AQUA - Earnings call transcript Q4 2019 | Evoqua Water Technologies Corp

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Operator

Good morning, and welcome to the Evoqua Water Technologies Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, all participants have been placed on listen-only mode and the floor will be opened for your questions following the presentation. After the speakers' opening remarks, there will be a question-and-answer period. [Operator instructions].

As a reminder, this conference call is being recorded and your participation implies consent to our recording of this call.

agree terms, not this disconnect do time. you with please these at If you. Thank

like call ahead. I Brailer, turn would to now the of Relations. Vice Investor over Please go President Dan to

Dan Brailer

Thank Thank And Evoqua Technologies XXXX call you, conference quarter joining review fourth results. good everyone. Water our Erica. to financial us you morning, for for

we call Joining me and Ron Officer. Stas, as questions. Vice Executive are our Ben possible. keep that Chief After and you Financial the to questions many President and to on Keating, today's will prepared ask We one as remarks, accommodate President to a call Officer, Chief open and please Executive follow-up question

call and results may of benefits our costs conference for and Actual forward-looking and our expectations digital with strategy. as our the fiscal two-segment our execution expected This associated remainder expectations. of realignment statements XXXX, includes differ including XXXX as from materially well

refer the therein. company's on For the SEC to information including filings, Evoqua, additional described factors please risk

which will discussion to for Investor Web such results On Regulation via included Exchange slides. respect with call, All Information of Act obtained G financial of have measures by measures. presentation financial we in non-GAAP this is Relations the required financial this and can have non-GAAP the of certain also historical Evoqua's non-GAAP included reconciled presentation the slides site. been in call, section be the Appendix a

or on refer to Unless otherwise September year measures which this specified, a full-year on our to XX. fiscal references to call year, ends

website. and days. the this call via seven disclosed our which webcast posted in of were the to conference corporate release, Means was archived next this available conference press on will be for call access Replay

over to that, turn like the now With to would Ron. call I

Ron Keating

strong of improvement. revenue full-year growth, We're Dan. to strong pleased growth, high-end free cash significant guidance. that results you, leverage record Thank and were flow organic record XXXX The at order the sales generated earnings, and adjusted business our report EBITDA very

be pipeline as as our fourth broad to robust of remains order positive continues sustainable opportunities the and quarter customers' growth year. the for full of double-digit portfolio Our outlook our healthy solutions and by for demand evidenced for

past water attractive to the profitable reposition taken expanding an and growth long-term year, the in market. Over company we've steps for

to has organization and effective a realignment well coordinated responded benefiting the sales customers two-segment Our more are effort. and from

past digital over Our outsourced and strategy Evoqua manage our for benefits increasing. has water are advanced both and the customer expectations year water opportunities

increasingly look treatment outsource water Customers partner Evoqua and to treatment water to as complex their most solve a to their challenges needs.

making over approximately targeted $XXX fill past market To advance four the we've Water Frontier capital years, gaps. recent and technology growth million investment while and position, our a to invested in Systems leadership majority also XX in acquisitions

our into aligned attractive the continue of offering. the customer investments not portfolio We our to and only are our most business, around shaping also manage but portions

we recently world-class of further this sheet product partner divestiture balance these strategic filtration Following announced to the while which will our strengthen ongoing access strategy, Memcor providing a line technologies. advanced to our

to We organic inorganic and the our position plan to take organization revenue for actions will continue and drive growth. strategic

customers more customers meeting, corporate to added as sustainable and a to we company our we and well-positioned sustainable fourth moves world circular joining the leadership economy, performance. with recent we As assist are value, our needs. integrity, At believe reuse recycle and

our We're sustainability goals. to helping their engaged meet in customers

our drive improve actions in taking company expansion including to program Additionally, XXXX. of and our sustainability portfolio of we're the sustainable goals solutions

XX%, growth of pleased to we nearly generated our slide X. driven results the Please the organic overall turn We're growth In of by XX%. revenue primarily with approximately quarter. for quarter, very

than from of half revenues organic X%, For up our fiscal coming growth. year almost XXXX, more were that with

divisions growing with for year. post full-year double approximately quarter, XX% see four outstanding had the a we're APT performance and line pleased growth revenue up was Order growth for the double-digits on five for strong particularly segments. product the basis a our of digits out to both Aquatics of

revenue growth in driven reported X% also ISS of the services approximately solid quarter, and by capital. both

first made progress go-to-market our streamlining completed we realignment significant year the structure. and two-segment in We've the of

materialize see We deliver continues XXXX, while to to additional in expect customer the structure benefits new efficiency.

and We delivered flow capital financed quarter, conversion cash year. a of over which our flow. $XXX water well million including enhances free and increases during net cash asset the We outsourced XXX% income cash the large successfully rate of adjusted overall a generation growth of for free returns investments

Frontier the October. and our signing product acquisition to agreement in XX% the of announced line Water in divest Memcor We a stake early our of

of most Memcor apply the the below to times. X.X further expect reduce proceeds net to divestiture from the We current our leverage

end the the the Memcor include leverage divestiture, approximately proceeds expected we fourth from the X.X forma pro At times. net of our quarter, is if

no in Please used Emerging in can growth turn and that contaminants. There removal significant are water slide for attractive to market come. contaminant challenges the be one-size-fits-all a provides treating decades technology is four. to emerging opportunities mission-critical Evoqua competency that there challenging of is

network, combined and extensive portfolio, with solve for Evoqua water most help favorably challenging comprehensive service Our our treatment mobile the problems our customers. to fleet positions

a are driven differ received safety to public local threat federal, perception. our and which variable highly still adoption the treatment enforcement part and and PFAS, has between evolving is and authorities. of while significant publicity in early, complex recently, requirements water Regulatory state and legislative supply. still rate, is growing The by

to stage, and drinking military These bases, municipal early landfills. over the have installations number years. include sites more potential the still coming industrial that than XX and and US-based water, installations we grow treatment has quickly testing While PFAS

mobile water We including investing and have and expanding in assets we're portfolio. that multiple remove technologies to from PFAS fixed

trials treatment at providing PFAS new technologies aimed actively and investing expanding destruction technology also capabilities. and in we're solutions, developing to addition In

federal, assuring key and We to expect determining But the state specifics address growth needs. and as size and of equipped regulations the to scope Evoqua the a rate. in is we're local that PFAS market plays factor

Please X. turn to slide

digitally recurring cornerstone enabled of revenues. highly remain a we focused and our As on our strategy, growing

to we're challenges. address many complexities water a result trends, treatment As of increasing these macro are and investing

incorporate total our to beginning we're our into to customers. to and maintenance, product efforts, IoT efficiency, cost technologies boost predictive portfolio enable ownership vast provide recent protect assets Through predictable

to connected customers often water, seeing of like systems. the management program after significant our This WaterOne benefits leads outsourced our strategy connected choosing

has during on digitally program and significant the We basis to points that one across $XX million portfolio. meet strategy or $XXX enabling track margin of of WaterOne year progress than digital ago our Evoqua's goal of more made improvement nationally year. million with we're launched exceed X,XXX to existing sales three-year

Overall, quarter adjusted since revenue quarter EBITDA to recurring and a from revenue turn on business graph This slide Please XXXX. to X. our and rolling benefit the from to continues presents basis stable growth. XX-month

grown revenues this rate approximately almost a time. of with X%, EBITDA growth overall at have of Our adjusted XX% during

service We see XX% revenue continue of pulling and X% XXXX. growth, through of which over annually revenues now is since growth strong accelerating compounded to product

As quarterly we the our previously discussed, nature variability. is subject of to business

annualized visibility our on and products an basis. high into have from services revenues we However,

turn to growth. Acquisitions will to Please strategy slide be X. supplements part our important an organic continue long-term of that our

Over acquired the portfolios our and XX X added years, reach. four geographic companies, extended vertical to which of product market four our or have we past that and technology

the applications. selenium Frontier our systems, We're and the investment, heavy to solutions welcome of of XXth transaction. great in recent coal ash with pleased our Water, providing pleased is technology acquisition stake and for very Frontier from sulfurization a other mining metals very removal a marking ponds to majority team biological flu We're to most cutting-edge Frontier Evoqua. treatment gas

systems early membrane-based October, DuPont of to and have Memcor line integrated We've we we delivered solutions decades announced long our agreement with also the divest enjoyed In our as product into marketplace. to a DuPont. relationship

digitally with This our existing transaction world while focus to our maintaining high technologies class enabled, businesses recurring and partners. filtration revenues, are us allows on access that trusted to growing through

results our to XXXX the outlook. our review financial turn Ben and I to will presentation over

Ben Stas

X. Thank slide Please you, Ron. turn to

nearly For revenues grew XX%. fourth revenues. prior grew the the and Organic to or revenue Product prior-year. revenue XX% over Services revenues $XX approximately million Technologies Integrated X% approximately Applied Solutions year $XXX over quarter, and XX% increased the grew

revenues Foreign X%. by impacted overall exchange approximately negatively

was approximately $XX versus EBITDA XX% year overall an margin up of the million, XX.X%. prior Adjusted for

two-segment favorable benefits, price cost, and but profitability and quarter by partly realignment growth. benefited from foreign was and volume revenue primarily offset exchange strong capital Fourth margins leverage,

nine. slide to turn Please

billion revenues products by Service growing revenues the to full $X.XX prior For the year, increased over with year. XX%, versus X%. grew X% approximately

Organic both delivering segments [inaudible]. order with X%, up revenues growth double-digit approximately were

negatively exchange $XX almost by revenues impacted or Foreign million X%.

to Adjusted offset benefits, realignment EBITDA increased XX.X% margin. versus drove year combination X% and A exchange. leverage, a partly the of foreign to factors multiple prior while the $XXX being by mix volume million including price increase, cost,

XX. slide to Please turn

revenues fourth For approximately up and million. X%. Solutions X% approximately $XXX up revenues XX%, to quarter, while Service were up service were Capital the were revenues Integrated approximately

driven fourth-quarter, quarter. projects. process during the largely X% growth outsourced chemical [inaudible] and up was over capital industries the in grew and organic double-digits the [inaudible] revenues [inaudible] order by water in quarter.

and sales. versus XX% margin volume EBITDA Fourth mix the were the growth. by due partly higher prior year, strong improved XXX million of leverage, quarter approximately primarily adjusted up offset benefit and pricing Adjusted prior-year. was price to acquisitions favorable over basis XX.X%, restructuring points increased cost The EBITDA $XX to volumes, from capital

to Please XX. slide turn

revenues lines fourth double-digit the Technology million, segment at five For growing Product with quarter, approximately Applied increased of rates. product the four XX% $XXX

impacted negatively by million revenues exchange $X Foreign approximately X%. or

profitable pleased the highly product and growth the double-digit fourth report line for EBITDA and revenue quarter adjusted both We're our year. Aquatics that to reported full

leverage, margin EBITDA growth. adjusted Improvement million of For a driven Aquatics was mix, sales grew driven and volume quarter, $XX realignment two-segment partly benefits the by fourth to line product XX% strong favorable by XX.X%. for

to were the in and the the over slightly full-year expansion last drove of investments. slide Please most down fleet million, growth $XX while year. XX. Outsourced expenditures Capital approximately $X turn water year, quarter projects increased million CapEx mobile prior fourth from

and Net over approximately XXX quarter, including outsourced we capital basis fourth primarily the approximately basis points capital prior-year, in a XX Working is over net million quarter expenditures a $XX quarter. capital the million million the which or working Increase growth increased driven sequentially acquisitions. from of includes sales On mobile the improved $XX of $X large and growth investment, CapEx from prior-year financed were million assets. capital million water growth. volume $XX points financing. third $XX basis, by working the CapEx in year-to-date project During

X.X the adjusted XX. the exceeding XXX% flow Please of $XX net in million, Leverage strong from quarter, cash to Full-year cash was sequentially and improved X.X slide by turn for times Free to EBITDA $XXX cash free quarter generation. both million. driven growth flow income. times adjusted was

of will further to Additionally, quarter, Memcor pro leverage net flexibility. end sheet approximately the forma proceeds we the from divestiture expected is considering X.X debt Memcor balance times. our the fourth At of the net divestiture, paydown expect be from proceeds improve the the

approximately cost Our of weighted X.X%. average debt is current

year. the Please the also new throughout as monitoring but we enter slide momentum that built turn to have we're we XX. year, pleased with could uncertainties the We're fiscal unfold

XXXX the macro going to a the solid Notable sales a book trends. pipeline strong order Tailwinds water include strong benefits year into and growth. realignment, close execution of with from fiscal favorable two-segment opportunities

is economy may over convert water a strong, but period rates global that driven slowing. the growth be tend service contracts, The there continues are concerns which to growing, time. order to The by outsourced longer of book partly be

invest for currency fluctuations. labor We of to in on continue pipeline in commercial also opportunities. a Geopolitical strong market tight potential talent our risks to execute create

Please to XX. turn slide

cost assumptions neutral for order macroenvironment. to slower We're XXXX be a in Price balanced positive. following. slightly key to and approach, is the include timing potential conversion Our taking for factoring the growth expect

see to cost restructuring annualized benefits. $X to expect $X approximately million million of We

labor front-end tight robust pipeline. have a the [inaudible] for our to employment investment on and We costs potential also opportunity market with capabilities higher execute associated

to We're cash higher than be flow conversion targeting XXX%. XXXX free

XXXX includes between million transaction. $XX expect the Memcor to which million, expenses be We to tax $XX

in Memcor to million the approximately share We XXX sales have count our impact EBITDA the and divestiture be factored and adjusted shares of expect diluted into we outlook.

Please slide XX. turn to

variability our basis quarterly a past we This have historic four chart the earlier. visibility We XX-month years. seasonal into highlights business over as good discussed our rolling over and

However, over XX-month rolling of variability the to period, tends course a normalize. this

to fiscal this reflected chart, As pattern to to XXXX. expect on similar our XXXX EBITDA see we be quarterly adjusted

turn XX. slide Please to

million. chart $XXX the for range in a this $X.X $X.XX are billion billion the million forma to is growth $XXX EBITDA comparative for adjusted of outlook pending on basis pro rates The Memcor adjusted to revenues full-year and in the of divestiture purposes. range on Our

first a year. line is the be to see range the XX% with which We EBITDA of the midpoint, to in adjusted of XXXX typical in expect half

quarterly As commented XXXX to on our similar adjusted see to XX, be XXXX. pattern EBITDA slide to expect we

long-term turn targets We Please three slide XX. these to to years. to next committed remain the over five

strategy is increasingly solutions more Our revenue to digitally-enabled focused growth on go-to-market additional drive customer comprehensive recurring and benefits.

remarks. closing Ron like now back turn would call I for to over the to

Ron Keating

of XXXX. work year industry-leading Through our Thanks, slide results are we turn in looking Ben. to the the solid strong year forward Please for another XX. to tremendous team, delivered and

Our two-segment and order invest continuing growth yielding heavily our strong development. is we're customer benefits and resulting realignment team to talent in in

strategy we're multiple WaterOne efficiently outsourced and on our and more water track manage to leverage is overall assets opportunities. digital our working connected to

increasing As in favorable we're to benefit diligent our a the from and emerging in year-over-year pricing to continue challenges well-positioned benefits saw and in initiatives will from XXXX. company, water contaminants. trends We pricing be XXXX macro we

providing was flow cash sheet Free strong, balance flexibility. increased

CapEx We growth. to invest expect to customer our very strong spending as growth demands to continue we and order meet service

manageable, will supplement our allowing we our and priced attractively us Additionally, to to of organic better fill serve our identified continue acquisition tuck-ins strategy customers. growth gaps,

of our confident position go that team our strong we improving market actions through members. and We into and the dedicated with is XXXX are momentum

questions. to will your open We the now call

Operator

Instructions]. [Operator

Deane first question from comes Capital with RBC Our Markets. Dray

Deane Dray

everyone. morning, Good you. Thank

Ron Keating

Good morning, Deane.

Deane Dray

all, flow. in of and a congratulations strong fourth on cash rebound year First quarter especially

to the can we start slowing that seeing with you how where you be Where might mentioned, that? some growth and having Ben been might the be congrats be slowing? some team. rate, may where Maybe So, there

Ron Keating

as we sign ISS in. are it Deane, service order know, longer-term play have lot this many you highlighted we we've that again will vertical orders would we in book A talked and years. be go on watch fantastic as had growth long-term call. we'll the that a so multiple orders, So, of contract that we across markets, we've

nature visibility revenue the So, we of which the look it's into to the continue for on good highlight. our we years recurring us and really as out future

in in Ben a And a seeing pause they've markets, the projects slide trigger a a we've then, at. of larger customers in the in to And would have not with be we're around be on. seem a just years. they looking seeing power about and trends, processing, even that decisions considered the hydrocarbon quotes pull not us but They making chemical give macroeconomic that seen talked would some little stop, be Where as bit little historical in on and little prelim those to the cancelation slowdown, and of the to asked we're than we're a the of them or bit is pipeline the some slower hesitating pipeline. a

Deane Dray

it surprising the That's might standalone is way see around years very an question have a then, quick a helpful. exit. And the on not been considered Five very of this a just business, Memcor divestiture. in it. service to ago, But lot much

was So, was that what were Evoqua. core the factors in consideration to this about a business that

Ron Keating

And I based. think question. service business we side. We investing you it's actually longer in focused with back aftermarket It's more service project the hit see very highly them, are tail. recurring. We're predictability. repeatable, can drive We a in and that it digitally can in based. aftermarket we're that a less highly the businesses your so that tail more connect effectively good It's

We we're manufacturers design, And for had for to assemble products year, best-in-class that DuPont certainly that membranes. who made and The selling was business the with decades. many had it membrane partnered a many other only we and it are Memcor, thing about against we source side. on membrane

made where sense it great be still with DuPont for So, access we those manufacture. tremendous to aligned products Memcor that to they have

Deane Dray

you. Thank

Operator

Our next Stifel. question comes from

Nathan Jones

morning, Good everyone.

Ron Keating

Nate. morning, Good

Ben Stas

Nathan. morning, Good

Nathan Jones

growth organic I'd XXXX. about on some looks like what commentary bit of little the in order zero versus rates to for guidance to be square a the

both for talked You having double-digit across year. order segments about growth full the

revenue get of typical in these than talk kind bake that things from those for as rather a that to – shifted of is out I growth to orders. you've you see might be more realizing converting What XXXX? you've be few into that increased long we the XXXX Can in and of might revenue the digital backlog areas? these of in out us you bit these think orders about it an of given little a idea the duration XXXX? portfolio some And in the as dated years has some

Ron Keating

look of that extended businesses. their cycles. And ISS both longer is service a And years longer into the at orders That years. have see Nathan, contract. has that amount of that increased. it orders we'll cover – has fair and So, typical that in longer to the get, duration multiple you to has backlog are the longer-standing

very us pleased the we're is. outlook It good very visibility that. with So, what gives into

faster say quarter. on would very next the that, of book-to-bill a the represented you that lot in a look approach fourth took is I giving. had in as saw at and in we're top the APT little line, a we year, results we we the balanced guidance and

sure we see that balanced to the year around rise. but expect are the want macroeconomic year, end with growth the we're into on going of back make to of continued next potentially that very the some We good trends

is as be But to just I The and fantastic XXXX. continuing FY we've is We think long-term over established we're and we the sure there. the that balanced to we've the got XXXX, demand at outlook right record tenor very The demand give do product portfolio. right that that, got track make and we've there. FY tone realized look in

Nathan Jones

uncertainty Never of hurts the year? into you it half the to little and stronger on year out that second outlook. half then based half a second into of the year have the say weaker be a to the guidance guidance cautious in built built fair the a first the on Is potential of

Ben Stas

look we the chart EBITDA you second in in at very fourth Nathan. correct. see XX, similar the coming expect you that FY XX% with at Yes, be half look the to FY XXXX. to see And to That's quarter. of page When XX% XXXX you and

point in this time. visibility have We least at the that to

book-to-bill in part the within been to what's stress have business, situation, the So, APT visibility particularly all point under product this that latter happen going we're of and don't good saying, as right, has we time. year, macro just we look the industrial in at that in a uncertain to

not now conservatism it's have a right want to and activity we're don't We on point our our current order second is prudent. and But into healthy. to half at the and adjust that guidance. maintaining we're things time get year pipeline seeing think have we're change we of to though So, even where looking rates in

Nathan Jones

All right.

it that think that I'll to Thanks frame I much. pass very up. helps on.

Ron Keating

you. Thank

Operator

comes Kaplowitz next question Citi. Andrew from Our with

Eitan Buchbinder

This Buchbinder morning. Good on is Eitan Andy. for

Ron Keating

morning. Good

Ben Stas

Good morning, Andy.

Eitan Buchbinder

and points XX XX.X% expanded for XX Just year implies to XX.X%. improvement the to basis points the EBITDA another margin guidance your midpoint the of basis

realignment to in set further, margin potential expansion the could benefit talk two-segment in layer With you the about for XXXX?

Ben Stas

Eitan, good we there's to do we the year. on approach as a margin the the opportunity balanced feel for a back expansion gave go commentary like into I took XXXX. prior, we do in very Again,

to in closed need to the our we're ensure One more and the things much do make we've where we product of pipeline, water looking we treatment to much into that we that investments forward, the at our a expanding loop system. gotten realize the recycle/reuse being roll space portfolio industrial in looking a able waste are backlog at at and we're better – side

of of higher these and do in what will outside margins things, at the first follow-on go done lot that we'll which projects we've are and a because much coming And engineering article then do upfront. the creation development margins is we'll our lower

through into pickup these to If line So, as repeats, some macroeconomic we assuming faster bottom balanced around they a get there and see I trends latter could next that the call bullish. quickly, bit stay more we year we've little outlook margin top move into the of a got half what go as nice be line. balanced and

Eitan Buchbinder

double-digit five bit segment? in this talk also quarter little of businesses. the five in APT. pieces in the of the in four you a organic out of XQ product That's lines out different had Could about growth helpful. growth And had growth And four the

Ron Keating

saw it, we of four out we Again said, as five business.

some the of is with businesses we real that we've Some saw in before. the businesses benefit struggles had

roll FY Aquatics that to the see across we're business We challenges on performing quite able mentioned in we business. XXXX pleased in specifically the very were systems of had the our heels I well. So, business. Aquatics that where That's

which against it. a going visibility realigned of Rhode new where be manufacturing. Coventry, the in the is business we And fact, great headquarters we're have in announced We that Island, We moving into to is. innovation just that center

see, we touch bring and So, can and customers can feel product. in they the

very FY that did continues of that five we're really we extremely XXXX. across Again, enter So, anticipate well. out seeing into broadly as segment. And we the will four

Eitan Buchbinder

Thank you along. very much. I'll it pass

Ron Keating

Thanks.

Operator

with Our next from question Brian Goldman comes Lee Sachs.

Brian Lee

questions. the Hey, Good guys. Thanks for the taking morning.

Ron Keating

Good morning.

Brian Lee

based question. some you in APT And guess of on following to maybe just should the were the into these if other? XXXX, that you maintain confused in Can margins sort quarter. there? to a on and of to I'm EBITDA growth for revenue why kind last the little drop maybe speak being this drivers I as with both strong line be and pretty ISS on near-term seem trends incrementals and of in guidance reflected hold doesn't Incrementals, each the through

Ben Stas

when to is $X think of benefits about earlier upside expected. Ben. APT of so the in million to this looking outlook, realignment you got all, two-segment we've Brian, our Yeah, than first about

QX that that by bolstered So, was helped. and

profitable. addition, to also price that a puts in. little that the sure we expensive, Ron for the on weight engineering the initial as some benefit. we a margins on future, as on, mentioned, it want wastewater labor on factor potential on projects projects sure becomes make – But we but see making that we much is was longer-term early engineering cost tight market, more repeat these then look the pressure these And we to a In wages more

drivers main So, we at with costs execute outlook. these we look those about on additional as projects. factored for But wastewater associated the to able are we being the initial as these orders think in pipeline, the

mentioned, didn't terms and the our skis particularly sure year as of in the have we of we second our visibility the previously to then, also least the wanted quarter I fourth and to that we guidance. out And get half make over

Okay?

Ron Keating

balanced forward. Ben's I a think approach look very to comment, we we again, took as Brian, to just add And,

comes done is lot installed been and service and the thing, a they mix then as The actually once and that recycle/reuse, follow-on out after those bit, are discussed of the But years go projects customers, he in in engineering the little margin. a first they've wastewater as industrial these it around we that be larger from executed. are will well the other that discussed, once higher the because

Brian Lee

Okay. Great. very second And then, flow, That's over you're in obviously, helpful then this XXX% color. on question just the year and good cash again XXXX. targeting

around of story kind of I think had which part the a So, been turning that concern for investors. some

with X.X So, the you'll net get now sale, turns. Memcor down leverage to

You target. much long-term the above won't

So, to the de-levering bit this of a offensive? How maybe question where three to flipping is think could bit range that here, do where concern, further the ahead more timeline? a a to of targeted you little used something five-year be getting be from Thanks. leverage you about this

Ben Stas

certainly continue generate to flow. flexibility create Our balance goal to is and sheet strong cash free

are priority to We going uses of to cash. our stick

to particularly the and continue grow of base opportunities. helps the lot investment of to grow, flow orders service have as But revenues a cash conversion our it the with continue cycle. great service We water, outsourced

Memcor, In we tuck-ins free still also cash nice flow. cycle. the a long pipeline. in cash lot pressure and conversion exit flow Memcor a was addition, off the have of That help takes But the will of the

to both workbook continue opportunities to that. execute and We have lot inorganically invest on going and of we're strong to to the organically a do

and the emerging is to PFAS in in on place we investments address sure One technologies continued trend that also have item focus contaminants. other proper the and making going to we're

continue Okay? yes, we be reduction But, leverage head through to should to we see able XXXX. as

Brian Lee

Thanks, guys.

Ron Keating

Thanks, Brian.

Operator

with Our Berenberg. next Andrew comes question from Buscaglia

Andrew Buscaglia

guys. Hey,

expecting you or many are you On Memcor, long-term that the stage. you in how businesses of not portfolio – your not think something this strategy? there talk was part can maybe to Are divestment of were quantity divestments or divestments at quite I the deem

Ron Keating

Andy, that pleased the we with have. really portfolio we're

ISS those or deployed go is been through identify technologies other that solutions technologies And assemble. technologies We integrated we are product sure other like bring into do. where we've and our out we solutions we're more driving our align to and and what either through integrator design, investing fact, In with in we business that portfolio. source purchase making

we're that comfortable the balance capability. with and and manufacturing we're that comfortable the that very the we set have I very we portfolio have think our what of products

we that producing that So, was that was the we're that comfortable not gaps in the a core is of heavy membranes I something one to acquisitions. Memcor would is after have it – has we still portfolio with on some with competency, been. manufacturing say go just our want exception nor

And so, align just the most to sense made company have materials to and a go-forward. a on could the products membrane it we that access with that

Andrew Buscaglia

to had – we goals you track can some And then, Do commentary All XXXX. Okay. to how right. you exiting That's that to helpful. kind for there? set you to something some stood want progress interesting look guys expectations through see you on us some how WaterOne, as that with where of you have or pertains it and WaterOne

Ron Keating

Yeah.

over of we are that year quantification track business and what to our We we've what with articulated on the WaterOne convert said the over $XX looks service with So, [indiscernible] $XXX to one years. cycle platform million million three before. We're like. stays next into of that would well we WaterOne

margin it that basis said level the across and also We of improvement product points The a today to our thing would of is across we X,XXX it is about business deliver that deploying portfolio. digitally talked portfolio more higher and that holding true. enabled of taking very

we to or an service we're of basis revenue aftermarket point that points, at to would but of what can will and be customers I and to WaterOne see trade the go a in and going a not it's X,XXX would it's some a anticipate, type our predictability we can predict we're we going on on through be to that because aftermarket we see to installation forward, fall our our going need use. do as a going need stickiness

we're to trying what across connection digital more drive, that's of is portfolio. So, that our

So, to XX% about over would be thinking years the around going $X.X billion that revenue, five XX% to that's see. we next expect somewhere in to

Andrew Buscaglia

Thanks. it. Got

Operator

question Raymond next comes James. Our Pavel Molchanov with

Pavel Molchanov

of market revenue that disclosure guys a the lot the that by Memcor, indicative supplier, If pure the XX asking that the that's of these hardware fascinated this said, the of was and not the of a I you I'm question. recurring that perspective rate from Is being the EBITDA EBITDA, segment. taking expensive? is times. right? as the rest going in everything for on particularly days multiple Thanks valuation of water for tech, buyers, you of kind

Ron Keating

of not what new tech a when the market is water good of to buyer a is identifying right channel. technologies, overly a can't not are when are we're smaller because the get reason investments, products It And without That's it's question. indicative we're indicative water buyer. new that tech we

what go what better we able able to products at market do to much the these these ability and we're acquire effectively. in the take and and is have companies So, be because backside to take on much align is to multiples more

a trying confidence If their solution very you're at the sell in you're a operation giving putting don't they to company and risk. subscale company large and have to conglomerate, going in a that subscale to

have industrial around around levels XX% channel with portfolio a within to the our to able Evoqua, pull to source the US of two-hour the of we're and buy population, at being service the cover of customers, we assemble. through product these have, a XX branches inside service like map we able Someone design, radius we right

Pavel Molchanov

stake, One outright. of it short a helpful. the deal did Frontier, controlling with That's you Okay. more you stopping M&A. took When but buying on question

M&A generally done kind you've [indiscernible]. XXX% I at think, level. of historically,

Ron Keating

water founders and We make in of a are a really Frontier. did this the the for you're broke entrepreneurs as the why the the we I not sell think had emerging that buy with Sorry, We access effectively some And lot wanted develop engaged contaminants. bit, emerging the The portfolio together. but reason asking around little XXX%. all visionary to well with we stayed and very two me there Frontier as products partner you of to contaminants is at of treatment new business team team. very availability to wanted we on up sure products,

around to larger stake that So, projects [inaudible] model. up confident we were to we they needed had a controlling operating execution buying [inaudible] found be XXX%. a We what bought the there. ability like They operational versus scale good really

Pavel Molchanov

it. it. Appreciate Got

Operator

with Giordano next question Joe from Our Cowen. comes

Joseph Giordano

Hey, guys. morning. Good

Ron Keating

Joe. Hi,

Joseph Giordano

putting exiting bps back XXXX same from at of Hey. the and I get appreciate guidance XXX XX% you've And, gap year the third margin margin, then engineering then And service at the one we're lot fair, Ron, about is talking looking comes of points time, higher the back to end. it's longer-term upfront the if the in a your That at XXXX. tale I we're to all that the again. and want margins looking margin a little through that But think sense. three assumes, a that you there, about year bit year for to straight to that be we're of of level get made where in overall makes from and zero like at next down when same growth couple. I kind

gives you in what So, XXXX? step post up confidence that of magnitude that

Ben Stas

improvement engineering. the the see business going article you're more earlier, not necessarily to we first in areas of as Joe, where business, to as convert subscription-based mentioned you every these particularly are a year Ron

period profitable service time. a starts into revenue revenue order the going which is service convert pull-through to book when of and revenue the has that longer But occur to

So, be do do going get to to and on XX%? be how points are year – per it's to average necessarily happen We say, expect XX we basis year. we going but to each to every All we to not able able expect that, to right? get

we're mentioned the in with particularly could second visibility don't the there margin the mix. as with that, the have least of we APT because we potential some the of addition to high and we is with And have second get half the in visibility, of year businesses we the have which cautious earlier, – amount half it

Ron Keating

And, that the the and Joe, through, getting our our I that that's that's the we comes what we're year with where more what one key to projects our going to in. more we're XX%. going to of dealing as margin bonus some recurring very grow able mix solutions think improvement. business, earlier, still volume And days, our up across, some Ben deploy we're with volume, of to repeatable early we and the of talked digital just be more that and the about is highlighted wrap revenue see like going but are to this continue We're you into of is, again, is Mexican of is

from of or we know, guys profit you As a predict lot did volume not connected world. the digital

What is play out have. that we're seeing in deployments the that we

carry you'll continue really see So, to where as that's fall we the across, that through. margin

over ramping time. So, it's

Joseph Giordano

quick XX% to could – your then, heard correct. I I you you on just digital business from just say the just Did clarification. sure part follow-up one years I five my thought want of wanted that make Okay. be now? And

Ron Keating

of driving connected comes Yeah, into part as that business that's XX% through thought digital because the our revenue the be well we're can be we over side our product of XX% to – and it. service where some not feedback our lot a We're we [indiscernible]. getting visibility what aftermarket. point need business, into Also, we're on that's change, of loops go more in more to around just could getting services

Joseph Giordano

I of That's then, where stage out. And environment people just And talk opportunity when playing about don't how of like still West I scoped this you feel this good this, Wild to do Okay. is? do know a PFAS, is? regulation anyone bit little is. a Where kind market out? How on early have It's people this on being if big did like kind see really helpful. grasp where feels you super could it

Ron Keating

$X.X after we've gone on per systems to we've minute. about range service third a and strong to we've we've $XXX,XXX those won a to These about a on million mobile and be capital is. overall, treatments, in is grasp treating we're anywhere PFAS We're system, what installations where an that of somewhere a system. not can is in capital the those up operating all seen those. to XXX XXX minute gallons Right around X,XXX market now, what way temporary system seen per the There from system from gallons between

I months depend time, going it about of up and XX period where government it. are find which local regulations water that believe lot very what contaminant municipalities. a on about you're of to the the are. is what still So, another a the they're to districts concerned before regulations is set required have local seeing EPA they a they and the set But

the think cleanup for of bases. DoD billion around a estimated I $X.X the somewhere military

XX% services be would others of ancillary You XX% would think that go be to lot would that construction of on around behind around water the that. treatment. A and

Joseph Giordano

Great. That's Ron. Thanks, helpful.

Operator

Instructions]. [Operator

Patrick is Our Baumann with Morgan. J.P. next question from

Patrick Baumann

my strong for year. question. Good the a to end guys. Congrats Thanks Hi. morning, taking on

savings next XXXX On And, sorry already, I'm to restructuring year, million year-over-year if walk you that? from like $X Memcor, I'm similar you reported. call, would lot drop-through $X you but XXXX answered of just you from this synergy it for million guidance EBITDA if the just XXXX? growth, to me should I'm guess, somewhat losing of be million to revenue the what $X a bridge you're missed more with for curious, curious seem because the see and why just the you I could adjusted wouldn't from base get I the

Ben Stas

particularly including technologies, engineering earlier, in we have that technologies, technologies destruction some installs. PFAS mentioned new As first we're Ron article for investments making, wastewater

restructuring that profitable that into this to this through investments are head by first revenue pull order year of But being want making part we're will for offset So, budgeted later. we've convert those. book, we more and as we benefits

Patrick Baumann

investments? that Okay. in magnitude And dollar-wise, did of terms you quantify

Ben Stas

have for good technical benefits. And now. And it's tight. in resources, tight a then, also similar Yes, the to factored – market restructuring it's attracting pretty labor the potential right we

And sure this expect we've we those do factored see some make resources, got but the to existing we resources. retain potential to on pressure ability not only in So, to that track our year. wages

Patrick Baumann

that? price bucket or would into that cost that fall And that's outside of

Ben Stas

cost cost. is price of commodities. for outside Price That’s

Patrick Baumann

And in that adjusted restructuring EBITDA Makes a difference Okay. the what GAAP kind next of bit for of little just other backs you're for items terms would difference describe for do add XXXX? last year? in you next converging and How or me, expecting one year, then see sense. you for

Ben Stas

see Yes, convergence. should we

complete We that roll will off. carve-out it about converge. Also, deal. our next with the call we on Memcor have bonuses once compensation, But we'll talk associated some earnings IPO share-based expense the should

will about to of reduced the restructuring loan, exchange substantially, anyway. be down on And two-segment that's tailing portion going variable. types as but coming with always FX, in to completion. rates talked probably the other is about be It intercompany off what non-cash FX And structure happens the the non-cash a we winding and half what to all depends prior of that's So, on the was the year. piece

Patrick Baumann

a lot. Good Thanks great. Okay, luck.

Ben Stas

Thank you.

Operator

call Ron closing concludes That remarks. like you. his over I would question-and-answer the Thank to our for to turn now period. Keating back

Ron Keating

Thank for us you for joining very much today. the call

discussed we're the way balanced pleased And fiscal the fiscal call, We looking the We're XXXX with year numbers. way out strong that the our of on I and are forward awfully we as we're very estimating know a that at to close XXXX the that year XXXX. XXXX. – approach took to we a looking

say I that for demand we great to offer. continue see the to has would that a Evoqua products

as and sustainability driving opportunity to we become see sustainable a tremendous continue our focused solutions. We as on are well customers as

members do needs. Evoqua to their us trusting our in that our the work for team take customers care across of they to like thank enterprise and would of I thank all the for

with us. speaking again joining you for quarter. We again forward you look to Thank next

Operator

fourth concludes conference That you. XXXX Technologies today's Water Evoqua quarter Thank call. earnings

wonderful disconnect may You this lines day. your time at a and have

Dan Brailer	Vice President, Investor Relations
Ron Keating	President and Chief Executive Officer
Ben Stas	Executive Vice President, Chief Financial Officer and Treasurer
Deane Dray	RBC Capital Markets
Andrew Kaplowitz	Citigroup Global Markets
Nathan Jones	Stifel, Nicolaus & Company Inc.
Brian Lee	Goldman Sachs & Co.
Andrew Buscaglia	Berenberg Capital Markets
Pavel Molchanov	Raymond James & Associates
Joseph Giordano	Cowen and Company
Patrick Baumann	J.P. Morgan Securities

Evoqua Water Technologies (AQUA) 21 Nov 192019 Q4 Earnings call transcript