Evoqua Water Technologies Corp.

First-quarter reported revenue was approximately $436 million, up 19% year over year. Organic revenue growth was approximately 9% overall, with ISS organic growth nearly 8% and APT organic growth more than 12%. Adjusted EBITDA was $72.7 million, up approximately 34%, with margin at 16.7% versus the prior year, and LTM adjusted EBITDA margin increased 40 basis points to 17.5%. ISS revenue was $305 million, up about 25%, with adjusted EBITDA of $69 million and margin of 22.6%; APT revenue was about $130 million, up more than 7%, with adjusted EBITDA of about $25 million and margin of 18.8%. Capital spending was approximately $23 million, or 5.2% of revenue. Management did not give official forward guidance because of the pending transaction, but said it remains confident in delivering FY23 commitments, expects book-to-bill to remain above 1.0, and still targets adjusted free cash flow conversion above 100% for the fiscal year.

Ron Keating struck a confident tone, emphasizing that demand remains broad-based across key end markets, especially life sciences and food and beverage, and that the company is benefiting from recurring service and aftermarket revenue. He highlighted price realization, sticky pricing, and a robust pipeline/backlog, while noting that inventory investments are meant to support order conversion and on-time delivery. He also framed the Xylem deal as positive but repeated that Evoqua is operating as usual until closing.

Ben Stas focused on the operating drivers behind the quarter: price realization, mix, and higher volume lifted EBITDA, and he specifically said price/cost was positive by $9 million in the quarter. He explained that net working capital rose to 60% of LTM sales because the company intentionally built inventory, including resin and membranes, and work-in-process tied to strong forecast demand; capital spending was about $23 million. He said leverage improved to 2.5x and reiterated expectations for adjusted free cash flow conversion of 100% plus for the year, with cash conversion improving as the year progresses.

Analysts pressed on the strength of the ISS pipeline, especially in light industry, and management said demand was strong across most end markets, with life sciences and chemical processing particularly robust and microelectronics expected to be flat versus a very strong prior-year quarter. Questions also focused on free cash flow timing and inventory builds; management said the inventory was intentional to support stronger-than-planned capital orders and should convert over the coming months, with Q4 expected to be the strongest cash conversion quarter. Analysts asked about price/cost sustainability, margins in backlog, permitting delays, and PFAS; management said pricing is sticky, backlog is priced with prior increases, project delays are mostly customer-site timing issues, and PFAS is currently flat until federal MCL standards are set.