UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒						Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
December 31, 2022
March 31, 2023
Or
☐						Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
						For the transition period from _____ to _____

Commission File Number: 001-38272

EVOQUA WATER TECHNOLOGIES CORP.

(Exact name of registrant as specified in its charter)


Delaware		46-4132761
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
210 Sixth Avenue		15222
Pittsburgh,	Pennsylvania
(Address of principal executive offices)		(Zip Code)

(724) 772-0044

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	AQUA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 122,~~186~~370,~~155~~428 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of ~~January~~April 2628, 2023.

EVOQUA WATER TECHNOLOGIES CORP.

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

Item 1

Financial Statements

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

3638

Item 3

Quantitative and Qualitative Disclosures About Market Risk

5161

Item 4

Controls and Procedures

5261

PART II - OTHER INFORMATION

Item 1

Legal Proceedings

5362

Item 1A

Risk Factors

5362

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

5463

Item 3

Defaults Upon Senior Securities

5463

Item 4

Mine Safety Disclosures

5463

Item 5

Other Information

5463

Item 6

Exhibits

5564

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You can generally identify forward‑looking statements by our use of forward‑looking terminology such as “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “plan,” “progress,” “potential,” “predict,” “projection,” “seek,” “should,” “will,” or “would,” or the negative thereof, or other variations thereon or comparable terminology.

All of these forward‑looking statements are based on our current expectations, assumptions, estimates, and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward‑looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance, or achievements to differ materially from any future results, performance, or achievements expressed or implied by these forward‑looking statements or could affect our share price. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward‑looking statements include, among other things:

•the failure to complete the proposed transaction with Xylem Inc. (“Xylem”) (the “Merger”) on the anticipated terms and timing, or at all;

•the failure to obtain stockholder approvals or to satisfy any of the other conditions to the Merger on a timely basis or at all, or other delays in completing the Merger;

•the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the Merger);

•the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the Company’s merger agreement with Xylem;

•the possibility that the Merger may be less accretive than expected, or may be dilutive;

•the possibility that the anticipated benefits of the Merger will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where the Company and Xylem do business;

•the possibility that the Merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

•diversion of management’s attention from ongoing business operations and opportunities, as a result of the Merger; the risk that stockholder litigation in connection with the Merger may affect the timing or occurrence of the Merger or result in significant costs of defense, indemnification and liability;

•the effect of the announcement of the Merger on our ability to maintain relationships with customers, suppliers, and other third parties; uncertainty as to the long-term value of Xylem common stock;

•material, freight, and labor inflation, commodity and component availability constraints, and disruptions in global supply chains and transportation services;

•general global economic and business conditions, including the impacts of rising interest rates, recessionary conditions, geopolitical conflicts, such as the conflict between Russia and Ukraine and tensions between China and the U.S., and the COVID-19 pandemic;

•our ability to execute projects on budget and on schedule;

•the potential for us to incur liabilities to customers as a result of warranty claims or failure to meet performance guarantees;

•our ability to meet our own and our customers’ safety standards;

•failure to effectively treat emerging contaminants;

•our ability to continue to develop or acquire new products, services, and solutions that allow us to compete successfully in our markets;

•our ability to implement our growth strategy, including acquisitions, and our ability to identify suitable acquisition targets;

•our ability to operate or integrate any acquired businesses, assets, or product lines profitably;

•our ability to achieve the expected benefits of our restructuring actions;

•delays in enactment or repeals of environmental laws and regulations;

•the potential for us to become subject to claims relating to handling, storage, release, or disposal of hazardous materials;

•our ability to retain our senior management, skilled technical, engineering, sales, and other key personnel and to attract and retain key talent in increasingly competitive labor markets, including as a result of the announcement of the Merger;

•risks associated with international sales and operations;

•our ability to adequately protect our intellectual property from third-party infringement;

•risks related to our contracts with federal, state, and local governments, including risk of termination or modification prior to completion;

•risks associated with product defects and unanticipated or improper use of our products;

•our ability to accurately predict the timing of contract awards;

•risks related to our substantial indebtedness;

•our increasing dependence on the continuous and reliable operation of our information technology systems;

•risks related to foreign, federal, state, and local environmental, health, and safety laws and other applicable laws and regulations and the costs associated therewith;

•our ability to execute on our strategies related to environmental, social, and governance matters, and achieve related goals and targets, including as a result of evolving standards, laws, regulations, processes, and assumptions, delayed scientific and technological developments, increased costs, and changes in carbon markets; and

•other risks and uncertainties, including those listed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, as filed with the SEC on November 16, 2022, and in other filings we may make from time to time with the SEC.

All statements other than statements of historical fact included in this Report are forward-looking statements, including, but not limited to, certain plans, expectations, goals, projections, and statements about the benefits of the Merger, the expected timing of completion of the Merger, expectations for fiscal year 2023, expectations related to customer demand, our book to bill ratio, pricing initiatives, supply chain challenges, inflation, material and labor availability, and general macroeconomic conditions, and expectations with respect to the integration and performance of our recent acquisitions, including the realization of expected synergies.

Any forward-looking statements made in this Report speak only as of the date of this Report. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements made herein, whether as a result of new information, future events or otherwise after the date of this Report. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to the date of this Report.

Part I - Financial Information

Item 1. Financial Statements

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Evoqua Water Technologies Corp.
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2022 (Unaudited) and September 30, 2022			4
Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and September 30, 2022			4
Unaudited Consolidated Statements of Operations for the Three Months Ended December 31, 2022 and 2021			5
Unaudited Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2023 and 2022			5
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended December 31, 2022 and 2021			6
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended March 31, 2023 and 2022			6
Unaudited Consolidated Statements of Changes in Equity for the Three Months Ended December 31, 2022 and 2021			7
Unaudited Consolidated Statements of Changes in Equity for the Three and Six Months Ended March 31, 2023 and 2022			7
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2022 and 2021			8
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2023 and 2022			8
Unaudited Supplemental Disclosure of Cash Flow Information for the Three Months Ended December 31, 2022 and 2021			9
Unaudited Supplemental Disclosure of Cash Flow Information for the Six Months Ended March 31, 2023 and 2022			9
Notes to Unaudited Consolidated Financial Statements			10

Evoqua Water Technologies Corp.

Consolidated Balance Sheets

(In thousands)

	(Unaudited)
	December 31,2022		September 30,2022
	March 31,2023		September 30,2022
ASSETS
Current assets	$	~~848~~844,~~320~~441	$	831,389
Cash and cash equivalents	~~104~~113,~~703~~243		134,005
Receivables, net	~~301~~303,~~128~~855		305,712
Inventories, net	~~258~~240,~~264~~713		229,351
Contract assets	~~118~~115,~~466~~461		102,123
Prepaid and other current assets	6559,~~324~~070		59,971
Income tax receivable	~~435~~477		227
Property, plant, and equipment, net	409,992		405,289
Current assets held for sale	11,622		—
Goodwill	476,213		473,572
Property, plant, and equipment, net	414,080		405,289
Intangible assets, net	307,747		317,733
Goodwill	468,929		473,572
Deferred income taxes, net of valuation allowance	4,200		5,841
Intangible assets, net	299,302		317,733
Operating lease right-of-use assets, net	57,624		53,540
Deferred income taxes, net of valuation allowance	3,000		5,841
Other non‑current assets	103,261		103,499
Operating lease right-of-use assets, net	56,568		53,540
Total assets	$	2,207,357	$	2,190,863
Other non‑current assets	93,517		103,499
Non-current assets held for sale	29,733		—
Total assets	$	2,209,570	$	2,190,863
LIABILITIES AND EQUITY
Current liabilities	$	~~486~~474,~~837~~491	$	483,716
Accounts payable	~~219~~216,~~886~~893		213,518
Current portion of debt, net of deferred financing fees and discounts	19,~~322~~376		17,266
Contract liabilities	7775,~~589~~512		62,439
Product warranties	6,~~881~~556		6,740
Accrued expenses and other liabilities	~~156~~153,~~846~~110		178,272
Income tax payable	62,~~313~~557		5,481
Non‑current liabilities	$	990,788	$	997,054
Current liabilities held for sale	487		—
Long-term debt, net of deferred financing fees and discounts	852,469		863,534
Non‑current liabilities	$	995,774	$	997,054
Product warranties	3,346		3,465
Long-term debt, net of deferred financing fees and discounts	853,599		863,534
Obligation under operating leases	47,399		43,961
Product warranties	3,327		3,465
Other non‑current liabilities	71,892		69,889
Obligation under operating leases	45,650		43,961
Deferred income taxes	15,682		16,205
Other non‑current liabilities	76,641		69,889
Total liabilities	$	1,477,625	$	1,480,770
Deferred income taxes	13,854		16,205
Non-current liabilities held for sale	2,703		—
Total liabilities	$	1,470,265	$	1,480,770
Commitments and Contingent Liabilities (Note 19)
Shareholders’ equity
Common stock, par value $0.01: authorized 1,000,000 shares; issued 123,567 shares, outstanding 121,903 at December 31, 2022; issued 123,411 shares, outstanding 121,747 at September 30, 2022	$	1,237	$	1,235
Common stock, par value $0.01: authorized 1,000,000 shares; issued 123,944 shares, outstanding 122,280 at March 31, 2023; issued 123,411 shares, outstanding 121,747 at September 30, 2022	$	1,240	$	1,235
Treasury stock: 1,664 shares at December 31, 2022 and 1,664 shares at September 30, 2022	(2,837)		(2,837)
Treasury stock: 1,664 shares at March 31, 2023 and 1,664 shares at September 30, 2022	(2,837)		(2,837)
Additional paid-in capital	~~616~~620,~~354~~056		607,748
Retained earnings	7080,~~284~~916		61,016
Accumulated other comprehensive income, net of tax	4439,~~694~~930		42,931
Total shareholders’ equity	$	~~729~~739,~~732~~305	$	710,093
Total liabilities and shareholders’ equity	$	2,~~207~~209,~~357~~570	$	2,190,863

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)

			Three Months EndedDecember 31,
	Three Months EndedMarch 31,				Six Months EndedMarch 31,
					2022		2021
	2023		2022		2023		2022
Revenue from product sales	$	292,651	$	259,775	$	~~260~~553,~~391~~042	$	~~212~~472,~~568~~343
Revenue from services	185,146		166,953		~~175~~360,~~455~~601		~~153~~320,~~700~~653
Revenue from product sales and services	$	477,797	$	426,728	$	~~435~~913,~~846~~643	$	~~366~~792,~~268~~996
Cost of product sales	(203,101)		(185,330)		(~~185~~388,~~040~~141)		(~~153~~339,~~795~~125)
Cost of services	(122,800)		(112,512)		(~~120~~243,~~497~~297)		(~~101~~214,~~965~~477)
Cost of product sales and services	$	(325,901)	$	(297,842)	$	(~~305~~631,~~537~~438)	$	(~~255~~553,~~760~~602)
Gross profit	$	151,896	$	128,886	$	~~130~~282,~~309~~205	$	~~110~~239,~~508~~394
General and administrative expense	(77,758)		(66,976)		(64141,~~076~~834)		(57124,~~829~~805)
Sales and marketing expense	(43,215)		(39,859)		(4083,~~386~~601)		(3676,~~449~~308)
Research and development expense	(4,582)		(3,751)		(38,~~835~~417)		(37,~~452~~203)
Total operating expenses	$	(125,555)	$	(110,586)	$	(~~108~~233,~~297~~852)	$	(97208,~~730~~316)
Other operating income	1,827		1,415		13,~~297~~124		13,~~657~~072
Other operating expense	(4,711)		(143)		(774,788)		(~~147~~290)
Income before interest expense and income taxes	$	23,457	$	19,572	$	2346,~~232~~689	$	1433,~~288~~860
Interest expense	(10,303)		(9,950)		(1020,~~074~~377)		(616,~~579~~529)
Income before income taxes	$	13,154	$	9,622	$	1326,~~158~~312	$	717,~~709~~331
Income tax expense	(2,522)		(2,248)		(36,~~890~~412)		(13,~~621~~869)
Net income	$	10,632	$	7,374	$	919,~~268~~900	$	613,~~088~~462
Net income attributable to non‑controlling interest	—		44		—		~~101~~145
Net income attributable to Evoqua Water Technologies Corp.	$	10,632	$	7,330	$	919,~~268~~900	$	513,~~987~~317
Basic income per common share	$	0.09	$	0.06	$	0.0816	$	0.0511
Diluted income per common share	$	0.08	$	0.06	$	0.0716	$	0.0511

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

			Three Months EndedDecember 31,
	Three Months EndedMarch 31,				Six Months EndedMarch 31,
					2022		2021
	2023		2022		2023		2022
Net income	$	10,632	$	7,374	$	919,~~268~~900	$	613,~~088~~462
Other comprehensive income (loss)
Foreign currency translation adjustments	753		2,176		34,~~562~~315		13,~~609~~785
Unrealized derivative (loss) gain on cash flow hedges, net of tax	(5,502)		21,730		(17,~~786~~288)		628,~~581~~311
Change in pension liability, net of tax	(15)		166		(1328)		~~169~~335
Total other comprehensive income					$	1,763	$	8,359
Total other comprehensive (loss) income	$	(4,764)	$	24,072	$	(3,001)	$	32,431
Less: Comprehensive income attributable to non‑controlling interest	—		(44)		—		(~~101~~145)
Comprehensive income attributable to Evoqua Water Technologies Corp.	$	5,868	$	31,402	$	1116,~~031~~899	$	1445,~~346~~748

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Changes in Equity

(In thousands)

	Common Stock			Treasury Stock			Additional Paid‑in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Non‑controlling Interest		Total
	Shares	Cost		Shares	Cost
Balance at September 30, 2022	123,411	$	1,235	1,664	$	(2,837)	$	607,748	$	61,016	$	42,931	$	—	$	710,093
Equity based compensation expense	—	—		—	—		6,196		—		—		—		$	6,196
Issuance of common stock, net	156	2		—	—		2,410		—		—		—		$	2,412
Net income	—	—		—	—		—		9,268		—		—		$	9,268
Other comprehensive income	—	—		—	—		—		—		1,763		—		$	1,763
Other comprehensive income (loss)	—	—		—	—		—		—		1,763		—		$	1,763
Balance at December 31, 2022	123,567	$	1,237	1,664	$	(2,837)	$	616,354	$	70,284	$	44,694	$	—	$	729,732
Equity based compensation expense	—	—		—	—		6,004		—		—		—		$	6,004
Issuance of common stock, net	377	3		—	—		(2,302)		—		—		—		$	(2,299)
Net income	—	—		—	—		—		10,632		—		—		$	10,632
Other comprehensive income (loss)	—	—		—	—		—		—		(4,764)		—		$	(4,764)
Balance at March 31, 2023	123,944	$	1,240	1,664	$	(2,837)	$	620,056	$	80,916	$	39,930	$	—	$	739,305

	Common Stock			Treasury Stock			Additional Paid‑in Capital		Retained Deficit		Accumulated Other Comprehensive Income		Non‑controlling Interest		Total
	Shares	Cost		Shares	Cost
Balance at September 30, 2021	122,173	$	1,223	1,664	$	(2,837)	$	582,052	$	(11,182)	$	11,415	$	1,548	$	582,219
Equity based compensation expense	—	—		—	—		5,203		—		—		—		$	5,203
Issuance of common stock, net	199	2		—	—		822		—		—		—		$	824
Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(100)		$	(100)
Net income	—	—		—	—		—		5,987		—		101		$	6,088
Other comprehensive income	—	—		—	—		—		—		8,359		—		$	8,359
Balance at December 31, 2021	122,372	$	1,225	1,664	$	(2,837)	$	588,077	$	(5,195)	$	19,774	$	1,549	$	602,593
Equity based compensation expense	—	—		—	—		5,386		—		—		—		$	5,386
Issuance of common stock, net	394	4		—	—		(1,358)		—		—		—		$	(1,354)
Net income	—	—		—	—		—		7,330		—		44		$	7,374
Other comprehensive income	—	—		—	—		—		—		24,072		—		$	24,072
Balance at March 31, 2022	122,766	$	1,229	1,664	$	(2,837)	$	592,105	$	2,135	$	43,846	$	1,593	$	638,071

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

	Three Months EndedDecember 31,
	Six Months EndedMarch 31,
	2022		2021
	2023		2022
Operating activities
Net income	$	919,~~268~~900	$	613,~~088~~462
Reconciliation of net income to cash flows (used in) provided by operating activities:
Depreciation and amortization	3366,~~248~~647		2861,~~640~~156
Amortization of deferred financing fees	~~476~~943		~~467~~926
Deferred income taxes	13,~~852~~195		~~251~~592
Share-based compensation	612,~~196~~200		510,~~203~~589
Gain on sale of property, plant, and equipment	(~~836~~1,403)		(461)
Foreign currency exchange (gains) losses on intercompany loans and other non-cash items	(8,184)		1,502
Loss (gain) on sale of business	2,857		(193)
Impairment of long-lived assets	1,703		—
Foreign currency exchange (gains) losses on intercompany loans and other non-cash items	(9,805)		3,728
Changes in assets and liabilities
Accounts receivable	64,~~839~~954		4116,~~309~~554
Inventories	(2619,~~082~~561)		(1626,~~021~~754)
Contract assets	(1512,~~790~~560)		(1226,~~189~~910)
Prepaids and other current assets	(24,~~326~~294)		(314,~~797~~049)
Accounts payable	51,~~290~~929		1119,~~241~~589
Accrued expenses and other liabilities	(2445,~~916~~947)		(1613,~~953~~648)
Contract liabilities	1412,~~711~~590		(~~2,887~~382)
Income taxes	~~416~~(3,494)		~~(338)~~135
Other non‑current assets and liabilities	(14,~~435)~~333		(615,~~132~~586)
Net cash (used in) provided by operating activities	$	(1,273)	$	36,380
Net cash provided by operating activities	$	34,187	$	29,148
Investing activities
Purchase of property, plant, and equipment	$	(2253,~~742~~211)	$	(1536,~~540~~320)
Purchase of intangibles	(12,~~120~~479)		(~~664~~1,582)
Proceeds from sale of property, plant, and equipment	13,~~674~~621		1,~~370~~940
Acquisitions	1,716		—
Proceeds from sale of business, net of cash of $0 and $0	67		356
Net cash used in investing activities	$	(20,472)	$	(14,834)
Acquisitions	816		(194,976)
Net cash used in investing activities	$	(51,186)	$	(230,582)
Financing activities
Borrowing of debt	$	23157,~~700~~774	$	5223,~~949~~793
Repayment of debt	(33166,~~185~~542)		(1933,~~378~~362)
Repayment of finance lease obligation	(37,~~905~~156)		(36,~~174~~571)
Proceeds from issuance of common stock	2,868		2,085
Receipt of earn-out related to previous acquisitions	7,824		—
Taxes paid related to net share settlements of share-based compensation awards	(390)		(1,261)
Proceeds from issuance of common stock	4,700		5,274
Taxes paid related to net share settlements of share-based compensation awards	(4,734)		(5,144)
Distribution to non‑controlling interest	—		(100)
Net cash used in financing activities	$	(10,912)	$	(15,879)
Net cash (used in) provided by financing activities	$	(8,134)	$	183,890
Effect of exchange rate changes on cash	34,~~355~~371		~~614~~800
Change in cash and cash equivalents	(2920,~~302~~762)		6(16,~~281~~744)
Cash and cash equivalents
Beginning of period	$	134,005	$	146,244
End of period	$	~~104~~113,~~703~~243	$	~~152~~129,~~525~~500

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Unaudited Supplemental Disclosure of Cash Flow Information

(In thousands)

	Three Months EndedDecember 31,
	Six Months EndedMarch 31,
	2022		2021
	2023		2022
Supplemental disclosure of cash flow information
Cash paid for taxes	$	17,~~989~~039	$	12,~~654~~889
Cash paid for interest	$	818,~~990~~241	$	512,~~706~~537
Non‑cash investing and financing activities
Finance lease transactions	$	38,~~311~~770	$	26,~~700~~199
Operating lease transactions	$	612,~~863~~102	$	111,~~152~~385
Cloud computing related intangible transaction	$	15,877	$	—

See accompanying notes to these Unaudited Consolidated Financial Statements

Evoqua Water Technologies Corp.

Notes to Unaudited Consolidated Financial Statements

(In thousands, except per share data)

1. Description of the Company and Basis of Presentation

Background

Evoqua Water Technologies Corp. (referred to herein as the “Company” or “EWT”) is a holding company and does not conduct any business operations of its own. The Company was incorporated on October 7, 2013. On November 6, 2017, the Company completed its initial public offering (“IPO”).

The Business

EWT provides a wide range of product brands and advanced water and wastewater treatment systems and technologies, as well as mobile and emergency water supply solutions and service contract options through its branch network. Headquartered in Pittsburgh, Pennsylvania, EWT is a multinational corporation with operations in the United States (“U.S.”), Canada, the United Kingdom (“UK”), the Netherlands, Germany, Australia, the People’s Republic of China, Singapore and India.

The Company is organizationally structured into two reportable operating segments for the purpose of making operational decisions and assessing financial performance: (i) Integrated Solutions and Services and (ii) Applied Product Technologies.

Basis of Presentation

The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All intercompany transactions have been eliminated. Unless otherwise specified, all dollar and share amounts in these notes are referred to in thousands.

The interim Unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. In our opinion, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. We consistently applied the accounting policies described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, as filed with the SEC on November 16, 2022 (“2022 Annual Report”), in preparing these Unaudited Consolidated Financial Statements, with the exception of accounting standard updates described in Note 2, “Recent Accounting Pronouncements.” These Unaudited Consolidated Financial Statements should be read in conjunction with the audited financial statements and the notes included in our 2022 Annual Report. Certain prior period amounts have been reclassified to conform to the current period presentation.

Proposed Merger with Xylem Inc.

On January 22, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Xylem Inc., an Indiana corporation (“Xylem”), and Fore Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Xylem (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and as a direct, wholly owned subsidiary of Xylem (the “Merger”).

At the effective time of the Merger (the “Effective Time”) and upon consummation of the Merger, subject to the terms and conditions set forth in the Merger Agreement, each share of the common stock, par value $0.01 per share, of the Company issued and outstanding immediately prior to the Effective Time (other than treasury shares held by the Company and shares of the Company’s common stock owned, directly or indirectly, by Xylem or Merger Sub) will be converted into and become exchangeable for 0.48 shares of common stock, par value $0.01 per share, of Xylem (the “Xylem Shares”) to be issued by Xylem as consideration for the Merger. Cash will be issued in lieu of fractional shares.

Upon the closing of the Merger, legacy Company stockholders will own approximately 25% and legacy Xylem shareholders will own approximately 75% of the combined company.

The consummation of the Merger is subject to the satisfaction or waiver of certain customary mutual conditions, including (a) the receipt of the required approvals from the Company’s stockholders and Xylem’s shareholders at meetings currently scheduled for May 11, 2023, (b) receipt of required regulatory approvals under antitrust and foreign investment laws in applicable jurisdictions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Act (collectively, “Regulatory Clearances”) (at 11:59 p.m. Eastern Time on March 6, 2023, the 30-day Hart-Scott-Rodino waiting period expired without issuance of a Request for Additional Information and Documentary Material), (c) the absence of any temporary or permanent order, injunction, law or other legal restraint prohibiting or making illegal the consummation of the Merger, (d) the Xylem Shares issuable to the stockholders of the Company in connection with the Merger having been approved for listing on the New York Stock Exchange, subject to official notice of issuance, and (e) Xylem’s registration statement on Form S-4 having been declared effective under the Securities Act of 1933 (the registration statement was declared effective by the SEC on April 6, 2023). The obligation of each party to consummate the Merger is also conditioned upon (a) the accuracy of the representations and warranties of the other party as of the date of the Merger Agreement and as of the closing (subject to customary materiality qualifiers) and (b) compliance by the other party in all material respects with its respective pre-closing obligations under the Merger Agreement. Subject to the satisfaction or waiver of the conditions to the closing, the Merger is expected to close in mid-2023.

The Merger Agreement contains certain termination rights that may be exercised by either the Company or Xylem. In certain of those cases, we may be required to pay Xylem a termination fee of $225,000.

In connection with the Merger, we recognized costs of $~~200~~10,040 and $10,240 for the three and six months ended ~~December~~ March 31, ~~2022~~2023, respectively, included in General and administrative expenses in the Unaudited Consolidated Statements of Operations. These costs primarily relate to legal and consulting fees incurred in connection with the Merger.

For further information on the Merger Agreement, refer to the Merger Agreement, a copy of which was filed as Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on January 23, 2023.

2. Recent Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

In September 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which enhances transparency about an entity’s use of supplier finance programs by requiring quarterly and annual disclosures about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts annually, and a description of where in the financial statements outstanding amounts are presented. The guidance is effective for fiscal years beginning after December 15, 2022. The Company is currently assessing the impact of adoption on the Company’s Unaudited Consolidated Financial Statements and related disclosures.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends Accounting Standards Codification (“ASC”) 805 to require an acquirer to, at the date of acquisition, recognize and measure contract assets and contract liabilities acquired in accordance with ASU 2014-9, Revenue from Contracts with Customers (Topic 606) (“Topic 606”), as if the entity had originated the contracts, rather than adjust them to fair value at the acquisition date. The guidance is effective for fiscal years beginning after December 15, 2022 and is to be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company is currently assessing the impact of adoption on the Company’s Unaudited Consolidated Financial Statements and related disclosures.

Accounting Pronouncements Recently Adopted

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. This ASU is one of the subsequent amendments to ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Revenue Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The objective of the guidance in Topic 848 is to provide temporary relief during the transition period. Because the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, ASU 2022-06 was issued to defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The Company adopted ASU 2022-06 during the three months ended December 31, 2022 and the adoption did not have a material impact on the Company’s Unaudited Consolidated Financial Statements and related disclosures.

3. Variable Interest Entities

Treated Water Outsourcing (“TWO”) was a joint venture between the Company and Nalco Water, an Ecolab company (“Nalco”), in which the Company held a 50% partnership interest. The Company acquired the remaining partnership interest in TWO from Nalco on April 1, 2022. Prior to acquisition, the Company was obligated to absorb all risk of loss up to 100% of the joint venture partner’s equity. As such, the Company fully consolidated TWO as a variable interest entity (“VIE”) under ASC Topic No. 810, Consolidation.

The following provides TWO’s summarized financial information for the three and six months ended ~~December~~March 31, ~~2021~~2022. As a result of the acquisition of the remaining partnership interest in TWO on April 1, 2022, there is no summarized financial information for the three and six months ended ~~December~~March 31, ~~2022~~2023.

	Three Months EndedDecember 31, 2021
	Three Months EndedMarch 31, 2022		Six Months Ended March 31, 2022
Total revenue	$	~~845~~796	$	1,641
Total operating expenses	(~~737~~703)		(1,440)
Income from operations	$	~~108~~93	$	201

On October 1, 2019, the Company acquired a 60% investment position in San Diego-based Frontier Water Systems, LLC (“Frontier”). The Frontier acquisition was a VIE because it had insufficient equity to finance its activities due to key

assets being assigned to the Company upon acquisition. The Company was the primary beneficiary of Frontier because the Company had the power to direct the activities that most significantly affect Frontier’s economic performance.

In addition, the Company entered into an agreement to purchase the remaining 40% interest in Frontier on or prior to March 30, 2024. This agreement (a) gave holders of the remaining 40% interest in Frontier (the “Minority Owners”) the right to sell to Evoqua up to approximately 10% of the outstanding equity in Frontier at a predetermined price, which right was exercisable by the Minority Owners between January 1, 2021 and February 28, 2021 (the “Option”), and (b) obligated the Company to purchase and the Minority Owners to sell all of the Minority Owners’ remaining interest in Frontier at the fair market value at the time of sale on or prior to March 30, 2024 (the “Purchase Right”). The Company acquired an additional 8% equity interest in Frontier in April 2021. On April 1, 2022, the Company purchased the remaining 32% outstanding equity in Frontier.

The following provides Frontier’s summarized financial information for the three and six months ended ~~December~~March 31, ~~2021~~2022. As a result of the acquisition of the remaining equity interest in Frontier on April 1, 2022, there is no summarized financial information for the three and six months ended ~~December~~March 31, ~~2022~~2023.

	Three Months EndedDecember 31, 2021
	Three Months Ended March 31, 2022		Six Months EndedMarch 31, 2022
Total revenue	$	6,~~949~~414	$	13,363
Total operating expenses	(56,~~986~~149)		(12,135)
Income from operations	$	~~963~~265	$	1,228

4. Acquisitions and Divestitures

Acquisitions support the Company’s strategy of delivering a broad solutions portfolio with robust technology across multiple geographies and end markets. The Company continues to evaluate potential strategic acquisitions of businesses, assets and product lines and believes that capex-like, tuck-in acquisitions present a key opportunity within its overall growth strategy. Divestitures support the Company’s strategy of focusing on core business operations and delivering on long-term operational goals.

2023 Acquisitions and Divestitures

On March 31, 2023, the Company completed its divestiture of its blood filter and water filter product lines that are sold into renal and other medical applications (the “Filtration Business”) to Medica USA Inc., a subsidiary of Medica S.p.A. (“Medica”), for $67 in cash at closing. The Company recognized a loss on sale of $2,857, which is included in Other operating expense on the Consolidated Statements of Operations during the three months ended March 31, 2023. The Filtration Business was included in the Integrated Solutions and Services segment and was determined by management not to be core to the Company’s long-term business strategy or operations. The sale of the Filtration Business does not represent a strategic shift that will have a major effect on the Company’s operations and financial results and is, therefore, not classified as discontinued operations in accordance with ASU 2014-08. The Company entered into a supply agreement with Medica under which the Company will purchase water filters used by its customers in the Company’s dialysis water systems.

On February 28, 2023, the Company completed its acquisition of the Texas-based industrial water service business accounts and deionization and carbon tank assets of Kemco Systems (“Kemco”) for $900 in cash at closing. This acquisition expands the Company’s service and aftermarket business in the Texas market while strengthening the Company’s ability to better support and service its industrial customers in the region. The acquisition did not meet the definition of a business under ASC 805, and as such was accounted for as an asset acquisition. The acquired business is included within the Integrated Solutions and Services segment.

On February 14, 2023, the Company entered into a definitive agreement to divest its carbon reactivation and slurry operations (the “Carbon Business”) to Desotec US LLC, a subsidiary of Desotec N.V. (“Desotec”). The sale of the Carbon Business will allow the Company to focus on its core service business, which includes carbon services and the sale of high-quality activated carbon. At the closing of the transaction, the Company will enter into a supply agreement with Desotec under which the Company will purchase reactivated carbon to continue to service its customers. During the three months ended March 31, 2023, the assets and liabilities of the Carbon Business met the accounting criteria to be classified as held for sale on the Consolidated Balance Sheets. As part of the required evaluation under the held for sale guidance, the Company determined that the approximate fair value less costs to sell the operations exceeded the carrying value of the net assets and as such, no impairment charge was recorded. As of March 31, 2023, the transaction had not closed and is expected to close in the third quarter of 2023. Gross proceeds upon closing of the transaction are anticipated to be $100,000 and the Company expects to record a gain on sale. The Carbon Business is included in the Integrated Solutions and Services segment.

The following represents the carrying value of the assets and liabilities within the disposal group at March 31, 2023:


Inventories, net	$	11,622
Current assets held for sale	11,622
Property, plant, and equipment, net	6,744
Operating lease right-of-use assets, net	2,312
Goodwill	7,830
Intangible assets, net	12,847
Non-current assets held for sale	29,733
Total assets held for sale	$	41,355
Accrued expenses and other liabilities	487
Current liabilities held for sale	487
Obligation under operating leases	2,703
Non-current liabilities held for sale	2,703
Total liabilities held for sale	$	3,190

2022 Acquisitions

On July 15, 2022, the Company completed the acquisition of Epicor, Inc. (“Epicor”) for $4,339 cash paid at closing. During the three months ended December 31, 2022, the Company paid cash of $38 to the seller as a result of net working capital adjustments. Epicor has supplied specialty resins for power steam system treatment for fifty years. The resins provide a cost-effective and efficient method for creating and maintaining a continual supply of ultra-pure water for power plants. Epicor is included within the Integrated Solutions and Services segment.

On July 1, 2022, the Company completed the acquisition of Smith Engineering, Inc. (“Smith Engineering”) for $18,878 cash paid at closing, of which $2,895 was paid into an escrow account. Smith Engineering is a leader in the design, manufacturing, and service of custom high purity water treatment equipment serving the biotech/pharmaceutical, data center, food and beverage, healthcare, medical device, and microelectronics markets. With over 1,200 customers in North America, Smith Engineering offers a variety of water treatment products and services, including filtration, UV, reverse osmosis, and deionization. Smith Engineering is included within the Integrated Solutions and Services segment.

The acquisition of Smith Engineering has been accounted for using the acquisition method of accounting which requires the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. Due to the nature of the net assets acquired, at ~~December~~March 31, ~~2022~~2023, the valuation process to determine fair values is not complete and further adjustments are expected in the remainder of fiscal year 2023. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price allocation adjustments will be recorded during the measurement period, but no later than one year from the date of the acquisition.

1314

The preliminary fair value of assets acquired and liabilities assumed were as follows:


Receivables, net	$	2,501
Inventories, net	1,345
Other current assets	937
Property, plant, and equipment, net	532
Goodwill	7,820
Intangible assets, net	9,815
Other non-current assets	796
Total assets acquired	$	23,746
Current liabilities	(1,834)
Non-current liabilities	(3,034)
Total liabilities assumed	$	(4,868)
Net assets acquired	$	18,878

On December 20, 2021, the Company and its indirect wholly-owned subsidiaries Evoqua Water Technologies LLC (“EWT LLC”) and Evoqua Water Technologies Ltd. (together with EWT LLC, the “Buyer”) entered into an Asset Purchase Agreement (the “Agreement”) with Cantel Medical LLC, Mar Cor Purification, Inc., and certain of their affiliates (collectively, the “Sellers”), each wholly-owned subsidiaries of Steris plc, pursuant to which the Buyer agreed to acquire certain assets of the Sellers and assume certain liabilities of the Sellers that are owned or used or arise in connection with the global operation of the Sellers’ renal business (the “Mar Cor Business”) for an aggregate purchase price of $196,300 in cash at closing (the “Purchase Price”), subject to customary adjustments, including for working capital (the “Transaction”). On January 3, 2022, the Company completed the Transaction to acquire the Mar Cor Business for $194,976 paid in cash at closing, following adjustments. During the ~~three~~six months ended ~~December~~March 31, 2022, the Company received cash of $1,754 from the Sellers as a result of net working capital adjustments, thus resulting in a final purchase price of $193,222. The Company utilized cash on hand and borrowed an additional $160,000 under the 2021 Revolving Credit Facility (as defined below) to fund the Transaction. The Mar Cor Business is included within the Integrated Solutions and Services segment.

The Purchase Price ~~includes~~included a $12,300 earn out, which iswas being held in escrow and ~~will~~was to be paid, pro rata, to the Sellers if the Mar Cor Business ~~meets~~met certain sales performance goals through December 31, 2022 (the “Earn Out”). ~~Determination~~During of the ~~level~~three ofmonths ~~achievement~~ended ofMarch ~~the~~31, ~~performance~~2023, ~~goals is subject to certification by~~ the ~~Sellers.~~Company ~~Any~~received ~~portion~~cash of ~~the~~$12,300 Earn Out not paid to the Sellers during the first year following closing of the Transaction will be returned to the Buyer. A Monte Carlo simulation was performed to determine the fair value of an Earn Out asset for the ~~amount expected to be received back from escrow based on the forecasted achievement of the sales performance goals associated with the~~ Earn Out ~~as of the acquisition date~~asset. See Note 6, “Fair Value Measurements”, for further discussion. In addition to the amount held in escrow for the earn out, approximately $12,965 of the Purchase Price was placed into an escrow account, of which $9,815 is to secure general indemnification claims against the Sellers and $3,150 is for net working capital adjustments.

The acquisition of the Mar Cor Business has been accounted for using the acquisition method of accounting which requires the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date.

1415

The opening balance sheet for the Mar Cor Business is summarized as follows:


Receivables, net	$	21,275
Inventories, net	32,350
Earn Out asset	7,824
Other current assets	1,844
Property, plant, and equipment, net	19,150
Goodwill	67,000
Intangible assets, net	57,094
Other non-current assets	7,694
Total assets acquired	$	214,231
Current liabilities	(15,467)
Non-current liabilities	(5,542)
Total liabilities assumed	$	(21,009)
Net assets acquired	$	193,222

5. Revenue

Performance Obligations

The Company elects to apply the practical expedient to exclude from this disclosure revenue related to performance obligations if the product has an alternative use and the Company does not have an enforceable right to payment for the performance completed to date, including a normal profit margin, in the event of termination for convenience. The Company maintains a backlog of confirmed orders, which totaled approximately $~~398~~407,~~960~~197 at ~~December~~March 31, ~~2022~~2023. This backlog represents the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of the end of the reporting period. The Company estimates that the majority of these performance obligations will be satisfied within the next twelve to twenty-four months.

Disaggregation of Revenue

In accordance with Topic 606, the Company disaggregates revenue from contracts with customers into source of revenue, reportable operating segment, and geographical regions. The Company determined that disaggregating revenue into these categories meets the disclosure objective in Topic 606, which is to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

Information regarding the source of revenue:

			Three Months EndedDecember 31,
	Three Months EndedMarch 31,				Six Months EndedMarch 31,
					2022		2021
	2023		2022		2023		2022
Revenue from contracts with customers recognized under Topic 606	$	429,239	$	382,758	$	~~391~~820,~~431~~670	$	~~317~~700,~~771~~529
Other(1)	48,558		43,970		4492,~~415~~973		4892,~~497~~467
Total	$	477,797	$	426,728	$	~~435~~913,~~846~~643	$	~~366~~792,~~268~~996

(1) Other revenue relates to revenue recognized pursuant to ASU 2016-02, Leases (Topic 842), primarily attributable to long term rentals.

1516

Information regarding revenue disaggregated by source of revenue and segment is as follows:

			Three Months EndedDecember 31,
	Three Months EndedMarch 31,				Six Months EndedMarch 31,
					2022		2021
	2023		2022		2023		2022
Integrated Solutions and Services
Capital	$	87,761	$	70,702	$	77165,~~646~~407	$	67137,~~102~~804
Aftermarket	60,805		62,271		57118,~~440~~245		2991,~~298~~569
Service	180,333		161,867		~~170~~350,~~340~~673		~~148~~310,~~646~~513
Total	$	328,899	$	294,840	$	~~305~~634,~~426~~325	$	~~245~~539,~~046~~886
Applied Product Technologies
Capital	$	99,412	$	91,778	$	88187,~~065~~477	$	83175,~~884~~662
Aftermarket	44,673		35,024		3781,~~240~~913		3267,~~284~~308
Service	4,813		5,086		59,~~115~~928		510,~~054~~140
Total	$	148,898	$	131,888	$	~~130~~279,~~420~~318	$	~~121~~253,~~222~~110
Total Revenue
Capital	$	187,173	$	162,480	$	~~165~~352,~~711~~884	$	~~150~~313,~~986~~466
Aftermarket	105,478		97,295		94200,~~680~~158		61158,~~582~~877
Service	185,146		166,953		~~175~~360,~~455~~601		~~153~~320,~~700~~653
Total	$	477,797	$	426,728	$	~~435~~913,~~846~~643	$	~~366~~792,~~268~~996

Information regarding revenue disaggregated by geographic area is as follows:

			Three Months EndedDecember 31,
	Three Months EndedMarch 31,				Six Months EndedMarch 31,
					2022		2021
	2023		2022		2023		2022
United States	$	394,143	$	352,639	$	~~361~~755,~~222~~365	$	~~294~~647,~~708~~347
Asia	33,447		28,042		3467,~~521~~968		3058,~~905~~947
Europe	33,377		28,641		2457,~~487~~864		2554,~~629~~270
Canada	13,085		13,748		1326,~~174~~259		1226,~~661~~409
Australia	3,745		3,658		26,~~442~~187		26,~~365~~023
Total	$	477,797	$	426,728	$	~~435~~913,~~846~~643	$	~~366~~792,~~268~~996

Contract Balances

The Company performs its obligations under a contract with a customer by transferring products and/or services in exchange for consideration from the customer. The Company receives payments from customers based on a billing schedule as established in its contracts.

Contract assets relate to costs incurred to perform in advance of scheduled billings. Contract liabilities relate to payments received in advance of performance under the contracts. ~~Change~~Changes in contract assets and liabilities are due to the Company’s performance under the contract.

1617

The tables below provide a roll-forward of contract assets and contract liabilities balances for the periods presented:

	Three Months EndedDecember 31,
	Six Months EndedMarch 31,
Contract assets(a)	~~2022~~2023		~~2021~~2022
Balance at beginning of period	$	102,123	$	72,746
Recognized in current period	91205,~~519~~347		~~120~~206,~~387~~859
Reclassified to accounts receivable	(74193,~~004~~671)		(~~108~~179,~~684~~967)
Foreign currency	(1,~~172)~~662		~~533~~(136)
Balance at end of period	$	~~118~~115,~~466~~461	$	8499,~~982~~502

(a) Excludes receivable balances which are disclosed on the Consolidated Balance Sheets.

	Three Months EndedDecember 31,
	Six Months EndedMarch 31,
Contract Liabilities	~~2022~~2023		~~2021~~2022
Balance at beginning of period	$	62,439	$	55,883
Recognized in current period	82212,~~819~~122		~~100~~174,~~017~~518
Amounts in beginning balance reclassified to revenue	(49,~~264~~217)		(4344,~~266~~292)
Current period amounts reclassified to revenue	(20150,~~530~~520)		(59130,~~653~~629)
Foreign currency	~~2,125~~688		41113
Balance at end of period	$	7775,~~589~~512	$	5355,~~022~~593

6. Fair Value Measurements

As of ~~December~~March 31, ~~2022~~2023 and September 30, 2022, the fair values of cash and cash equivalents, accounts receivable, and accounts payable approximated carrying values due to the short maturity of these items.

The Company measures the fair value of pension plan assets and liabilities, deferred compensation plan assets and liabilities on a recurring basis pursuant to ASC Topic No. 820, Fair Value Measurement. ASC Topic No. 820 establishes a three‑tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Level 1: Quoted prices for identical instruments in active markets.

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model‑derived valuations whose inputs are observable or whose significant value driver is observable.

Level 3: Unobservable inputs in which little or no market data is available, therefore requiring an entity to develop its own assumptions.

The following table presents the Company’s financial assets and liabilities at fair value. The fair values related to the pension plan assets are determined using net asset value (“NAV”) as a practical expedient, or by information categorized in the fair value hierarchy level based on the inputs used to determine fair value. The reported carrying amounts of deferred compensation plan assets and liabilities and debt approximate their fair values. The Company uses interest rates and other relevant information generated by market transactions involving similar instruments to measure the fair value of these assets and liabilities, therefore all are classified as Level 2 within the valuation hierarchy.

	Net Asset Value		Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of December 31, 2022
Assets:
Pension plan
Cash	$	—	$	950	$	—	$	—
Global Multi-Asset Fund	12,764		—		—		—
Government Securities	1,639		—		—		—
Liability Driven Investment	1,624		—		—		—
Guernsey Unit Trust	2,216		—		—		—
Global Absolute Return	1,423		—		—		—
Deferred compensation plan assets
Cash	—		1,017		—		—
Mutual Funds	—		14,376		—		—
Earn-out assets related to acquisitions	—		—		—		12,300
Interest rate swaps	—		—		47,402		—
Foreign currency forward contracts	—		—		156		—
Commodity swaps	—		—		1		—
Liabilities:
Pension plan	—		—		(28,971)		—
Deferred compensation plan liabilities	—		—		(21,594)		—
Total return swaps—deferred compensation	—		—		(153)		—
Long‑term debt	—		—		(877,898)		—
Foreign currency forward contracts	—		—		(414)		—

	Net Asset Value		Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of September 30, 2022
As of March 31, 2023
Assets:
Pension plan
Cash	$	—	$	401,552	$	—	$	—
Global Multi-Asset Fund	1112,~~632~~996		—		—		—
Government Securities	3,~~343~~071		—		—		—
Liability Driven Investment	928		—		—		—
Guernsey Unit Trust	2,277		—		—		—
Guernsey Unit Trust	2,048		—		—		—
Global Absolute Return	1,462		—		—		—
Global Absolute Return	1,299		—		—		—
Deferred compensation plan assets
Cash	—		~~902~~723		—		—
Mutual Funds	—		12,~~330~~805		—		—
Earn-out assets related to acquisitions	—		—		—		11,597
Total return swaps—deferred compensation	—		—		205		—
Interest rate swaps	—		—		4940,~~952~~352		—
Foreign currency forward contracts	—		—		~~507~~11		—
Commodity swaps	—		—		1		—
Liabilities:
Pension plan	—		—		(2629,~~654~~557)		—
Deferred compensation plan liabilities	—		—		(20,~~081~~234)		—
Total return swaps—deferred compensation	—		—		(632)		—
Long‑term debt	—		—		(880,349)		—
Long‑term debt	—		—		(884,517)		—
Foreign currency forward contracts	—		—		(674)		—
Foreign currency forward contracts	—		—		(872)		—
Commodity swaps	—		—		(7)		—

The pension plan assets and liabilities and deferred compensation plan assets and liabilities are included in Other non‑current assets and Other non‑current liabilities at December 31, 2022 and September 30, 2022. The unrealized loss on mutual funds was $2,226 at December 31, 2022.

The Company records contingent consideration arrangements at fair value on a recurring basis, and the associated balances presented as of December 31, 2022 and September 30, 2022 are earn-outs related to acquisitions. The fair value of earn-outs related to acquisitions is based on significant unobservable inputs including the achievement of certain performance metrics. Significant changes in these inputs would result in corresponding increases or decreases in the fair value of the earn-out each period until the related contingency has been resolved. Changes in the fair value of the contingent consideration obligations and assets can result from adjustments in the probability of achieving future development steps, sales targets and profitability and are recorded in General and administrative expenses in the Unaudited Consolidated Statements of Operations. As a result of the Mar Cor Business acquisition on January 3, 2022, the Company recorded an Earn Out asset for $7,824 which represented the fair value of amounts expected to be received back from escrow based on the forecasted achievement of certain sales performance goals at the acquisition date. During the year ended September 30, 2022, the Company recorded an increase in the fair value of the Earn Out asset of $3,773 based on updated forecast information. During the three months ended December 31, 2022, the Company recorded an increase in the fair value of the Earn Out asset of $703 based on results of sales performance goals. As of December 31, 2022 and September 30, 2022, the Earn Out asset related to the Mar Cor Business acquisition totaled $12,300 and $11,597, respectively, and is included in Prepaid and other current assets on the Consolidated Balance Sheets.


	Net Asset Value		Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of September 30, 2022
Assets:
Pension plan
Cash	$	—	$	40	$	—	$	—
Global Multi-Asset Fund	11,632		—		—		—
Government Securities	3,343		—		—		—
Liability Driven Investment	928		—		—		—
Guernsey Unit Trust	2,048		—		—		—
Global Absolute Return	1,299		—		—		—
Deferred compensation plan assets
Cash	—		902		—		—
Mutual Funds	—		12,330		—		—
Earn-out assets related to acquisitions	—		—		—		11,597
Interest rate swaps	—		—		49,952		—

Foreign currency forward contracts	—		—		507		—
Liabilities:
Pension plan	—		—		(26,654)		—
Deferred compensation plan liabilities	—		—		(20,081)		—
Total return swaps—deferred compensation	—		—		(632)		—
Long‑term debt	—		—		(884,517)		—

Foreign currency forward contracts	—		—		(872)		—
Commodity swaps	—		—		(7)		—

The pension plan assets and liabilities and deferred compensation plan assets and liabilities are included in Other non‑current assets and Other non‑current liabilities at March 31, 2023 and September 30, 2022. The unrealized loss on mutual funds was $1,208 at March 31, 2023.

The Company records contingent consideration arrangements at fair value on a recurring basis, and the associated balances presented as of September 30, 2022 are earn-outs related to acquisitions. The fair value of earn-outs related to acquisitions is based on significant unobservable inputs including the achievement of certain performance metrics. Significant changes in these inputs would result in corresponding increases or decreases in the fair value of the earn-out each period until the related contingency has been resolved. Changes in the fair value of the contingent consideration assets can result from adjustments in the probability of achieving future development steps, sales targets and profitability and are recorded in General and administrative expenses in the Unaudited Consolidated Statements of Operations. As a result of the Mar Cor Business acquisition on January 3, 2022, the Company recorded an Earn Out asset for $7,824 which represented the fair value of amounts expected to be received back from escrow based on the forecasted achievement of certain sales performance goals at the acquisition date. During the year ended September 30, 2022, the Company recorded an increase in the fair value of the Earn Out asset of $3,773 based on updated forecast information. During the six months ended March 31, 2023, the Company recorded an increase in the fair value of the Earn Out asset of $703 based on results of sales performance goals. The Company received cash of $12,300 for the Earn Out asset during the three months ended March 31, 2023. As of March 31, 2023 and September 30, 2022, the Earn Out asset related to the Mar Cor Business acquisition totaled $0 and $11,597, respectively, and is included in Prepaid and other current assets on the Consolidated Balance Sheets.

7. Accounts Receivable

Accounts receivable are summarized as follows:

	December 31,2022		September 30,2022
	March 31,2023		September 30,2022
Accounts receivable	$	~~308~~310,~~024~~792	$	312,600
Allowance for credit losses	(6,~~896~~937)		(6,888)
Receivables, net	$	~~301~~303,~~128~~855	$	305,712

The movement in the allowance for credit losses was as follows for the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023:

Balance at September 30, 2022	$	(6,888)
Charged to costs and expenses	(~~266~~362)
Write-offs	~~298~~316
Foreign currency and other	(403)
Balance at December 31, 2022	$	(6,896)
Balance at March 31, 2023	$	(6,937)

8. Inventories

The major classes of Inventories, net are as follows:

	December 31,2022		September 30,2022
	March 31,2023		September 30,2022
Raw materials and supplies	$	~~140~~130,~~368~~294	$	120,532
Work in progress	38,~~589~~631		36,499
Finished goods and products held for resale	8780,~~361~~257		80,811
Costs of unbilled projects	32,~~342~~968		2,309
Reserves for excess and obsolete	(11,~~396~~437)		(10,800)
Inventories, net	$	~~258~~240,~~264~~713	$	229,351

2021

9. Property, Plant, and Equipment

Property, plant, and equipment consists of the following:

	December 31,2022		September 30,2022
	March 31,2023		September 30,2022
Machinery and equipment	$	~~397~~400,~~656~~714	$	401,334
Rental equipment	~~274~~277,~~408~~644		267,345
Land and buildings	8479,~~100~~748		82,985
Construction in process	8394,~~002~~168		72,184
	839,166		823,848
	852,274		823,848
Less: accumulated depreciation	(~~429~~438,~~174~~194)		(418,559)
Property, plant, and equipment, net	$	~~409~~414,~~992~~080	$	405,289

Depreciation expense and maintenance and repairs expense for the three and six months ended ~~December~~March 31, ~~2022~~2023 and ~~2021~~2022 were as follows:

			Three Months EndedDecember 31,
	Three Months EndedMarch 31,				Six Months EndedMarch 31,
					2022		2021
	2023		2022		2023		2022
Depreciation expense	$	22,247	$	20,722	$	2143,~~039~~286	$	1940,~~320~~042
Maintenance and repair expense	8,714		7,475		816,~~230~~944		613,~~119~~594

10. Goodwill

Changes in the carrying amount of goodwill are as follows:

	Integrated Solutions and Services		Applied Product Technologies		Total
Balance at September 30, 2022	$	306,935	$	166,637	$	473,572
Measurement period adjustment	(1,754)		—		(1,754)
Foreign currency translation	582		3,813		4,395
Reclassified to non-current assets held for sale	(7,831)		—		(7,831)
Balance at December 31, 2022	$	305,763	$	170,450	$	476,213
Foreign currency translation	626		4,316		4,942
Balance at March 31, 2023	$	297,976	$	170,953	$	468,929

As of ~~December~~March 31, ~~2022~~2023 and September 30, 2022, $248,~~779~~781 and $250,636, respectively, of goodwill was deductible for tax purposes.

2122

11. Debt

Long‑term debt, including accrued interest, consists of the following:

	December 31,2022		September 30,2022
	March 31,2023		September 30,2022
2021 Term Loan, due April 1, 2028 (1)	$	~~467~~466,~~900~~713	$	469,063
2021 Revolving Credit Facility, due April 1, 2026 (2)	~~136~~140,~~502~~162		151,254
Securitization Facility, due April 1, 2024 (3)	~~150~~145,282		150,201
Equipment Financing, due September 30, 2023 to September 30, 2032, interest rates ranging from 3.59% to 8.07%	126,503		120,155
Equipment Financing, due September 30, 2023 to September 30, 2032, interest rates ranging from 3.59% to 8.41%	129,748		120,155
Total debt	881,~~187~~905		890,673
Less unamortized deferred financing fees	(98,~~396~~930)		(9,873)
Total net debt	~~871~~872,~~791~~975		880,800
Less current portion	(19,~~322~~376)		(17,266)
Total long‑term debt	$	~~852~~853,~~469~~599	$	863,534

(1)The interest rate on the 2021 Term Loan was 6.3894% as of ~~December~~March 31, ~~2022~~2023, comprised of 4.1369% LIBOR plus a 2.25% spread. Includes accrued interest of $25 ~~and $0~~ at ~~December~~March 31, ~~2022 and September 30, 2022, respectively~~2023.

(2)The 2021 Revolving Credit Facility includes $136,000 outstanding with an interest rate of 67.3308% as of ~~December~~March 31, ~~2022~~2023, comprised of 4.1388% LIBOR plus a 2.20% spread, and $4,000 outstanding with an interest rate of 9.20% as of March 31, 2023, comprised of 8.25% LIBOR plus a 0.95% spread. Includes accrued interest of $~~502~~162 and $254, at ~~December~~March 31, ~~2022~~2023 and September 30, 2022, respectively.

(3)The interest rate on the Securitization Facility was 56.6411% as of ~~December~~March 31, ~~2022~~2023, comprised of 4.3986% LIBOR plus a 1.25% spread. Includes accrued interest of $282 and $201 at ~~December~~March 31, ~~2022~~2023 and September 30, 2022, respectively.

2021 Credit Agreement

On April 1, 2021, EWT Holdings III Corp. (“EWT III”), a subsidiary of the Company, entered into a Credit Agreement (the “2021 Credit Agreement”) among EWT III, as borrower, EWT Holdings II Corp. (“EWT II”), as parent guarantor, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and ING Capital, LLC, as sustainability coordinator. The 2021 Credit Agreement provides for a multi-currency senior secured revolving credit facility in an aggregate principal amount not to exceed the U.S. dollar equivalent of $350,000 (the “2021 Revolving Credit Facility”) and a discounted senior secured term loan (the “2021 Term Loan”) in the amount of $475,000 (together with the 2021 Revolving Credit Facility, the “Senior Facilities”). The 2021 Credit Agreement also provides for a letter of credit sub-facility not to exceed $60,000.

The 2021 Credit Agreement contains customary representations, warranties, affirmative covenants, and negative covenants, including, among other things, a springing maximum first lien leverage ratio of 5.55 to 1.00. The Company did not exceed this ratio during the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023, does not anticipate exceeding this ratio during the year ending September 30, 2023, and therefore does not anticipate any additional repayments during the year ending September 30, 2023.

The following table summarizes the amount of the Company’s outstanding borrowings and outstanding letters of credit under the 2021 Revolving Credit Facility as of ~~December~~March 31, ~~2022~~2023 and September 30, 2022.

	December 31,2022		September 30,2022
	March 31,2023		September 30,2022
Borrowing availability	$	350,000	$	350,000
Outstanding borrowings	~~136~~140,000		151,000
Outstanding letters of credit	87,~~760~~416		9,317
Unused amounts	$	~~205~~202,~~240~~584	$	189,683

2223

Receivables Securitization Program

On April 1, 2021, Evoqua Finance LLC (“Evoqua Finance”), an indirect wholly-owned subsidiary of the Company, entered into an accounts receivable securitization program (the “Receivables Securitization Program”) consisting of, among other agreements, (i) a Receivables Financing Agreement (the “Receivables Financing Agreement”) among Evoqua Finance, as the borrower, the lenders from time to time party thereto (the “Receivables Financing Lenders”), PNC Bank, National Association (“PNC Bank”), as administrative agent, EWT LLC, as initial servicer, and PNC Capital Markets LLC (“PNC Markets”), as structuring agent, pursuant to which the lenders have made available to Evoqua Finance a receivables finance facility (the “Securitization Facility”) in an amount up to $150,000 and (ii) a Sale and Contribution Agreement (the “Sale Agreement”) among Evoqua Finance, as purchaser, EWT LLC, as initial servicer and as an originator, and Neptune Benson, Inc., an indirectly wholly-owned subsidiary of the Company, as an originator (together with EWT LLC, the “Originators”).

The Receivables Securitization Program contains certain customary representations, warranties, affirmative covenants, and negative covenants, subject to certain cure periods in some cases, including the eligibility of the receivables being sold by the Originators and securing the loans made by the Receivables Financing Lenders, as well as customary reserve requirements, events of default, termination events, and servicer defaults. The Company was in compliance with all covenants during the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023, does not anticipate becoming noncompliant during the year ending September 30, 2023, and therefore, subject to limitations arising from collateral availability, does not anticipate any additional repayments during the year ending September 30, 2023.

Equipment Financings

During the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023, the Company completed the following equipment financings:

Date Entered	Due	Interest Rate as of ~~December~~March 31, ~~2022~~2023		Principal Amount
December 30, 2022	September 30, 2032(1)	5.30	%	$	1,452
March 31, 2023	April 30, 2030	6.14	%	$	5,116
March 31, 2023	September 30, 2032(1)	5.30	%	1,888
December 30, 2022	September 30, 2032(1)	5.30	%	1,452
December 19, 2022	May 31, 2029(2)	5.03	%	2,041
October 31, 2022	June 30, 2029	6.33	%	6,208
				$	916,~~701~~705

(1)Represents an advance received from the lender on a multiple draw term loan in which the Company is making interest only payments through September 30, 2023 based on an interest rate of 5.30% including a 3.05% Bloomberg Short-Term Bank Yield Index plus a 2.25% spread as of ~~December~~March 31, ~~2022~~2023.

(2)Represents an advance received from the lender on a multiple draw term loan inwith ~~which the Company is making~~ interest ~~only~~ payments ~~through December 30, 2022~~ based on a 2.28% Secured Overnight Financing Rate plus a 2.75% spread.

2324

The Company has secured financing agreements that require providing a security interest in specified equipment and, in some cases, the underlying contract and related receivables. As of ~~December~~March 31, ~~2022~~2023 and September 30, 2022, the gross and net amounts of those assets are included on the Consolidated Balance Sheets as follows:

	December 31,2022				September 30,2022
	March 31,2023				September 30,2022
	Gross		Net		Gross		Net
Property, plant, and equipment, net
Machinery and equipment	$	7982,~~965~~163	$	5556,~~996~~499	$	86,294	$	62,459
Construction in process	1620,~~531~~393		1620,~~531~~393		14,201		14,201
Receivables, net	~~793~~1,820		~~793~~1,820		108		108
Prepaid and other current assets	34,~~147~~172		34,~~147~~172		3,276		3,276
Other non‑current assets	54,~~057~~702		5354,~~718~~357		51,877		51,550
	$	~~154~~163,~~493~~250	$	~~130~~137,~~185~~241	$	155,756	$	131,594

Deferred Financing Fees and Discounts

Deferred financing fees and discounts related to the Company’s long-term debt were included as a contra liability to debt on the Consolidated Balance Sheets as follows:

	December 31,2022		September 30,2022
	March 31,2023		September 30,2022
Current portion of deferred financing fees and discounts(1)	$	(1,~~906~~920)	$	(1,899)
Long-term portion of deferred financing fees and discounts(2)	(7,~~490~~010)		(7,974)
Total deferred financing fees and discounts	$	(98,~~396~~930)	$	(9,873)

(1)Included in Current portion of debt, net of deferred financing fees and discounts on the Consolidated Balance Sheets.

(2)Included in Long-term debt, net of deferred financing fees and discounts on the Consolidated Balance Sheets.

Amortization of deferred financing fees and discounts included in interest expense was $~~476~~467 and $~~467~~459 for the three months ended ~~December~~March 31, 2023 and 2022 and ~~2021~~$943 and $926 for the six months ended March 31, 2023 and 2022, respectively.

Repayment Schedule

Aggregate maturities of all long‑term debt, including current portion of long‑term debt and excluding finance lease obligations as of ~~December~~March 31, ~~2022~~2023, are presented below:

Fiscal Year
Remainder of 2023	$	1611,~~245~~074
2024	~~169~~165,~~620~~231
2025	21,~~224~~860
2026	~~160~~165,~~581~~244
2027	22,~~304~~994
Thereafter	~~491~~495,~~213~~502
Total	$	881,~~187~~905

2425

12. Derivative Financial Instruments

Interest Rate Risk Management

The Company is subject to market risk exposure arising from changes in interest rates on the senior secured credit facilities as well as variable rate equipment financings, which bear interest at rates that are indexed against LIBOR. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to mitigate its exposure to rising interest rates. As of ~~December~~March 31, ~~2022~~2023, the notional amount of the Company’s interest rate swaps was $540,000.

Foreign Currency Risk Management

The Company’s functional currency is the U.S. dollar. By operating internationally, the Company is subject to foreign currency translation risk associated with converting the foreign operations’ financial statements into U.S. dollars transactions denominated in currencies other than the U.S. dollar (“foreign currencies”). The Company is also subject to currency risk from transactions denominated in foreign currencies. To mitigate cross-currency transaction risk, the Company analyzes significant exposures where it has receipts or payments in a currency other than the functional currency of its operations, and from time to time may strategically enter into short-term foreign currency forward contracts to lock in some or all of the cash flows associated with these transactions. The Company uses foreign currency derivative contracts in order to manage the effect of exchange fluctuations on forecasted sales and purchases that are denominated in foreign currencies. To mitigate the impact of foreign exchange rate risk, the Company entered into a series of forward contracts designated as cash flow hedges. As of ~~December~~March 31, ~~2022~~2023, the notional amount of the forward contracts was $1625,~~924~~667.

Equity Price Risk Management

The Company is exposed to variability in compensation charges related to certain deferred compensation obligations to employees. Equity price movements affect the compensation expense as certain investments made by the Company’s employees in the deferred compensation plan are revalued. Although not designated as accounting hedges, the Company utilizes derivatives such as total return swaps to economically hedge a portion of this exposure and offset the related compensation expense. As of ~~December~~March 31, ~~2022~~2023, the notional amount of the total return swaps was $45,~~702~~016.

Credit Risk Management

The counterparties to the Company’s derivative contracts are highly-rated financial institutions. The Company regularly reviews the creditworthiness of its financial counterparties and fully expects the counterparties to perform under their respective agreements. The Company is not subject to any obligations to post collateral under derivative instrument contracts. The Company records all derivative instruments on a gross basis in the Consolidated Balance Sheets. Accordingly, there are no offsetting amounts that net assets against liabilities.

Derivatives Designated as Cash Flow Hedges

The following represents the fair value recorded for derivatives designated as cash flow hedges for the periods presented:

Asset Derivatives

Balance Sheet Location

~~December~~March 31,~~2022~~2023

September 30,2022

Interest rate swaps

Prepaid and other current assets

22,~~277~~492

19,186

Foreign currency forward contracts

Prepaid and other current assets

~~156~~11

467

Commodity swaps

Prepaid and other current assets

—

Interest rate swaps

Other non‑current assets

2517,~~125~~860

30,766

2526

Liability Derivatives

Balance Sheet Location

~~December~~March 31,~~2022~~2023

September 30,2022

Foreign currency forward contracts

Accrued expenses and other current liabilities

~~385~~626

872

Commodity swaps

Accrued expenses and other current liabilities

—7

The following represents the amount of ~~gain~~ (loss) gain recognized in Accumulated other comprehensive income (loss) (“AOCI”) (net of tax) during the periods presented:

			Three Months EndedDecember 31,
	Three Months EndedMarch 31,				Six Months EndedMarch 31,
					2022		2021
	2023		2022		2023		2022
Interest rate swaps	$	(54)	$	21,077	$	2,~~099~~045	$	526,~~871~~948
Foreign currency forward contracts	(401)		100		(~~389~~790)		~~(18)~~82
Commodity swaps	(7)		8		81		2028
	$	(462)	$	21,185	$	1,~~718~~256	$	527,~~873~~058

The following represents the amount of ~~gain~~ (loss) gain reclassified from AOCI into earnings during the periods presented:

			Three Months EndedDecember 31,
	Three Months EndedMarch 31,				Six Months EndedMarch 31,
Location of (Loss) Gain	2023		2022		~~2022~~2023		~~2021~~2022
Cost of product sales and services	$	(137)	$	6	$	(~~106~~243)	$	(8579)
General and administrative expense	(56)		—		(~~402~~458)		(7)
Selling and marketing expense	—		(1)		—		1—
Interest expense	5,233		(550)		49,~~012~~245		(~~617~~1,167)
	$	5,040	$	(545)	$	38,~~504~~544	$	(~~708~~1,253)

Based on the fair value amounts of the Company’s cash flow hedges at ~~December~~March 31, ~~2022~~2023, the Company expects that approximately $~~196~~545 of pre-tax net losses will be reclassified from AOCI into earnings during the next twelve months. The amount ultimately realized, however, will differ as exchange rates vary and the underlying contracts settle.

Derivatives Not Designated as Hedging Instruments

The following represents the fair value recorded for derivatives not designated as cash flow hedges for the periods presented:

		Asset Derivatives
	Balance Sheet Location	~~December~~March 31,~~2022~~2023		September 30,2022
Foreign currency forward contracts	Prepaid and other current assets	$	—	$	40
Total return swaps—deferred compensation	Prepaid and other current assets	$	205	$	—
Foreign currency forward contracts	Prepaid and other current assets	—		40
		Liability Derivatives
	Balance Sheet Location	~~December~~March 31,~~2022~~2023		September 30,2022
Total return swaps—deferred compensation	Accrued expenses and other current liabilities	$	~~153~~—	$	632
Foreign currency forward contracts	Accrued expenses and other current liabilities	2948		—

2627

The following represents the amount of gain (loss) recognized in earnings for derivatives not designated as hedges during the periods presented:

			Three Months EndedDecember 31,
	Three Months EndedMarch 31,				Six Months EndedMarch 31,
Location of Gain					2022		2021
Location of Gain (Loss)	2023		2022		2023		2022
General and administrative expense	$	215	$	(352)	$	~~375~~590	$	~~311~~(41)
					$	375	$	311

13. Product Warranties

A reconciliation of the activity related to the accrued warranty, including both the current and long‑term portions, is as follows:

	Current Product Warranties				Non-Current Product Warranties
	Three Months EndedDecember 31,				Three Months EndedDecember 31,
	Six Months EndedMarch 31,				Six Months EndedMarch 31,
	2022		2021		2022		2021
	2023		2022		2023		2022
Balance at beginning of the period	$	6,740	$	8,138	$	3,465	$	2,966
Warranty provision for sales	~~758~~3,186		12,~~188~~797		~~206~~545		~~201~~609
Settlement of warranty claims	(~~645~~3,338)		(13,~~262~~345)		(~~415~~811)		(~~219~~338)
Foreign currency translation and other	28(32)		(~~171~~92)		90128		(46)
Balance at end of the period	$	6,~~881~~556	$	7,~~893~~498	$	3,~~346~~327	$	23,~~902~~191

14. Restructuring and Related Charges

To better align its resources with its growth strategies and reduce its cost structure, the Company commits to various restructuring plans as necessary. The Company has undertaken various restructuring initiatives, including activities to reduce the cost structure and rationalize location footprint, ~~particularly~~realigning ~~following the sale of the Memcor product line, transitioning from a three-segment structure to a two-segment~~ operating ~~model~~models designed to better serve the needs of customers worldwide, and various initiatives within the Integrated Solutions and Services segment to drive efficiency and effectiveness in certain divisions.

The Company currently expects to incur in future periods approximately $3,~~700~~400 to $4,~~700~~400 of costs related to restructuring programs initiated in prior periods.

The table below sets forth the amounts accrued for the restructuring components and related activity:

	Three Months EndedDecember 31,
	Six Months EndedMarch 31,
	2022		2021
	2023		2022
Balance at beginning of the period	$	658	$	304
Restructuring charges following the sale of the Memcor product line	19		207
Restructuring charges related to organizational realignment	1,768		987
Restructuring charges related to two-segment realignment	—		164
Restructuring charges related to facility consolidation	589		1,874
Restructuring charges related to other initiatives	~~1,560~~138		~~766~~7
Release of prior reserves	(26223)		(2166)
Cash payments	(1,~~050~~968)		(12,~~138~~220)
Other adjustments	1		—2
Balance at end of the period	$	~~1,162~~963	$	~~282~~888

The balances for accrued restructuring liabilities at ~~December~~March 31, ~~2022~~2023 and September 30, 2022, are recorded in Accrued expenses and other liabilities on the Consolidated Balance Sheets. Restructuring charges primarily represent severance charges and other employee costs, fixed asset write-offs, and certain relocation expenses. The Company expects to pay the remaining amounts accrued as of March 31, 2023 during the remainder of fiscal 2023.

2728

charges and other employee costs, fixed asset write-offs, and certain relocation expenses. The Company expects to pay the remaining amounts accrued as of December 31, 2022 during the remainder of fiscal 2023.

The table below sets forth the location of amounts recorded above on the Unaudited Consolidated Statements of Operations:

	Three Months EndedDecember 31,
	Six Months EndedMarch 31,
	2022		2021
	2023		2022
Cost of product sales and services	$	~~739~~910	$	~~222~~867
General and administrative expense	~~668~~1,010		~~894~~1,719
Sales and marketing expense	~~146~~282		—
	$	1,553	$	1,116
Research and development expense	138		1
Other operating expense, net	(68)		215
	$	2,272	$	2,802

The Company continues to evaluate restructuring activities that may result in additional charges in the future.

15. Employee Benefit Plans

The Company maintains multiple employee benefit plans.

Certain of the Company’s employees in the UK were participants in a Siemens defined benefit plan established for employees of a UK-based operation acquired by Siemens in 2004. The plan was frozen with respect to future service credits for active employees, however the benefit formula recognized future compensation increases. The Company agreed to establish a replacement defined benefit plan, with the assets of the Siemens scheme transferring to the new scheme on April 1, 2015.

The Company’s employees in Germany also participate in a defined benefit plan. Assets equaling the plan’s accumulated benefit obligation were transferred to a German defined benefit plan sponsored by the Company upon the acquisition of EWT from Siemens. The German entity also sponsors a defined benefit plan for a small group of employees located in France.

The components of net periodic benefit cost for the plans were as follows:

			Three Months EndedDecember 31,
	Three Months EndedMarch 31,				Six Months EndedMarch 31,
					2022		2021
	2023		2022		2023		2022
Service cost	$	143	$	227	$	~~137~~280	$	~~232~~459
Interest cost	205		107		~~196~~401		~~108~~215
Expected return on plan assets	(114)		(129)		(~~108~~222)		(~~132~~261)
Amortization of actuarial (gains) losses	(15)		166		(1328)		~~169~~335
Pension expense for defined benefit plans	$	219	$	371	$	~~212~~431	$	~~377~~748

The components of pension expense, other than the service cost component which is included in General and administrative expense, are included in the line item Other operating expense in the Unaudited Consolidated Statements of Operations.

16. Income Taxes

Year-to-date income tax expense or benefit is the product of the most current projected annual effective tax rate (“PAETR”) and the actual year-to-date pretax income (loss) adjusted for any discrete tax items. The income tax expense or benefit for a particular quarter, except for the first quarter, is the difference between the year-to-date calculation of income tax expense or benefit and the year-to-date calculation for the prior quarter. Items unrelated to current period ordinary income or (loss) are recognized entirely in the period identified as a discrete item of tax.

2829

Annual Effective Tax Rate

The PAETR, which excludes the impact of discrete items, was 3132.84% and 2322.16% as of the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023 and ~~2021~~2022, respectively. For the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023, the PAETR was higher than the U.S. federal statutory rate of 21.0% primarily due to the mix of earnings between countries, most of which have higher statutory rates than the U.S., state income tax expense, projected Global Intangible Low Tax Income inclusion, and non-deductible expenses primarily incurred in the U.S. The PAETR at ~~December~~March 31, ~~2021~~2022 was favorably impacted by maintaining a valuation allowance on U.S. deferred tax assets. On September 30, 2022, the valuation allowance on U.S. deferred tax assets was reversed. As a result, the ~~December~~March 31, ~~2022~~2023 PAETR is higher than the PAETR at ~~December~~March 31, ~~2021~~2022.

Current and Prior Period Tax Expense

For the three months ended ~~December~~March 31, ~~2022~~2023, the Company recognized income tax expense of $32,~~890~~522 on pretax income of $13,~~158~~154. The rate of 2919.62% differed from the U.S. statutory rate of 21.0% asand was negatively impacted by tax based on a higher projected annual tax rate due to the mix of earnings between countries, most of which have higher statutory tax rates than the U.S., state income tax expense, ~~projected~~residual U.S. tax due to Global Intangible Low Tax Income inclusion, and non-deductible expenses primarily incurred in the U.S., which was offset by a favorable discrete item related to the impact of tax deductions greater than those for financial reporting related to equity compensation.

For the three months ended ~~December~~March 31, ~~2021~~2022, the Company recognized income tax expense of $12,~~621~~248 on pretax income of $79,~~709~~622. The rate of 2123.04% ~~was~~differed infrom ~~line with~~ the U.S. statutory rate of 21.0% as the mix of earnings between countries, most of which have higher statutory tax rates than the U.S., was mostly offset by the impact of maintaining a U.S. valuation allowance that is provided on U.S. deferred tax assets.

AtFor ~~December~~the six months ended March 31, ~~2022 and 2021~~2023, the Company ~~had~~recognized ~~gross~~income ~~unrecognized~~ tax ~~benefits~~expense of $16,~~614~~412 ~~and~~on pretax income of $126,~~628~~312 ~~respectively~~The rate of 24.4% differed from the U.S. statutory rate of 21% primarily due to the negative impacts of the mix of earnings between countries, most of which have higher statutory tax rates than the U.S., state income tax expense, residual U.S. tax due to Global Intangible Low Tax Income inclusion, and non-deductible expenses primarily incurred in the U.S., partially offset by a favorable discrete item related to the impact of tax deductions greater than those for financial reporting related to equity compensation

For the six months ended March 31, 2022, the Company recognized income tax expense of $3,869 on pretax income of $17,331. The rate of 22.3% differed from the U.S. statutory rate of 21.0% as the mix of earnings between countries, most of which have higher statutory tax rates than the U.S., was mostly offset by the impact of maintaining a U.S. valuation allowance that is provided on U.S. deferred tax assets.

At March 31, 2023 and 2022, the Company had gross unrecognized tax benefits of $1,850 and $2,071 respectively.

17. Share-Based Compensation

The Company designs equity compensation plans to attract and retain employees while also aligning employees’ interests with the interests of the Company’s shareholders. In addition, non-employee members of the Company’s Board of Directors (the “Board”) participate in equity compensation plans in connection with their service on the Board.

The Company established the Evoqua Water Technologies Corp. Stock Option Plan (the “Stock Option Plan”) on March 6, 2014. The plan allows certain management employees and the Board to purchase shares in the Company. Under the Stock Option Plan, the number of shares available for award was 11,083. As of ~~December~~March 31, ~~2022~~2023, there were approximately 2,177 shares available for future grants, however, the Company does not currently intend to make additional grants under the Stock Option Plan.

In connection with the IPO, the Board adopted, and the Company’s shareholders approved, the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (the “Equity Incentive Plan”), under which equity awards may be granted in the form of options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights, dividend equivalent rights, share awards, and performance-based awards (including performance share units and performance-based restricted stock).

As of December 31, 2022, there were approximately 3,576 shares available for grants under the Equity Incentive Plan.

Outstanding option awards vest ratably at 25% per year, and are exercisable on and after vesting. The options granted have a ten-year contractual term.

A summary of the stock option activity, including stock appreciation rights, as of December 31, 2022 is presented below:

(In thousands, except per share amounts)	Options	Weighted Average Exercise Price/Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at September 30, 2022	4,265	$	14.74	5.2 years	$	78,218
Granted	4	42.42
Exercised	(71)	14.07
Forfeited	—	24.76
Outstanding at December 31, 2022	4,198	$	14.77	5.0 years	$	104,245
Options exercisable at December 31, 2022	3,154	$	12.48	4.2 years	$	85,523
Options vested and expected to vest at December 31, 2022	4,194	$	14.76	5.0 years	$	104,179

The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) during the three months ended December 31, 2022 was $2,014.

A summary of the status of the Company's unvested stock options as of and for the three months ended December 31, 2022 is presented below.

(In thousands, except per share amounts)	Shares	Weighted Average Grant Date Fair Value/Share
Unvested at beginning of period	1,042	$	6.82
Granted	4	21.39
Vested	(2)	12.63
Forfeited	—	8.98
Unvested at end of period	1,044	$	6.88

The total fair value of options vested during the three months ended December 31, 2022, was $13.

During the three months ended December 31, 2022, the Company granted RSUs and performance share units under the Equity Incentive Plan to certain employees of the Company. The final number of performance share units that may be earned is dependent on the Company’s achievement of performance goals related to cumulative revenue growth dollars and average adjusted EBITDA margin over a three-year measurement period ending September 30, 2025. The maximum payout cannot exceed 250% of the applicable target award, which also considers that the final number of performance share units that may be earned is subject to a relative total stockholder return (“TSR”) modifier. The TSR modifier operates by increasing or decreasing the total number of shares earned by up to 25% based on the Company’s TSR relative to the TSR of the U.S. constituents of the S&P Global Water Index. In order to receive shares earned at the end of the performance period, the recipient must remain employed by the Company or its subsidiaries through the end of the three-year period (except in the event of retirement, death, disability or, in certain circumstances, related to change in control).

~~The~~As ~~following~~of isMarch 31, a2023, ~~summary~~there ofwere ~~the~~approximately ~~RSU~~3,559 ~~activity~~shares available for ~~the~~grants ~~three~~under ~~months~~the ~~ended~~Equity ~~December 31,~~Incentive ~~2022~~Plan.

(In thousands, except per share amounts)	Shares	Weighted Average Grant Date Fair Value/Share
Outstanding at September 30, 2022	980	$	30.18
Granted	290	42.32
Vested	(33)	44.60
Forfeited	(19)	41.34
Outstanding at December 31, 2022	1,218	$	32.51
Expected to vest at December 31, 2022	1,181	$	32.26

Outstanding option awards vest ratably at 25% per year, and are exercisable on and after vesting. The options granted have a ten-year contractual term.

~~The~~A ~~following is a~~ summary of the ~~performance~~stock ~~share~~option ~~unit~~ activity, ~~for~~including ~~the~~stock ~~three~~appreciation ~~months~~rights, ~~ended~~as ~~December~~of March 31, ~~2022,~~2023 ~~assuming~~is ~~target~~presented ~~award level.~~below:

(In thousands, except per share amounts)	~~Shares~~Options	Weighted Average ~~Grant~~Exercise ~~Date Fair Value~~Price/Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Unvested at beginning of period	592	$	23.36
Outstanding at September 30, 2022	4,265	$	14.74	5.2 years	$	78,218
Granted	~~154~~7	4342.4642
Forfeited	(2)	42.45
Exercised	(199)	15.95
Unvested at end of period	744	$	27.48
Forfeited	(7)	24.36
Expected to vest	697	$	27.23
Outstanding at March 31, 2023	4,066	$	14.71	4.7 years	$	142,350
Options exercisable at March 31, 2023	3,589	$	13.40	4.3 years	$	130,334
Options vested and expected to vest at March 31, 2023	4,062	$	14.70	4.7 years	$	142,253

The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) during the six months ended March 31, 2023 was $5,968.

A summary of the status of the Company's unvested stock options as of and for the six months ended March 31, 2023 is presented below.


(In thousands, except per share amounts)	Shares	Weighted Average Grant Date Fair Value/Share
Unvested at beginning of period	1,042	$	6.82
Granted	7	21.39
Vested	(564)	5.93
Forfeited	(8)	7.95
Unvested at end of period	477	$	8.21

The total fair value of options vested during the six months ended March 31, 2023, was $3,346.

During the six months ended March 31, 2023, the Company granted RSUs and performance share units under the Equity Incentive Plan to certain employees of the Company. The final number of performance share units that may be earned is dependent on the Company’s achievement of performance goals related to cumulative revenue growth dollars and average adjusted EBITDA margin over a three-year measurement period. The maximum payout cannot exceed 250% of the applicable target award, which also considers that the final number of performance share units that may be earned is subject to a relative total stockholder return (“TSR”) modifier. The TSR modifier operates by increasing or decreasing the total number of shares earned by up to 25% based on the Company’s TSR relative to the TSR of the U.S. constituents of the S&P Global Water Index. In order to receive shares earned at the end of the performance period, the recipient must remain employed by the Company or its subsidiaries through the end of the three-year period (except in the event of retirement, death, disability or, in certain circumstances, related to change in control).

The following is a summary of the RSU activity for the six months ended March 31, 2023.


(In thousands, except per share amounts)	Shares	Weighted Average Grant Date Fair Value/Share
Outstanding at September 30, 2022	980	$	30.18
Granted	312	42.83
Vested	(398)	27.73
Forfeited	(36)	38.64


Outstanding at March 31, 2023	858	$	35.56
Expected to vest at March 31, 2023	827	$	35.35

The following is a summary of the performance share unit activity for the six months ended March 31, 2023, assuming target award level.


(In thousands, except per share amounts)	Shares	Weighted Average Grant Date Fair Value/Share
Unvested at beginning of period	592	$	23.36
Granted	154	43.46

Forfeited	(4)	44.84
Unvested at end of period	742	$	27.42
Expected to vest	701	$	27.17

Expense Measurement and Recognition

The Company recognizes share-based compensation for all currently outstanding awards and, in future periods, will recognize compensation costs for the unvested portion of awards based on grant date fair values. Total share-based compensation expense was $6,~~317~~884 and $56,~~334~~068 during the three months ended ~~December~~March 31, ~~2022~~2023 and ~~2021~~2022, respectively, of which $6,~~196~~004 and $5,~~203~~386 was non-cash, respectively. Total share-based compensation expense was $13,201 and $11,402 during the six months ended March 31, 2023 and 2022, respectively, of which $12,200 and $10,589 was non-cash, respectively. The unrecognized compensation expense related to stock options, RSUs, and performance share units (measured at a target award level) was $3,~~841~~289, $2825,~~304~~266 and $1413,~~929~~052, respectively at ~~December~~March 31, ~~2022~~2023, and is expected to be recognized over a weighted average period of 1.24 years, 1.89 years and 1.86 years, respectively. The Company received $24,~~868~~700 from the exercise of stock options during the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023.

Employee Stock Purchase Plan

Effective October 1, 2018, the Company implemented an employee stock purchase plan (the “ESPP”) which allows employees to purchase shares of the Company’s stock at 85% of the lower of the fair market value on the first or last business day of the applicable six-month offering period. These purchases are offered twice throughout each fiscal year, and are paid by employees through payroll deductions over the respective six month purchase period, at the end of which the stock is transferred to the employees. On December 21, 2018, the Company registered 11,297 shares of common stock, par value $0.01 per share, of which 5,000 are available for future issuance under the ESPP. During the three months ended ~~December~~March 31, ~~2022~~2023 and ~~2021~~2022, the Company incurred compensation expense of $~~316~~291 and $~~221~~198, respectively, in salaries and wages with respect to the ESPP, representing the fair value of the discounted price of the shares. During the six months ended March 31, 2023 and 2022, the Company incurred compensation expense of $607 and $419, respectively. These amounts are included in the total share-based compensation expense above. On October 4, 2022 and April 1, 2023, 62 and 66 shares , respectively, were issued under the ESPP.

18. Concentration of Credit Risk

The Company’s cash and cash equivalents and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality. Accounts receivable are derived from revenue earned from customers located in the U.S. and internationally and generally do not require collateral. The Company’s trade receivables do not represent a significant concentration of credit risk at March 31, 2023 and September 30, 2022 due to the wide variety of customers and markets into which products are sold and their dispersion across geographic areas. The Company does perform ongoing credit evaluations of its customers and maintains an allowance for potential credit losses on trade receivables. As of and for the three and six months ended March 31, 2023 and 2022, no customer accounted for more than 10% of net sales or net accounts receivable.

generally do not require collateral. The Company’s trade receivables do not represent a significant concentration of credit risk at December 31, 2022 and September 30, 2022 due to the wide variety of customers and markets into which products are sold and their dispersion across geographic areas. The Company does perform ongoing credit evaluations of its customers and maintains an allowance for potential credit losses on trade receivables. As of and for the three months ended December 31, 2022 and 2021, no customer accounted for more than 10% of net sales or net accounts receivable.

The Company operates predominantly in nine countries worldwide and provides a wide range of proven product brands and advanced water and wastewater treatment technologies, mobile and emergency water supply solutions, and service contract options through its Integrated Solutions and Services and Applied Product Technologies segments. The Company is a multi-national business but its sales and operations are primarily in the U.S. Sales to unaffiliated customers are transacted with the Company location that maintains the customer relationship.

19. Commitments and Contingencies

Guarantees

From time to time, the Company is required to provide letters of credit, bank guarantees, or surety bonds in support of its commitments and as part of the terms and conditions on water treatment projects. In addition, the Company is required to provide letters of credit or surety bonds to the Department of Environmental Protection or equivalent in some states in order to maintain its licenses to handle toxic substances at certain of its water treatment facilities.

These financial instruments typically expire after all Company commitments have been met, a period typically ranging from twelve months to ten years, or more in some circumstances. The letters of credit, bank guarantees, or surety bonds are arranged through major banks or insurance companies. In the case of surety bonds, the Company generally indemnifies the issuer for all costs incurred if a claim is made against the bond.

The following summarizes the Company’s outstanding letters of credit and surety bonds as of ~~December~~March 31, ~~2022~~2023 and September 30, 2022, respectively.

	December 31,2022		September 30,2022
	March 31,2023		September 30,2022
Revolving credit capacity	$	60,000	$	60,000
Letters of credit outstanding	87,~~760~~416		9,317
Remaining revolving credit capacity	$	5152,~~240~~584	$	50,683
Surety capacity	$	~~262~~287,~~135~~173	$	261,959
Surety issuances	~~136~~179,~~862~~187		134,037
Remaining surety available	$	~~125~~107,~~273~~986	$	127,922

The longest maturity date of letters of credit and surety bonds in effect as of ~~December~~March 31, ~~2022~~2023 was March 20, 2030.

Litigation

From time to time, as a normal incident of the nature and kind of business in which the Company is engaged, various claims or charges are asserted and litigation is commenced against it arising from or related to: product liability; personal injury; trademarks, trade secrets, or other intellectual property; shareholder disputes; labor and employee disputes; commercial or contractual disputes; breach of warranty; or environmental matters. Claimed amounts may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. While it is not feasible to predict the outcome of these matters with certainty, and some lawsuits, claims, or proceedings may be disposed or decided unfavorably, the Company does not expect that any asserted or un-asserted legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on its results of operations, or financial condition.

32proceedings may be disposed or decided unfavorably, the Company does not expect that any asserted or un-asserted legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on its results of operations, or financial condition.

As previously disclosed, in October 2020, the Company learned that the SEC and the United States Attorney’s Office for the District of Massachusetts (“USAO”) are investigating whether financial misstatements were made in the Company’s public filings and earnings announcements prior to October 2018. OnIn December 8, 2022, the Company received a “Wells Notice” from the staff of the SEC (the “Staff”) relating to the SEC’s investigation. The Wells Notice informed the Company that the Staff ~~has~~had made a preliminary determination to recommend that the SEC file a civil enforcement action against the Company that would allege certain violations of the federal securities laws relating to the reported financial results of the Company during fiscal years 2016, 2017, and 2018, and to the adequacy and accuracy of the Company’s books and records and internal controls over financial reporting for those fiscal years. The allegations arise from revenue recognition practices of the Neptune-Benson business that the Company acquired in fiscal 2016. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. The Company ~~continues~~negotiated toa ~~cooperate~~settlement with ~~both~~the SEC under which it neither admits nor denies the SEC’s allegations, and in March 2023 the ~~USAO~~SEC flied a complaint in the United States District Court for the District of Rhode Island against the Company and a former employee of the Neptune-Benson business, together with ~~respect~~a toproposed ~~these~~judgment ~~investigations~~on consent against the Company. The InSEC’s ~~accordance~~complaint against the Company is grounded in negligence-based theories and books and records violations for matters arising from the Neptune-Benson business with ~~ASC~~respect ~~Topic~~to Nofiscal years 2016 to 2018. The ~~450~~proposed final judgment, ~~Contingencies~~which is awaiting Court approval, requires the Company ~~has~~to ~~recorded~~pay a ~~charge~~penalty of $8,500 ~~for~~and ~~anticipated~~to ~~settlement~~undertake ~~costs~~various ~~with~~improvements ~~respect~~ to ~~the~~its ~~SEC~~internal ~~investigation~~controls over financial reporting. ~~This~~In ~~charge~~accordance iswith ~~recorded~~ASC inTopic ~~General~~No. ~~and~~450, ~~administrative~~Contingencies, ~~expenses~~the Company recorded a charge of $8,500 in the ~~Consolidated~~first ~~Statement~~quarter of ~~Operations~~fiscal 2023 for the ~~period~~settlement ~~ended~~of ~~December~~the 31SEC investigation. The Company continues to cooperate with the USAO investigation, ~~2022~~which is ongoing. Although the Company is unable to predict the outcome of these ongoing investigations, we currently believe that these matters will not have a material adverse effect on our business, financial condition, results of operations, or prospects. However, no assurance can be given that these matters will be resolved for the amount recorded.

On March 13, 2023, a purported Evoqua stockholder filed an action against Evoqua and the Evoqua Board captioned O’Dell v. Evoqua Water Technologies Corp., et al., No. 23-cv-2122, in the United States District Court for the Southern District of New York (the “O’Dell Action”). The plaintiff in the O’Dell Action alleges that Evoqua and the Evoqua Board violated federal securities laws, including Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated under the Exchange Act, by issuing a materially incomplete and misleading preliminary proxy statement in connection with the Merger. On April 11, 2023, another purported Evoqua stockholder filed an action against Evoqua and the Evoqua Board captioned Bushansky v. Evoqua Water Technologies Corp., et al., No. 23-cv-3042, in the United States District Court for the Southern District of New York (the “Bushansky Action”), and on April 20, 2023, a third purported Evoqua stockholder filed an action against Evoqua and the Evoqua Board captioned Morgan v. Evoqua Water Technologies Corp., et al., No. 23-cv-431, in the United States District Court for the District of Delaware (the “Morgan Action” and together with the O’Dell Action and the Bushansky Action, the “Actions”). The plaintiffs in the Bushansky Action and the Morgan Action allege that Evoqua and the Evoqua Board violated federal securities laws, including Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated under the Exchange Act, by issuing a materially incomplete and misleading definitive proxy statement in connection with the Merger. The plaintiffs in each of the Actions seek, among other things, to enjoin the transactions contemplated by the Merger Agreement and an award of attorneys’ and expert fees and expenses. Xylem and Evoqua believe that the allegations in the Actions are without merit. Additional lawsuits arising out of the Merger may also be filed in the future.

20. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following:

	December 31,2022		September 30,2022
	March 31,2023		September 30,2022
Salaries, wages, and other benefits	$	5248,~~373~~906	$	83,618
Obligation under operating leases	1516,~~527~~082		14,932
Obligation under finance leases	1213,~~917~~502		12,875
Provisions for litigation	12,~~709~~875		2,375
Deferred revenue	9,760		9,692
Third party commissions	10,001		10,341
Third party commissions	9,615		10,341
Deferred revenue	9,287		9,692
Taxes, other than income	56,~~833~~631		5,594
Insurance liabilities	3,~~958~~192		3,456
Severance payments	~~1,162~~963		658
Fair value of liability derivatives	~~567~~681		1,511
Other	3230,~~425~~990		33,220
	$	~~156~~153,~~846~~110	$	178,272

21. Business Segments

The Company’s reportable operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance. The key factors used to identify these reportable operating segments are the organization and alignment of the Company’s internal operations, the nature of the products and services, and customer type.

The Company has two reportable operating segments, Integrated Solutions and Services and Applied Product Technologies. The business segments are described as follows: Integrated Solutions and Services is a group entirely focused on engaging directly with end users through direct sales with a market vertical focus. Integrated Solutions and Services provides tailored services and solutions in collaboration with the customers backed by life‑cycle services including on‑demand water, outsourced water, recycle / reuse, and emergency response service alternatives to improve operational reliability, performance, and environmental compliance. Key offerings within this segment also include equipment systems for industrial needs (influent water, boiler feed water, ultrahigh purity, process water, wastewater treatment, and recycle / reuse), full-scale outsourcing of operations and maintenance, and municipal services, including odor and corrosion control services. Applied Product Technologies is focused on developing product platforms to be sold primarily through third party channels. This segment primarily engages in indirect sales through independent sales representatives, distributors, and aftermarket channels. Applied Product Technologies provides a range of highly differentiated and scalable products and technologies specified by global water treatment designers, original equipment manufacturers (“OEMs”), engineering firms, and integrators. Key offerings within this segment include filtration and separation, disinfection, wastewater solutions, anode and electrochlorination technology, and aquatics technologies and solutions for the global recreational and commercial pool market.

differentiated and scalable products and technologies specified by global water treatment designers, original equipment manufacturers (“OEMs”), engineering firms, and integrators. Key offerings within this segment include filtration and separation, disinfection, wastewater solutions, anode and electrochlorination technology, and aquatics technologies and solutions for the global recreational and commercial pool market.

Corporate activities include general corporate expenses, elimination of inter-segment transactions, interest income and expense, and certain other charges. Certain other charges may include restructuring and other business transformation charges that have been undertaken to align and reposition the Company to the current reporting structure, acquisition related costs (including transaction costs and certain integration costs), and share-based compensation charges.

Since certain administrative and other operating expenses and other items have not been allocated to business segments, the results in the below table are not necessarily a measure computed in accordance with generally accepted accounting principles and may not be comparable to other companies.

~~Reportable operating segment revenue and operating profit for the three months ended December 31, 2022 and 2021 were as follows:~~35

	Three Months EndedDecember 31,
		2022		2021
Total revenue
Integrated Solutions and Services		$	311,264	$	253,576
Applied Product Technologies		150,338		142,497
Total revenue		461,602		396,073
Intersegment revenue
Integrated Solutions and Services		5,838		8,530
Applied Product Technologies		19,918		21,275
Total intersegment revenue		25,756		29,805
Revenue to external customers
Integrated Solutions and Services		305,426		245,046
Applied Product Technologies		130,420		121,222
Total revenue		$	435,846	$	366,268
Operating profit (loss)
Integrated Solutions and Services		$	42,708	$	35,300
Applied Product Technologies		21,015		17,827
Corporate		(40,491)		(38,839)
Total operating profit		23,232		14,288
Interest expense		(10,074)		(6,579)
Income before income taxes		13,158		7,709
Income tax expense		(3,890)		(1,621)
Net income		$	9,268	$	6,088

Reportable operating segment revenue and operating profit for the three and six months ended March 31, 2023 and 2022 were as follows:

	December 31,2022		September 30,2022
	Three Months EndedMarch 31,				Six Months EndedMarch 31,
Assets
	2023		2022		2023		2022
Integrated Solutions and Services	$	1,178,127	$	1,123,166
Total revenue
Applied Product Technologies	671,396		653,244
Integrated Solutions and Services	$	334,838	$	304,499	$	646,102	$	558,075
Corporate	357,834		414,453
Applied Product Technologies	174,833		154,861		325,171		297,358
Total assets	$	2,207,357	$	2,190,863
Total revenue	509,671		459,360		971,273		855,433
Intersegment revenue
Integrated Solutions and Services	5,939		9,659		11,777		18,189
Applied Product Technologies	25,935		22,973		45,853		44,248
Total intersegment revenue	31,874		32,632		57,630		62,437
Revenue to external customers
Integrated Solutions and Services	328,899		294,840		634,325		539,886
Applied Product Technologies	148,898		131,888		279,318		253,110
Total revenue	$	477,797	$	426,728	$	913,643	$	792,996
Operating profit (loss)
Integrated Solutions and Services	$	43,127	$	38,105	$	85,835	$	73,405
Applied Product Technologies	28,564		22,993		49,579		40,820
Corporate	(48,234)		(41,526)		(88,725)		(80,365)
Total operating profit	23,457		19,572		46,689		33,860
Interest expense	(10,303)		(9,950)		(20,377)		(16,529)
Income before income taxes	13,154		9,622		26,312		17,331
Income tax expense	(2,522)		(2,248)		(6,412)		(3,869)
Net income	$	10,632	$	7,374	$	19,900	$	13,462


	March 31, 2023		September 30, 2022
Assets
Integrated Solutions and Services	$	1,088,689	$	1,123,166
Applied Product Technologies	669,179		653,244
Corporate	451,702		414,453
Total assets	$	2,209,570	$	2,190,863

22. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings from continuing operations per common share (in thousands, except per share amounts):

			Three Months EndedDecember 31,
	Three Months EndedMarch 31,				Six Months EndedMarch 31,
					2022		2021
	2023		2022		2023		2022
Numerator:
Numerator for basic and diluted earnings per common share—Net income attributable to Evoqua Water Technologies Corp.	$	10,632	$	7,330	$	919,~~268~~900	$	513,~~987~~317
Denominator:
Denominator for basic net income per common share—weighted average shares	122,212		120,942		~~121~~122,~~848~~028		120,~~632~~785
Effect of dilutive securities:
Share‑based compensation	3,583		4,012		3,~~446~~479		4,~~315~~145
Denominator for diluted net income per common share—adjusted weighted average shares	125,795		124,954		125,~~294~~507		124,~~947~~930
Basic earnings attributable to Evoqua Water Technologies Corp. per common share	$	0.09	$	0.06	$	0.0816	$	0.0511
Diluted earnings attributable to Evoqua Water Technologies Corp. per common share	$	0.08	$	0.06	$	0.0716	$	0.0511

Because of their anti-dilutive effect, 272 and 606 common share equivalents, comprised of employee stock options, have been excluded from the diluted EPS calculation for the three months ended March 31, 2023 and 2022, respectively, and 493 and 465 for the six months ended March 31, 2023 and 2022, respectively.

23. Subsequent Events

~~None~~In connection with the pending Merger with Xylem, the Company shortened the duration of the ESPP offering period that commenced on April 1, 2023. The Company accelerated the end date of that offering period from September 30, 2023 to May 1, 2023.

3537

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with the Unaudited Consolidated Financial Statements, including the notes, included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Report”), and with our audited consolidated financial statements and the related notes thereto in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, as filed with the SEC on November 16, 2022 (the “2022 Annual Report”). You should review the disclosures in Part I, Item 1A, “Risk Factors” in the 2022 Annual Report, Part II, Item 1A, “Risk Factors” in this Report, and any cautionary language in this Report, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Unless otherwise indicated or the context otherwise requires, all references to “the Company,” “Evoqua,” “Evoqua Water Technologies Corp.,” “we,” “us,” “our” and similar terms refer to Evoqua Water Technologies Corp., together with its consolidated subsidiaries. Unless otherwise specified, all dollar amounts in this section are referred to in millions.

Overview

We are a leading provider of mission-critical water and wastewater treatment solutions, offering a broad portfolio of products, services, and expertise to support customers across various end markets. We are headquartered in Pittsburgh, Pennsylvania, with locations across nine countries. We have a comprehensive portfolio of differentiated, proprietary technologies offered under market‑leading and well‑established brands. Our core technologies are primarily focused on removing impurities from water, rather than neutralizing them through the addition of chemicals.

Our solutions are designed to provide our customers with the quantity and quality of water necessary to meet their unique specifications. We enable our customers to achieve lower costs through greater uptime, throughput and efficiency in their operations while supporting their regulatory compliance and environmental requirements. We deliver and maintain these mission critical solutions through our extensive North American service network, and we sell our products and technologies internationally through direct and indirect sales channels. We have worked to protect water, the environment, and our employees for more than 100 years. As a result, we have earned a reputation for quality, safety, and reliability around the world. Our employees are united by a common purpose: Transforming Water. Enriching Life.®

Our vision “to be the world’s first choice for water solutions” and our values of “integrity, customers, sustainable, and performance” foster a culture that is focused on establishing a workforce that is enabled, empowered, and accountable, creating a highly dynamic work environment.

We serve our customers through the following two reportable segments:

•Integrated Solutions and Services segment, which provides application-specific solutions and full lifecycle services for critical water and wastewater applications across numerous end markets, including outsourced water service contracts, capital systems, and related recurring aftermarket services, parts and consumables, and emergency services to enable recycle and reuse, improve operational reliability and performance, and promote environmental compliance; and

•Applied Product Technologies segment, which provides highly differentiated and scalable water and wastewater products and technologies as stand-alone offerings or components in integrated solutions to a diverse set of system integrators and end-users globally.

Our segments draw from the same reservoir of leading technologies, shared manufacturing infrastructure, common business processes, and corporate philosophies. The key factors used to identify these reportable operating segments are the organization and alignment of our internal operations, the nature of the products and services and customer type.

Proposed Merger with Xylem Inc.

3638

owned subsidiary of Xylem (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and as a direct, wholly owned subsidiary of Xylem (the “Merger”).

In connection with the Merger, wethe Company recognized costs of $~~200~~10.0 ~~thousand~~million and $10.2 million for the three and six months ended ~~December~~ March 31, ~~2022~~2023, respectively, included in General and administrative expenses in the Unaudited Consolidated Statements of Operations. These costs primarily relate to legal and consulting fees incurred in connection with the Merger.

For further information on the Merger Agreement, refer to the Merger Agreement, a copy of which was filed as Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on January 23, 2023.

Other Recent Developments, Key Factors and Trends Affecting Our Business and Financial Statements

Our 2022 Annual Report includes a discussion of various key factors and trends that we believe have affected or may affect our operating results. The following discussion highlights recent developments, as well as significant changes in these key factors and trends.

Macroeconomic conditions. Material, freight, and labor inflation resulted in increased costs in the ~~first~~second quarter of fiscal 2023~~, and we expect this trend will continue throughout fiscal 2023~~. Although we have offset a portion of these increased costs through price increases and operational efficiencies to date, ~~our~~there ~~margin percentage has been negatively impacted. There~~ can be no assurance that we will be able to offset all or any portion of these increased costs in future periods. If we are unable to manage commodity fluctuations through pricing actions, cost savings projects, and sourcing decisions as well as through consistent productivity improvements, it may adversely impact our gross profit and gross margin in future periods. Additionally, supply chain disruptions and labor shortages have restricted and could further restrict availability of certain commodities and materials, which may result in delays in our execution of projects in fiscal 2023 and negatively impact revenues. We have increased inventory levels to meet current order demand. Tight labor markets have resulted in longer times to fill open positions and labor inflation. Continued delays in filling open positions, particularly among our service technician population, could impact our ability to provide timely service to our customers. Although these factors did not have a material adverse effect on our results of operations for the three months ended December 31, 2022, if sustained, they could have a material adverse effect on our results of operations going forward.

37customers. Although these factors did not have a material adverse effect on our results of operations for the six months ended March 31, 2023, if sustained, they could have a material adverse effect on our results of operations going forward.

In an effort to combat inflation, central banks began raising interest rates in the latter half of fiscal 2022, and interest rates are expected to continue to increase throughout the remainder of fiscal 2023. We do not believe that our exposure to rising interest rates in the near term will have a material impact on our business, financial condition, results of operations, or prospects, but if sustained over longer periods, this could have a material adverse effect on our results of operations. We plan to continue to evaluate aspects of our spending, including capital expenditures, discretionary spending, and strategic investments in the remainder of fiscal 2023.

~~Impact of the COVID~~Russia-19Ukraine war. We ~~continue~~have tono ~~monitor~~operations ~~the~~in ~~global~~Russia ~~spread~~or ofUkraine, ~~COVID-19~~ and ~~its potential impact on~~ our ~~operations,~~sales ~~particularly~~into ~~our~~these ~~supply~~regions ~~chain~~are minimal. However, ~~and~~ the ~~macroeconomic~~conflict ~~factors~~in ~~that~~Ukraine ~~could~~has ~~affect~~exacerbated ~~end market demand. In connection with~~ the ~~recent~~material ~~lifting~~inflation ~~of lockdowns~~ and ~~quarantine~~availability ~~rules~~challenges indescribed ~~China~~above, weparticularly ~~are~~with ~~monitoring~~respect ~~our~~to ~~operating~~the ~~protocols~~impact toit ~~manage~~has ~~exposure~~had ~~risks~~on energy and ~~maintain~~fuel ~~productivity.~~prices Weand ~~incurred~~the ~~additional~~price ~~incremental~~of ~~costs~~steel ~~relating~~and toother ~~safety~~precious ~~measures~~metals ~~implemented~~that we procure in ~~China,~~our ~~but~~supply ~~those~~chain. Although ~~costs~~these factors did not have a material adverse effect on our ~~operations~~results orof ~~financial~~operations ~~results~~ for the ~~tthree~~six months ended ~~December~~March 31, ~~2022. However~~2023, if we orexpect ~~our~~the ~~suppliers~~inflationary ~~are~~impact ~~unsuccessful~~on inenergy, ~~mitigating~~fuel ~~any~~and ~~material~~steel ~~adverse~~prices ~~impacts~~to continue throughout the remainder of ~~future~~fiscal ~~COVID-19~~2023. If ~~outbreaks~~these factors are sustained, itor ~~could~~if ~~impact~~the ~~our~~duration ~~sales~~of the conflict is extended or the conflict spreads into ~~affected~~a ~~regions~~larger ~~and~~geographic portion of Europe, our ~~ability~~results toof ~~source~~operations ~~materials~~in ~~from~~future ~~those~~periods ~~regions~~could be materially and adversely impacted.

~~Russia-Ukraine~~Acquisitions ~~war~~and divestitures. We ~~have~~During nothe ~~operations~~six inmonths ~~Russia~~ended orMarch ~~Ukraine~~31, ~~and our sales into these regions are minimal. However~~2023, ~~the~~we ~~conflict~~paid incash ~~Ukraine~~of ~~has~~$38 ~~exacerbated~~thousand ~~the~~as ~~material~~a ~~inflation~~result ~~and~~of ~~availability~~net ~~challenges~~working ~~described~~capital ~~above,~~adjustments ~~particularly~~related ~~with respect~~ to the ~~impact~~acquisition ~~it has had on energy and fuel prices and the price~~ of ~~steel~~Epicor, ~~and~~Inc. ~~other precious metals~~ that we ~~procure~~completed in ~~our~~fiscal ~~supply chain. Although these factors did not have a material adverse effect on our results of operations for the three months ended December 31,~~ 2022, and we ~~expect~~received ~~the~~cash ~~inflationary~~of ~~impact~~$1.8 onmillion ~~energy,~~as ~~fuel~~a ~~and~~result ~~steel prices to continue throughout the remainder~~ of ~~fiscal~~net ~~2023. If~~working ~~these~~capital ~~factors~~adjustments ~~are~~related ~~sustained,~~to ~~or if~~ the ~~duration~~acquisition of the ~~conflict~~Mar isCor ~~extended~~Business orthat ~~the~~we ~~conflict~~completed ~~spreads~~in ~~into~~fiscal a2022, ~~larger~~and ~~geographic~~$12.3 ~~portion~~million of ~~Europe,~~cash ~~our~~was ~~results~~released offrom ~~operations~~escrow into ~~future~~the ~~periods~~Company ~~could~~related beto ~~materially~~the ~~and~~Earn ~~adversely~~Out ~~impacted~~asset.

~~Acquisitions~~On ~~and~~March ~~divestitures.~~31, ~~During~~2023, the ~~three~~Company ~~months~~completed ~~ended~~its ~~December~~divestiture ~~31,~~of ~~2022,~~its weblood ~~paid~~filter ~~cash~~and ofwater ~~$38~~filter ~~thousand~~product aslines athat ~~result~~are ofsold ~~net~~into ~~working~~renal ~~capital~~and ~~adjustments~~other ~~related~~medical toapplications (the ~~acquisition~~“Filtration ofBusiness”) ~~Epicor,~~to Medica USA Inc., ~~that~~a wesubsidiary ~~completed~~of inMedica ~~fiscal 2022~~S.p.A. ~~In addition~~(“Medica”), ~~during~~for ~~the~~$67 ~~three~~thousand ~~months~~in ~~ended~~cash ~~December~~at 31closing, ~~2022,~~resulting wein ~~received~~a ~~cash~~loss on sale of $12.89 million, aswhich ais ~~result~~included in Other operating expense on the Consolidated Statements of ~~net~~Operations. ~~working~~The ~~capital~~Filtration ~~adjustments~~Business ~~related~~was included in the Integrated Solutions and Services segment and was determined by management not to be core to the ~~acquisition~~Company’s oflong-term business strategy or operations. The Company entered into a supply agreement with Medica under which the ~~Mar~~Company ~~Cor~~will ~~Business~~purchase ~~that~~water wefilters ~~completed~~used by its customers in ~~fiscal~~the ~~2022~~Company’s dialysis water systems.

On February 28, 2023, the Company completed its acquisition of the Texas-based industrial water service business accounts and deionization and carbon tank assets of Kemco Systems (“Kemco”) for $900 thousand in cash at closing. This acquisition expands the Company’s service and aftermarket business in the Texas market while strengthening the Company’s ability to better support and service its industrial customers in the region. The acquired business is included within the Integrated Solutions and Services segment.

On February 14, 2023, the Company entered into a definitive agreement to divest its carbon reactivation and slurry operations (the “Carbon Business”) to Desotec US LLC, a subsidiary of Desotec N.V. As of March 31, 2023, the transaction had not closed and is expected to close in the third quarter of fiscal 2023. Gross proceeds upon closing of the transaction are anticipated to be $100.0 million and the Company expects to record a gain on sale. The assets and liabilities of the Carbon Business met the accounting criteria to be classified as held for sale on the Consolidated Balance Sheets at March 31, 2023. The sale of the Carbon Business will allow the Company to focus on its core service business, which includes carbon services and the sale of high-quality activated carbon. At the closing of the transaction, the Company will enter into a supply agreement with Desotec under which the Company will purchase reactivated carbon to continue to service its customers. The Carbon Business is included in the Integrated Solutions and Services segment.

How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of our consolidated business are revenue, gross profit, gross margin, and net income (loss). Management utilizes these financial measures prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) when reviewing the Company’s performance and making financial, operational, and strategic decisions, and believes they are useful metrics for investors that help with performance comparability period over period. In addition, we consider certain non-GAAP financial measures such as EBITDA and adjusted EBITDA, as described more fully below. We evaluate our business segments’ operating results based on revenue, income from operations (“operating profit”), and adjusted EBITDA on a segment basis. We believe ~~these financial measures are helpful in understanding and evaluating the segments’ core operating results and facilitates comparison of our performance on a consistent basis period over period.~~

these financial measures are helpful in understanding and evaluating the segments’ core operating results and facilitates comparison of our performance on a consistent basis period over period.

Revenue

Our revenue is a function of sales volumes and selling prices. We report revenue by segment and by source which includes revenue from product sales (capital and aftermarket) and revenue from service. Revenue is used by management to evaluate the performance of our business. Revenue growth is primarily related to organic and inorganic factors. Organic revenue growth, as a component of revenue growth, is defined as period over period revenue growth without (i) the impact from acquisitions and divestitures during the first 12 months following the closing of the acquisition or divestiture, which we refer to as inorganic impact, and (ii) the impact of foreign currency translation. Divestitures include sales of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. We disregard the effect of foreign currency translation from organic revenue growth because foreign currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. The effect of acquisitions and divestitures during the first 12 months following the closing of the acquisition or divestiture are disregarded because they can obscure underlying business trends and make comparisons of long-term performance difficult between the Company and its peers due to the varying nature, size, and number of transactions from period to period.

EBITDA and Adjusted EBITDA

EBITDA, which is a non-GAAP financial measure, is defined as net income (loss) before interest expense, income tax benefit (expense), and depreciation and amortization. Adjusted EBITDA, which is a non-GAAP financial measure, is one of the primary metrics used by management to evaluate the strength and financial performance of our core business. Adjusted EBITDA is defined as net income (loss) before interest expense, income tax benefit (expense), and depreciation and amortization, adjusted for the impact of certain other items, including restructuring and related business transformation costs, share-based compensation, transaction costs, and other gains, losses, and expenses that we believe do not directly reflect our underlying business operations. We present adjusted EBITDA because we believe it is frequently used by analysts, investors, and other interested parties to evaluate and compare operating performance and value companies within our industry. Further, we believe it is helpful in highlighting trends in our operating results and provides greater clarity and comparability period over period to management and our investors regarding the operational impact of long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate, and capital investments. In addition, adjusted EBITDA highlights true business performance by removing the impact of certain items that management believes do not directly reflect our underlying operations and provides investors with greater visibility into the ongoing drivers of our business performance.

Management uses adjusted EBITDA to supplement GAAP measures of performance as follows:

•to assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance;

•in our management incentive compensation, which is based in part on components of adjusted EBITDA;

•in certain calculations under our senior secured credit facilities, which use components of adjusted EBITDA;

•to evaluate the effectiveness of our business strategies;

•to make budgeting decisions; and

•to compare our performance against that of other peer companies using similar measures.

In addition to the above, our chief operating decision maker uses adjusted EBITDA of each reportable operating segment as a supplement to segment operating profit and segment revenue to evaluate the operating performance of such segments. Adjusted EBITDA on a segment basis is defined as earnings before depreciation and amortization, adjusted for the impact of certain other items that have been reflected at the segment level. Adjusted EBITDA of the reportable operating segments do not include certain charges that are presented within corporate activities. These charges include certain restructuring and other business transformation charges that have been incurred to align and reposition the ~~Company to the current reporting structure, acquisition related costs (including transaction costs and integration costs) and share-based compensation charges.~~

Company to the current reporting structure, acquisition related costs (including transaction costs and integration costs) and share-based compensation charges.

EBITDA and adjusted EBITDA should not be considered substitutes for, or superior to, financial measures prepared in accordance with GAAP. The financial results prepared in accordance with GAAP and the reconciliations from these results should be carefully evaluated. See “Non-GAAP Reconciliations” in this Item 2 for a reconciliation of EBITDA and adjusted EBITDA to net income. You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. In addition, in evaluating adjusted EBITDA, you should be aware that in the future, we may incur expenses similar to the adjustments in the presentation of adjusted EBITDA. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, other companies in our industry or across different industries may calculate adjusted EBITDA differently.

3942

Results of Operations

The following table summarizes key components of our results of operations for the periods indicated:

	Three Months Ended December 31,
	Three Months Ended March 31,
	2022				2021
	2023				2022
(In millions, except per share amounts)			% of Revenue				% of Revenue		% Variance
Revenue from product sales and services	$	~~435~~477.8	100.0	%	$	~~366~~426.37	100.0	%	1912.0		%
Gross profit	$	~~130~~151.39	2931.98	%	$	~~110~~128.59	30.2	%	17.98		%
Total operating expenses	$	(~~108~~125.26)	(2426.83)	%	$	(97110.76)	(2625.79)	%	1013.76		%
Other operating income, net	$	1.2	0.3	%	$	1.5	0.4	%	(20.0)		%
Other operating (expense) income, net	$	(2.9)	(0.6)	%	$	1.3	0.3	%	(323.1)		%
Interest expense	$	(10.13)	(2.32)	%	$	(610.60)	(12.83)	%	533.0		%
Income before income taxes	$	13.21	32.07	%	$	79.76	2.12	%	7136.45		%
Income tax expense	$	(32.95)	(0.95)	%	$	(12.62)	(0.45)	%	~~143~~13.86		%
Net income	$	910.36	2.12	%	$	67.14	1.7	%	5243.52		%
Net income attributable to non‑controlling interest	$	—	—	%	$	0.1	—	%	~~(100.0)~~$	—	%
Net income attributable to Evoqua Water Technologies Corp.	$	910.36	2.12	%	$	67.03	1.67	%	5545.02		%
Weighted average shares outstanding
Basic	~~121~~122.82				120.69
Diluted	125.38				~~124~~125.90
Earnings per share
Basic	$	0.0809			$	0.0506
Diluted	$	0.0708			$	0.0506
Other financial data:
Adjusted EBITDA(1)	$	7288.75	1618.75	%	$	5473.32	1417.82	%	3320.9		%
	Six Months Ended March 31,
	2023				2022
(In millions, except per share amounts)			% of Revenue				% of Revenue		% Variance
Revenue from product sales and services	$	913.6	100.0	%	$	793.0	100.0	%	15.2		%
Gross profit	$	282.2	30.9	%	$	239.4	30.2	%	17.9		%
Total operating expenses	$	(233.9)	(25.6)	%	$	(208.3)	(26.3)	%	12.3		%
Other operating (expense) income, net	$	(1.6)	(0.2)	%	$	2.8	0.4	%	(157.1)		%
Interest expense	$	(20.4)	(2.2)	%	$	(16.5)	(2.1)	%	23.6		%
Income before income taxes	$	26.3	2.9	%	$	17.4	2.2	%	51.1		%
Income tax expense	$	(6.4)	(0.7)	%	$	(3.9)	(0.5)	%	64.1		%
Net income	$	19.9	2.2	%	$	13.5	1.7	%	47.4		%
Net income attributable to non‑controlling interest	$	—	—	%	$	0.2	—	%	(100.0)		%
Net income attributable to Evoqua Water Technologies Corp.	$	19.9	2.2	%	$	13.3	1.7	%	49.6		%
Weighted average shares outstanding
Basic	122.0				120.8
Diluted	125.5				124.9
Earnings per share
Basic	$	0.16			$	0.11
Diluted	$	0.16			$	0.11
Other financial data:
Adjusted EBITDA(1)	$	161.2	17.6	%	$	127.5	16.1	%	26.4		%

(1)Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see “Non-GAAP Reconciliations” in Item 2 of this Report.43

~~Consolidated~~(1)Adjusted ~~Results~~EBITDA ~~for~~is ~~the~~a ~~Three~~non-GAAP ~~Months~~financial ~~Ended~~measure. ~~December 31~~For a reconciliation to net income, ~~2022~~its ~~and~~most ~~2021~~directly comparable financial measure presented in accordance with GAAP, see “Non-GAAP Reconciliations” in Item 2 of this Report.

~~Revenue-Revenue~~Consolidated ~~increased~~Results ~~$69.5~~for ~~million, or 19.0%, to $435.8 million in~~ the ~~three~~Three ~~months~~Months ~~ended~~Ended ~~December~~March 31, ~~2022,~~2023 ~~from~~and ~~$366.3 million in the three months ended December 31, 2021. Revenue from product sales increased $47.8 million, or 22.5%, to $260.4 million in the three months ended December 31,~~ 2022, from $212.6 million in the three months ended December 31, 2021. Revenue from services increased $21.7 million, or 14.1%, to $175.4 million in the three months ended December 31, 2022, from $153.7 million in the three months ended December 31, 2021.

~~The~~Revenue-Revenue ~~following~~increased ~~tables~~$51.1 ~~provide~~million, ~~the~~or ~~change~~12.0%, to $477.8 million in ~~revenue~~the bythree ~~offering~~months ~~and~~ended byMarch 31, 2023, from $426.7 million in the ~~components~~three ~~that~~months ~~contributed~~ended March 31, 2022. Revenue from product sales increased $32.9 million, or 12.7%, to ~~revenue~~$292.7 ~~growth~~million ~~during~~in the three months ended ~~December~~March 31, 2023, from $259.8 million in the three months ended March 31, 2022. ~~and~~Revenue ~~2021:~~from services increased $18.2 million, or 10.9%, to $185.1 million in the three months ended March 31, 2023, from $166.9 million in the three months ended March 31, 2022.

	Three Months Ended December 31,
	2022				2021				$ Variance		% Variance
(In millions)			% ofRevenue				% ofRevenue
Revenue from product sales:	$	260.4	59.8	%	$	212.6	58.0	%	$	47.8	22.5	%
Capital	165.7		38.0	%	151.0		41.2	%	14.7		9.7	%
Aftermarket	94.7		21.8	%	61.6		16.8	%	33.1		53.7	%
Revenue from services	175.4		40.2	%	153.7		42.0	%	21.7		14.1	%
	$	435.8	100.0	%	$	366.3	100.0	%	$	69.5	19.0	%

The following tables provide the change in revenue by offering and by the components that contributed to revenue growth during the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023				2022				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Revenue from product sales:	$	292.7	61.3	%	$	259.8	60.9	%	$	32.9	12.7	%
Capital	187.2		39.2	%	162.5		38.1	%	24.7		15.2	%
Aftermarket	105.5		22.1	%	97.3		22.8	%	8.2		8.4	%
Revenue from services	185.1		38.7	%	166.9		39.1	%	18.2		10.9	%
	$	477.8	100.0	%	$	426.7	100.0	%	$	51.1	12.0	%

(In millions)	$ Change		% Change
Three months ended December 31, 2021 total revenue	$	366.3	n/a
Three months ended March 31, 2022 total revenue	$	426.7	n/a
Organic	3349.36		911.16	%
Inorganic	425.93		111.72	%
Foreign currency translation	(63.78)		(10.8)	%
Three months ended December 31, 2022 total revenue	$	435.8	19.0	%
Three months ended March 31, 2023 total revenue	$	477.8	12.0	%

The increase in organic revenue was driven by favorable price realization and ~~increased~~higher volume, ~~for~~which ~~products~~contributed ~~and~~to ~~services~~growth across most ~~product~~regions ~~lines~~ and ~~all~~product ~~regions~~lines. ~~The increase in organic revenue volume was driven primarily by the Applied Product Technologies reportable segment.~~

Revenue in future periods could be negatively impacted by commodity and material availability constraints caused by global supply chain disruptions, skilled labor shortages, and the timing of projects.

Cost of sales and gross margin-Total gross margin ~~decreased~~increased ~~slightly~~ to 2931.98% in the three months ended ~~December~~March 31, ~~2022~~2023, from 30.2% in the three months ended ~~December~~March 31, ~~2021~~2022.

The following table provides the change in cost of product sales and cost of services, respectively, along with related gross margins:

	Three Months Ended December 31,
	Three Months Ended March 31,
	2022				2021
	2023				2022
(In millions)			GrossMargin				GrossMargin
Cost of product sales	$	(~~185~~203.01)	2930.06	%	$	(~~153~~185.83)	2728.7	%
Cost of services	(~~120~~122.58)		3133.37	%	(~~102~~112.05)		3332.6	%
	$	(~~305~~325.59)	2931.98	%	$	(~~255~~297.8)	30.2	%

Gross margin from product sales increased by ~~130~~190 basis points (“bps”) to 2930.06% in the three months ended ~~December~~March 31, ~~2022~~2023, from 2728.7% in the three months ended ~~December~~March 31, ~~2021~~2022. This increase was driven by ~~favorable volume within the Applied Product Technologies reportable segment, mix, and~~ positive price realization, ~~which was partially offset by labor, material, and freight inflation.~~

Gross margin from services decreased by 230 bps to 31.3% in the three months ended December 31, 2022, from 33.6% in the three months ended December 31, 2021. This decrease was driven by material and labor inflation and productivity variances, partially offset by favorable price realization.44

Wefavorable ~~expect~~volume ~~continued~~across ~~pressure~~most onregions ~~gross~~and ~~margin~~end inmarkets, ~~future~~as ~~periods~~well ~~due~~as tosales ~~material~~mix, ~~freight~~which ~~and~~was ~~labor inflation. Although we expect to continue to~~ partially offset ~~those~~by ~~increasing~~labor, ~~costs with positive price realization~~material, ~~there~~and ~~can~~freight ~~be no assurance that we will be able to do so~~inflation.

~~Operating~~Gross ~~expenses-Operating~~margin ~~expenses~~from services increased ~~$10.5~~by ~~million,~~110 orbps 10to 33.7%, ~~to $108.2 million~~ in the three months ended ~~December~~March 31, ~~2022~~2023, from ~~$97~~32.76% ~~million~~ in the three months ended ~~December~~March 31, ~~2021~~2022. ~~Operating~~This ~~expenses~~increase ~~are~~was ~~comprised~~driven ofby ~~the~~favorable ~~following:~~price realization, partially offset by material and labor inflation as well as field service productivity variances.

	Three Months Ended December 31,
	2022				2021
(In millions)			% of Revenue				% of Revenue		% Variance
General and administrative expense	$	(64.0)	(14.7)	%	$	(57.8)	(15.8)	%	10.7	%
Sales and marketing expense	(40.4)		(9.3)	%	(36.4)		(9.9)	%	11.0	%
Research and development expense	(3.8)		(0.9)	%	(3.5)		(1.0)	%	8.6	%
Total operating expenses	$	(108.2)	(24.8)	%	$	(97.7)	(26.7)	%	10.7	%

We expect continued pressure on gross margin in future periods due to material, freight and labor inflation. Although we expect to continue to offset increasing costs with positive price realization, there can be no assurance that we will be able to do so.

41Operating expenses-Operating expenses increased $15.0 million, or 13.6%, to $125.6 million in the three months ended March 31, 2023, from $110.6 million in the three months ended March 31, 2022. Operating expenses are comprised of the following:

The increase period over period in operating expenses was primarily due to an increase in external legal fees and employee related expenses, as well as increased operating and amortization expense due to the acquisitions of the Mar Cor Business and Smith Engineering that were not present in the prior period. In addition, there was increased discretionary spending as compared to the prior period. The above increases were partially offset by foreign currency translation gains in the current period, compared to foreign currency translation losses in the prior period, most of which is related to intercompany loans.


	Three Months Ended March 31,
	2023				2022
(In millions)			% of Revenue				% of Revenue		% Variance
General and administrative expense	$	(77.8)	(16.3)	%	$	(67.0)	(15.7)	%	16.1	%
Sales and marketing expense	(43.2)		(9.0)	%	(39.8)		(9.3)	%	8.5	%
Research and development expense	(4.6)		(1.0)	%	(3.8)		(0.9)	%	21.1	%
Total operating expenses	$	(125.6)	(26.3)	%	$	(110.6)	(25.9)	%	13.6	%

The increase period over period in operating expenses was primarily due to an increase in external legal fees and other consulting fees, as well as employee related costs and travel. These increases were partially offset by foreign currency translation gains in the current period, compared to foreign currency translation losses in the prior period, most of which is related to intercompany loans, and lower amortization in the current period.

Fluctuations in foreign currency translation and inflation could impact operating expenses in future periods.

Other operating ~~income~~expense, net-Other operating ~~income~~expense, net, decreased $04.32 million to expense of $1.2.9 million in the three months ended ~~December~~March 31, ~~2022~~2023, from income of $1.53 million in the three months ended ~~December~~March 31, ~~2021~~2022. This decrease was primarily driven by a ~~reduction~~loss inon ~~income~~sale ~~from~~of ~~precious~~the ~~metal~~Filtration ~~sales,~~Business ~~mainly~~of ~~from~~$2.9 ~~scrapped~~million ~~anodes~~and inimpairment ~~China~~of ~~compared~~certain long-lived assets related to product rationalization in the ~~prior~~electro-chlorination ~~period,~~business ~~which~~of ~~was~~$1.7 million. These losses were partially offset by angains ~~increase~~on inthe ~~gains~~disposal onof fixed assets. The prior year period included income from the disposal of fixed assets ~~compared~~and toprecious metal sales, and a refund of certain taxes paid from the ~~prior~~Chinese ~~period~~government.

Interest expense-Interest expense increased $30.53 million, or 533.0%, to $10.13 million in the three months ended ~~December~~March 31, ~~2022~~2023, from $610.60 million in the three months ended ~~December~~March 31, ~~2021~~2022. The increase in interest expense was primarily driven by ~~higher outstanding debt, primarily attributable to the borrowing of $160.0 million to fund the Mar Cor Business acquisition in January of 2022, as well as~~ an increase in LIBOR year over year.

Income tax expense-Income tax expense increased to $32.95 million in the three months ended ~~December~~March 31, ~~2022~~2023, as compared to income tax expense of $12.62 million in the three months ended ~~December~~March 31, ~~2021~~2022. The increase in tax expense was primarily due to higher projected annual effective tax rates as well as higher projected U.S. income, which is no longer offset by maintaining a valuation allowance against U.S. deferred tax assets. This increase was mostly offset by a favorable discrete item related to the impact of tax deductions greater than those for financial reporting related to equity compensation.

Net income-Net income increased $3.2 million, or 5243.52%, to $910.36 million in the three months ended ~~December~~March 31, ~~2022~~2023, from $67.14 million in the three months ended ~~December~~March 31, ~~2021~~2022, as a result of the variances noted above.

Adjusted EBITDA-Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA for the three months ended ~~December~~March 31, ~~2022~~2023 increased by $1815.43 million, or 3320.9%, to $7288.75 million, as compared to $5473.32 million for the three months ended ~~December~~March 31, ~~2021~~2022, primarily driven by favorable price realization, mix, and sales volume, which was partially offset by inflationary costs. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Segment Results

	Three Months Ended December 31,
	Three Months Ended March 31,
	2022				2021
	2023				2022
(In millions)			% of Total				% of Total		% Variance
Revenue
Integrated Solutions and Services	$	~~305~~328.49	7068.18	%	$	~~245~~294.18	6669.91	%	2411.6	%
Applied Product Technologies	~~130~~148.49		2931.92	%	~~121~~131.29		3330.19	%	712.69	%
Total Consolidated	$	~~435~~477.8	100.0	%	$	~~366~~426.37	100.0	%	1912.0	%
Operating profit (loss)
Integrated Solutions and Services	$	4243.71	~~183~~184.32	%	$	3538.31	~~246~~194.94	%	2113.01	%
Applied Product Technologies	2128.06		90122.12	%	1723.80		~~124~~117.53	%	1824.03	%
Corporate	(4048.43)		(~~173~~206.4)	%	(3841.85)		(~~271~~211.37)	%	416.14	%
Total Consolidated	$	23.34	100.0	%	$	1419.36	100.0	%	6219.94	%
Adjusted EBITDA(1)
Integrated Solutions and Services	$	6975.09	9485.98	%	$	5363.58	9887.52	%	2919.0	%
Applied Product Technologies	2433.50		3337.73	%	2127.93		4037.3	%	1120.9	%
Corporate	(20.84)		(2823.61)	%	(2117.19)		(3824.95)	%	(114.4)0	%
Total Consolidated	$	7288.75	100.0	%	$	5473.32	100.0	%	3320.9	%

(1)Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation to segment operating profit (loss), its most directly comparable financial measure presented in accordance with GAAP, see “Non-GAAP Reconciliations” in Item 2 of this Report.

Integrated Solutions and Services

Revenue in the Integrated Solutions and Services segment increased $6034.31 million, or 2411.6%, to $~~305~~328.49 million in the three months ended ~~December~~March 31, ~~2022~~2023, from $~~245~~294.18 million in the three months ended ~~December~~March 31, ~~2021~~2022.

The following tables provide the change in revenue by offering and by the components that contributed to revenue growth during the three months ended ~~December~~March 31, ~~2022~~2023 and ~~2021~~2022 for the Integrated Solutions and Services segment:

	Three Months Ended December 31,
	Three Months Ended March 31,
	2022				2021				$ Variance		% Variance
	2023				2022				$ Variance		% Variance
(In millions)			% ofRevenue				% ofRevenue
Revenue from product sales:	$	~~135~~148.16	4445.2	%	$	96133.40	3945.31	%	$	3815.76	4011.17	%
Capital	7787.68		2526.47	%	6770.17		2724.40	%	1017.51		1524.62	%
Aftermarket	5760.58		18.85	%	2962.3		1221.01	%	28(1.25)		~~96.~~(2.4)	%
Revenue from services	~~170~~180.3		5554.8	%	~~148~~161.78		6054.79	%	2118.65		1411.54	%
	$	~~305~~328.49	100.0	%	$	~~245~~294.18	100.0	%	$	6034.31	2411.6	%

(In millions)	$ Change		% Change
Three months ended December 31, 2021 total revenue	$	245.1	n/a
Three months ended March 31, 2022 total revenue	$	294.8	n/a
Organic	1829.56		710.50	%
Inorganic	425.93		171.58	%
Foreign currency translation	(10.18)		(0.42)	%
Three months ended December 31, 2022 total revenue	$	305.4	24.6	%
Three months ended March 31, 2023 total revenue	$	328.9	11.6	%

The increase in organic revenue was primarily driven by favorable price realization related to service ~~and aftermarket~~ revenue across most end markets. Organic revenue growth also benefited from increased volume, ~~with~~particularly ~~light~~as ~~and~~it ~~general~~relates ~~industry~~to service and ~~life~~capital ~~sciences~~revenue. ~~contributing~~These ~~the~~increases ~~highest~~were ~~growth~~slightly offset by a decline in aftermarket volume.

Operating profit in the Integrated Solutions and Services segment increased $7.4 million, or 21.0%, to $42.7 million in the three months ended December 31, 2022, from $35.3 million in the three months ended December 31, 2021. 46

Operating profit ~~was~~in ~~favorably~~the ~~impacted~~Integrated bySolutions ~~price realization~~ and ~~the~~Services ~~acquisition~~segment ofincreased ~~the~~$5.0 ~~Mar~~million, ~~Cor~~or ~~Business~~13.1%, ~~These~~to ~~increases~~$43.1 ~~were~~million ~~partially~~in ~~offset~~the bythree ~~operational~~months ~~variances,~~ended ~~including material~~March 31, ~~labor~~2023, ~~and~~from ~~freight~~$38.1 ~~inflation~~million ~~and~~in ~~availability,~~the ~~and~~three ~~productivity~~months ~~variances~~ended March 31, 2022.

~~Adjusted~~Operating ~~EBITDA~~profit iswas afavorably ~~non-GAAP~~impacted ~~financial~~primarily ~~measure.~~by ~~Adjusted~~increased ~~EBITDA~~revenue, inwhich ~~the~~was ~~Integrated~~partially ~~Solutions~~offset ~~and~~by ~~Services~~operational ~~segment increased $15~~variances.5 ~~million,~~Increased orrevenue ~~29.0%,~~was attributable to ~~$69.0~~price ~~million~~realization, insales ~~the three months ended December 31~~volume, ~~2022,~~and ~~compared to $53~~mix.5 ~~million~~Operational invariances ~~the~~were ~~three~~driven ~~months~~by ~~ended~~material, ~~December 31~~labor, ~~2021. The~~and ~~increase~~freight ~~was~~inflation ~~driven~~and byavailability, ~~the~~and ~~same~~productivity ~~factors that impacted~~ variances.

43Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Integrated Solutions and Services segment increased $12.1 million, or 19.0%, to $75.9 million in the three months ended March 31, 2023, compared to $63.8 million in the three months ended March 31, 2022. The increase was driven by the same factors that impacted operating profit, other than the change in depreciation and amortization, and also excludes restructuring and other non-recurring activity. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

operating profit, other than the change in depreciation and amortization, and also excludes restructuring and other non-recurring activity. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Applied Product Technologies

Revenue in the Applied Product Technologies segment increased $917.20 million, or 712.69%, to $~~130~~148.49 million in the three months ended ~~December~~March 31, ~~2022~~2023, from $~~121~~131.29 million in the three months ended ~~December~~March 31, ~~2021~~2022.

	Three Months Ended December 31,
	Three Months Ended March 31,
	2022				2021				$ Variance		% Variance
	2023				2022				$ Variance		% Variance
(In millions)			% ofRevenue				% ofRevenue
Revenue from product sales:	$	~~125~~144.31	96.18	%	$	~~116~~126.28	9596.91	%	$	917.13	713.86	%
Capital	8899.14		6766.68	%	8391.98		69.26	%	47.26		58.03	%
Aftermarket	3744.27		2830.50	%	3235.30		26.75	%	4.9.7		1527.27	%
Revenue from services	54.18		3.92	%	5.01		43.19	%	(0.13)		2(5.09)	%
	$	~~130~~148.49	100.0	%	$	~~121~~131.29	100.0	%	$	917.20	712.69	%

(In millions)	$ Change		% Change
Three months ended December 31, 2021 total revenue	$	121.2	n/a
Three months ended March 31, 2022 total revenue	$	131.9	n/a
Organic	1420.80		1215.2	%
Inorganic	—		—	%
Foreign currency translation	(53.60)		(42.63)	%
Three months ended December 31, 2022 total revenue	$	130.4	7.6	%
Three months ended March 31, 2022 total revenue	$	148.9	12.9	%

The increase in organic revenue was driven by strong sales volume and price realization across all regions and most end markets. The strongest growth came in the Asia Pacific region, primarily in the microelectronics end market.47

~~Operating~~The ~~profit~~increase in ~~the~~organic ~~Applied~~revenue ~~Product~~was ~~Technologies~~driven ~~segment~~by ~~increased~~strong ~~$3.2~~sales ~~million,~~volume orand ~~18.0%,~~price torealization ~~$21.0~~across ~~million~~all inregions ~~the~~and ~~three~~end ~~months~~markets. ~~ended~~The ~~December 31,~~strongest ~~2022,~~growth ~~from~~came ~~$17.8 million~~ in the ~~three~~North ~~months~~America ~~ended~~region ~~December 31,~~driven ~~2021~~by aquatics and municipal end markets.

44Operating profit in the Applied Product Technologies segment increased $5.6 million, or 24.3%, to $28.6 million in the three months ended March 31, 2023, from $23.0 million in the three months ended March 31, 2022.

~~The~~Operating ~~increase~~profit inwas ~~operating~~favorably ~~profit~~impacted by increased revenue, which was ~~primarily~~partially ~~due~~offset toby ~~favorable~~operational variances. Increased revenue was attributable to sales volume, ~~mix~~price realization, and ~~price~~sales ~~realization~~mix across ~~all~~most regions and ~~most~~ product lines. ~~This~~Operational ~~growth~~variances ~~was~~were ~~partially~~driven ~~offset~~ by ~~unfavorable operational variances, including material,~~ labor, and ~~freight~~material inflation and availability~~, and plant productivity variances~~.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Applied Product Technologies segment increased $25.67 million, or 1120.9%, to $2433.50 million in the three months ended ~~December~~March 31, ~~2022~~2023, compared to $2127.93 million in the three months ended ~~December~~March 31, ~~2021~~2022. The increase was driven by the same factors that impacted operating profit, other than the change in depreciation and amortization, and also excludes restructuring and other non-recurring activity. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Corporate

Operating loss in Corporate increased $1.6.8 million, or 416.14%, to $4048.43 million in the three months ended ~~December~~March 31, ~~2022~~2023, from $3841.85 million in the three months ended ~~December~~March 31, ~~2021~~2022. The increase was primarily due to higher ~~costs~~legal expenses associated with ~~legal~~various matters, asand ~~well~~pending astransactions, increased ~~employment~~third ~~expenses,~~party ~~including~~consulting ~~share~~fees and the impairment of certain long-~~based~~lived ~~compensation~~assets related to product rationalization in the ~~current~~electro-chlorination ~~period~~business ~~compared~~of to$1.7 million in the ~~prior~~current year period. These increased costs were partially offset by foreign currency translation gains in the current period, compared to foreign currency translation losses in the prior period, most of which is related to intercompany loans.

Consolidated Results for the Six Months Ended March 31, 2023 and 2022

Revenue-Revenue increased $120.6 million, or 15.2%, to $913.6 million in the six months ended March 31, 2023, from $793.0 million in the six months ended March 31, 2022. Revenue from product sales increased $80.7 million, or 17.1%, to $553.0 million in the six months ended March 31, 2023, from $472.3 million in the six months ended March 31, 2022. Revenue from services increased $39.9 million, or 12.4%, to $360.6 million in the six months ended March 31, 2023, from $320.7 million in the six months ended March 31, 2022.

The following tables provide the change in revenue by offering and the change in revenue by driver during the six months ended March 31, 2023 and 2022:


	Six Months Ended March 31,
	2023				2022				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Revenue from product sales:	$	553.0	60.5	%	$	472.3	59.6	%	$	80.7	17.1	%
Capital	$	352.9	38.6	%	$	313.5	39.5	%	$	39.4	12.6	%
Aftermarket	200.1		21.9	%	158.8		20.0	%	41.3		26.0	%
Revenue from services	360.6		39.5	%	320.7		40.4	%	39.9		12.4	%
	$	913.6	100.0	%	$	793.0	100.0	%	$	120.6	15.2	%










(In millions)	$ Change		% Change
Six Months Ended March 31, 2022 total revenue	$	793.0	n/a
Organic	82.8		10.4	%
Inorganic	$	48.2	6.1	%
Foreign currency translation	(10.4)		(1.3)	%
Six Months Ended March 31, 2023 total revenue	$	913.6	15.2	%

The increase in organic revenue was driven by favorable price realization and higher sales volume across most product lines and regions.

Cost of sales and gross margin-Total gross margin increased to 30.9% in the six months ended March 31, 2023, from 30.2% in the six months ended March 31, 2022.

The following table provides the change in cost of product sales and cost of services, respectively, along with related gross margins:


	Six Months Ended March 31,
		2023	2022
(In millions)					Gross Margin				Gross Margin
Cost of product sales			$	(388.1)	29.8	%	$	(339.1)	28.2	%
Cost of services			(243.3)		32.5	%	(214.5)		33.1	%
			$	(631.4)	30.9	%	$	(553.6)	30.2	%

Gross margin from product sales increased by 160 bps to 29.8% in the six months ended March 31, 2023, from 28.2% in the six months ended March 31, 2022. The increase in gross margin was primarily driven by favorable price realization as well as improved sales volume and product mix. These factors were partially offset by labor, material and freight inflation.

Gross margin from services decreased by 60 bps to 32.5% in the six months ended March 31, 2023, from 33.1% in the six months ended March 31, 2022. This decrease was driven by increased labor costs and resource constraints.

Operating expenses-Operating expenses increased $25.6 million, or 12.3%, to $233.9 million in the six months ended March 31, 2023, from $208.3 million in the six months ended March 31, 2022. Operating expenses are comprised of the following:


	Six Months Ended March 31,
		2023	2022
(In millions)					% of Revenue				% of Revenue		% Variance
General and administrative expense			$	(141.8)	(15.5)	%	$	(124.8)	(15.7)	%	13.6	%
Sales and marketing expense			(83.7)		(9.2)	%	(76.3)		(9.6)	%	9.7	%
Research and development expense			(8.4)		(0.9)	%	(7.2)		(0.9)	%	16.7	%
Total operating expenses			$	(233.9)	(25.6)	%	$	(208.3)	(26.3)	%	12.3	%

The increase period over period in operating expenses was primarily due to an increase in legal fees, as well as higher employee related expenses associated with labor inflation. In addition, there were increased consulting and travel expenses. The above increases were partially offset by foreign currency translation gains in the current period, compared to foreign currency translation losses in the prior period, most of which is related to intercompany loan, as well as lower fees associated with recruitment.

Fluctuations in foreign currency translation and inflation could impact operating expenses in future periods.

Other operating expense, net-Other operating expense, net, increased $4.4 million to expense of $1.6 million in the six months ended March 31, 2023, from income of $2.8 million in the six months ended March 31, 2022. This decrease was primarily driven by a loss on sale of the Filtration Business of $2.9 million and impairment of certain long-lived assets related to product rationalization in the electro-chlorination business of $1.7 million. These losses were partially offset by gains on the disposal of fixed assets. The prior year period included income from the disposal of fixed assets and precious metal sales, and a refund of certain taxes paid from the Chinese government.

Interest expense-Interest expense increased $3.9 million, or 23.6%, to $20.4 million in the six months ended March 31, 2023, from $16.5 million in the six months ended March 31, 2022. The increase in interest expense was primarily driven by an increase in LIBOR year over year.

Income tax expense-Income tax expense increased $2.5 million to $6.4 million in the six months ended March 31, 2023, from $3.9 million in the six months ended March 31, 2022. The increase in tax expense was primarily due to higher projected annual effective tax rates as well as higher projected U.S. income, which is no longer offset by maintaining a valuation allowance against U.S. deferred tax assets. This increase was partially offset by a favorable discrete item related to the impact of tax deductions greater than those for financial reporting related to equity compensation.

Net income-Net income increased $6.4 million, or 47.4%, to $19.9 million in the six months ended March 31, 2023, from $13.5 million in the six months ended March 31, 2022, as a result of the variances noted above.

Adjusted EBITDA-Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA for the six months ended March 31, 2023 increased by $33.7 million, or 26.4%, to $161.2 million, as compared to $127.5 million for the six months ended March 31, 2022, primarily driven by sales volume and related gross profit. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Segment Results


	Six Months Ended March 31,
		2023	2022
(In millions)					% of Total				% of Total		% Variance
Revenue
Integrated Solutions and Services			$	634.3	69.4	%	$	539.9	68.1	%	17.5	%
Applied Product Technologies			279.3		30.6	%	253.1		31.9	%	10.4	%
Total Consolidated			$	913.6	100.0	%	$	793.0	100.0	%	15.2	%
Operating profit (loss)
Integrated Solutions and Services			$	85.8	183.7	%	$	73.4	216.5	%	16.9	%
Applied Product Technologies			49.6		106.2	%	40.8		120.4	%	21.6	%
Corporate			(88.7)		(189.8)	%	(80.3)		(236.9)	%	10.5	%
Total Consolidated			$	46.7	100.0	%	$	33.9	100.0	%	37.8	%
Adjusted EBITDA(1)
Integrated Solutions and Services			$	145.0	90.0	%	$	117.3	92.0	%	23.6	%
Applied Product Technologies			57.5		35.7	%	49.2		38.6	%	16.9	%
Corporate			(41.3)		(25.6)	%	(39.0)		(30.6)	%	5.9	%
Total Consolidated			$	161.2	100.0	%	$	127.5	100.0	%	26.4	%

Integrated Solutions and Services

Revenue in the Integrated Solutions and Services segment increased $94.4 million, or 17.5%, to $634.3 million in the six months ended March 31, 2023, from $539.9 million in the six months ended March 31, 2022.

The following tables provide the change in revenue by offering and the change in revenue by driver during the six months ended March 31, 2023 and 2022 for the Integrated Solutions and Services segment:


	Six Months Ended March 31,
	2023				2022				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Revenue from product sales:	$	283.6	44.7	%	$	229.4	42.5	%	$	54.2	23.6	%
Capital	165.4		26.1	%	137.8		25.5	%	27.6		20.0	%
Aftermarket	118.2		18.6	%	91.6		17.0	%	26.6		29.0	%
Revenue from services	350.7		55.3	%	310.5		57.5	%	40.2		12.9	%
	$	634.3	100.0	%	$	539.9	100.0	%	$	94.4	17.5	%


(In millions)	$ Change		% Change
Six Months Ended March 31, 2022 total revenue	$	539.9	n/a
Organic	48.0		8.9	%
Inorganic	48.2		8.9	%
Foreign currency translation	(1.8)		(0.3)	%
Six Months Ended March 31, 2023 total revenue	$	634.3	17.5	%

The increase in organic revenue was driven by strong price realization across most end markets and higher sales volume. This volume growth was primarily driven by service and capital revenue.

Operating profit in the Integrated Solutions and Services segment increased $12.4 million, or 16.9%, to $85.8 million in the six months ended March 31, 2023, from $73.4 million in the six months ended March 31, 2022.

Operating profit was favorably impacted primarily by increased revenue, which was partially offset by operational variances. Increased revenue was attributable to price realization and higher organic sales volume and mix. Operational variances were driven by labor and material inflation and availability. Acquisitions also contributed to the increase in operating profit, primarily associated with the impacts of the Mar Cor Business and Smith Engineering transactions.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Integrated Solutions and Services segment increased $27.7 million, or 23.6%, to $145.0 million in the six months ended March 31, 2023, compared to $117.3 million in the six months ended March 31, 2022. The increase was driven by the same factors that impacted operating profit, other than the change in depreciation and amortization, and also excludes restructuring and other non-recurring activity. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Applied Product Technologies

Revenue in the Applied Product Technologies segment increased $26.2 million, or 10.4%, to $279.3 million in the six months ended March 31, 2023, from $253.1 million in the six months ended March 31, 2022.

The following tables provide the change in revenue by offering and the change in revenue by driver during the six months ended March 31, 2023 and 2022 for the Applied Product Technologies segment:


	Six Months Ended March 31,
	2023				2022				$ Variance		% Variance
(In millions)			% of Revenue				% of Revenue
Revenue from product sales:	$	269.4	96.5	%	$	242.9	96.0	%	$	26.5	10.9	%
Capital	$	187.5	67.2	%	$	175.7	69.4	%	$	11.8	6.7	%
Aftermarket	81.9		29.3	%	67.2		26.6	%	14.7		21.9	%
Revenue from services	9.9		3.5	%	10.2		4.0	%	(0.3)		(2.9)	%
	$	279.3	100.0	%	$	253.1	100.0	%	$	26.2	10.4	%


(In millions)	$ Change		% Change
Six Months Ended March 31, 2022 total revenue	$	253.1	n/a
Organic	34.8		13.7	%
Inorganic	—		—	%
Foreign currency translation	(8.6)		(3.3)	%
Six Months Ended March 31, 2023 total revenue	$	279.3	10.4	%

The increase in organic revenue was driven by volume growth and price realization across all regions and multiple product lines.The strongest growth came in the North America region driven by aquatics and municipal end markets.

Operating profit in the Applied Product Technologies segment increased $8.8 million, or 21.6%, to $49.6 million in the six months ended March 31, 2023, from $40.8 million in the six months ended March 31, 2022.

Operating profit was favorably impacted primarily by increased revenue, which was partially offset by operational variances. Increased revenue was attributable to sales volumes across multiple product lines and regions, as well as favorable price realization and sales mix. Operational variances were driven by project variances and labor and material inflation and availability.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Applied Product Technologies segment increased $8.3 million, or 16.9%, to $57.5 million in the six months ended March 31, 2023, compared to $49.2 million in the six months ended March 31, 2022. The increase was driven by the same factors that impacted operating profit, other than the change in depreciation and amortization, and also excludes restructuring and other non-recurring activity. See “Non-GAAP Reconciliations” in Item 2 of this Report for a reconciliation of adjusted EBITDA.

Corporate

Operating loss in Corporate increased $8.4 million, or 10.5%, to $88.7 million in the six months ended March 31, 2023, from $80.3 million in the six months ended March 31, 2022. The increase was primarily due to higher costs associated with legal matters, increased share based compensation and the impairment of certain long-lived assets related to product rationalization in the electro-chlorination business of $1.7 million in the current year period. These amounts were partially offset by lower third party consulting fees associated with acquisitions which occurred in the prior year.

Non-GAAP Reconciliations

The following is a reconciliation of our Net income to EBITDA and adjusted EBITDA. See “How We Assess the Performance of Our Business” in this Item 2 for discussion on management’s definition and use of this non-GAAP financial measure.

	Three Months EndedDecember 31,
	Three Months EndedMarch 31,						Six Months EndedMarch 31,
(In millions)	~~2022~~2023		~~2021~~2022		% Variance		2023		2022		% Variance
Net income	$	910.36	$	67.14	5243.52	%	$	19.9	$	13.5	47.4	%
Income tax expense	32.95		12.62		~~143~~13.86	%	6.4		3.9		64.1	%
Interest expense	10.13		610.60		533.0	%	20.4		16.5		23.6	%
Operating profit	$	23.34	$	1419.36	6219.94	%	$	46.7	$	33.9	37.8	%
Depreciation and amortization	33.24		2832.6		162.15	%	66.6		61.2		8.8	%
EBITDA	$	56.58	$	4252.92	318.78	%	$	113.3	$	95.1	19.1	%
Restructuring and related business transformation costs(a)	1.74		1.48		21(22.42)	%	3.1		3.2		(3.1)	%
Share-based compensation(b)	6.3		5.3		18.9	%
Purchase accounting adjustment costs(b)	—		2.6		(100.0)	%	—		2.6		(100.0)	%
Transaction costs(c)	3.3		0.9		266.7	%
Share-based compensation(c)	6.9		6.1		13.1	%	13.2		11.4		15.8	%
Other losses (gains) and expenses(d)	4.9		3.8		28.9	%
Transaction costs(d)	18.0		4.0		350.0	%	21.3		4.9		334.7	%
Adjusted EBITDA	$	72.7	$	54.3	33.9	%
Other losses (gains) and expenses(e)	5.4		6.5		(16.9)	%	10.3		10.3		—	%
Adjusted EBITDA	$	88.5	$	73.2	20.9	%	$	161.2	$	127.5	26.4	%

(a)Restructuring and related business transformation costs

Adjusted EBITDA is calculated prior to considering certain restructuring or business transformation events. These events may occur over extended periods of time, and in some cases it is reasonably possible that they could reoccur in future periods based on reorganizations of the business, cost reduction or productivity improvement needs, or in response to economic conditions. For the periods presented such events include the following:

(i)Certain costs and expenses in connection with various restructuring initiatives, including severance and other employee-related costs, relocation and facility consolidation costs, and third-party consultant costs to assist with these initiatives. This includes:

45(A)amounts related to the Company’s restructuring initiatives to reduce the cost structure and rationalize location footprint;

(AB)amounts related to ~~the~~various ~~Company’s~~other ~~restructuring~~ initiatives implemented to ~~reduce~~restructure ~~the cost structure~~ and ~~rationalize~~reorganize ~~location~~our ~~footprint~~business ~~following~~with the ~~sale~~appropriate ofmanagement ~~the~~team ~~Memcor~~and ~~product~~cost ~~line;~~structure.

(Bii)~~amounts~~Legal settlement costs and intellectual property related tofees ~~the~~including ~~Company’s~~fees ~~transition~~and ~~from~~settlement acosts ~~three-segment~~associated ~~structure~~with legacy matters, related to aproduct ~~two-segment~~warranty ~~operating~~litigation ~~model~~on ~~designed~~Memcor® toproducts ~~better~~and ~~serve~~certain ~~the~~discontinued ~~needs~~products. Memcor is a trademark of ~~customers~~Rohm ~~worldwide;~~& ~~and~~Haas Electronic Materials Singapore Pte. Ltd.

(C)amounts related to various other initiatives implemented to restructure and reorganize our business with the appropriate management team and cost structure.

(ii)Legal settlement costs and intellectual property related fees including fees and settlement costs associated with legacy matters, related to product warranty litigation on MEMCOR® products and certain discontinued products. Memcor ® is a trademark of Rohm & Haas Electronic Materials Singapore Pte. Ltd.

(iii)Expenses associated with our information technology and functional infrastructure transformation, including activities to optimize information technology systems and functional infrastructure processes.

~~(b)Share-based compensation~~54

(b)Purchase accounting adjustment costs

Adjusted EBITDA is calculated prior to considering adjustments for the effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of the acquisition of the Mar Cor Business.

(c)Share-based compensation

Adjusted EBITDA is calculated prior to considering share‑based compensation expenses related to equity awards. See Note 17, “Share-Based Compensation,” in Part I, Item 1 of this Report for further detail.

(cd)Transaction costs

Adjusted EBITDA is calculated prior to considering transaction, integration and restructuring costs associated with business combinations because these costs are unique to each transaction and represent costs that were incurred as a result of the transaction decision. Integration and restructuring costs associated with a business combination may occur over several years and include, but are not limited to, consulting fees, legal fees, certain employee-related costs, facility consolidation and product rationalization costs, and fair value changes associated with contingent consideration.

(de)Other losses (gains) and expenses

Adjusted EBITDA is calculated prior to considering certain other significant losses (gains) and expenses. For the periods presented such events include the following:

(i)impact of foreign exchange gains and losses; ~~and~~

(ii)legal fees and settlement costs incurred in excess of amounts covered by the Company’s insurance related to securities litigation and SEC investigation matters.;

46(iii)loss on sale of the Filtration Business within the Integrated Solutions and Services Segment; and

(iv)impairment of certain long-lived assets related to product rationalization in the electro-chlorination business.

We do not present net income on a segment basis because we do not allocate interest expense or income tax benefit (expense) to our segments, making operating profit the most comparable GAAP metric. The following is a reconciliation of our segment EBITDA and segment adjusted EBITDA to operating profit, their most directly comparable financial measure presented in accordance with GAAP:

	Three Months Ended December 31,								$ Variance				% Variance
	Three Months Ended March 31,								$ Variance				% Variance
	2022				2021
	2023				2022
(In millions)	Integrated Solutions and Services		Applied Product Technologies		Integrated Solutions and Services		Applied Product Technologies		Integrated Solutions and Services		Applied Product Technologies		Integrated Solutions and Services		Applied Product Technologies
Operating profit	$	4243.71	$	2128.06	$	3538.31	$	1723.80	$	75.40	$	35.26	2113	%	1824	%
Depreciation and amortization	2223.54		3.46		1721.84		3.54		42.70		(0.1)2		269	%	~~(3)~~6	%
EBITDA	$	6566.25	$	2432.42	$	5359.15	$	2126.34	$	127.10	$	35.18	2312	%	1522	%
Restructuring and related business transformation costs (a)	10.56		0.15		0.52		0.69		1.0.4		(0.54)		200	%	(8344)	%
Transaction costs (b)	2.3		—		(0.1)		—		2.4		—		(2400)	%	n/a
Purchase accounting adjustment costs (b)	—		—		2.6		—		(2.6)		—		(100)	%	n/a
Adjusted EBITDA	$	69.0	$	24.5	$	53.5	$	21.9	$	15.5	$	2.6	29	%	12	%
Transaction costs (c)	5.9		0.2		1.5		—		4.4		0.2		293	%	n/a
Other losses (gains) and expenses (d)	2.9		0.1		—		—		2.9		0.1		n/a		n/a
Adjusted EBITDA	$	75.9	$	33.0	$	63.8	$	27.3	$	12.1	$	5.7	19	%	21	%
	Six Months Ended March 31,								$ Variance				% Variance
	2023				2022
(In millions)	Integrated Solutions and Services		Applied Product Technologies		Integrated Solutions and Services		Applied Product Technologies		Integrated Solutions and Services		Applied Product Technologies		Integrated Solutions and Services		Applied Product Technologies
Operating profit	$	85.8	$	49.6	$	73.4	$	40.8	$	12.4	$	8.8	17	%	22	%
Depreciation and amortization	46.0		7.0		39.2		6.9		6.8		0.1		17	%	1	%
EBITDA	$	131.8	$	56.6	$	112.6	$	47.7	$	19.2	$	8.9	17	%	19	%
Restructuring and related business transformation costs (a)	2.1		0.6		0.7		1.5		1.4		(0.9)		200	%	(60)	%
Purchase accounting adjustment costs (b)	—		—		2.6		—		(2.6)		—		(100)	%	n/a
Transaction costs (c)	8.2		0.2		1.4		—		6.8		0.2		486	%	n/a
Other losses (gains) and expenses (d)	2.9		0.1		—		—		2.9		0.1		n/a		n/a
Adjusted EBITDA	$	145.0	$	57.5	$	117.3	$	49.2	$	27.7	$	8.3	24	%	17	%

(a)Represents costs and expenses in connection with restructuring initiatives in the three and six months ended ~~December~~March 31, ~~2022~~2023 and ~~2021~~2022, respectively. Such expenses are primarily composed of severance, relocation, and facility consolidation costs.

(b)Represents ~~primarily~~effect ~~costs~~of ~~associated~~the ~~with~~purchase aaccounting ~~change~~step-up in the ~~current~~value ~~estimate~~ of ~~certain~~inventory ~~acquisitions~~to ~~achieving~~fair ~~their~~value ~~earn-out~~recognized ~~targets,~~in ascost ~~well~~of asgoods ~~certain~~sold ~~costs~~as ~~associated~~a ~~with~~result of the ~~integration~~acquisition of ~~recent~~the ~~acquisitions~~Mar Cor Business.

(c)Represents costs associated with a change in the current estimate of certain acquisitions achieving their earn-out targets, as well as certain costs associated with divestitures or the integration of recent acquisitions.

(d)Represents loss on sale of the Filtration Business within the Integrated Solutions and Services segment.

Immaterial rounding differences may be present in the tables above.

Liquidity and Capital Resources

Liquidity describes the ability of a company to borrow or generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, other commitments and contractual obligations. Our principal sources of liquidity are cash generated by our operating activities, borrowings under the 2021 Revolving Credit Facility, and financing arrangements related to capital expenditures for equipment used to provide services to our customers. Historically, we have financed our operations primarily from these sources. Our primary cash needs are for day to day operations, to pay interest and principal on our indebtedness, to fund working capital requirements, and to make capital expenditures.

Our ability to fund our capital needs depends on our ongoing ability to generate cash from operations and access bank financing and the capital markets. In support of international operations, portions of our cash balances are held in various currencies and may be subject to foreign currency translation and other costs associated with repatriation, if necessary. Neither moderate increases in net working capital nor macroeconomic conditions have materially impacted our liquidity to date. In addition, we do not believe that our exposure to rising interest rates will have a material impact on our business, financial condition, results of operations, or prospects, and we plan to continue to evaluate aspects of our spending, including capital expenditures, discretionary spending, and strategic investments in fiscal 2023. We believe we are currently well-positioned to manage our business and have the ability and sufficient capacity to meet our cash requirements by using available cash, internally generated funds, and borrowing under the 2021 Revolving Credit Facility.

As part of our ongoing efforts to improve our cash flow and related liquidity, we work with suppliers to optimize our terms and conditions, including occasionally extending payment terms. We also facilitate a voluntary supply chain finance program (the “program”) to provide certain of our suppliers with the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. A third party administers the program; our responsibility is limited to making payments on the terms originally negotiated with our supplier, regardless of whether the supplier sells its receivable to a financial institution. We do not enter into agreements with any of the participating financial institutions in connection with the program. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program. The amounts settled through the program and paid to participating financial institutions were $48.3 million and $20.4 million in the six months ended March 31, 2023 and 2022, respectively. A downgrade in our credit rating or changes in the financial markets could limit the financial institutions’ willingness to commit to participation in the program.

47We expect to continue to finance our liquidity requirements through internally generated funds and borrowings under the 2021 Revolving Credit Facility. We believe that our projected cash flows generated from operations, together with borrowings under the 2021 Revolving Credit Facility, and other financing arrangements are sufficient to fund our short-term and long-term principal debt payments, interest expense, working capital needs, and expected capital expenditures for at least the next twelve months and the foreseeable future thereafter. Our capital expenditures for the six months ended March 31, 2023 and 2022 were $53.2 million and $36.3 million, respectively. However, our budgeted capital expenditures can vary from period to period based on the nature of capital intensive project awards. Our focus on customer outsourced water projects will continue to be a driver of capital expenditures. From time to time, we may enter into financing arrangements related to capital expenditures for equipment used to provide services to our customers. During the six months ended March 31, 2023 and 2022, we entered into equipment financing arrangements totaling $16.7 million and $13.9 million, respectively. In addition, we may draw on the 2021 Revolving Credit Facility from time to time to fund or partially fund an acquisition.

~~agreements~~As ~~with~~of ~~any~~March 31, of2023, ~~the~~we ~~participating~~had ~~financial~~total ~~institutions~~indebtedness inof ~~connection~~$881.9 ~~with~~million, ~~the~~including ~~program~~$466.7 ~~The~~million ~~range~~ of ~~payment~~term ~~terms~~loan weborrowings ~~negotiate~~under ~~with~~the ~~our~~2021 ~~suppliers~~Credit ~~is consistent~~Agreement, ~~irrespective~~$140.2 ofmillion ~~whether~~outstanding aunder ~~supplier~~the ~~participates~~2021 inRevolving ~~the~~Credit ~~program~~Facility, $145.3 ~~The~~million ~~amounts~~outstanding ~~settled~~under ~~through~~ the ~~program~~Securitization ~~and~~Facility, ~~paid~~which toincludes ~~participating~~$0.3 ~~financial~~million ~~institutions~~of ~~were~~accrued ~~$22.9 million~~interest, and $20129.3 7 million in ~~the~~borrowings ~~three~~related ~~months~~to ~~ended~~equipment ~~December 31,~~financing. ~~2022~~We ~~and~~also ~~2021,~~had ~~respectively~~$7.4 Amillion ~~downgrade~~of inletters ~~our~~of credit ~~rating~~issued orunder ~~changes~~our in2021 ~~the~~Revolving ~~financial~~Credit ~~markets~~Facility ~~could~~as ~~limit~~of ~~the~~March 31, ~~financial institutions’ willingness to commit to participation in the program~~2023.

WeAs ~~expect~~of toMarch continue to finance our liquidity requirements through internally generated funds and borrowings under the 2021 Revolving Credit Facility. We believe that our projected cash flows generated from operations31, ~~together~~2023 ~~with borrowings under the 2021 Revolving Credit Facility,~~ and other financing arrangements are sufficient to fund our short-term and long-term principal debt payments, interest expense, working capital needs, and expected capital expenditures. Our capital expenditures for the three months ended DecemberSeptember 3130, 2022, ~~and~~we ~~2021~~ were ~~$22.7~~in ~~million~~compliance ~~and~~with ~~$15.5 million, respectively. However, our budgeted capital expenditures can vary from period to period based on~~ the ~~nature~~covenants ofcontained ~~capital~~in intensive project awards. Our focus on customer outsourced water projects will continue to be a driver of capital expenditures. From time to time, we may enter into financing arrangements related to capital expenditures for equipment used to provide services to our customers. During the ~~three months ended December 31, 2022 and~~ 2021, weCredit ~~entered into equipment financing arrangements totaling $9.7 million and $5.9 million~~Agreement, ~~respectively.~~including ~~In addition, we may draw on~~ the 2021 Revolving Credit Facility ~~from time to time to fund or partially fund an acquisition~~.

As of December 31, 2022, we had total indebtedness of $881.2 million, including $467.9 million of term loan borrowings under the 2021 Credit Agreement, $136.5 million outstanding under the 2021 Revolving Credit Facility, $150.3 million outstanding under the Securitization Facility, which includes $0.3 million of accrued interest, and $126.5 million in borrowings related to equipment financing. We also had $8.8 million of letters of credit issued under our 2021 Revolving Credit Facility as of December 31, 2022.57

As of December 31, 2022 and September 30, 2022, we were in compliance with the covenants contained in the 2021 Credit Agreement, including the 2021 Revolving Credit Facility.

2021 Credit Agreement

On April 1, 2021, EWT Holdings III Corp. (“EWT III”), a subsidiary of the Company, entered into a Credit Agreement (the “2021 Credit Agreement”) among EWT III, as borrower, EWT Holdings II Corp. (“EWT II”), as parent guarantor, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and ING Capital, LLC, as sustainability coordinator. The 2021 Credit Agreement provides for a multi-currency senior secured revolving credit facility in an aggregate principal amount not to exceed the U.S. dollar equivalent of $350.0 million (the “2021 Revolving Credit Facility”) and a discounted senior secured term loan (the “2021 Term Loan”) in the amount of $475.0 million (together with the 2021 Revolving Credit Facility, the “Senior Facilities”). The 2021 Credit Agreement also provides for a letter of credit sub-facility not to exceed $60.0 million.

The 2021 Credit Agreement contains customary representations, warranties, affirmative covenants, and negative covenants, including, among other things, a springing maximum first lien leverage ratio of 5.55 to 1.00. The Company did not exceed this ratio during the three months ended ~~December~~March 31, ~~2022~~2023, does not anticipate exceeding this ratio during the year ending September 30, 2023, and therefore does not anticipate any additional repayments during the year ending September 30, 2023.

Receivables Securitization Program

On April 1, 2021, Evoqua Finance LLC (“Evoqua Finance”), an indirect wholly-owned subsidiary of the Company, entered into an accounts receivable securitization program (the “Receivables Securitization Program”) consisting of, among other agreements, (i) a Receivables Financing Agreement (the “Receivables Financing Agreement”) among Evoqua Finance, as the borrower, the lenders from time to time party thereto (the “Receivables Financing Lenders”), PNC Bank, National Association (“PNC Bank”), as administrative agent, EWT LLC, as initial servicer, and PNC Capital Markets LLC (“PNC Markets”), as structuring agent, pursuant to which the lenders have made available to Evoqua Finance a receivables finance facility (the “Securitization Facility”) in an amount up to $150.0 million and (ii) a Sale and Contribution Agreement (the “Sale Agreement”) among Evoqua Finance, as purchaser, EWT LLC, as initial servicer and as an originator, and Neptune Benson, Inc., an indirectly wholly-owned subsidiary of the Company, as an originator (together with EWT LLC, the “Originators”).

48The Receivables Securitization Program contains certain customary representations, warranties, affirmative covenants, and negative covenants, subject to certain cure periods in some cases, including the eligibility of the Receivables being sold by the Originators and securing the loans made by the Receivables Financing Lenders, as well as customary reserve requirements, events of default, termination events, and servicer defaults. The Company was in compliance with all covenants during the three months ended March 31, 2023, does not anticipate becoming noncompliant during the year ending September 30, 2023, and therefore, subject to collateral availability, does not anticipate any additional repayments during the year ending September 30, 2023.

The Receivables Securitization Program contains certain customary representations, warranties, affirmative covenants, and negative covenants, subject to certain cure periods in some cases, including the eligibility of the Receivables being sold by the Originators and securing the loans made by the Receivables Financing Lenders, as well as customary reserve requirements, events of default, termination events, and servicer defaults. The Company was in compliance with all covenants during the three months ended December 31, 2022, does not anticipate becoming noncompliant during the year ending September 30, 2023, and therefore, subject to collateral availability, does not anticipate any additional repayments during the year ending September 30, 2023.

Evoqua Water Technologies Corp. is a holding company and does not conduct any business operations of its own. As a result, our ability to pay cash dividends on our common stock, if any, is dependent upon cash dividends and distributions and other transfers from our operating subsidiaries. Under the terms of the 2021 Credit Agreement, our operating subsidiaries are currently limited in their ability to pay cash dividends to us, and we expect these limitations to continue in the future under the terms of any future credit agreement or any future debt or preferred equity securities of ours or of our subsidiaries.

Our indebtedness could adversely affect our ability to raise additional capital, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk, and prevent us from meeting our obligations.

Contractual Obligations

We presented our contractual obligations in Part II, Item 7, “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, as filed with the SEC on November 16, 2022. There were no significant changes in our contractual obligations during the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023.

Cash Flows

The following table summarizes the changes to our cash flows for the periods presented:

	Three Months EndedDecember 31,
	Six Months EndedMarch 31,
(In millions)	~~2022~~2023		~~2021~~2022
Statement of Cash Flows Data
Net cash (used in) provided by operating activities	$	(1.3)	$	36.4
Net cash provided by operating activities	$	34.2	$	29.1
Net cash used in investing activities	(2051.52)		(14230.86)
Net cash used in financing activities	(10.9)		(15.9)
Net cash (used in) provided by financing activities	(8.1)		183.9
Effect of exchange rate changes on cash	3.4.3		0.69
Change in cash and cash equivalents	$	(2920.38)	$	6(16.37)

Operating Activities

Cash flows from operating activities can fluctuate significantly from period‑to‑period as working capital needs and the timing of payments for restructuring activities and other items impact reported cash flows.

Net cash ~~used~~provided inby operating activities totaled $134.32 million in the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023, as compared to ~~net cash provided by operating activities of~~ $3629.41 million in the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022.

49•Operating cash flows in the six months ended March 31, 2023 reflect an increase in net earnings of $6.4 million as compared to the six months ended March 31, 2022.

•~~Operating~~The add back of non‑cash items increased operating cash flows by $76.3 million in the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023, ~~reflect~~as compared to an increase to operating cash flows of $76.7 million in ~~net~~the ~~earnings~~six months ended March 31, 2022, resulting in a decrease of $30.24 million. This decrease was primarily related to the deduction of foreign currency gains in the current period, compared to the add back of foreign currency losses in the prior period, as well as an increase in gains on the sale of property, plant and equipment compared to the ~~three~~prior ~~months~~period. ~~ended~~This ~~December 31~~decrease was partially offset by increases in depreciation and amortization deferred income taxes, ~~2021~~share-based compensation expenses, loss on sale of a business and the impairment of certain long-lived assets related to product rationalization within the electro-chlorination business in the current period as compared to the prior period. Non-cash changes also include amortization of deferred financing fees.

•The add back of non‑cash items increased operating cash flows by $32.8 million in the three months ended December 31, 2022, as compared to an increase to operating cash flows of $36.1 million in the three months ended December 31, 2021, resulted in a decrease of $3.3 million. This decrease was primarily related to the deduction of foreign currency gains in the current period, compared to the add back of foreign currency losses in the prior period, as well as an increase in gains on the sale of property, plant and equipment compared to the prior period. This decrease was partially offset by increases in depreciation and amortization deferred income taxes, and share-based compensation expenses in the current period compared to the prior period. Non-cash changes also include amortization of deferred financing fees.59

•The aggregate of receivables, inventories, contract assets and liabilities, and accounts payable used $1512.06 million in operating cash flows in the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023, compared to ~~providing~~using $2117.59 million in the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022, resulting in aan ~~decrease~~increase to cash flows of $~~36.~~5.2 million as compared to the prior year period.

The amount of cash flow generated from or used by the above mentioned accounts depends upon how effectively we manage our cash conversion cycle, which is a representation of the number of days that elapse from the date of purchase of raw materials and components to the collection of cash from customers. Our cash conversion cycle can be significantly impacted by the timing of collections and payments in a period.

•The aggregate of the remaining assets and liabilities used $2845.79 million of operating cash flows in the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023, compared to using $2643.93 million in the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022, resulting in a decrease to cash flows of $12.86 million. This is mainly due to timing of payments.

•Income taxes ~~provided~~used $03.45 million of operating cash flow during the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023, as compared to ~~using~~providing $0.31 million during the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022, resulting in ana ~~increase~~decrease to cash flows of $03.75 million as compared to the prior year period.

Investing Activities

Net cash used in investing activities was $2051.52 million in the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023, as compared to ~~net cash used in investing activities of~~ $14230.86 million in the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022, resulting in a net ~~decrease~~increase to cash flow of $5179.73 million as compared to the prior year period. This ~~decrease~~increase was largely driven by the prior year period including higher cash outflows for acquisitions, and the current year period including higher cash inflows associated with proceeds from the sale of property, plant, and equipment. This increase was partially offset by higher cash outflows associated with purchases of property, plant, and equipment and intangible assets in the current year as compared to the prior year period.

period. This decrease was partially offset by higher cash inflows associated with proceeds from the sale of property, plant, and equipment compared to the prior period, as well as net working capital adjustments related to recent acquisitions in the current period.

Financing Activities

Net cash used in financing activities was $108.91 million in the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023, as compared to ~~using~~net cash provided by financing activities of $15183.9 million in the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022, resulting in a net ~~increase~~decrease to cash flow of $5192.0 million as compared to the prior year period. The ~~increase~~decrease in cash provided by financing activities for the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023 was primarily due to anlower ~~increased~~borrowings ~~issuance~~and higher repayments of debt ~~compared~~including tofinance ~~the~~leases ~~prior period as well as a decrease~~ in ~~taxes~~the ~~paid~~current ~~related~~year toperiod ~~net~~as ~~share settlements of share-based compensation awards~~ compared to the prior year period. ~~Additionally~~In addition, the current year had lower cash received from the issuance of common stock in connection with the exercise of stock options. ~~increased~~These ~~compared~~decreases towere partially offset by the ~~prior~~receipt ~~period.~~of ~~This~~cash ~~increase~~for ~~was~~the ~~partially~~Mar ~~offset~~Cor byEarn ~~increased~~Out ~~repayments~~asset and lower taxes paid related to net share settlements of ~~debt~~share-based compensation awards in the current year as compared to the prior year period.

Seasonality

Our business may exhibit seasonality resulting from our customers’ increasing demand for our products and services during the spring and summer months as compared to the fall and winter months. For example, we generally experience increased demand for our odor control product lines and services in the warmer months which, together with other factors, typically results in improved performance in the second half of our fiscal year. Inclement weather and extreme weather events, such as hurricanes, winter storms, droughts, and floods, can also have varying impacts on our business. Certain events may cause customer shutdowns that prevent or defer our performance of services or sale of equipment, while other events may drive increased demand for our products and services, particularly emergency response services. As a result, our results from operations may vary from period to period, and past performance should not be considered indicative of future results.

Off‑Balance Sheet Arrangements

We had the following outstanding amounts under our credit arrangements at ~~December~~March 31, ~~2022~~2023 and September 30, 2022:

(In millions)	~~December~~March 31,~~2022~~2023		September 30,2022
Letters of credit	$	87.84	$	9.3
Surety bonds	$	~~136~~179.92	$	134.0

The longest maturity date of the letters of credit and surety bonds in effect as of ~~December~~March 31, ~~2022~~2023 was March 20, 2030.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are described in Item 8, Note 2, “Summary of Significant Accounting Policies” and Item 7, “Critical Accounting Policies and Estimates” included in the 2022 Annual Report. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in the Notes to the Unaudited Consolidated Financial Statements in Part I, Item 1 of this Report. The application of the Company’s accounting policies may require the use of estimates and assumptions. Management uses historical experience and all available information to make these estimates and assumptions. Estimates are revised as additional information becomes available. Actual results could differ from these estimates.

See Note 2, “Recent Accounting Pronouncements” in the Unaudited Consolidated Financial Statements in Item 1 of this Report for a discussion of recently issued accounting guidance.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the information concerning exposure to market risks as stated in Part I, Item 7A of the 2022 Annual Report.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to confirm that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and to confirm that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of such date.

While our disclosure controls and procedures are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarterly period ended ~~December~~March 31, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II - Other Information

Item 1. Legal Proceedings

From time to time, we are subject to various claims, charges, and litigation matters that arise in the ordinary course of business. We believe these actions are a normal incident of the nature and kind of business in which we are engaged. While it is not feasible to predict the outcome of these matters with certainty, we do not believe that any asserted or unasserted legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations, or prospects.

As previously disclosed, in October 2020, the Company learned that the SEC and the United States Attorney’s Office for the District of Massachusetts (“USAO”) are investigating whether financial misstatements were made in the Company’s public filings and earnings announcements prior to October 2018. OnIn December 8, 2022, the Company received a “Wells Notice” from the staff of the SEC (the “Staff”) relating to the SEC’s investigation. The Wells Notice informed the Company that the Staff ~~has~~had made a preliminary determination to recommend that the SEC file a civil enforcement action against the Company that would allege certain violations of the federal securities laws relating to the reported financial results of the Company during fiscal years 2016, 2017, and 2018, and to the adequacy and accuracy of the Company’s books and records and internal controls over financial reporting for those fiscal years. The allegations arise from revenue recognition practices of the Neptune-Benson business that the Company acquired in fiscal 2016. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. The Company ~~continues~~negotiated toa ~~cooperate~~settlement with ~~both~~the SEC under which it neither admits nor denies the SEC’s allegations, and in March 2023 the ~~USAO~~SEC flied a complaint in the United States District Court for the District of Rhode Island against the Company and a former employee of the Neptune-Benson business, together with a proposed judgment on consent against the Company. The SEC’s complaint against the Company is grounded in negligence-based theories and books and records violations for matters arising from the Neptune-Benson business with respect to ~~these~~fiscal ~~investigations~~years 2016 to 2018. The proposed final judgment, which is awaiting Court approval, requires the Company to pay a penalty of $8.5 million and to undertake various improvements to its internal controls over financial reporting. In accordance with ASC Topic No. 450, Contingencies, ~~has~~the Company recorded a charge of $8.5 million in the first quarter of fiscal 2023 for ~~anticipated~~the settlement ~~costs~~of ~~with~~the ~~respect~~SEC investigation. The Company continues to cooperate with the ~~SEC~~USAO investigation., which is ongoing. Although the Company is unable to predict the outcome of these ongoing investigations, we currently believe that these matters will not have a material adverse effect on our business, financial condition, results of operations, or prospects. However, no assurance can be given that these matters will be resolved for the amount recorded.

Item 1A. Risk Factors

We face a number of risks that could materially adversely affect our business, financial condition, results of operations or prospects. A full discussion of our risk factors can be found in Part I, Item 1A, “Risk Factors” of our 2022 Annual Report. The information below includes additional risks relating to the Merger.

The Merger may not be completed on a timely basis, or at all, and the failure to complete or delays in completing the Merger could adversely affect our business, financial results and stock price.

We can provide no assurance that the Merger will be consummated or consummated in the timeframe or manner currently anticipated. The Merger is subject to a number of conditions outside of our or Xylem’s control that may prevent or delay its completion, including approval of the Merger Agreement by the Company’s stockholders and certain regulatory approvals. There can be no assurance as to when, or if, the conditions to closing of the Merger will be satisfied or waived or that other events will not intervene to delay or result in the termination of the Merger.

If the Merger is delayed or not completed, the Company’s stock price could decrease if and to the extent that the current market price for shares of the Company’s common stock reflects an assumption that a transaction will be consummated. Additionally, the Merger Agreement contains certain termination rights in which we may be required to pay Xylem a termination fee of $225.0 million. Further, a failed transaction may result in negative publicity and a negative impression of the Company in the capital markets and among the investment community. Finally, any disruption to our business resulting from the announcement and pendency of the Merger, including any adverse impact in our relationships with employees, distributors or suppliers could continue or accelerate in the event of a failed transaction.

We may face business and operational impacts due to the announcement of the Merger and the pendency of the Merger.

The Merger may cause disruptions to our business or business relationships and create uncertainty surrounding our ongoing business operations, which could have an adverse impact on our business, financial condition, results of operations or prospects, regardless of whether the Merger is completed, including as a result of the following (all of which could be exacerbated by a delay in completion of the Merger):

operations or prospects, regardless of whether the Merger is completed, including as a result of the following (all of which could be exacerbated by a delay in completion of the Merger):

•the attention of our management may be directed to Merger-related considerations and may be diverted from the day-to-day operations of our business;

•our employees may experience uncertainty about their future roles with us, which might adversely affect our ability to attract, hire, retain, and motivate key personnel and other employees;

•customers, suppliers or other parties which we maintain business relationships may experience uncertainty prior to the closing of the Merger and seek alternative relationships with third parties or seek to terminate or re-negotiate their relationships with us; and

•the Merger Agreement includes certain contractual restrictions on the conduct of our business that may affect our ability to execute on our business strategies and attain our financial goals.

In addition, we have incurred, and will continue to incur, significant costs, expenses, and fees for professional services and other transaction costs in connection with the Merger, and many of these fees and costs are payable by us regardless of whether or not the Merger is consummated.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed or furnished as a part of this report:

ExhibitNo.			Exhibit Description
2.1†			Agreement and Plan of Merger, dated as of January 22, 2023, by and among Evoqua Water Technologies Corp., Xylem Inc., and Fore Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2023 (File No. 001-38272)).
10.1*			Second Amended and Restated Employment Agreement, by and between Ronald Keating and the Company, dated March 7, 2023
10.2*			Second Amended and Restated Employment Agreement, by and between Benedict J. Stas and the Company, dated March 7, 2023
10.3*			Amended and Restated Employment Agreement, by and between Rodney Aulick and the Company, dated March 7, 2023
10.4*			Amended and Restated Employment Agreement, by and between Hervé Fages and the Company, dated March 7, 2023
10.5*			Amended and Restated Employment Agreement, by and between Vincent Grieco and the Company, dated March 7, 2023
10.6*			Amended and Restated Employment Agreement, by and between Snehal Desai and the Company, dated March 7, 2023
10.7*			Amended and Restated Employment Agreement, by and between Anthony Webster and the Company, dated March 7, 2023
10.8*			Amended and Restated Employment Agreement, by and between James M. Kohosek and the Company, dated March 7, 2023
31.1*			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1**			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*			Inline XBRL Taxonomy Extension Schema Document.
101.CAL*			Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*			Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*			Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith

** Furnished herewith

†Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally to the SEC a copy of any omitted exhibit or schedule upon request.

5564

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	EVOQUA WATER TECHNOLOGIES CORP.
January 31, 2023	/s/ RONALD C. KEATING
May 2, 2023	/s/ RONALD C. KEATING
	By:	Ronald C. Keating
		Chief Executive Officer (Principal Executive Officer)
January 31, 2023	/s/ BENEDICT J. STAS
May 2, 2023	/s/ BENEDICT J. STAS
	By:	Benedict J. Stas
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

5665

Filing Compare · Evoqua Water Technologies Corp.