1.1		4.5		(0.4)			(3.0)			(36)	%		(67)	%
Purchase accounting adjustment costs (b)																		Purchase accounting adjustment costs (b)	2.6		—		—		—		2.6			—			n/a			n/a
Transaction costs (c)																		Transaction costs (c)	1.4		—		—		—		1.4			—			n/a			n/a
Other losses (gains) and expenses (d)																		Other losses (gains) and expenses (d)	—		—		0.2		1.1		(0.2)			(1.1)			(100)	%		(100)	%
Adjusted EBITDA																		Adjusted EBITDA	$	117.3	$	49.2	$	92.5	$	44.2	$	24.8		$	5.0		27	%		11	%

(a)Represents costs and expenses in connection with restructuring initiatives in the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. Such expenses are primarily composed of severance, relocation, and facility consolidation costs.

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

(c)Represents costs associated with a change in the current estimate of certain acquisitions achieving their earn-out targets, ~~which resulted in a decrease to~~as well as certain costs associated with the ~~fair valued amount~~integration of the ~~earn-out recorded upon acquisition, in the nine months ended June 30, 2020, distinct to our Applied Product Technologies segment.~~Mar Cor Business.

~~(c)~~

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


		Three Months Ended June 30,								Nine Months Ended June 30,									Three Months Ended March 31,								Six Months Ended March 31,
		2021				2020				2021				2020					2022				2021				2022				2021
(In millions)	(In millions)	ISS		APT		ISS		APT		ISS		APT		ISS		APT		(In millions)	ISS		APT		ISS		APT		ISS		APT		ISS		APT
Trailing costs from the sale of the Memcor product line	Trailing costs from the sale of the Memcor product line	$	—	$	—	$	—	$	—	$	—	$	0.2	$	—	$	—	Trailing costs from the sale of the Memcor product line	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	0.2
Net pre-tax benefit on sale of the Memcor product line		—		—		—		—		—		—		—		(58.0)
Remediation of manufacturing defects		—		—		—		—		—		—		—		(1.5)

Product rationalization in electro-chlorination business	Product rationalization in electro-chlorination business	—		1.5		—		0.1		—		2.4		—		0.4		Product rationalization in electro-chlorination business	—		—		—		0.7		—		—		—		0.9

Loss on divestiture of Lange Product Line		—		—		—		—		0.2		—		—		—
Loss on divestiture of Lange product line																		Loss on divestiture of Lange product line	—		—		0.2		—		—		—		0.2		—
Total	Total	$	—	$	1.5	$	—	$	0.1	$	0.2	$	2.6	$	—	$	(59.1)	Total	$	—	$	—	$	0.2	$	0.7	$	—	$	—	$	0.2	$	1.1

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 ~~our revolving credit facility~~the 2021 Revolving Credit 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 neither moderate increases in net working capital nor the COVID-19 pandemic ~~has not~~have materially impacted our liquidity to date, we plan to continue to evaluate aspects of our spending, including capital expenditures, discretionary spending, and strategic investments, as the year progresses. We have considered the impacts of the COVID-19 pandemic on our liquidity and capital resources to date, and we do not currently expect it to impact our ability to meet future liquidity needs or continue to comply with our applicable debt covenants.investments. We believe we are currently well-positioned to manage our business and have the ability and sufficient capacity to meet our cash requirements by using available cash, internally generated funds, and borrowing under ~~our revolving credit facility. We are committed to maintaining a solid liquidity position.~~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~~payments 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 ~~$27.4~~$20.4 million and ~~$26.4~~$13.9 million in the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 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 ~~our revolving credit facility~~the 2021 Revolving Credit Facility and equipment financing arrangements. We believe that our projected cash flows generated from operations, together with borrowings under ~~our revolving credit facility~~the 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 ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ were ~~$54.1~~$36.3 million and ~~$65.9~~$36.3 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 ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ we entered into equipment financing arrangements totaling ~~$25.4~~$13.9 million and ~~$12.9~~$14.0 million, respectively. In addition, we may draw on ~~our revolving credit facility~~the 2021 Revolving Credit Facility from time to time to fund or partially fund an acquisition.

As of ~~June 30, 2021,~~March 31, 2022, we had total indebtedness of ~~$801.9~~$945.4 million, including ~~$475.0~~$471.4 million of term loan borrowings under the 2021 Credit Agreement, ~~$95.0~~$221.1 million outstanding under the 2021 Revolving Credit Facility, ~~$148.2~~$150.1 million outstanding under the Securitization Facility, ~~$83.3~~which includes $0.1 million of accrued interest and $102.8 million in borrowings related to equipment ~~financing and $0.5 million of notes payable related to certain equipment related contracts.~~financing. We also had ~~$11.5~~$9.6 million of letters of credit issued under our 2021 Revolving Credit Facility as of ~~June 30, 2021.~~March 31, 2022.

As of ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020,~~2021, we were in compliance with the covenants contained in the 2021 Credit Agreement, including the ~~revolving credit facility under the~~2021 Revolving Credit ~~Agreement.~~Facility.

2021 Credit Agreement

On April 1, 2021, EWT III entered into ~~the 2021~~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 ~~loan facility relating to a term loan~~(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. On April 1, 2021, EWT III borrowed the full amount of $475.0 million under the 2021 Term Loan and $105.0 under the 2021 Revolving Credit Facility. At June 30, 2021, the Company had $475.0 million outstanding under the 2021 Term Loan and $95.0 million outstanding on the 2021 Revolving Credit Facility.

The Senior Facilities are guaranteed by EWT II and certain existing and future direct or indirect wholly-owned domestic subsidiaries of EWT III (together with EWT III, collectively, the “Loan Parties”), and collateralized by a first lien on substantially all of the assets of the Loan Parties, with certain exceptions, including: (i) any equity interest in, and any assets sold to or held by, Evoqua Finance in connection with the Receivables Securitization Program, (ii) any equity interest in, and any assets sold to or held by, any other special purpose entity that is an indirect subsidiary of the Company in connection with any other securitization facility permitted under the 2021 Credit Agreement, and (iii) any real property with a fair market value of $5.0 million or less, when considered individually, or $30.0 million or less when taken together with all other real property owned by the Loan Parties.

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

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

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

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

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

~~As a result of~~ The Company did not exceed this ratio during the ~~refinancing,~~six months ended March 31, 2022, does not anticipate exceeding this ratio during the ~~Company wrote off approximately $1.3 million of deferred financing fees related to~~year ending September 30, 2022, and therefore does not anticipate any additional repayments during the 2014 Term Loan. In addition, the Company incurred approximately $5.0 million of fees as a result of the refinancing, of which $1.9 million were recorded as deferred financing fees on the Consolidated Balance Sheets and $3.1 million were expensed.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 ~~the Receivables~~an accounts receivable securitization program (the “Receivables Securitization ~~Program~~Program”) consisting of, among other agreements, (i) ~~the~~a Receivables Financing Agreement (the “Receivables Financing Agreement”) among Evoqua Finance, as the borrower, the ~~Receivables~~

lenders from time to time party thereto (the “Receivables Financing ~~Lenders,~~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 ~~the Securitization Facility~~a receivables finance facility (the “Securitization Facility”) in an amount up to $150.0 million and (ii) ~~the~~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. Under the Receivables Securitization Program, the Originators, pursuant to the Sale Agreement, are required to sell substantially all of their trade receivables and certain related rights to payment and obligations of the Originatorsoriginator (together with respect to such receivables (the “Receivables”) to Evoqua Finance, which, in turn, will obtain loans secured by the Receivables from the Receivables Financing Lenders pursuant to the Receivables Financing Agreement. On April 1, 2021, Evoqua Finance borrowed $142.2 million under the Securitization Facility. During the third quarter of 2021, Evoqua Finance borrowed an additional amount under the Securitization Facility and had $148.2 million outstanding at June 30, 2021.

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

“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 ~~Receivables Securitization Program matures on April 1, 2024. As of June 30, 2021, we were~~Company was in compliance with all covenants during the ~~covenants contained in~~six months ended March 31, 2022, does not anticipate becoming noncompliant during the ~~Receivables Securitization Program.~~

year ending September 30, 2022, and therefore, subject to collateral availability, does not anticipate any additional 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.

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.

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 six months ended March 31, 2022.

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:


		Nine Months Ended June 30,					Six Months Ended March 31,
(In millions)	(In millions)	2021		2020		(In millions)	2022		2021
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	$	102.9	$	100.7	Net cash provided by operating activities	$	29.1	$	63.1
Net cash (used in) provided by investing activities		(74.4)		41.8
Net cash used in financing activities		(83.0)		(110.4)
Net cash used in investing activities						Net cash used in investing activities	(230.6)		(44.0)
Net cash provided by financing activities						Net cash provided by financing activities	183.9		8.3
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	3.0		0.8		Effect of exchange rate changes on cash	0.9		2.3

Change in cash and cash equivalents	Change in cash and cash equivalents	$	(51.5)	$	32.9	Change in cash and cash equivalents	$	(16.7)	$	29.7

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 ~~$102.9~~$29.1 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, and ~~$100.7~~$63.1 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021.

•Operating cash flows in the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 reflect ~~a decrease~~an increase in net earnings of ~~$58.5~~$1.9 million as compared to the ~~nine~~six months ended ~~June 30, 2020, primarily driven by the gain on the sale of the Memcor product line in the prior year.~~March 31, 2021.

•The add back of non‑cash items increased operating cash flows by ~~$96.0~~$76.7 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, as compared to an increase to operating cash flows of ~~$20.9~~$59.7 million in the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, resulting in an increase of ~~$75.1~~$17.0 million. This increase was primarily related to the ~~gain on sale~~add back of foreign currency losses in the ~~Memcor product line, which was reflected as a reduction~~current period, compared to the deduction of ~~operating cash flows~~foreign currency gains in the prior ~~year,~~period, as well as ~~increased~~an increase in depreciation and amortization, and share-based compensation expenses in the current period. Non-cash changes also include ~~the foreign currency translation gain or loss,~~ deferred income taxes, amortization of deferred financing fees, gains and ~~share-based compensation.~~losses on sale of businesses, and gains and losses on sale of property, plant, and equipment.

•The aggregate of receivables, inventories, contract assets and liabilities, and accounts payable ~~provided $11.5~~used $17.8 million in operating cash flows in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~a use of $17.3~~providing $28.8 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021, resulting in a decrease to cash flows of $46.6 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.

•The aggregate of the remaining assets and liabilities used ~~$26.9~~$43.3 million of operating cash flows in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~providing $12.2~~using $33.0 million in the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, resulting in a decrease to cash flows of ~~$39.1~~$10.3 million. This ~~decrease was primarily~~is mainly due to ~~an increase in customer long term receivables~~timing of payments and timing of ~~payments, including vendor prepayments.~~cash receipts on long-term receivables.

•Income taxes ~~used $2.5~~provided $0.1 million during the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, as compared to ~~providing $1.6~~using $3.9 million during the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, resulting in ~~a decrease~~an increase to cash flows of ~~$4.1~~$4.0 million as compared to the prior year period.

Investing Activities

Net cash used in investing activities was ~~$74.4~~$230.6 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, as compared to net cash ~~provided by~~used in investing activities of ~~$41.8~~$44.0 million in the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, resulting in a net

decrease of ~~$116.2~~$186.6 million as compared to the prior year period. This decrease was largely driven by ~~proceeds from the sale of the Memcor product line during the nine months ended June 30, 2020, in addition to higher~~ cash outflow associated with the ~~Ultrapure and WCSI acquisitions~~acquisition of the Mar Cor Business in the current year period as compared to the Frontier acquisition that occurred in the prior period. This was decrease was partially offset by lower cash outflow associated with purchase of capital assets compared to the prior period. Other activity related to purchase of intangible assets remained relatively consistent with the prior period.

Financing Activities

Net cash ~~used in~~provided by financing activities was ~~$83.0~~$183.9 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, as compared to ~~a use of $110.4~~providing $8.3 million in the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, resulting in a net ~~decrease~~increase of ~~$27.4~~$175.6 million as compared to the prior year period. The ~~decrease~~increase in cash ~~used in~~provided by financing activities for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 was primarily due to an increased issuance of debt compared to the prior period. This increase was partially offset by increased repayments of debt ~~refinancing activities that occurred in~~as well as an increase of taxes paid related to net share settlements of share-based compensation awards compared to the ~~three months ended June 30, 2021. Additionally,~~prior period. Lastly, cash received from the issuance of common stock in connection with the exercise of stock options ~~increased in the current period and taxes paid related to net share settlements of share-based compensation awards and distribution of dividends to non-controlling interest~~ declined compared to the 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 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 ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020:~~2021:


(In millions)	(In millions)	June 30, 2021		September 30, 2020		(In millions)	March 31, 2022		September 30, 2021
Letters of credit	Letters of credit	$	11.5	$	13.0	Letters of credit	$	9.6	$	10.1
Surety bonds	Surety bonds	$	141.8	$	153.0	Surety bonds	$	122.1	$	147.8

The longest maturity date of the letters of credit and surety bonds in effect as of ~~June 30, 2021~~March 31, 2022 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 ~~2020~~2021 Annual 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~~About Market Risk

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

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to ~~ensure~~confirm 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 SEC and to ~~ensure~~confirm 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 ~~June 30, 2021~~March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

6861

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 asserted claims pursuant to the Securities Exchange Act of 1934 and the Securities Act of 1933 against the Company, members of the Company’s board of directors, senior management, a former executive, AEA, and the underwriters of the Company’s IPO and secondary public offering. The amended complaint 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 sought compensatory damages in an unspecified amount and an award of costs and expenses to the plaintiff and class counsel. In March 2020, the Court granted the defendants’ motion to dismiss a portion of the claims, dismissing all claims predicated on supposedly intentional misstatements or omissions, which were brought under the Securities Exchange Act of 1934. The claims that remained were those brought under the Securities Act of 1933. The Company filed an answer denying the material allegations of the complaint, the parties engaged in discovery, and lead plaintiffs filed a motion for class certification in December 2020.

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

~~In April 2019, another purported shareholder of the Company filed a derivative lawsuit in the United States District Court for the Western District of Pennsylvania, captioned~~ ~~Dallas Torgersen v. Ronald C. Keating~~, Case No. 2:19-CV-410. The complaint names as defendants the Company’s CEO and CFO, as well as members of the Company’s board of directors, and it names the Company as a nominal defendant. The complaint alleges, among other things, that the individual defendants violated federal securities laws by issuing false, misleading, and/or omissive disclosures in the period leading up to the Company’s October 30, 2018 disclosures, and that they breached their fiduciary duties to the Company. The lawsuit seeks compensatory damages in an unspecified amount, an award of costs and expenses, restitution from the individual defendants, and an order directing the Company and the individual defendants to take unspecified actions to reform and improve the Company’s corporate governance and internal procedures.

~~In July 2020, a different purported shareholder of the Company filed a second shareholder derivative lawsuit ostensibly on behalf of the Company in the 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 consolidated the~~ ~~Torgersen~~ ~~and~~ ~~Hyams~~ ~~cases under the caption~~ ~~In re Evoqua Water Technologies Corp. Derivative Litigation~~ ~~(the “Derivative Litigation”). The Derivative Litigation has been stayed since June 2019 pending resolution of the Securities Litigation.~~

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

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

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

In October 2020, the Company learned that the SEC and the United States Attorney’s Office for the District of Massachusetts are investigating whether financial misstatements were made in the Company’s public filings and earnings announcements prior to October 2018, similar to what iswas alleged in a class action lawsuit filed in November 2018 captioned In re Evoqua Water Technologies Corp. Securities Litigation (the “Securities Litigation”), which was dismissed in November 2021 following Court approval of a settlement in the ~~Securities Litigation.~~amount of $16.65 million, all of which was paid by insurance. The Company is cooperating with those investigations. Although the Company is unable to predict the outcome or reasonably estimate any potential loss from the ongoing investigations, we currently believe that this matter will not have a material adverse effect on our business, financial condition, results of operations, or prospects.

Item 1A. Risk Factors

There have been no material changes to the information concerning risk factors as stated in our ~~2020~~2021 Annual 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.

7062

Item 6. Exhibits

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


Exhibit No.			Exhibit Description
~~10.1~~			Credit Agreement among EWT Holdings III Corp., as the borrower, EWT Holdings II Corp., as parent guarantor, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and ING Capital, LLC, as sustainability coordinator, dated April 1, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on April 1, 2021 (File No. 001-38272)).31.1*
~~10.2~~			Receivables Financing Agreement among Evoqua Finance LLC, as the borrower, the lenders from time to time party thereto, PNC Bank, National Association, as administrative agent, Evoqua Water Technologies LLC, as initial servicer, and PNC Capital Markets LLC, as structuring agent, dated April 1, 2021 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on April 1, 2021 (File No. 001-38272)).
~~10.3~~			Sale and Contribution Agreement among Evoqua Finance LLC, as the purchaser, Evoqua Water Technologies LLC, as initial servicer and as an originator, and Neptune Benson, Inc., as an originator, dated April 1, 2021 (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on April 1, 2021 (File No. 001-38272)).
~~10.4~~			~~Form of Special Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on May 19, 2021 (File No. 001-38272)).~~
~~10.5~~			~~Form of Special Performance Share Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on May 19, 2021 (File No. 001-38272)).~~
31.1*			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1**			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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

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.





~~August~~May 3, ~~2021~~2022	/s/ RONALD C. KEATING
	By:	Ronald C. Keating
		Chief Executive Officer (Principal Executive Officer)





~~August~~May 3, ~~2021~~2022	/s/ BENEDICT J. STAS
	By:	Benedict J. Stas
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

7264


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


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

Severance payments	702		970
Fair value of liability derivatives	512		4,716
Other	31,913		24,393
	$	165,127	$	143,389


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


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

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


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


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

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


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


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