Evoqua Water Technologies Corp.

Hello and welcome to the Evoqua Water Technologies first quarter 2022 earnings conference call. At this time, all participants have been placed in 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 the 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 to 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, Brittany. Thanks, everyone, for joining us for today's call to review our first quarter's financial results. participating on today's call are Ron Keating, President and Chief Executive Officer, and Ben Stas, Executive Vice President and Chief Financial Officer. After our prepared remarks, we'll open the call to questions. This conference call includes forward-looking statements, including first half and full fiscal year 22 expectations, statements relating to the demand outlook on our end markets, growth opportunities, our order pipeline, our acquisition strategy and pipeline, integration and future performance of the MarCorp business, PFAS and infrastructure-related legislation, supply chain challenges, inflation, labor shortages, general macroeconomic conditions, and statements related to the ongoing impact of the COVID-19 pandemic. Actual results may differ materially from our expectations. For additional information on Avoqua, 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 with respect to such non-GAAP financial measures is included in the appendix of the presentation slides for this call, which can be obtained at Avoqua's Investor Relations website. Unless otherwise specified, references on this call to full-year measures or to a year refer 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 investor relations 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, and thank you for joining us. I appreciate your interest in Invoqua and am pleased to provide insight into our results and outlook. Please turn to slide three. We reported very strong first quarter results measured across all key metrics. Market demand continues to be robust, driven by the growing global need for safe and available water. We're helping customers solve problems and achieve their sustainability targets. Both segments reported double-digit organic revenue growth with broad-based demand across capital, service, and aftermarket in all regions and most product lines. Our book-to-bill ratio was above one, and our pipeline and demand indications remain robust. Price-cost was positive with solid price realization across both segments. Supply chain challenges, inflationary pressures, and talent recruitment continued to result in unpredictable order conversion visibility. Our team has navigated these constraints effectively to date, and pricing initiatives across the organization have been and will remain a priority. Cash flow was strong, and we continue to drive improvements to the balance sheet. Adjusted free cash flow conversion was north of 200 percent, net working capital was approximately 10 percent of trailing 12-month revenue, liquidity improved sequentially, and our net leverage ratio improved to 2.4 times. We'll discuss the MARCOR January 3rd acquisition in a few minutes. However, when including MARCOR's expected annualized EBITDA and purchase price on a pro forma basis, our net leverage would have been 2.8 times as of December 31st. This is well within our targeted range, with liquidity remaining solid at $270 million. Please turn to slide four. Evoque was a performance-driven water technology company focused on delivering strong financial results. As you can see, we've delivered outstanding results across these six key metrics over the past several years. We have a talented and dedicated team focused on solving some of the world's most complex water problems. Our results demonstrate the strength of our business model and focused execution. We're proud of the progress we've made, and we remain focused on the daily actions that lead to executing our strategy. Please turn to slide five. This chart represents our second quarter expected order demand by end market. We have updated the relative sizes of our end markets and included Marquardt's pro forma annualized sales. We have renamed the healthcare end market as Life Sciences, which is now the largest market we serve. The Life Sciences end market is a combination of the healthcare, pharmaceutical, and biotech industries. We expect to see strong order demand in the second quarter across most end markets, including life sciences, microelectronics, power, food and beverage, and the light and general industries market. Demand in our municipal wastewater end market is temporarily muted, largely due to spending deferrals aligned with the recent passage of the infrastructure bill. Our municipal wastewater pipeline is robust, and we expect to see order flow pick up in the near future. Overall, we expect to see a robust demand outlook across most of our end markets in 2022. We'll be happy to address questions about specific end market drivers during the Q&A session. Please turn to slide six. Throughout the year, we plan to highlight specific end markets and to provide additional insight into our portfolio of solutions. Life Sciences includes a collection of large and growing vertical markets, and we expect both segments to execute on long-term opportunities for growth. We have played an important role to the life sciences market throughout the pandemic, providing customers with a reliable source of ultra-pure water for vaccine research and development, manufacturing of COVID tests, and use in hospital laboratories. APT has seen strong demand for EDI modules in the global pharmaceutical market, and we expect pharma demand to continue. Last year, we announced the rollout of Vantage SPD. a next generation high purity water solution that provides a water one digitally enabled system for medical device reprocessing. This innovative technology has been well received in the market. The addition of MarCore expands our offerings in the life sciences market and completes our offerings to the hospital industry. Please turn to slide seven. We're pleased to have the MarCore team as a part of Evoqua. We're attracted to the opportunity for several reasons. MARCOR is the market leader in providing critical water solutions to FDA-regulated dialysis applications. They have an extensive service branch, they have large installed base, and highly recurring revenues. MARCOR service techs bring significant expertise and know-how in providing high-purity water to a regulated market. We were able to purchase the business for slightly over seven times annualized EBITDA, which speaks to the validity of our one-to-one M&A strategy. We are working on plans to move MARCOR onto our SAP platform, and we are well underway on our business integration plan. This is a highly synergistic transaction, and we expect adjusted EBITDA margins for this business to reach 25% over the next 18 to 24 months. One example of value creation will come from branch consolidation. 25 of MARCOR's 27 service branches are located near Evoqua branches, providing an opportunity to optimize our footprint. The addition of the MARCOR service tax will enhance our service capabilities, our capacity, and our technical expertise. We've provided more information on MARCOR's product lines on slide 23 in the appendix. Please turn to slide 8. This slide highlights the many water treatment needs within a hospital. We've been a provider of all these capabilities for many years with the exception of hemodialysis. The addition of MARCOR satisfies the remaining gap in our hospital water treatment offering, allowing us to provide complete solutions for a hospital campus. We feel that the Life Sciences market focus could also provide additional organic and inorganic growth opportunities. Please turn to slide nine. We were very pleased to gain two notable corporate recognitions recently. The Corporate Knights placed Avoqua at 19th on its 100 Most Sustainable Corporations ranking. We are honored to be recognized for our impact and our commitment to sustainability. We also received the Frost & Sullivan 2021 Global Company of the Year Award for Sustainability in the Water Technology Market. We appreciate this recognition of our investment in technology, innovation, and our focus on sustainability. We highlighted a PFAS handprint win in our ISS segment. The City of Anaheim selected Evoquit to provide the capital and ongoing service requirements to remove PFAS from their drinking water systems in a two-phase deployment. In the first phase, we will treat approximately 46 million gallons of drinking water per day for the majority of the City's 370,000 residents. Phase two will expand the PFAS removal treatment to industrial and commercial businesses and the remaining residents. We continue to closely monitor the impact of the recently passed infrastructure bill on the markets we serve. While it's too soon to see an immediate impact in PFAS treatment, we expect to see quoting activity ramping as we progress through the year. We were pleased to see the 2022 National Defense Act get signed into law. This authorizes funding for military activities, including $517 million above the President's budget request for cleanup of military communities impacted by PFAS and $100 million for environmental remediation to the base realignment enclosure account. I would now like to turn the call over to Ben.