PITTSBURGH--(BUSINESS WIRE)--Evoqua Water Technologies (NYSE:AQUA), an industry leader in mission-critical water treatment solutions, today reported results for its fourth quarter and fiscal year ended September 30, 2020.

Revenue for the fourth quarter of fiscal 2020 was $383.9 million compared to $412.5 million in the prior year period, a decrease of 6.9% or $28.6 million. The change in revenue was driven primarily by the net impact of acquisitions and the divestiture of the Memcor product line, which resulted in a net decrease in revenue of 5.8% or $24.0 million, in addition to a decline in organic revenue of 1.7% or $6.9 million. The revenue decline was partially offset by a favorable change in foreign currency translation of $2.3 million, an increase of 0.6% as compared to the prior year period. Net income for the quarter was $31.1 million, resulting in diluted earnings per share (“EPS”) of $0.26 as compared to net income of $1.9 million and diluted EPS of $0.01 in the prior year period. The change in net income for the quarter as compared to the prior year period was predominately impacted by a favorable change in non-cash foreign currency translation of $13.5 million, lower tax expense of $6.7 million, and $5.4 million of lower interest expense. Adjusted EBITDA for the quarter was $75.6 million as compared to $79.3 million in the prior year period. The decline in Adjusted EBITDA was primarily driven by the net impact in the period of the Memcor product line divestiture, partly offset by better margins and cost containment measures. Adjusted EPS was $0.29 for the quarter as compared to $0.17 in the prior year period, driven by lower tax and interest expense. See the “Use of Non-GAAP Measures” section below for additional information regarding Adjusted EBITDA and Adjusted EPS.

For fiscal 2020, revenue was $1.43 billion compared to $1.44 billion in the prior year, a decline of 1.0% or $14.9 million. The change in revenue was driven by the net impact of acquisitions and the divestiture of the Memcor product line, which resulted in a net decrease in revenue of 2.5% or $35.4 million, offset by an increase in organic revenue of 1.5% or $22.2 million. The revenue decline was also partially related to an overall unfavorable change in foreign currency translation of $1.7 million, a decrease of 0.1% as compared to the prior year. Net income for the year was $114.4 million, resulting in diluted EPS of $0.94 as compared to a net loss of $8.5 million and diluted EPS of $(0.08) in the prior year. The change in net income for the full year includes a net pre-tax benefit from the divestiture of the Memcor product line in the current year of $57.7 million, favorable change in non-cash foreign currency translation of $20.8 million, and a net decline in transaction costs, stock based compensation, restructuring and other charges of $27.2 million. For fiscal 2020, Adjusted EBITDA was $239.6 million as compared to Adjusted EBITDA of $235.0 million in the prior year, an increase of $4.6 million or 2.0%. The increase in Adjusted EBITDA for fiscal 2020 as compared to the prior year was driven primarily by improved gross margins and operational efficiencies, including temporary cost controls, as the Company has navigated the economic uncertainties presented by COVID-19. These favorable impacts more than offset the decline in Adjusted EBITDA generated by the divestiture of the Memcor product line. Adjusted EPS for the year was $0.67 as compared to $0.41 in the prior year, driven by the factors discussed as well as lower tax and interest expense. Net debt leverage ratio improved year over year to 3.0x Adjusted EBITDA from 3.8x Adjusted EBITDA. This improvement was generated by strong cash generation from the Company’s core operations as well as cash generated from the divestiture of the Memcor product line.

“I am very pleased with the performance delivered in the fourth quarter and throughout an unprecedented year of 2020, as we maintained uninterrupted service to our customers and executed on our strategy while addressing the challenges presented by COVID-19. We prioritized our efforts on protecting the health and safety of our employees and maximizing customer facing operations while delivering year-over-year improvements across most key financial metrics. I am confident that the actions taken result in an Evoqua that is stronger, more nimble and more effective as we enter 2021,” said Mr. Ron Keating, Evoqua’s CEO.

Mr. Keating continued, “Our solid performance throughout the year reflects the resiliency of our business and the balanced strength from the diverse end markets that we serve. We were pleased to see organic orders grow double digits in the fourth quarter as a result of increasing demand for our outsourced water solutions that provide long term, steady and recurring revenues. Organic revenues were up 1.5% for the full year. Adjusting for the sale of Memcor, we reported increases in Adjusted EBITDA for the fourth quarter and full year versus the prior periods. Additionally, liquidity increased sequentially by $49.0 million to over $300 million and net leverage improved to 3.0 times Adjusted EBITDA. Continuing our strategy of accretive tuck-in acquisitions, I would like to welcome the employees of Aquapure Technologies to Evoqua, as we concluded this acquisition in September.”

Mr. Keating concluded, “Entering 2021, we remain highly vigilant and focused on employee health and safety, maintaining customer operational uptime and continued balance sheet flexibility. We are prepared to successfully navigate potential COVID-19 challenges as we deliver on our value proposition of providing mission critical water treatment and technologies across our diverse set of end markets. Given market uncertainties due to COVID-19, our base case for the upcoming year is flat to slight growth in sales and adjusted EBITDA as we factor in order conversion timing and the investment in outsourced water projects that will extend well beyond 2021. We expect to see our liquidity position continue to remain strong and net leverage to improve.”

Fourth Quarter Segment Results

Evoqua has two reportable operating segments - Integrated Solutions and Services and Applied Product Technologies. The results of our segments for the fourth quarter are as follows:

Integrated Solutions and Services

Segment revenues increased $1.5 million, or 0.6%, to $249.5 million in the fourth quarter of fiscal 2020 as compared to the prior year period.

• Capital revenue increased by $4.7 million, exclusive of acquisitions, as compared to the prior year period. The increase was primarily driven by continued strong demand for water solutions and systems in the microelectronics end market.
• Service revenue decreased by $3.5 million as compared to the prior year period. The impact was primarily related to shut-downs and delays in the refining and oil and gas markets, as well as other COVID-19 related deferrals or delays across a variety of end markets. Timing of completion of certain large projects in the prior year period also contributed to the lower revenues, partly offset by price realization related to established service contracts.
• Aftermarket revenue declined by $1.0 million, while the recent investment in Frontier Water Systems, LLC contributed $1.3 million of revenue in the period.

Operating profit decreased by $3.1 million, or 6.7%, to $43.2 million in the fourth quarter of fiscal 2020 as compared to the prior year period.

• Increased volume and price realization drove a $2.3 million increase in segment profitability as compared to the prior year period. Additionally, cost containment measures implemented in response to the uncertainties of COVID-19 accounted for an additional $2.1 million increase in segment profitability.
• Profitability was negatively impacted by $1.3 million of operational variances related to lower service volumes and service related productivity due to customer shutdowns and enhanced safety protocols in response to COVID-19, as well as $4.3 million related to increased employee related expenses.
• Depreciation and amortization expense increased by $1.9 million compared to the prior year period as the segment continues to invest in revenue generating assets.

Segment Adjusted EBITDA decreased $1.0 million, or 1.6%, to $60.3 million in the fourth quarter of fiscal 2020 as compared to the prior year period. The decline in segment Adjusted EBITDA generally resulted from the same factors that impacted operating profit, other than the change in depreciation and amortization, and also excludes restructuring charges recognized in the period.

Applied Product Technologies

Segment revenues decreased by $30.1 million, or 18.3%, to $134.4 million in the fourth quarter of fiscal 2020 as compared to the same period in the prior year.

• The divestiture of the Memcor product line resulted in a reduction in revenue of $25.3 million.
• Revenue declined across multiple product lines in the Americas and EMEA regions, mainly due to COVID-19 related customer site closures and delays. These decreases were partially offset by revenue growth in the Asia Pacific region, driven by volume in the Electro-deionization and Disinfection product lines as demand continued to improve in the region as it recovers from COVID-19. The net impact was an overall decline in revenue of $7.2 million as compared to the prior year period.
• Foreign currency translation resulted in a favorable revenue impact of $2.4 million as compared to the prior year period.

Operating profit decreased $7.2 million to $23.8 million for the fourth quarter of fiscal 2020 as compared to the prior year period.

• The divestiture of the Memcor product line contributed $5.9 million to the decrease in operating profit.
• Improvement in operational efficiencies and cost containment measures offset the impact of lower volume from organic revenue and variances in product mix, contributing a net $1.8 million in profitability as compared to the prior year period. Profitability was unfavorably impacted by $1.0 million in increased inflation and employee costs.
• Segment operating profit also includes the positive impact of $1.0 million of lower depreciation expense and $0.4 million of favorable foreign currency translation.
• Further net operating profit decrease of $3.5 million was attributable to higher restructuring and other non-recurring charges as compared to the prior year period.

Segment Adjusted EBITDA decreased $4.6 million, or 12.3%, to $32.7 million in the fourth quarter of fiscal 2020 as compared to $37.3 million in the same period of the prior year. The decrease in segment Adjusted EBITDA was driven by the same factors which impacted segment operating profit, other than the change from depreciation and amortization, and also excludes restructuring and other non-recurring activity recognized in the period.

About Evoqua Water Technologies

Evoqua Water Technologies is 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. Evoqua has worked to protect water, the environment and its employees for more than 100 years, earning a reputation for quality, safety and reliability around the world. Headquartered in Pittsburgh, Pennsylvania, the company operates in more than 160 locations across ten countries. Serving more than 38,000 customers and 200,000 installations worldwide, our employees are united by a common purpose: Transforming Water. Enriching Life.