AQUA - Earnings call transcript Q3 2021 | Evoqua Water Technologies Corp

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Operator

Hello, and welcome to the Evoqua Water Technologies' Third Quarter 2021 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open 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.

If you do not agree with these terms, please disconnect at this time. you. Thank like of call Investor now Brailer, to turn President Vice Relations. to would over the Dan I Please go ahead.

Dan Brailer

forward-looking call the including the quarter anticipated questions. Participating Thank proposed differ infrastructure our Officer. you, Keating, quarter Stas, call open the third Executive the today's statements, will joining opportunities, demand President expectations our prepared fourth us financial results growth pipeline, materially This Nicole. Actual Thanks XXXX, from legislation. pandemic, Officer; expectations. call includes and markets, the to condition, our remarks, and for and to everyone and Chief Vice review fiscal we and are impact of our outlook of President today's statements the After call end strategy, may in on for inflation conference Executive for XXXX to COVID-XX impact the Ron full-year results. Ben our and Financial macroeconomic relating our to of acquisition Chief

to next in via will or Means disclosed would Ron? conference over of Replays the the For is can the access on conference year, for Exchange included the this for on Unless ends risk and site. On to XX. Regulation that, which call were to to I Information of filings, now to was release, year by which references specified, fiscal Web our therein. SEC factors corporate With discuss call Evoqua's conference described on site. to days. including available financial otherwise this this obtained to a call posted be such press turn appendix Investor call of Act via refer additional with which non-GAAP presentation this full-year required be in respect measures Ron. XX refer the Evoqua, measures we'll archived non-GAAP slides financial the the also to like G certain call, Relations our measures. this information on call, September company's Web the please webcast

Ron Keating

Thank turn slide you, three. Dan. to Please

with continue We the to performance pandemic. market company dynamics the about be under by pleased brought challenging

Our health pandemic. balance the our the on and and the liquidity continuity, on of the company. highlights the remained priorities since and business the ensuring our sheet The employees, of of improving provides have start left some achievements focused of column safety

grown enhanced liquidity, have and our EBITDA We increased margins, ratio. leverage net improved revenues,

As the we economy transitions for are to profitable believe we reopening growth. a phase, well-positioned

and and the products same somewhat visibility attraction our focus enhancing as and the of for many skilled seeing material remains driving with further priorities our pressures, our organic consistent growth, availability. our experiencing on We're on for challenged. priorities sheet of timing peers; inflationary challenges cash our prior balance M&A solid macroeconomic Our will delivering to demand however, talent, strategy, on We're pandemic. solutions;

As we many have as highlight, past drivers discussed continue future. the we has Evoqua organic to in the and look to will growth

getting And the We're the slide stronger continue competitive. done an turn business. highlight market a variety is challenges, our to our results overall performance of quarter excellent happy of through of present organization and while period. to has difficult a Our and to dynamics third four. organization managing job more Please

reported and $X positive the that of for and remain ratio cost full-year. we demand continue rising and and close the quarter processing continue, to positive price markets our remained expect our quarter service the fourth and to initiatives as million, regions. aftermarket by with revenue end Our above our for to geographic cost. cost and Price trend ahead for was was book-to-bill across organic diverse of X.X, increased, the segments set opportunity strong growth pipeline Both quarter

by published watch COVID-XX, following are and status global evolving to protocols continue safety of health the We authorities.

environment in operating points. of with our solid to of the pandemic, quarter manage we will XX operations. basis another short-term to and still business safety resilience, XX agility continuity had throughout improvement in a as quarter-over-quarter, managing working XX.X%, points focused We sequential and improved by We the assets on have changes net sales capital as basis

focus Our balance increasing continues. cash our strengthening on sheet flow and

And recorded most key metrics. across solid results were

and Our to operating $XXX cash X.X net a cash year-to-date on and flow ratio increased adjusted flow free liquidity times. improved our million, to improved basis, leverage

pursue expect our we to five. further invest Please growth turn and continue to as the balance in sheet slide acquisition enhance We organic opportunities, strategy. to

As represents for our expectation markets. our order end shown in chart this calls, primary prior Evoqua's demand in

shown have to a give our outlook, to visibility trends expectations, addition challenging. webcasts, of this of presenting investors added expected outlook fourth at since XXXX. We beginning pandemic our recap indication prior demand an started when short-term of In the in the otherwise was we quarter the of QX

processing prior Q&A I Please for turn strong contract, strong of As market to red eight XX are to contract year's CPI about specific quarter drivers would demand. dot We'll indicates the a quarter. our slide commented are be session. earlier, demand, it shown our six. we booked If the would expecting that is we water seeing chemical company that during seeing fourth exclude be also chemical happy processing, demand note as end we this outsourced however, chart questions are order order end and in address year-over-year improved were fourth to the key largest because in green. markets we

and recurring to from Our revenue business during growth. continues resilient stable the benefit pandemic, and has been

graph shown previous on earnings XXXX. our calls, revenue this EBITDA a As from adjusted basis and rolling XX-month in since presents quarter-to-quarter,

growth. XX XX% projects while primarily profitable our trailing demand for recurring X%, X% annual approximately this to operate to our business capital service rate profitable The continues grown have adjusting up business XX% at time. during on of business. our and EBITDA and aftermarket aftermarket sales, We stable, with steady growth the trajectory comprises Currently, a adjusted pursue ultimately after and service Our over growth of months and overall service compound of Memcor. drive almost of make revenues divestiture a

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

have to over our turn like services basis. and visibility call I'd to revenues into now we However, Ben. from the on good annualized products an

Ben Stas

turn Thank you, to Ron. seven. slide Please

For positive revenues improved, up approximately grew Organic the segments to declined. Sciences, were Segment chemical demand Health and both was end-markets, contributing processing, pricing quarter, reported we saw X.X% with X.X% variety to third growth. in including food, $XXX revenues and aquatics while revenue of million. growth a

regions. growth also across We major experienced all

turn from margin EBITDA Third by was service of unfavorable for $XX.X increased and volume offset an product quarter revenues Price Applied Product positively expansion, eight. quarter inflation. expenses adjusted variances, higher up improved XX.X%. lines. increased profitability, but overall third mix growth $XXX multiple to product X.X%. operational driven million or and revenues Technologies, and travel general million to by costs and Please across benefited pricing strong $X margin slide X.X% favorable X.X% million were compensation increased employee Organic operating

Adjusted growth to operational across positively approximately market in the mix and highlighted adjusted points X%. through favorably warranty for quarter X.X% our enhanced expenses. UV we currency each employee including we're driving variances, by reserves, impacted product third year, revenues that is customers Last and Price decreased Foreign decreased XXX nine, higher solutions and $XX on to slide EBITDA approximately basis innovations highlighting EBITDA our product impacted addition margins EBITDA costs to production the impacted Please APT providing with was quarter expansion additional turn to XX.X%, addressable organic globe. market Adjusted and margin new this international million. are quarter, profitability. product latest development focused expanding technology. variances

the been energy Generation System and to This our required next Ozone This quarter as more water improve launched XXXX. we quality globally solution approach treatment treatment used from for a footprint. has acquisition achieve Ozone of generation expanding help a effective water Generation companies amount with applications. has Powertron Ozone highly This method our enhancements to sustainable to offers decades Pacific for smaller operations on also industrial reduce targets. Onsite

Ozone Our Please with can their quality. on processes provides and ease operation slide optimized XX. offering trust they water to their turn performance focus so of for customers

million revenues quarter access improved, capital year. was X.X% versus Our Integrated segment's was revenues pleased aftermarket see revenues and to driving quarter positive over demand related prior-year, Solutions The and to market were primarily timing offset for broad prior-year. aside a the grew service and projects which revenues was the while organic to approximately somewhat last sales and capital third were of new We X.X% price by end-markets. the in were down across constraints decline of costs $XXX have up increased projects Services microelectronics variety profitability,

to of own business to asset to higher over digitally long-term. revenues outlines purchase on and water by which enabled our customer digital at and water owned equipment, points to our Last highlight increased municipal volume, Please for backlog service contracts takeaways the Evoqua-owned chooses service, well over an earning the revenue improvements. asset, enhance fleet customer XXX assets the slide mobile robust or Adjusted This composition. whether productivity EBITDA due quarter to the for the and profitability service and up outsource ISS average outsourced build Adjusted price the our with on slide $XX costs quarter, XX.X% range basis competitive services was deionization operate pricing efficiencies, continues comprised we is million strategy includes conversion contracts, asset service customer rates. margin as service the backlog use through service as aftermarket category. growing to carbon favorable XX.X% Our turn EBITDA we our The XX. prior-year. focus

saw slide, service We $XX our million We million. backlog capital have which strong to declined slightly sequentially by the $XXX growth in from quarter QX. updated backlog, growing backlog shows third

water. ISS comprised well of Service believe variations growth. see to owned And are growing, half outsource and XX% on are from from billings. expect Over comes We recurring one service we one profitable profitable approximately and we're contracts of customer equipment. to half which services due revenues quarterly for positioned backlog from timing comes revenues

outsource solutions. strong working on and both opportunity Capital and the customers approximately orders was with pipeline capital $XX is water million we're for Please for spending Our very quarter. to turn primarily slide XX. of service

and Third a XX of basis XX year basis points quarter net prior and over LTM points working XX.X% capital sales improvement of was the sequentially. improvement

versus Over term, of $XXX sales million flow the capital year. working given requirements. to year-to-date turn projects slide could cash varying XX. may amounts million we prior range working $XXX have the was anticipate in capital in long some the be to Operating Please mid-teens

You can continues cash have past conversion XXX% to above we Adjusted flow. over year-to-date. XXX% well at significantly or see goal be years, cash improved the operating free flow four

the a Our net finished the times of was months. a which almost prior down at third full XX from down over turn a turn year almost and X.X past leverage ratio EBITDA, adjusted

We two three times range. target and to continue to half a leverage in a ratio

points. the by debt Year-over-year over reduction prior of Our Sequentially, turn average weighted X.X% shift and is approximately to average debt is levels, by basis to cost our debt of and now to would weighted cost of driven year. of dropped QX debt I points XX reduced lower approximately of lower like XXX a Ron. call facilities. approximately over back the of a as improvement cost rates, combination basis

Ron Keating

Please suspending XX, August support. and unveiled to the saying proposal Senate currently the White it. start in Thanks, strong emerging close with bipartisan is X, two of on negotiations the Ben. to on and The administration XX. version final deal. Biden unfolding we bill Infrastructure summary On continued, highlights intact Washington House billion have legislative we're time, in and in proposals infrastructure real contaminants On a proposed. by and to July clean receive outlined PFAAs and remains water. original is was bipartisan March continue $XX published slide the important the plan Thursday, This

last two also CIRCLA drinking PFO and to bipartisan all the two designated act weeks PFAAs would This was support. the bill and hazardous. water action for within the PFOS hazardous years bill white five strong under gives PFAAs within regulation two passed and to EPA to chemicals as designate be require as should issue the the determine Additionally, those whether EPA a The years. house House

to water drinking closely bipartisan process legislative and two monitor Please strong to turn encouraged continue sustainability slide ways. support about the in for XX. We are think We investments. clean the by

become First, solutions for reuse discharged a than into to due water by large-scale a result volumes marsh. was the to operate. rather will to a the tap to wastewater, in beginning service higher the the and Southern our point Recently, offerings to our our relationship customers our the having plant and production sustainable Evoqua being adjacent remain handprint, Evoqua digging was which increased a ensure marsh we are continues reached osmosis COX through From which Initially, production resources. U.S. the enabling well, expanding to solution. plant, plant the The customers facing that become of plants demand more within Evoqua and reuse has the and with own our from water second The internal sustainable into hundred by chemical of fuel. establish our our stable gallon driving successful the within in new journey of plant an per more emissions perspective, the a the innovative aquifer which footprint; operations. pilot was reducing out an was now to run reverse use explore of project, minute source us water needed viability the fossil was footprint

to road removing the more we for emissions year. As XXX a reduced X,XXX from Also, tons, vehicles listed customers of slide the CleanXXX our make we ourselves on metric pleased the one passenger XX. to F'XX our in sustainability our F'XX, been to sustainable. and Please were generated and our off equivalent list than by very initiatives of first step to ability have turn recognition more

the labor varying exist rates rising with for our and growing, overall inflation highlights, our talent, market to are and The the challenges prevalent. we book at robust, our quarter growing. prices, order is search is due As pipeline Economies pandemic, is reopening skilled key commodity is demand and fulfilling demand. summarize

for impact to positive We challenges continue is our these quarter, was manage price and well, cost positive year-to-date. the

normal fully order levels. but Our conversion returned improving, to has visibility is to not

quarter, by growth serve the in experienced as Our growth as key well growth our organic of in to revenue execute, all across and aftermarket, geographical and highlighted regions. team we continues

strength flexibility, continued bolt-on and our net pleased continue sheet, are with us This cash investment enhances balance and including working enables opportunities, M&A. organic the We strengthening growth our of inorganic and flow, to strategic in capital, liquidity.

billion, to time in I $XXX $XXX respectively. open this with previously at your up full-year the now will for and be range billion $X.XX adjusted and also revenue expected of million are $X.XX to our communicated We outlook, reaffirming EBITDA to call the million, questions.

Operator

is Nathan Stifel. first from Jones Instructions] Your question of [Operator

Nathan Jones

morning, Good everyone.

Ron Keating

Good morning, Nathan.

Ben Stas

Hi, Nathan.

Nathan Jones

a I'd backlog. like on with ISS off the to start capital question

we ISS about XX% the disclosure the what this to you've of you that me things be been think quarter, that plus disclosure capital on implies talk about and last should converting Can was kinds quarter to backlog, the quarter-over-quarter. about backlog thinking those I up how booking, revenue?

Ben Stas

Nathan. Yes, thanks,

of demand. at seeing microelectronics, But our looked you If sort strength in seeing across we're we're where seeing market many in the outlook, markets, strength specifically, we've highlighted end particularly are that orders. we

Nathan Jones

about an long kind revenue? And to take into turn think should backlog how guess, how of a, duration, stuff average that we I does

Ben Stas

But to a within This some bit much backlog -- projects time, -- it more backlog was varied. years. take this one there as larger were longer that two will as was

Ron Keating

the you X:XX:XX]. balance service math as around And, where fleet, and some and we've [on calculation Nathan, at you look XX, can operate called XX%, out of build-own-operate, slide those mobile XX%, XX%, kind into do deionization, time

Nathan Jones

variances Follow-up the wanted was to thanks. I operational quarter. great, on the ask in question Yes,

out be try some variances. warranty talk been the about that? guys you and production fix increased or has should what been those called countermeasures there's reserved some and things, especially deployed we around fully costs If guess, expecting expectations, costs, driving I warranty it more? Can forward, going what's are to and You

Ben Stas

was mix. supply fully believe, was inflation. certainly that year, it, within of pretty approximately mostly due Last going plant were They of reserves. build in we We're we in vendors production materials you'd the abundance an million labor also took that product issues. vendor absorption. levers that variances that The included; of inflation $X.X sure on But had see little to that terms and were and reserved. microelectronics indirect is because largely of mix. were we on quality much it's a to that. APT also first, there upside work our with the warranty X:XX:XX] those that normally some offsets to of issues, bit running make we want warranty So, customers There through appropriate orders general the In lot recovering we of the great due care a caution, to [had

Nathan Jones

production Because were they own in those there your variances? to production that weren't variances led the actually variances things processes, other

Ben Stas

type it's And do with going was Yes, products included we general But are but continue to get in as the to absorption, mostly you across there of running price; that. can no to the that inflation well. production some within offset to that do is inflation we're there expect itself. major there. issues But operations variances our

went quite larger last associated -- with had better have we do through orders the Some absorption. And good as that some not have production microelectronics. year, have absorption,

Nathan Jones

makes helpful. you Thank very very sense, is much. that and Okay,

Ron Keating

Yes.

Operator

Your next of Deane Capital from Dray RBC question is Markets.

Deane Dray

morning, Thank you. everyone. Good

Ron Keating

good Deane, Hey, morning.

Ben Stas

Deane. Good morning,

Deane Dray

underlying turning to light or about And lots five, between slide, what the, I green. cost like price positives of call, to your page talk traffic here, everything and

Ron Keating

Yes.

Deane Dray

outsourcing But update actually, factor growth outsourcing backlog. Nathan's [Ph], out X:XX:XX] see] able the outsourcing pointing business. be the is from it the of an several next get What's what start really access, the that with Has flip over business with for temporarily making business? [You outlook start the in the question, building Ron, I wanted CapEx OpEx, to decision being out the quarters? of the onsite state is to on today, your in nice just just to and to the customers it this you [gating

Ron Keating

right certainly Actually, above one there's out, variant concerned but it access, you service some Thanks that. dot The pretty seeing of on the we is we are comments. highlight remarks, the so us, is order are that that. team continues you be requesting have CPI bit factor large of can is that with would side in one new of very because Deane. site. our come water, excluding to all six gating past in they traction mentioned. here, gain members you, a we very as feel months, about coming and it slide improved we're opening agree a the lot green the and which outsourced be at to continue we we It all and customers would for first would before but now, all, our I little of commented It over for good Thanks, look year, last the techs question as I and And, that Sure. positives on with -- is three the that are about it validate actually vaccinated that customers to that five, challenging.

all we're going the to what's watching cautiously. with Delta happen So, a variant little

other actually pulling The customers piece is trigger. the is,

that feel like of We as well would in have to may delayed, over their availability like the as projects that are they the as XX they're inflationary next they're right operate delaying they been customers of about now, have because months. are effectively some the of very be, pipeline nice dealing decisions that subside as some and to concerned XX to the with challenges materials

very the growing; we the on do But is it's have of trigger pipeline now. look water little outsourced still nice front. the bit large positive. things a very as The marketplace right overall So, pulling on orders cautiousness they're from

Deane Dray

significant a asked, for your problem CapEx of is flow then just of for That's than of what real is bracing a with It's modeling. be been helpful. growth weighing second conversion the not or been impact outsourcing significantly And kind cash really Ben. in question, business, free question year-to-date of were it some higher this to nice had terms on that We conversion. has and the we

and free from setup flow please? So, fourth this a what the about conversion for standpoint, quarter year cash next say does

Ben Stas

free capital very above next XXX% mix, into doing Yes, well to that'll year. as on flow so, we in that. goal. do confident on as more remain it'll cash conversion stay And our put kicks or head we But above expect depend pressure stay we

So, about within head expectation. feel to as we stay good into well we QX, our as also QX

some payable services could this There the overall collections, have enough chain and cash organization. to feel we on done to area, with through receivables supply some help about we as good any continue So, good weather that well, process shared inventory of the get we've as particularly hiccups reduction manage these we that pressure to we conversion sure very suppliers. stock in of that. But our our cycle make about be we and lot challenges a across collections, very majority also from offset feel

Deane Dray

a time? at to this buffer just And carrying higher are you clarify, inventory

Ben Stas

Yes, we are.

Deane Dray

that that everywhere, Yes, appreciate you. seeing We're makes hearing Thank so sense. that.

Ron Keating

Thanks, Deane.

Operator

next is of Your from Halloran question Mike Baird.

Mike Halloran

Hey, good morning, everyone.

Ron Keating

Hi, Mike.

Mike Halloran

couple a been already So, questions kind on of we've of the asked.

have wide. the chain a rate we guidance challenges quarter supply There's fourth last and fourth next awfully the year. implied exit the change that implying would about some things happening. quarter is in like quarter really it range First, healthy talked range, Didn't to

to any high So to the going on I really guess that and that run kind rate, momentum the question an this confidence is or on just of update thoughts that? good you're exit year

Ron Keating

One thing do to Mike. Yes, guidance. we question. we on Thanks what for maintain being give want us the to continue and balanced guidance, we

are that making of seen the What's book-to-bill again, into really what's the several the of happening with would for that very you've kind enter on activity, our variant sure out. of a expect the In FY down highlight the of to 'XX. what the is uncertainty our end-markets. But happening the us think strongly quarters lot I X.X. certainly tops coming tree out, some we say taking with in fairway I ratio the of slide we with Delta from be -- the shows five, for last middle just north order we as QX, to

Mike Halloran

a correct? Yes, the take high you're momentum so year, confidence that and still the degree exiting going to of

Ron Keating

Yes.

Mike Halloran

Right.

you And think that you internal to legs when other flatten supply of then kind and ahead How see How far. some some quarter, costs then, displays the do think side, you as chain you has the those there's any challenges, down about materializing. when timing very those you're piece cost the price normalization? of good do positive the or through stay of looking been networks? about supply challenges are through thinking obviously So chain so start the fourth your

Ron Keating

that the of positive so balance out through fiscal then a way well. think into on of couple year coming as cost And start normalization there'll do staying timeframe see actually during price year. the I I be Yes, FY'XX fiscal some as We to comments the think opening. all the cost made that we during the and we see end

terrific but across for inflationary team. the cost, got at the to we just in and of cetera. different well. from a areas material having on we're to with appropriate lot et we've across We're continuing momentum price So, get many that look the labor, freight, but that sure marketplace impacts inflation There's the not challenges as make services we provide,

Mike Halloran

gentlemen. Thanks,

Operator

question next Buchbinder Your is Citi. Eitan from of

Eitan Buchbinder

Hi, good morning.

Ron Keating

Good morning.

Ben Stas

Good morning, Eitan.

Eitan Buchbinder

flow full-year was about and the ahead $XX XXXX the one levels the to that's million year-to-date Within go. walk, with of almost already cash quarter growth XXXX, CapEx

to be for seen surpasses Have build that spend own you CapEx, the may operating capital customers on pipeline their it quoting levels? given So and own for XXXX you'd hesitant projects. improve, anticipate

Ben Stas

times choose works Again, is build to choose robust. whether the at the capital build operate, they these pipeline. want they continues many how do this for types pipeline But customers that own projects be of own to operate Yes, end. the

choose. more conversion what they've to area. more own in -- operate We've So build historically, we'll operate. see way which they own the build chosen seen But

Ron Keating

opportunities first the as our is that Eitan customer And option. one of big a approach with we

with water outsource a us where and tremendous be bidding first. to gives So lead it in to and on we're a a going competitive advantage able project opportunity

Eitan Buchbinder

a the month straight represent adjusted thank trailing XX.X% would quarter then second which EBITDA margin. about helpful, And EBITDA guide margin, implies midpoint XX your you. decline adjusted of on That's and

which the year-over-year. seen it you to more operational or have adjusted price cost headwinds taking Or could true is conservatism lead So margin and QX accelerate, down off variances tops? EBITDA

Ron Keating

I what to little being bit would and as go we're balanced the a of we we're didn't uncertainty forward. highlight the the based middle very with need I see to of just just were we We a on down sure seeing wanted COVID we guidance fairway. make earlier is mentioned move

Eitan Buchbinder

much. It sounds you Thank good. very

Ron Keating

Thanks.

Operator

of Steve is Your next JPMorgan. question Tusa from

Steve Tusa

morning. good Hi,

Ron Keating

morning. Good

Ben Stas

morning, Good Steve.

Steve Tusa

on an and of early growth thoughts 'XX Just sense on versus talked -- guys kind that of the the organic longer-term you about? of targets kind

Ron Keating

any guidance given dealing. on 'XX that haven't long-term targets book line we've with order that we yet. the and continue been Steve, strong certainly in will building based we the that We be anticipate our to Yes, backlog on

Steve Tusa

just in Okay, And stepping on of infrastructure On I you see how this that and the all questions had kind and to out visibility. then people some looking growth delaying just there work, near-term for back anything try. or that the there? high going level bill, better coming is drives maybe to

Ron Keating

we forward. us Look, support I overall, think the that's we're And such water. getting very bipartisan is I clean key around positive think it for that as go

very So it speaks the addressed is positive to a on long-term that be addressed trends and what's going provide. gives fantastic be contaminants needs starting industry very to happen outlook positive that. something as emphasis we the for The And in EPA and secular whole for solutions as for federal to us government will outlook. the are as to us this emerging a really highlight to the

Steve Tusa

it. Appreciate Thanks. Right.

Ron Keating

Thank you.

Operator

Your of Berenberg. next from question is Buscaglia Andrew

Andrew Buscaglia

guys. morning, Good

Ron Keating

Good morning.

Ben Stas

Good morning, Andrew.

Andrew Buscaglia

of that the thought up forward lot and that maintenance going people going the Delta out like lifts? a were, it's due forward And going basically? some forward or are pushing comment year by sounds the services need like Are of a fail it you that issues. that on about mean, can But if spend kind that access growing for robust setting we I wondering services a was bit. I maybe of variants in to quarter going pretty if staff it the they're nature I of and of off pushing to think to talk the way these you is after—market.

Ron Keating

back comes we we've continue that little bit to Andrew, experiences seen bit as and about of of wave there's Yes, is production. what their think up I a people a ramp

back other that is, the that in highlight to as this in start operating. we've full $X calls and opportunities we capital this sell. that thing and capital little in to that up the us more expanding capacity, potentially as have for things people they So greatly, open I for be other and then through But see want several we will come discussed a there's past, through, projects

So million see sale. months if later a service and about between and from out that typically go we XX you system, XX $XX.X months that capital of $XX capital sell flows

services growth slower up, a tied And as that are see suit. we recurring backlog ISS that it's that that. revenue very we'll see benefit, services growing a you That the to indicates is capital will so, and and that when we stable get follow little bit projects highlighted there's the nice on that to speak that

Andrew Buscaglia

then, and debt? focusing what maybe pay allocation, update continuing and if it. to down on one is likely, Got any thoughts about on M&A, And on capital M&A not that

Ron Keating

Well, a paying you the a robust to piece. debt of and continue we we'll can M&A on we're our the off. nice down I'll paid to going able to pipeline anticipate strategy in the we've side, coming on bolt-on that But we we've to that. the got speak debts, And about talk do execute that M&A to past. Ben highlighted want talk opportunities Ben be pipeline continue have about very to

Ben Stas

still Yes, sure. of this get debt. currently on the M&A to X.X. X.X. -- but to X clearly we we goal and environment, to so organic reducing we're especially priorities, within do X.X stated at are room We're range, got We've but focusing growth in are a times,

reduction to going as that we're that continue on So to well. focus

Andrew Buscaglia

All guys. Thanks, right.

Operator

next of Your John Walsh from Credit Suisse. is question

John Walsh

morning. good Hi,

Ron Keating

John. Good morning,

Ben Stas

John. morning, Good

John Walsh

actions kind we of thinking costs. the input because about history if this. get pricing deflation at business We kind little back look a on some just the the you've of in side of here. model to more Wonder hard bit the could transitioned It's way go other and talk about and of these taking you're

of renewal price, naturally how with stickiness a we the to ability price think So through should plus and kind XX% rate? about push

Ron Keating

obviously, -- it's little you longer the that, that but have mean, price to price being benefit backside term I term to longer more of much when look at immediately, contracts a are get stable John, harder leads as when you we sticky. on Yes. more contracts you a and have much the the also

of pressures on typically seen roll as those contracts and deflationary the to will to the contract annual And see moves. off nature bleed more we've of allows with we've than we we from But typically we out last inflationary they contract, just We surcharges, it So into longer had go typically go some new contracts given to as pricing, on. immediate some go that what. renew which surcharges. surcharges the annual

John Walsh

that. of larger there what but what articulated strategy for one larger seeing activity, moves. on are maybe industry We've just allocation, potentially you've your you're pickup and thoughts certainly a just around And but just thanks consolidation to get curious more thoughts or Great, acquisition your seen on your consolidation. maybe then bolt-ons, obviously love capital industry

Ron Keating

between potential that more are there. to and think certainly that difficult much and are moves They few I action. are industry far there some out

around our so, tuck-in be focus strategy a and And that. continue continues on acquisitions on the articulated creative to to bolt-on focus we've or we'll

John Walsh

taking questions. Thanks Great. for the

Ron Keating

you. Thank

Operator

Molchanov is question from Pavel Raymond of James. Your next

Pavel Molchanov

course, this context taking first Australian the the the Thanks the to have ask for point. a few about equation, on international supply I'm of lockdowns. question. years at in you Sydney of Two wanted Memcor that side the you in do And I market exposure the and sold the of to asking things Brisbane ago after business any Australia,

Ron Keating

the is as ground services We Australia have our we technologies, systems well large sold team products of It's do other into it's, and as that New but have our and integrators we business, business a all. it's through Zealand. much Memcor the And well We still in deploy smaller a it. that providing, not portion Pavel. that to product Australia, on access market. as We technologies sell since

Pavel Molchanov

the Italy, then like side about other that you On Atlantic, few very people do the the PFAS How similar US modernization? water package in assess Okay, England. also understood. opportunity? Belgium, And of and Northern Southern involving conversation places infrastructure asked treatment

Ron Keating

of we systems of provider deploy ion where some in exchange not And our system We're types with technologies that. We markets. technologies. for are APT and providers up a the in our in to our best UV supportive service that markets very we concentration of as deploy opportunity, is we can technologies, and have opportunities, those But those there RO think portfolio. different a and product that's certainly and there of integrators the lot around

providing are technologies. simply We

Pavel Molchanov

much. very you. Thank Okay. Thank you

Operator

Your Giordano Joe next Cowen. of question is from

Joe Giordano

morning. guys, Hi,

Ron Keating

Joe. Good morning,

Ben Stas

Hi, Joe.

Joe Giordano

Do given timing there. of your have sense the the revenue, like you side, business visibility on the have the capital just a you like in inflection backlog on

Ron Keating

talking you of backlog inflection, are to about conversion to revenue? Joe, me just

Joe Giordano

quarter just often like had flips capital of a service business for sense the that, positive couple You that that's the the, feel, you a I the have a of service given in when been the of quarters aftermarket down. and think nature I of capital?

Ron Keating

If capital you And microelectronics. within chart including and ISS, look fact orders the for at we did in to the general that backlog that you saw that up. point strength tipped

depends be the longer so are some order. it the time because types in the on duration, months but order. going of size take those larger of the to of on can they're depending they're to two it average years, orders on of to So size But orders convert some three microelectronics

Ron Keating

capital you But says averages on I months to it that XX nine slide. Joe, as think, see,

So would would months. inflection indication the XX next give an within that occur

Joe Giordano

that of Fair that what that be could a enough. kind to course, are level? would that as mid-teens? happening like, be move networking you to conditions capital that comments And to higher the then the that on your like something of matter need see like in it Is now place or

Ron Keating

It depends capital on end-markets depends it and on occurs. that mix where

we've short-term. working put larger come on lower is we long-term. should that the types correct teams that again, capital projects a as with kind they sit staying Just feel BIE soon, of We and itself the could capital lower a about possible capillary in in the range. But was lot good think it's of our that was Municipal terms CIE, longer reduced the that do the of pressure we end Memcor. sell of negative exposure segment, that in where of relatively should through reminder, of But

Joe Giordano

Thanks.

Operator

final is Sachs. from Goldman Your Lee question Brian of

Brian Lee

morning. Hey guys, squeezing good me. for Thanks

Ron Keating

morning. Good Brian. Hey,

Brian Lee

the still on in and the all you're updated on give not you about related context, PFOS you of on just the visibility time can guys order talking pipeline, an items. for or Maybe think pipeline last PFOS it I us whether million activity strength update kind that was the $XXX us backlog seeing you're around increased

anything if was related the wondering trends? there in Just order of updates to backlog that specific around terms in

Ron Keating

is with water say are fairly Brian, going I so causing remaining in people of what's would we with need, advance ball the see the what's to on government. to immediate that and they government just happen see, not federal lot the districts federal Yes, on continue until stable their expanding really what but the address a going EPA it that's with to to

rate very So well. pretty staying steady, it's staying steady win is as our

see here. has contributing to but the piece And overall continue so not to of our business is great promise, picture greatly we a that

Brian Lee

maybe then around just margins And question here. this time think decline second the enough. first positive. went in APT year-on-year and then ISS Ben, model fair of of speaking Okay, the and margin fiscal kind trends for I a inflections, And is saw 'XX,

of the operational residual weigh the is to near-term continue year-on-year and we see be So in remain clear then and that heading corner should on impact the wasn't going QX ISS in positive on APT a in 'XX. trends into margin of I here guys. basis? year-on-year of we into expecting kind to warranties turn And a of some on negative where factors, Thanks, we where to sort fiscal that

Ben Stas

Sure.

quarter, in but and into volume our I continue comp that rearview you can got plus margins just head So, on price. put the price. be on are we volumes keep margin cost mirror, to pressure this ISS for recover additional want our make But we want But on not still reserved that just don't you, In have and that if don't from can we we we better aggressive certainly still positive we're the short-term more we were is fully And little the trends, helping microelectronics future. other though tough one as on hand, to some quarter, remind our eye as ISS, were issues but year. a comps to in left, abundance to the we margins get head the margins. tough customers. fourth again positive improve have your increase even you to expect Service inflation. can an we within be as margin wanted And expecting favorable, price does comps next on costs warranty is then margins. Within maintain to process, maintain caution, additional pressure for, we if thought all APT, the our put the believe sure with into of remind

feel the So comps of our that don't any orders prior-year. segment great But work We're resolve electronics APT have any victim the these a large lot prior-year a the issues. in margins to point they certainly the within effect. is they these going of tough were issues. also impact because little see other hangover with that And we of suppliers to bit of a micro within don't absorption in produce from

well. some as comps had they So tough

we of hangover don't lot again, margin this quarter challenge a from had So basis. this we APT see a that quarter-over-quarter on

Brian Lee

the color. All right, guys. I appreciate Thanks,

Ben Stas

Yes, thanks.

Ron Keating

you. Thank

Operator

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

Ron Keating

providing to Evoqua team continuous operations safe, all tremendously support to times, in first our the I'd continuous to for strong we and Evoqua. hope in your and deliver technology interest dedicated earnings call So, be We certainly customers participating of to thank challenging and sustainable deliver you our somewhat for all, solutions Thank that market. for at the and we today. in to appreciate like continuing

Operator

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

thank for may your You interest And disconnect your lines. Evoqua. in you now

Evoqua Water Technologies (AQUA) 3 Aug 212021 Q3 Earnings call transcript