Evoqua Water Technologies Corp.

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 speaker's opening remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key on your telephone keypad. 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. Thank you. I would now like to turn the call over to Dan Braylor, Vice President of Investor Relations. Please go ahead.

Thank you, Nicole. Thanks, everyone, for joining us for today's call to review our third quarter 2021 financial results. Participating on today's call are Ron Keating, President and Chief Executive Officer, and Ben Stass, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will open the call to questions. This conference call includes forward-looking statements, including our expectations for the fourth quarter and the full year of fiscal 2021, statements relating to the impact of the COVID-19 pandemic, anticipated inflation, and macroeconomic conditions, demand outlook in our end markets, growth opportunities, our pipeline, our acquisition strategy, and the impact of the proposed infrastructure legislation. Actual results may differ materially from expectations. For additional information on Evoqua, please refer to the company's SEC filings, including the risk factors described therein. On this conference call, We'll also discuss certain non-GAAP financial measures. Information required by Regulation G of the Exchange Act with respect to such non-GAAP financial measures is included in the appendix of the presentation slides for this call, which can be obtained via EVOQUA's Investor Relations website. Unless otherwise specified, references on this call to full-year measures or to a year referred to our fiscal year, which ends on September 30th. Means to access this conference call via webcast were disclosed in the press release, which was posted on our corporate website. Replays of this conference call will be archived and available for the next 14 days. With that, I would now like to turn the call over to Ron. Ron? Thank you, Dan.

Please turn to slide three. We continue to be pleased with the company performance under challenging market dynamics brought about by the pandemic. Our priorities have remained focused on the health and safety of our employees, ensuring business continuity, and improving our balance sheet and the liquidity of the company. The column on the left provides highlights of some achievements since the start of the pandemic. We have grown revenues, increased EBITDA margins, enhanced liquidity, and improved our net leverage ratio. As the economy transitions to a reopening phase, we believe we are well positioned for profitable growth. Our priorities for cash will focus on driving organic growth delivering on our M&A strategy, and further enhancing our balance sheet consistent with our priorities prior to the pandemic. We're seeing solid demand for our products and solutions. However, visibility on timing remains somewhat challenged. We're experiencing the same macroeconomic challenges as many of our peers, attraction of skilled talent, inflationary pressures, and material availability. As we have discussed in the past and will continue to highlight, Evoqua has many organic growth drivers as we look to the future. Our organization has done an excellent job of managing through a difficult period, and while market dynamics continue to present a variety of challenges, our organization is getting stronger and more competitive. Please turn to slide four. We are happy to highlight our third quarter results and the performance of the overall business. Our book-to-bill ratio for the quarter was above 1.1, and our opportunity pipeline remained strong across our diverse set of end markets and geographic regions. Both segments reported organic revenue growth as service and aftermarket demand increased, and our pricing initiatives continue to remain ahead of rising costs. Price cost for the quarter was positive by close to $1 million, and we expect that trend to continue with positive price costs for the fourth quarter and the full year. We continue to watch the evolving status of COVID-19 and our following safety protocols published by global health authorities. We'll manage changes in the operating environment with as agility and resilience as we have throughout the pandemic, still focused on safety and continuity of business operations. We had another solid quarter in managing our short-term assets as networking capital to sales improved by 80 basis points quarter over quarter to 12.3%. a sequential improvement of 60 basis points. Our focus on strengthening our balance sheet and increasing cash flow continues, and solid results were recorded across most key metrics. Our operating cash flow and adjusted free cash flow improved on a year-to-date basis, liquidity increased to $385 million, and our net leverage ratio improved to 2.8 times. We expect to further enhance the balance sheet as we invest in organic growth opportunities and continue to pursue our acquisition strategy. Please turn to slide five. As shown in prior calls, this chart represents our expectation for Evoqua's order demand in our primary end markets. In addition to our fourth quarter outlook, we have added a recap of our expectations shown in prior webcasts since Q2 of 2020. We started presenting this outlook at the beginning of the pandemic to give investors an indication of the expected short-term demand trends when visibility was otherwise challenging. As commented earlier, we are seeing strong order demand, and this chart indicates eight of our 10 key end markets are expecting improved year-over-year fourth quarter order demand. I would note that we are seeing strong demand in chemical processing. However, it is shown as red because we booked our largest outsourced water contract for a chemical processing company in the prior year's fourth quarter. If we were to exclude that contract, the CPI dot would also be green. We'll be happy to address questions about specific end market drivers during the Q&A session. Please turn to slide six. Our business has been resilient during the pandemic and continues to benefit from stable and recurring revenue growth. As shown in previous earnings calls, this graph presents our revenue and adjusted EBITDA on a rolling 12-month basis from quarter to quarter since 2017. Our overall revenues have grown at a compound annual rate of almost 5%, with adjusted EBITDA growth over 8% during this time. The business continues to operate on a steady and profitable growth trajectory after adjusting for the divestiture of Memcor. We primarily pursue capital projects to ultimately drive stable, recurring, and profitable service and aftermarket growth. Currently, our service business comprises 42% of our trailing 12-month sales, while service and aftermarket combined make up approximately 60% of our business. As we have previously discussed, the nature of our business is subject to quarterly variability. However, we have good visibility into our revenues from products and services on an annualized basis. I would now like to turn the call over to Ben.