# EDGAR Filing Document

**Accession Number:** 0001604643
**File Stem:** 0001604643-23-000020
**Filing Date:** 2023-1
**Character Count:** 195847
**Document Hash:** aff4cbfcda7b2b4b681fac87b982b49a
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001604643-23-000020.hdr.sgml**: 20230131

**ACCESSION NUMBER**: 0001604643-23-000020

**CONFORMED SUBMISSION TYPE**: 10-Q

**PUBLIC DOCUMENT COUNT**: 108

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230131

**DATE AS OF CHANGE**: 20230131

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Evoqua Water Technologies Corp.
- **CENTRAL INDEX KEY:** 0001604643
- **STANDARD INDUSTRIAL CLASSIFICATION:** REFRIGERATION & SERVICE INDUSTRY MACHINERY [3580]
- **IRS NUMBER:** 000000000
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 0930

**FILING VALUES:**
- **FORM TYPE:** 10-Q
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-38272
- **FILM NUMBER:** 23570198

**BUSINESS ADDRESS:**
- **STREET 1:** 210 SIXTH AVENUE
- **CITY:** PITTSBURGH
- **STATE:** PA
- **ZIP:** 15222
- **BUSINESS PHONE:** 724-772-0044

**MAIL ADDRESS:**
- **STREET 1:** 210 SIXTH AVENUE
- **CITY:** PITTSBURGH
- **STATE:** PA
- **ZIP:** 15222

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** EWT Holdings I Corp.
- **DATE OF NAME CHANGE:** 20140403

?xml version="1.0" ? aqua-20221231

**UNITED STATES** 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q** 

---

| | |
|:---|:---|
| **(Mark One)** | **(Mark One)** |
| ☒ | **Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |
| **For the quarterly period ended** | **For the quarterly period ended** |
| **December 31, 2022** | **December 31, 2022** |
| **Or** | **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** | **Delaware** | **46-4132761** |
| (State or other jurisdiction of incorporation or organization) | (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| **210 Sixth Avenue** | **210 Sixth Avenue** | **15222** |
| **Pittsburgh,** | **Pennsylvania** | **15222** |
| (Address of principal executive offices) | (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:

---

| | | |
|:---|:---|:---|
| **<u>Title of each class</u>** | **<u>Trading Symbol(s)</u>** | **<u>Name of each exchange on which registered</u>** |
| 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 ☒&nbsp;&nbsp;&nbsp;&nbsp;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 ☐&nbsp;&nbsp;&nbsp;&nbsp;No ☒

There were 122,186,155 shares of the registrant's common stock, par value $0.01 per share, outstanding as of January 26, 2023.

------

**EVOQUA WATER TECHNOLOGIES CORP.** 

**TABLE OF CONTENTS** 

---

| | | |
|:---|:---|:---|
| | | **Page** |
| **<u>[PART I - FINANCIAL INFORMATION](#i16c1109e37d448908e59d05f5e21ef4c_13)</u>** | **<u>[PART I - FINANCIAL INFORMATION](#i16c1109e37d448908e59d05f5e21ef4c_13)</u>** | **<u>[PART I - FINANCIAL INFORMATION](#i16c1109e37d448908e59d05f5e21ef4c_13)</u>** |
| <u>[Item 1](#i16c1109e37d448908e59d05f5e21ef4c_16)</u> | <u>[Financial Statements](#i16c1109e37d448908e59d05f5e21ef4c_16)</u> | <u>[3](#i16c1109e37d448908e59d05f5e21ef4c_16)</u> |
| <u>[Item 2](#i16c1109e37d448908e59d05f5e21ef4c_115)</u> | <u>[Management's Discussion and Analysis of Financial Condition and Results of Operations](#i16c1109e37d448908e59d05f5e21ef4c_115)</u> | <u>[36](#i16c1109e37d448908e59d05f5e21ef4c_115)</u> |
| <u>[Item 3](#i16c1109e37d448908e59d05f5e21ef4c_154)</u> | <u>[Quantitative and Qualitative Disclosures About Market Risk](#i16c1109e37d448908e59d05f5e21ef4c_154)</u> | <u>[51](#i16c1109e37d448908e59d05f5e21ef4c_154)</u> |
| <u>[Item 4](#i16c1109e37d448908e59d05f5e21ef4c_157)</u> | <u>[Controls and Procedures](#i16c1109e37d448908e59d05f5e21ef4c_157)</u> | <u>[52](#i16c1109e37d448908e59d05f5e21ef4c_157)</u> |
| **<u>[PART II - OTHER INFORMATION](#i16c1109e37d448908e59d05f5e21ef4c_160)</u>** | **<u>[PART II - OTHER INFORMATION](#i16c1109e37d448908e59d05f5e21ef4c_160)</u>** | **<u>[PART II - OTHER INFORMATION](#i16c1109e37d448908e59d05f5e21ef4c_160)</u>** |
| <u>[Item 1](#i16c1109e37d448908e59d05f5e21ef4c_163)</u> | <u>[Legal Proceedings](#i16c1109e37d448908e59d05f5e21ef4c_163)</u> | <u>[53](#i16c1109e37d448908e59d05f5e21ef4c_163)</u> |
| <u>[Item 1A](#i16c1109e37d448908e59d05f5e21ef4c_166)</u> | <u>[Risk Factors](#i16c1109e37d448908e59d05f5e21ef4c_166)</u> | <u>[53](#i16c1109e37d448908e59d05f5e21ef4c_166)</u> |
| <u>[Item 2](#i16c1109e37d448908e59d05f5e21ef4c_169)</u> | <u>[Unregistered Sales of Equity Securities and Use of Proceeds](#i16c1109e37d448908e59d05f5e21ef4c_169)</u> | <u>[54](#i16c1109e37d448908e59d05f5e21ef4c_169)</u> |
| <u>[Item 3](#i16c1109e37d448908e59d05f5e21ef4c_172)</u> | <u>[Defaults Upon Senior Securities](#i16c1109e37d448908e59d05f5e21ef4c_172)</u> | <u>[54](#i16c1109e37d448908e59d05f5e21ef4c_172)</u> |
| <u>[Item 4](#i16c1109e37d448908e59d05f5e21ef4c_175)</u> | <u>[Mine Safety Disclosures](#i16c1109e37d448908e59d05f5e21ef4c_175)</u> | <u>[54](#i16c1109e37d448908e59d05f5e21ef4c_175)</u> |
| <u>[Item 5](#i16c1109e37d448908e59d05f5e21ef4c_178)</u> | <u>[Other Information](#i16c1109e37d448908e59d05f5e21ef4c_178)</u> | <u>[54](#i16c1109e37d448908e59d05f5e21ef4c_178)</u> |
| <u>[Item 6](#i16c1109e37d448908e59d05f5e21ef4c_181)</u> | <u>[Exhibits](#i16c1109e37d448908e59d05f5e21ef4c_181)</u> | <u>[55](#i16c1109e37d448908e59d05f5e21ef4c_181)</u> |

---

------

**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:

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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;

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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;

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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;

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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;

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• our ability to meet our own and our customers' safety standards;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• failure to effectively treat emerging contaminants;

------

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

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

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

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

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• risks associated with international sales and operations;

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

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

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• risks related to our substantial indebtedness;

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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** | |
| <u>[Consolidated Balance Sheets as of](#i16c1109e37d448908e59d05f5e21ef4c_22)[December](#i16c1109e37d448908e59d05f5e21ef4c_22)[31](#i16c1109e37d448908e59d05f5e21ef4c_22)[, 2022 (Unaudited) and September 30,](#i16c1109e37d448908e59d05f5e21ef4c_22)[2](#i16c1109e37d448908e59d05f5e21ef4c_22)[022](#i16c1109e37d448908e59d05f5e21ef4c_22)</u> | <u>[4](#i16c1109e37d448908e59d05f5e21ef4c_22)</u> |
| <u>[Unaudited Consolidated Statements of Operations for the Three](#i16c1109e37d448908e59d05f5e21ef4c_25)[Months Ended](#i16c1109e37d448908e59d05f5e21ef4c_25)[December 3](#i16c1109e37d448908e59d05f5e21ef4c_25)[1](#i16c1109e37d448908e59d05f5e21ef4c_25)[, 2022 and 2021](#i16c1109e37d448908e59d05f5e21ef4c_25)</u> | <u>[5](#i16c1109e37d448908e59d05f5e21ef4c_25)</u> |
| <u>[Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three](#i16c1109e37d448908e59d05f5e21ef4c_28)[Months Ended](#i16c1109e37d448908e59d05f5e21ef4c_28)[December 3](#i16c1109e37d448908e59d05f5e21ef4c_28)[1](#i16c1109e37d448908e59d05f5e21ef4c_28)[, 2022 and 2021](#i16c1109e37d448908e59d05f5e21ef4c_28)</u> | <u>[6](#i16c1109e37d448908e59d05f5e21ef4c_28)</u> |
| <u>[Unaudited Consolidated Statements of Changes in Equity for the Three](#i16c1109e37d448908e59d05f5e21ef4c_31)[Months Ended](#i16c1109e37d448908e59d05f5e21ef4c_31)[December 31](#i16c1109e37d448908e59d05f5e21ef4c_31)[, 2022 and 2021](#i16c1109e37d448908e59d05f5e21ef4c_31)</u> | <u>[7](#i16c1109e37d448908e59d05f5e21ef4c_31)</u> |
| <u>[Unaudited Consolidated Statements of Cash Flows for the](#i16c1109e37d448908e59d05f5e21ef4c_34)[Three](#i16c1109e37d448908e59d05f5e21ef4c_34)[Months Ended](#i16c1109e37d448908e59d05f5e21ef4c_34)[Decemb](#i16c1109e37d448908e59d05f5e21ef4c_34)[er](#i16c1109e37d448908e59d05f5e21ef4c_34)[31](#i16c1109e37d448908e59d05f5e21ef4c_34)[, 2022 and 2021](#i16c1109e37d448908e59d05f5e21ef4c_34)</u> | <u>[8](#i16c1109e37d448908e59d05f5e21ef4c_34)</u> |
| <u>[Unaudited Supplemental Disclosure of Cash Flow Information for the](#i16c1109e37d448908e59d05f5e21ef4c_37)[Three](#i16c1109e37d448908e59d05f5e21ef4c_37)[Months Ended](#i16c1109e37d448908e59d05f5e21ef4c_37)[December](#i16c1109e37d448908e59d05f5e21ef4c_37)[31](#i16c1109e37d448908e59d05f5e21ef4c_37)[, 2022 and 2021](#i16c1109e37d448908e59d05f5e21ef4c_37)</u> | <u>[9](#i16c1109e37d448908e59d05f5e21ef4c_37)</u> |
| <u>[Notes to Unaudited Consolidated Financial Statements](#i16c1109e37d448908e59d05f5e21ef4c_40)</u> | <u>[10](#i16c1109e37d448908e59d05f5e21ef4c_40)</u> |

---

------

**Evoqua Water Technologies Corp.**

**Consolidated Balance Sheets**

**(In thousands)**

---

| | | |
|:---|:---|:---|
| | ***(Unaudited)*** | |
| | **December 31,<br>2022** |<br>**September 30,<br>2022** |
| **ASSETS** | | |
| Current assets | $848320 | $831389 |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents | 104703 | 134005 |
| &nbsp;&nbsp;&nbsp;&nbsp;Receivables, net | 301128 | 305712 |
| &nbsp;&nbsp;&nbsp;&nbsp;Inventories, net | 258264 | 229351 |
| &nbsp;&nbsp;&nbsp;&nbsp;Contract assets | 118466 | 102123 |
| &nbsp;&nbsp;&nbsp;&nbsp;Prepaid and other current assets | 65324 | 59971 |
| &nbsp;&nbsp;&nbsp;&nbsp;Income tax receivable | 435 | 227 |
| Property, plant, and equipment, net | 409992 | 405289 |
| Goodwill | 476213 | 473572 |
| Intangible assets, net | 307747 | 317733 |
| Deferred income taxes, net of valuation allowance | 4200 | 5841 |
| Operating lease right-of-use assets, net | 57624 | 53540 |
| Other non-current assets | 103261 | 103499 |
| **Total assets** | $**2207357** | $**2190863** |
| **LIABILITIES AND EQUITY** |  |  |
| Current liabilities | $486837 | $483716 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 219886 | 213518 |
| &nbsp;&nbsp;&nbsp;&nbsp;Current portion of debt, net of deferred financing fees and discounts | 19322 | 17266 |
| &nbsp;&nbsp;&nbsp;&nbsp;Contract liabilities | 77589 | 62439 |
| &nbsp;&nbsp;&nbsp;&nbsp;Product warranties | 6881 | 6740 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses and other liabilities | 156846 | 178272 |
| &nbsp;&nbsp;&nbsp;&nbsp;Income tax payable | 6313 | 5481 |
| Non-current liabilities | $990788 | $997054 |
| &nbsp;&nbsp;&nbsp;&nbsp;Long-term debt, net of deferred financing fees and discounts | 852469 | 863534 |
| &nbsp;&nbsp;&nbsp;&nbsp;Product warranties | 3346 | 3465 |
| &nbsp;&nbsp;&nbsp;&nbsp;Obligation under operating leases | 47399 | 43961 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other non-current liabilities | 71892 | 69889 |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes | 15682 | 16205 |
| **Total liabilities** | $**1477625** | $**1480770** |
| **Commitments and Contingent Liabilities (Note 19)** |  |  |
| Shareholders' equity |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;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 | $1237 | $1235 |
| &nbsp;&nbsp;&nbsp;&nbsp;Treasury stock: 1,664 shares at December 31, 2022 and 1,664 shares at September 30, 2022 | (2837) | (2837) |
| &nbsp;&nbsp;&nbsp;&nbsp;Additional paid-in capital | 616354 | 607748 |
| &nbsp;&nbsp;&nbsp;&nbsp;Retained earnings | 70284 | 61016 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accumulated other comprehensive income, net of tax | 44694 | 42931 |
| **Total shareholders' equity** | $**729732** | $**710093** |
| **Total liabilities and shareholders' equity** | $**2207357** | $**2190863** |

---

*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 Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| Revenue from product sales | $260391 | $212568 |
| Revenue from services | 175455 | 153700 |
| Revenue from product sales and services | $435846 | $366268 |
| Cost of product sales | (185040) | (153795) |
| Cost of services | (120497) | (101965) |
| Cost of product sales and services | $(305537) | $(255760) |
| **Gross profit** | $**130309** | $**110508** |
| General and administrative expense | (64076) | (57829) |
| Sales and marketing expense | (40386) | (36449) |
| Research and development expense | (3835) | (3452) |
| Total operating expenses | $(108297) | $(97730) |
| Other operating income | 1297 | 1657 |
| Other operating expense | (77) | (147) |
| **Income before interest expense and income taxes** | $**23232** | $**14288** |
| Interest expense | (10074) | (6579) |
| **Income before income taxes** | $**13158** | $**7709** |
| Income tax expense | (3890) | (1621) |
| **Net income** | $**9268** | $**6088** |
| Net income attributable to non-controlling interest |  | 101 |
| **Net income attributable to Evoqua Water Technologies Corp.** | $**9268** | $**5987** |
| Basic income per common share | $0.08 | $0.05 |
| Diluted income per common share | $0.07 | $0.05 |

---

*See accompanying notes to these Unaudited Consolidated Financial Statements*

------

**Evoqua Water Technologies Corp.**

**Unaudited Consolidated Statements of Comprehensive Income (Loss)**

**(In thousands)**

---

| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| Net income | $9268 | $6088 |
| Other comprehensive income (loss) |  |  |
| &nbsp;&nbsp;&nbsp;Foreign currency translation adjustments | 3562 | 1609 |
| &nbsp;&nbsp;&nbsp;Unrealized derivative (loss) gain on cash flow hedges, net of tax | (1786) | 6581 |
| &nbsp;&nbsp;&nbsp;Change in pension liability, net of tax | (13) | 169 |
| Total other comprehensive income | $1763 | $8359 |
| **Less: Comprehensive income attributable to non-controlling interest** |  | (101) |
| **Comprehensive income attributable to Evoqua Water Technologies Corp.** | $11031 | $14346 |

---

*See accompanying notes to these Unaudited Consolidated Financial Statements*

------

**Evoqua Water Technologies Corp.**

**Unaudited Consolidated Statements of Changes in Equity**

**(In thousands)**

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | **Common Stock** | **Common Stock** | **Treasury Stock** | **Treasury Stock** | **Additional <br>Paid-in <br>Capital** | **Retained <br>Earnings** | **Accumulated <br>Other Comprehensive Income** | **Non-controlling <br>Interest** | **Total** |
| | **Shares** | **Cost** | **Shares** | **Cost** | **Additional <br>Paid-in <br>Capital** | **Retained <br>Earnings** | **Accumulated <br>Other Comprehensive Income** | **Non-controlling <br>Interest** | **Total** |
| Balance at September 30, 2022 | 123411 | $1235 | 1664 | $(2837) | $607748 | $61016 | $42931 | $— | $710093 |
| &nbsp;&nbsp;&nbsp;Equity based compensation expense |  |  |  |  | 6196 |  |  |  | $6196 |
| &nbsp;&nbsp;&nbsp;Issuance of common stock, net | 156 | 2 |  |  | 2410 |  |  |  | $2412 |
| &nbsp;&nbsp;&nbsp;Net income |  |  |  |  |  | 9268 |  |  | $9268 |
| &nbsp;&nbsp;&nbsp;Other comprehensive income |  |  |  |  |  |  | 1763 |  | $1763 |
| Balance at December 31, 2022 | 123567 | $1237 | 1664 | $(2837) | $616354 | $70284 | $44694 | $— | $729732 |

---

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | **Common Stock** | **Common Stock** | **Treasury Stock** | **Treasury Stock** | **Additional <br>Paid-in <br>Capital** | **Retained <br>Deficit** | **Accumulated <br>Other Comprehensive Income** | **Non-controlling <br>Interest** | **Total** |
| | **Shares** | **Cost** | **Shares** | **Cost** | **Additional <br>Paid-in <br>Capital** | **Retained <br>Deficit** | **Accumulated <br>Other Comprehensive Income** | **Non-controlling <br>Interest** | **Total** |
| Balance at September 30, 2021 | 122173 | $1223 | 1664 | $(2837) | $582052 | $(11182) | $11415 | $1548 | $582219 |
| &nbsp;&nbsp;&nbsp;Equity based compensation expense |  |  |  |  | 5203 |  |  |  | $5203 |
| &nbsp;&nbsp;&nbsp;Issuance of common stock, net | 199 | 2 |  |  | 822 |  |  |  | $824 |
| &nbsp;&nbsp;&nbsp;Dividends paid to non-controlling interest |  |  |  |  |  |  |  | (100) | $(100) |
| &nbsp;&nbsp;&nbsp;Net income |  |  |  |  |  | 5987 |  | 101 | $6088 |
| &nbsp;&nbsp;&nbsp;Other comprehensive income |  |  |  |  |  |  | 8359 |  | $8359 |
| Balance at December 31, 2021 | 122372 | $1225 | 1664 | $(2837) | $588077 | $(5195) | $19774 | $1549 | $602593 |

---

*See accompanying notes to these Unaudited Consolidated Financial Statements*

------

**Evoqua Water Technologies Corp.**

**Unaudited Consolidated Statements of Cash Flows**

**(In thousands)**

---

| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| **Operating activities** |  |  |
| **Net income** | $9268 | $6088 |
| Reconciliation of net income to cash flows (used in) provided by operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 33248 | 28640 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of deferred financing fees | 476 | 467 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes | 1852 | 251 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share-based compensation | 6196 | 5203 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on sale of property, plant, and equipment | (836) | (4) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign currency exchange (gains) losses on intercompany loans and other non-cash items | (8184) | 1502 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in assets and liabilities |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | 6839 | 41309 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories | (26082) | (16021) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contract assets | (15790) | (12189) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaids and other current assets | (2326) | (3797) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 5290 | 11241 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses and other liabilities | (24916) | (16953) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contract liabilities | 14711 | (2887) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes | 416 | (338) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other non-current assets and liabilities | (1435) | (6132) |
| Net cash (used in) provided by operating activities | $(1273) | $36380 |
| **Investing activities** |  |  |
| Purchase of property, plant, and equipment | $(22742) | $(15540) |
| Purchase of intangibles | (1120) | (664) |
| Proceeds from sale of property, plant, and equipment | 1674 | 1370 |
| Acquisitions | 1716 |  |
| Net cash used in investing activities | $(20472) | $(14834) |
| **Financing activities** |  |  |
| Borrowing of debt | $23700 | $5949 |
| Repayment of debt | (33185) | (19378) |
| Repayment of finance lease obligation | (3905) | (3174) |
| Proceeds from issuance of common stock | 2868 | 2085 |
| Taxes paid related to net share settlements of share-based compensation awards | (390) | (1261) |
| Distribution to non-controlling interest |  | (100) |
| Net cash used in financing activities | $(10912) | $(15879) |
| Effect of exchange rate changes on cash | 3355 | 614 |
| Change in cash and cash equivalents | (29302) | 6281 |
| **Cash and cash equivalents** |  |  |
| &nbsp;&nbsp;&nbsp;**Beginning of period** | $134005 | $146244 |
| &nbsp;&nbsp;&nbsp;**End of period** | $104703 | $152525 |

---

*See accompanying notes to these Unaudited Consolidated Financial Statements*

------

**Evoqua Water Technologies Corp.**

**Unaudited Supplemental Disclosure of Cash Flow Information**

**(In thousands)**

---

| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| **Supplemental disclosure of cash flow information** |  |  |
| &nbsp;&nbsp;&nbsp;Cash paid for taxes | $1989 | $1654 |
| &nbsp;&nbsp;&nbsp;Cash paid for interest | $8990 | $5706 |
| **Non-cash investing and financing activities** |  |  |
| &nbsp;&nbsp;&nbsp;Finance lease transactions | $3311 | $2700 |
| &nbsp;&nbsp;&nbsp;Operating lease transactions | $6863 | $1152 |

---

*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.

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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, (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"), (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 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.

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 for the three months ended December 31, 2022, in General and administrative expenses in the Unaudited Consolidated Statements of Operations.

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.

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**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 months ended December 31, 2021. 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 months ended December 31, 2022.

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| | |
|:---|:---|
| | **Three Months Ended<br>December 31, 2021** |
| Total revenue | $845 |
| Total operating expenses | (737) |
| Income from operations | $108 |

---

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 months ended December 31, 2021. 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 months ended December 31, 2022.

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| | |
|:---|:---|
| | **Three Months Ended<br>December 31, 2021** |
| Total revenue | $6949 |
| Total operating expenses | (5986) |
| Income from operations | $963 |

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**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.

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 31, 2022, 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.

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

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| | |
|:---|:---|
| Receivables, net | $2501 |
| Inventories, net | 1345 |
| Other current assets | 937 |
| Property, plant, and equipment, net | 532 |
| Goodwill | 7820 |
| Intangible assets, net | 9815 |
| Other non-current assets | 796 |
| &nbsp;&nbsp;&nbsp;Total assets acquired | $23746 |
| Current liabilities | (1834) |
| Non-current liabilities | (3034) |
| &nbsp;&nbsp;&nbsp;Total liabilities assumed | $(4868) |
| Net assets acquired | $18878 |

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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 months ended December 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 a $12,300 earn out, which is being held in escrow and will be paid, pro rata, to the Sellers if the Mar Cor Business meets certain sales performance goals through December 31, 2022 (the "Earn Out"). Determination of the level of achievement of the performance goals is subject to certification by the Sellers. Any portion of the 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. 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.

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

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| | |
|:---|:---|
| Receivables, net | $21275 |
| Inventories, net | 32350 |
| Earn Out asset | 7824 |
| Other current assets | 1844 |
| Property, plant, and equipment, net | 19150 |
| Goodwill | 67000 |
| Intangible assets, net | 57094 |
| Other non-current assets | 7694 |
| &nbsp;&nbsp;&nbsp;Total assets acquired | $214231 |
| Current liabilities | (15467) |
| Non-current liabilities | (5542) |
| &nbsp;&nbsp;&nbsp;Total liabilities assumed | $(21009) |
| Net assets acquired | $193222 |

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**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 $398,960 at December 31, 2022. 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:

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| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| Revenue from contracts with customers recognized under Topic 606 | $391431 | $317771 |
| Other<sup>(1)</sup> | 44415 | 48497 |
| Total | $435846 | $366268 |

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

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

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| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| **Integrated Solutions and Services** |  |  |
| &nbsp;&nbsp;Capital | $77646 | $67102 |
| &nbsp;&nbsp;Aftermarket | 57440 | 29298 |
| &nbsp;&nbsp;Service | 170340 | 148646 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | $305426 | $245046 |
| **Applied Product Technologies** |  |  |
| &nbsp;&nbsp;Capital | $88065 | $83884 |
| &nbsp;&nbsp;Aftermarket | 37240 | 32284 |
| &nbsp;&nbsp;Service | 5115 | 5054 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | $130420 | $121222 |
| **Total Revenue** |  |  |
| &nbsp;&nbsp;Capital | $165711 | $150986 |
| &nbsp;&nbsp;Aftermarket | 94680 | 61582 |
| &nbsp;&nbsp;Service | 175455 | 153700 |
| Total | $435846 | $366268 |

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Information regarding revenue disaggregated by geographic area is as follows:

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| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| United States | $361222 | $294708 |
| Asia | 34521 | 30905 |
| Europe | 24487 | 25629 |
| Canada | 13174 | 12661 |
| Australia | 2442 | 2365 |
| Total | $435846 | $366268 |

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**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 in contract assets and liabilities are due to the Company's performance under the contract.

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

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| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| **Contract assets**<sup>(a)</sup> | **2022** | **2021** |
| Balance at beginning of period | $102123 | $72746 |
| Recognized in current period | 91519 | 120387 |
| Reclassified to accounts receivable | (74004) | (108684) |
| Foreign currency | (1172) | 533 |
| Balance at end of period | $118466 | $84982 |

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

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| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| **Contract Liabilities** | **2022** | **2021** |
| Balance at beginning of period | $62439 | $55883 |
| Recognized in current period | 82819 | 100017 |
| Amounts in beginning balance reclassified to revenue | (49264) | (43266) |
| Current period amounts reclassified to revenue | (20530) | (59653) |
| Foreign currency | 2125 | 41 |
| Balance at end of period | $77589 | $53022 |

---

**6. Fair Value Measurements**

As of December 31, 2022 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 <br>Prices in Active <br>Markets (Level 1)** | **Significant Other <br>Observable Inputs <br>(Level 2)** | **Significant <br>Unobservable Inputs <br>(Level 3)** |
| **As of December 31, 2022** | | | | |
| &nbsp;&nbsp;&nbsp;**Assets:** | | | | |
| &nbsp;&nbsp;&nbsp;&nbsp;Pension plan |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash | $— | $950 | $— | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Global Multi-Asset Fund | 12764 |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Government Securities | 1639 |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liability Driven Investment | 1624 |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Guernsey Unit Trust | 2216 |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Global Absolute Return | 1423 |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred compensation plan assets |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash |  | 1017 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mutual Funds |  | 14376 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Earn-out assets related to acquisitions |  |  |  | 12300 |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest rate swaps |  |  | 47402 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign currency forward contracts |  |  | 156 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Commodity swaps |  |  | 1 |  |
| &nbsp;&nbsp;&nbsp;**Liabilities:** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pension plan |  |  | (28971) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred compensation plan liabilities |  |  | (21594) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total return swaps—deferred compensation |  |  | (153) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term debt |  |  | (877898) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign currency forward contracts |  |  | (414) |  |

---

------

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **Net Asset Value** | **Quoted Market <br>Prices in Active <br>Markets (Level 1)** | **Significant Other <br>Observable Inputs <br>(Level 2)** | **Significant <br>Unobservable Inputs <br>(Level 3)** |
| **As of September 30, 2022** | | | | |
| &nbsp;&nbsp;&nbsp;**Assets:** | | | | |
| &nbsp;&nbsp;&nbsp;&nbsp;Pension plan |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash | $— | $40 | $— | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Global Multi-Asset Fund | 11632 |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Government Securities | 3343 |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liability Driven Investment | 928 |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Guernsey Unit Trust | 2048 |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Global Absolute Return | 1299 |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred compensation plan assets |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash |  | 902 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mutual Funds |  | 12330 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Earn-out assets related to acquisitions |  |  |  | 11597 |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest rate swaps |  |  | 49952 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign currency forward contracts |  |  | 507 |  |
| &nbsp;&nbsp;&nbsp;**Liabilities:** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pension plan |  |  | (26654) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred compensation plan liabilities |  |  | (20081) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total return swaps—deferred compensation |  |  | (632) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term debt |  |  | (884517) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign currency forward contracts |  |  | (872) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.

------

**7. Accounts Receivable**

Accounts receivable are summarized as follows:

---

| | | |
|:---|:---|:---|
| | **December 31,<br>2022** | **September 30,<br>2022** |
| Accounts receivable | $308024 | $312600 |
| Allowance for credit losses | (6896) | (6888) |
| Receivables, net | $301128 | $305712 |

---

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

---

| | |
|:---|:---|
| Balance at September 30, 2022 | $(6888) |
| &nbsp;&nbsp;&nbsp;Charged to costs and expenses | (266) |
| &nbsp;&nbsp;&nbsp;Write-offs | 298 |
| &nbsp;&nbsp;&nbsp;Foreign currency and other | (40) |
| Balance at December 31, 2022 | $(6896) |

---

**8. Inventories**

The major classes of Inventories, net are as follows:

---

| | | |
|:---|:---|:---|
| | **December 31,<br>2022** | **September 30,<br>2022** |
| Raw materials and supplies | $140368 | $120532 |
| Work in progress | 38589 | 36499 |
| Finished goods and products held for resale | 87361 | 80811 |
| Costs of unbilled projects | 3342 | 2309 |
| Reserves for excess and obsolete | (11396) | (10800) |
| Inventories, net | $258264 | $229351 |

---

------

**9. Property, Plant, and Equipment**

Property, plant, and equipment consists of the following:

---

| | | |
|:---|:---|:---|
| | **December 31,<br>2022** | **September 30,<br>2022** |
| Machinery and equipment | $397656 | $401334 |
| Rental equipment | 274408 | 267345 |
| Land and buildings | 84100 | 82985 |
| Construction in process | 83002 | 72184 |
|  | 839166 | 823848 |
| Less: accumulated depreciation | (429174) | (418559) |
| &nbsp;&nbsp;&nbsp;Property, plant, and equipment, net | $409992 | $405289 |

---

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

---

| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| Depreciation expense | $21039 | $19320 |
| Maintenance and repair expense | 8230 | 6119 |

---

**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 | $306935 | $166637 | $473572 |
| Measurement period adjustment | (1754) |  | (1754) |
| Foreign currency translation | 582 | 3813 | 4395 |
| Balance at December 31, 2022 | $305763 | $170450 | $476213 |

---

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

------

**11. Debt**

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

---

| | | |
|:---|:---|:---|
| | **December 31,<br>2022** | **September 30,<br>2022** |
| 2021 Term Loan, due April 1, 2028 <sup>(1)</sup> | $467900 | $469063 |
| 2021 Revolving Credit Facility, due April 1, 2026 <sup>(2)</sup>  | 136502 | 151254 |
| Securitization Facility, due April 1, 2024 <sup>(3)</sup> | 150282 | 150201 |
| Equipment Financing, due September 30, 2023 to September 30, 2032, interest rates ranging from 3.59% to 8.07% | 126503 | 120155 |
| &nbsp;&nbsp;Total debt | 881187 | 890673 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less unamortized deferred financing fees | (9396) | (9873) |
| &nbsp;&nbsp;Total net debt | 871791 | 880800 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less current portion | (19322) | (17266) |
| Total long-term debt | $852469 | $863534 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<sup>(1)</sup>The interest rate on the 2021 Term Loan was 6.38% as of December 31, 2022, comprised of 4.13% LIBOR plus a 2.25% spread. Includes accrued interest of $25 and $0 at December 31, 2022 and September 30, 2022, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<sup>(2)</sup>The 2021 Revolving Credit Facility includes $136,000 outstanding with an interest rate of 6.33% as of December 31, 2022, comprised of 4.13% LIBOR plus a 2.20% spread. Includes accrued interest of $502 and $254, at December 31, 2022 and September 30, 2022, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<sup>(3)</sup>The interest rate on the Securitization Facility was 5.64% as of December 31, 2022, comprised of 4.39% LIBOR plus a 1.25% spread. Includes accrued interest of $282 and $201 at December 31, 2022 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 months ended December 31, 2022, 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 31, 2022 and September 30, 2022.

---

| | | |
|:---|:---|:---|
| | **December 31,<br>2022** | **September 30,<br>2022** |
| Borrowing availability | $350000 | $350000 |
| &nbsp;&nbsp;&nbsp;Outstanding borrowings | 136000 | 151000 |
| &nbsp;&nbsp;&nbsp;Outstanding letters of credit | 8760 | 9317 |
| Unused amounts | $205240 | $189683 |

---

------

*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 months ended December 31, 2022, 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 months ended December 31, 2022, the Company completed the following equipment financings:

---

| | | | |
|:---|:---|:---|:---|
| **Date Entered** | **Due** | **Interest Rate as of December 31, 2022** | **Principal Amount** |
| December 30, 2022 | September 30, 2032<sup>(1)</sup> | 5.30% | $1452 |
| December 19, 2022 | May 31, 2029<sup>(2)</sup> | 5.03% | 2041 |
| October 31, 2022 | June 30, 2029 | 6.33% | 6208 |
|  |  |  | $9701 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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 31, 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)Represents an advance received from the lender on a multiple draw term loan in 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.

------

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 31, 2022 and September 30, 2022, the gross and net amounts of those assets are included on the Consolidated Balance Sheets as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **December 31,<br>2022** | **December 31,<br>2022** | **September 30,<br>2022** | **September 30,<br>2022** |
| | **Gross** | **Net** | **Gross** | **Net** |
| Property, plant, and equipment, net |  |  |  |  |
| &nbsp;&nbsp;Machinery and equipment | $79965 | $55996 | $86294 | $62459 |
| &nbsp;&nbsp;Construction in process | 16531 | 16531 | 14201 | 14201 |
| Receivables, net | 793 | 793 | 108 | 108 |
| Prepaid and other current assets | 3147 | 3147 | 3276 | 3276 |
| Other non-current assets | 54057 | 53718 | 51877 | 51550 |
|  | $154493 | $130185 | $155756 | $131594 |

---

**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,<br>2022** | **September 30,<br>2022** |
| Current portion of deferred financing fees and discounts<sup>(1)</sup> | $(1906) | $(1899) |
| Long-term portion of deferred financing fees and discounts<sup>(2)</sup> | (7490) | (7974) |
| Total deferred financing fees and discounts | $(9396) | $(9873) |

---

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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 and $467 for the three months ended December 31, 2022 and 2021.

**Repayment Schedule**

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

---

| | |
|:---|:---|
| *Fiscal Year* |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Remainder of 2023 | $16245 |
| &nbsp;&nbsp;&nbsp;&nbsp;2024 | 169620 |
| &nbsp;&nbsp;&nbsp;&nbsp;2025 | 21224 |
| &nbsp;&nbsp;&nbsp;&nbsp;2026 | 160581 |
| &nbsp;&nbsp;&nbsp;&nbsp;2027 | 22304 |
| &nbsp;&nbsp;&nbsp;&nbsp;Thereafter | 491213 |
| Total | $881187 |

---

------

**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 31, 2022, 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 31, 2022, the notional amount of the forward contracts was $16,924.

**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 31, 2022, the notional amount of the total return swaps was $4,702.

**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** | **Asset Derivatives** |
| |<br>Balance Sheet Location | **December 31,<br>2022** | **September 30,<br>2022** |
| Interest rate swaps | Prepaid and other current assets | $22277 | $19186 |
| Foreign currency forward contracts | Prepaid and other current assets | 156 | 467 |
| Commodity swaps | Prepaid and other current assets | 1 |  |
| Interest rate swaps | Other non-current assets | 25125 | 30766 |

---

------

---

| | | | |
|:---|:---|:---|:---|
| | | **Liability Derivatives** | **Liability Derivatives** |
| |<br>Balance Sheet Location | **December 31,<br>2022** | **September 30,<br>2022** |
| Foreign currency forward contracts | Accrued expenses and other current liabilities | 385 | 872 |
| Commodity swaps | Accrued expenses and other current liabilities |  | 7 |

---

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

---

| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| Interest rate swaps | $2099 | $5871 |
| Foreign currency forward contracts | (389) | (18) |
| Commodity swaps | 8 | 20 |
|  | $1718 | $5873 |

---

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

---

| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
|<br>**Location of (Loss) Gain** | **2022** | **2021** |
| Cost of product sales and services | $(106) | $(85) |
| General and administrative expense | (402) | (7) |
| Selling and marketing expense |  | 1 |
| Interest expense | 4012 | (617) |
|  | $3504 | $(708) |

---

Based on the fair value amounts of the Company's cash flow hedges at December 31, 2022, the Company expects that approximately $196 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** | **Asset Derivatives** |
| |<br>Balance Sheet Location | **December 31,<br>2022** | **September 30,<br>2022** |
| Foreign currency forward contracts | Prepaid and other current assets | $— | $40 |
|  |  | **Liability Derivatives** | **Liability Derivatives** |
|  | Balance Sheet Location | **December 31,<br>2022** | **September 30,<br>2022** |
| Total return swaps—deferred compensation | Accrued expenses and other current liabilities | $153 | $632 |
| Foreign currency forward contracts | Accrued expenses and other current liabilities | 29 |  |

---

------

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

---

| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
|<br>**Location of Gain** | **2022** | **2021** |
| General and administrative expense | $375 | $311 |
|  | $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** | **Current Product Warranties** | **Non-Current Product Warranties** | **Non-Current Product Warranties** |
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** | **2022** | **2021** |
| Balance at beginning of the period | $6740 | $8138 | $3465 | $2966 |
| &nbsp;&nbsp;&nbsp;Warranty provision for sales | 758 | 1188 | 206 | 201 |
| &nbsp;&nbsp;&nbsp;Settlement of warranty claims | (645) | (1262) | (415) | (219) |
| &nbsp;&nbsp;&nbsp;Foreign currency translation and other | 28 | (171) | 90 | (46) |
| Balance at end of the period | $6881 | $7893 | $3346 | $2902 |

---

**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 following the sale of the Memcor product line, transitioning from a three-segment structure to a two-segment operating model 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 to $4,700 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 Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| Balance at beginning of the period | $658 | $304 |
| &nbsp;&nbsp;&nbsp;Restructuring charges following the sale of the Memcor product line | 19 | 207 |
| &nbsp;&nbsp;&nbsp;Restructuring charges related to two-segment realignment |  | 164 |
| &nbsp;&nbsp;&nbsp;Restructuring charges related to other initiatives | 1560 | 766 |
| &nbsp;&nbsp;&nbsp;Release of prior reserves | (26) | (21) |
| &nbsp;&nbsp;&nbsp;Cash payments | (1050) | (1138) |
| &nbsp;&nbsp;&nbsp;Other adjustments | 1 |  |
| Balance at end of the period | $1162 | $282 |

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The balances for accrued restructuring liabilities at December 31, 2022 and September 30, 2022, are recorded in Accrued expenses and other liabilities on the Consolidated Balance Sheets. Restructuring charges primarily represent severance

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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:

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| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| Cost of product sales and services | $739 | $222 |
| General and administrative expense | 668 | 894 |
| Sales and marketing expense | 146 |  |
|  | $1553 | $1116 |

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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:

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| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| Service cost | $137 | $232 |
| Interest cost | 196 | 108 |
| Expected return on plan assets | (108) | (132) |
| Amortization of actuarial (gains) losses | (13) | 169 |
| Pension expense for defined benefit plans | $212 | $377 |

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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.

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**Annual Effective Tax Rate**

The PAETR, which excludes the impact of discrete items, was 31.8% and 23.1% as of the three months ended December 31, 2022 and 2021, respectively. For the three months ended December 31, 2022, 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 31, 2021 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 31, 2022 PAETR is higher than the PAETR at December 31, 2021.

**Current and Prior Period Tax Expense**

For the three months ended December 31, 2022, the Company recognized income tax expense of $3,890 on pretax income of $13,158. The rate of 29.6% 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., state income tax expense, projected Global Intangible Low Tax Income inclusion, and non-deductible expenses primarily incurred in the U.S.

For the three months ended December 31, 2021, the Company recognized income tax expense of $1,621 on pretax income of $7,709. The rate of 21.0% was in 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 provided on U.S. deferred tax assets.

At December 31, 2022 and 2021, the Company had gross unrecognized tax benefits of $1,614 and $1,628 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, 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 31, 2022, 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.&nbsp;&nbsp;&nbsp;&nbsp;

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.

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

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| | | | | |
|:---|:---|:---|:---|:---|
| *(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 | 4265 | $14.74 | 5.2 years | $78218 |
| Granted | 4 | 42.42 |  |  |
| Exercised | (71) | 14.07 |  |  |
| Forfeited |  | 24.76 |  |  |
| Outstanding at December 31, 2022 | 4198 | $14.77 | 5.0 years | $104245 |
| Options exercisable at December 31, 2022 | 3154 | $12.48 | 4.2 years | $85523 |
| Options vested and expected to vest at December 31, 2022 | 4194 | $14.76 | 5.0 years | $104179 |

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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.

&nbsp;&nbsp;&nbsp;&nbsp;

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.

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| | | |
|:---|:---|:---|
| *(In thousands, except per share amounts)* | **Shares** | **Weighted Average Grant Date Fair Value/Share** |
| Unvested at beginning of period | 1042 | $6.82 |
| Granted | 4 | 21.39 |
| Vested | (2) | 12.63 |
| Forfeited |  | 8.98 |
| Unvested at end of period | 1044 | $6.88 |

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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).

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The following is a summary of the RSU activity for the three months ended December 31, 2022.

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| | | |
|:---|:---|:---|
| *(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 | 1218 | $32.51 |
| Expected to vest at December 31, 2022 | 1181 | $32.26 |

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The following is a summary of the performance share unit activity for the three months ended December 31, 2022, assuming target award level.

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| | | |
|:---|:---|:---|
| *(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 | (2) | 42.45 |
| Unvested at end of period | 744 | $27.48 |
| Expected to vest | 697 | $27.23 |

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**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 and $5,334 during the three months ended December 31, 2022 and 2021, respectively, of which $6,196 and $5,203 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, $28,304 and $14,929, respectively at December 31, 2022, and is expected to be recognized over a weighted average period of 1.2 years, 1.8 years and 1.8 years, respectively. The Company received $2,868 from the exercise of stock options during the three months ended December 31, 2022.

**Employee Stock Purchase Plan&nbsp;&nbsp;&nbsp;&nbsp;**

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 31, 2022 and 2021, the Company incurred compensation expense of $316 and $221, respectively, in salaries and wages with respect to the ESPP, representing the fair value of the discounted price of the shares. These amounts are included in the total share-based compensation expense above. On October 4, 2022, 62 shares 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

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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 31, 2022 and September 30, 2022, respectively.

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| | | |
|:---|:---|:---|
| | **December 31,<br>2022** | **September 30,<br>2022** |
| Revolving credit capacity | $60000 | $60000 |
| &nbsp;&nbsp;&nbsp;Letters of credit outstanding | 8760 | 9317 |
| Remaining revolving credit capacity | $51240 | $50683 |
| Surety capacity | $262135 | $261959 |
| &nbsp;&nbsp;&nbsp;Surety issuances | 136862 | 134037 |
| Remaining surety available | $125273 | $127922 |

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The longest maturity date of letters of credit and surety bonds in effect as of December 31, 2022 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.

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

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public filings and earnings announcements prior to October 2018. On 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 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 to cooperate with both the SEC and the USAO with respect to these investigations. In accordance with ASC Topic No. 450, Contingencies, the Company has recorded a charge of $8,500 for anticipated settlement costs with respect to the SEC investigation. This charge is recorded in General and administrative expenses in the Consolidated Statement of Operations for the period ended December 31, 2022. 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.

**20. Accrued Expenses and Other Liabilities**

Accrued expenses and other liabilities consisted of the following:

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| | | |
|:---|:---|:---|
| | **December 31,<br>2022** | **September 30,<br>2022** |
| Salaries, wages, and other benefits | $52373 | $83618 |
| Obligation under operating leases | 15527 | 14932 |
| Obligation under finance leases | 12917 | 12875 |
| Provisions for litigation | 12709 | 2375 |
| Deferred revenue | 9760 | 9692 |
| Third party commissions | 9615 | 10341 |
| Taxes, other than income | 5833 | 5594 |
| Insurance liabilities | 3958 | 3456 |
| Severance payments | 1162 | 658 |
| Fair value of liability derivatives | 567 | 1511 |
| Other | 32425 | 33220 |
|  | $156846 | $178272 |

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**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

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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:

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| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| **Total revenue** |  |  |
| &nbsp;&nbsp;&nbsp;Integrated Solutions and Services | $311264 | $253576 |
| &nbsp;&nbsp;&nbsp;Applied Product Technologies | 150338 | 142497 |
| &nbsp;&nbsp;&nbsp;Total revenue | 461602 | 396073 |
| **Intersegment revenue** |  |  |
| &nbsp;&nbsp;&nbsp;Integrated Solutions and Services | 5838 | 8530 |
| &nbsp;&nbsp;&nbsp;Applied Product Technologies | 19918 | 21275 |
| &nbsp;&nbsp;&nbsp;Total intersegment revenue | 25756 | 29805 |
| **Revenue to external customers** |  |  |
| &nbsp;&nbsp;&nbsp;Integrated Solutions and Services | 305426 | 245046 |
| &nbsp;&nbsp;&nbsp;Applied Product Technologies | 130420 | 121222 |
| &nbsp;&nbsp;&nbsp;Total revenue | $435846 | $366268 |
| **Operating profit (loss)** |  |  |
| &nbsp;&nbsp;&nbsp;Integrated Solutions and Services | $42708 | $35300 |
| &nbsp;&nbsp;&nbsp;Applied Product Technologies | 21015 | 17827 |
| &nbsp;&nbsp;&nbsp;Corporate | (40491) | (38839) |
| &nbsp;&nbsp;&nbsp;Total operating profit | 23232 | 14288 |
| **Interest expense** | (10074) | (6579) |
| **Income before income taxes** | 13158 | 7709 |
| **Income tax expense** | (3890) | (1621) |
| **Net income** | $9268 | $6088 |

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| | | |
|:---|:---|:---|
| | **December 31,<br>2022** | **September 30,<br>2022** |
| **Assets** | | |
| &nbsp;&nbsp;&nbsp;Integrated Solutions and Services | $1178127 | $1123166 |
| &nbsp;&nbsp;&nbsp;Applied Product Technologies | 671396 | 653244 |
| &nbsp;&nbsp;&nbsp;Corporate | 357834 | 414453 |
| &nbsp;&nbsp;&nbsp;Total assets | $2207357 | $2190863 |

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**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):

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| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| | **2022** | **2021** |
| **Numerator:** |  |  |
| Numerator for basic and diluted earnings per common share—Net income attributable to Evoqua Water Technologies Corp. | $9268 | $5987 |
| **Denominator:** |  |  |
| Denominator for basic net income per common share—weighted average shares | 121848 | 120632 |
| Effect of dilutive securities: |  |  |
| &nbsp;&nbsp;&nbsp;Share-based compensation | 3446 | 4315 |
| Denominator for diluted net income per common share—adjusted weighted average shares | 125294 | 124947 |
| Basic earnings attributable to Evoqua Water Technologies Corp. per common share | $0.08 | $0.05 |
| Diluted earnings attributable to Evoqua Water Technologies Corp. per common share | $0.07 | $0.05 |

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**23. Subsequent Events**

None.

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**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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• **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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• **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.**

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

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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, (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"), (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 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.

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 $225.0 million.

In connection with the Merger, we recognized costs of $200 thousand for the three months ended December 31, 2022, in General and administrative expenses in the Unaudited Consolidated Statements of Operations.

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 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 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.

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

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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-19*.** We continue to monitor the global spread of COVID-19 and its potential impact on our operations, particularly our supply chain, and the macroeconomic factors that could affect end market demand. In connection with the recent lifting of lockdowns and quarantine rules in China, we are monitoring our operating protocols to manage exposure risks and maintain productivity. We incurred additional incremental costs relating to safety measures implemented in China, but those costs did not have a material adverse effect on our operations or financial results for the tthree months ended December 31, 2022. However, if we or our suppliers are unsuccessful in mitigating any material adverse impacts of future COVID-19 outbreaks, it could impact our sales into affected regions and our ability to source materials from those regions.

***Russia-Ukraine war.*** We have no operations in Russia or Ukraine, and our sales into these regions are minimal. However, the conflict in Ukraine has exacerbated the material inflation and availability challenges described above, particularly with respect to the impact it has had on energy and fuel prices and the price of steel and other precious metals that we procure in our 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, we expect the inflationary impact on energy, fuel and steel prices to continue throughout the remainder of fiscal 2023. If these factors are sustained, or if the duration of the conflict is extended or the conflict spreads into a larger geographic portion of Europe, our results of operations in future periods could be materially and adversely impacted.

***Acquisitions and divestitures.*** During the three months ended December 31, 2022, we paid cash of $38 thousand as a result of net working capital adjustments related to the acquisition of Epicor, Inc. that we completed in fiscal 2022. In addition, during the three months ended December 31, 2022, we received cash of $1.8 million as a result of net working capital adjustments related to the acquisition of the Mar Cor Business that we completed in fiscal 2022.

**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.

***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.

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***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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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;

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• to evaluate the effectiveness of our business strategies;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• to make budgeting decisions; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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.

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.

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**Results of Operations**

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

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** |
| | **2022** | **2022** | **2021** | **2021** | |
| *(In millions, except per share amounts)* |  | **% of Revenue** |  | **% of Revenue** | **% Variance** |
| Revenue from product sales and services | $435.8 | 100.0% | $366.3 | 100.0% | 19.0% |
| Gross profit | $130.3 | 29.9% | $110.5 | 30.2% | 17.9% |
| Total operating expenses | $(108.2) | (24.8)% | $(97.7) | (26.7)% | 10.7% |
| Other operating income, net | $1.2 | 0.3% | $1.5 | 0.4% | (20.0)% |
| Interest expense | $(10.1) | (2.3)% | $(6.6) | (1.8)% | 53.0% |
| Income before income taxes | $13.2 | 3.0% | $7.7 | 2.1% | 71.4% |
| Income tax expense | $(3.9) | (0.9)% | $(1.6) | (0.4)% | 143.8% |
| Net income | $9.3 | 2.1% | $6.1 | 1.7% | 52.5% |
| Net income attributable to non-controlling interest | $— | —% | $0.1 | —% | (100.0)% |
| Net income attributable to Evoqua Water Technologies Corp. | $9.3 | 2.1% | $6.0 | 1.6% | 55.0% |
| **Weighted average shares outstanding** |  |  |  |  |  |
| Basic | 121.8 |  | 120.6 |  |  |
| Diluted | 125.3 |  | 124.9 |  |  |
| **Earnings per share** |  |  |  |  |  |
| Basic | $0.08 |  | $0.05 |  |  |
| Diluted | $0.07 |  | $0.05 |  |  |
| **Other financial data:** |  |  |  |  |  |
| Adjusted EBITDA<sup>(1)</sup> | $72.7 | 16.7% | $54.3 | 14.8% | 33.9% |

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(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.

***Consolidated Results for the Three Months Ended December 31, 2022 and 2021***

***Revenue***-Revenue increased $69.5 million, or 19.0%, to $435.8 million in the three months ended December 31, 2022, from $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 following tables provide the change in revenue by offering and by the components that contributed to revenue growth during the three months ended December 31, 2022 and 2021:

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | | |
| | **2022** | **2022** | **2021** | **2021** | **$ Variance** | **% Variance** |
| *(In millions)* |  | **% of**<br>**Revenue** |  | **% of**<br>**Revenue** | **$ Variance** | **% Variance** |
| Revenue from product sales: | $260.4 | 59.8% | $212.6 | 58.0% | $47.8 | 22.5% |
| &nbsp;&nbsp;Capital | 165.7 | 38.0% | 151.0 | 41.2% | 14.7 | 9.7% |
| &nbsp;&nbsp;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% |

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| | | |
|:---|:---|:---|
| *(In millions)* | **$ Change** | **% Change** |
| Three months ended December 31, 2021 total revenue | $366.3 | n/a |
| &nbsp;&nbsp;Organic | 33.3 | 9.1% |
| &nbsp;&nbsp;Inorganic | 42.9 | 11.7% |
| &nbsp;&nbsp;Foreign currency translation | (6.7) | (1.8)% |
| Three months ended December 31, 2022 total revenue | $435.8 | 19.0% |

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The increase in organic revenue was driven by favorable price realization and increased volume for products and services across most product lines and all regions. 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 slightly to 29.9% in the three months ended December 31, 2022, from 30.2% in the three months ended December 31, 2021.

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

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| | | | | |
|:---|:---|:---|:---|:---|
| | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** |
| | **2022** | **2022** | **2021** | **2021** |
| *(In millions)* |  | **Gross**<br>**Margin** |  | **Gross**<br>**Margin** |
| Cost of product sales | $(185.0) | 29.0% | $(153.8) | 27.7% |
| Cost of services | (120.5) | 31.3% | (102.0) | 33.6% |
|  | $(305.5) | 29.9% | $(255.8) | 30.2% |

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Gross margin from product sales increased by 130 basis points ("bps") to 29.0% in the three months ended December 31, 2022, from 27.7% in the three months ended December 31, 2021. 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.

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

***Operating expenses***-Operating expenses increased $10.5 million, or 10.7%, to $108.2 million in the three months ended December 31, 2022, from $97.7 million in the three months ended December 31, 2021. Operating expenses are comprised of the following:

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | |
| | **2022** | **2022** | **2021** | **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% |

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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.

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

***Other operating income, net****-*Other operating income, net, decreased $0.3 million to $1.2 million in the three months ended December 31, 2022, from $1.5 million in the three months ended December 31, 2021. This decrease was driven by a reduction in income from precious metal sales, mainly from scrapped anodes in China compared to the prior period, which was partially offset by an increase in gains on the disposal of fixed assets compared to the prior period.

***Interest expense***-Interest expense increased $3.5 million, or 53.0%, to $10.1 million in the three months ended December 31, 2022, from $6.6 million in the three months ended December 31, 2021. 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 $3.9 million in the three months ended December 31, 2022, as compared to income tax expense of $1.6 million in the three months ended December 31, 2021. 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.

***Net income***-Net income increased $3.2 million, or 52.5%, to $9.3 million in the three months ended December 31, 2022, from $6.1 million in the three months ended December 31, 2021, 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 31, 2022 increased by $18.4 million, or 33.9%, to $72.7 million, as compared to $54.3 million for the three months ended December 31, 2021, 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***

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | |
| | **2022** | **2022** | **2021** | **2021** | |
| *(In millions)* |  | **% of Total** |  | **% of Total** | **% Variance** |
| **Revenue** |  |  |  |  |  |
| Integrated Solutions and Services | $305.4 | 70.1% | $245.1 | 66.9% | 24.6% |
| Applied Product Technologies | 130.4 | 29.9% | 121.2 | 33.1% | 7.6% |
| Total Consolidated | $435.8 | 100.0% | $366.3 | 100.0% | 19.0% |
| **Operating profit (loss)** |  |  |  |  |  |
| Integrated Solutions and Services | $42.7 | 183.3% | $35.3 | 246.9% | 21.0% |
| Applied Product Technologies | 21.0 | 90.1% | 17.8 | 124.5% | 18.0% |
| Corporate | (40.4) | (173.4)% | (38.8) | (271.3)% | 4.1% |
| Total Consolidated | $23.3 | 100.0% | $14.3 | 100.0% | 62.9% |
| **Adjusted EBITDA**<sup>(1)</sup> |  |  |  |  |  |
| Integrated Solutions and Services | $69.0 | 94.9% | $53.5 | 98.5% | 29.0% |
| Applied Product Technologies | 24.5 | 33.7% | 21.9 | 40.3% | 11.9% |
| Corporate | (20.8) | (28.6)% | (21.1) | (38.9)% | (1.4)% |
| Total Consolidated | $72.7 | 100.0% | $54.3 | 100.0% | 33.9% |

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(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.

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*Integrated Solutions and Services* 

Revenue in the Integrated Solutions and Services segment increased $60.3 million, or 24.6%, to $305.4 million in the three months ended December 31, 2022, from $245.1 million in the three months ended December 31, 2021.

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 31, 2022 and 2021 for the Integrated Solutions and Services segment:

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | | |
| | **2022** | **2022** | **2021** | **2021** | **$ Variance** | **% Variance** |
| *(In millions)* |  | **% of**<br>**Revenue** |  | **% of**<br>**Revenue** | **$ Variance** | **% Variance** |
| Revenue from product sales: | $135.1 | 44.2% | $96.4 | 39.3% | $38.7 | 40.1% |
| &nbsp;&nbsp;Capital | 77.6 | 25.4% | 67.1 | 27.4% | 10.5 | 15.6% |
| &nbsp;&nbsp;Aftermarket | 57.5 | 18.8% | 29.3 | 12.0% | 28.2 | 96.2% |
| Revenue from services | 170.3 | 55.8% | 148.7 | 60.7% | 21.6 | 14.5% |
|  | $305.4 | 100.0% | $245.1 | 100.0% | $60.3 | 24.6% |

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| | | |
|:---|:---|:---|
| *(In millions)* | **$ Change** | **% Change** |
| Three months ended December 31, 2021 total revenue | $245.1 | n/a |
| &nbsp;&nbsp;Organic | 18.5 | 7.5% |
| &nbsp;&nbsp;Inorganic | 42.9 | 17.5% |
| &nbsp;&nbsp;Foreign currency translation | (1.1) | (0.4)% |
| Three months ended December 31, 2022 total revenue | $305.4 | 24.6% |

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The increase in organic revenue was primarily driven by favorable price realization related to service and aftermarket revenue across most end markets, with light and general industry and life sciences contributing the highest growth.

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.

![aqua-20221231_g1.jpg](aqua-20221231_g1.jpg)

Operating profit was favorably impacted by price realization and the acquisition of the Mar Cor Business. These increases were partially offset by operational variances, including material, labor, and freight inflation and availability, and productivity variances.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Integrated Solutions and Services segment increased $15.5 million, or 29.0%, to $69.0 million in the three months ended December 31, 2022, compared to $53.5 million in the three months ended December 31, 2021. The increase was driven by the same factors that impacted

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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 $9.2 million, or 7.6%, to $130.4 million in the three months ended December 31, 2022, from $121.2 million in the three months ended December 31, 2021.

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 31, 2022 and 2021 for the Applied Product Technologies segment:

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | | |
| | **2022** | **2022** | **2021** | **2021** | **$ Variance** | **% Variance** |
| *(In millions)* |  | **% of**<br>**Revenue** |  | **% of**<br>**Revenue** | **$ Variance** | **% Variance** |
| Revenue from product sales: | $125.3 | 96.1% | $116.2 | 95.9% | $9.1 | 7.8% |
| &nbsp;&nbsp;Capital | 88.1 | 67.6% | 83.9 | 69.2% | 4.2 | 5.0% |
| &nbsp;&nbsp;Aftermarket | 37.2 | 28.5% | 32.3 | 26.7% | 4.9 | 15.2% |
| Revenue from services | 5.1 | 3.9% | 5.0 | 4.1% | 0.1 | 2.0% |
|  | $130.4 | 100.0% | $121.2 | 100.0% | $9.2 | 7.6% |

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| | | |
|:---|:---|:---|
| *(In millions)* | **$ Change** | **% Change** |
| Three months ended December 31, 2021 total revenue | $121.2 | n/a |
| Organic | 14.8 | 12.2% |
| Inorganic |  | —% |
| Foreign currency translation | (5.6) | (4.6)% |
| Three months ended December 31, 2022 total revenue | $130.4 | 7.6% |

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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.

Operating profit in the Applied Product Technologies segment increased $3.2 million, or 18.0%, to $21.0 million in the three months ended December 31, 2022, from $17.8 million in the three months ended December 31, 2021.

![aqua-20221231_g2.jpg](aqua-20221231_g2.jpg)

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The increase in operating profit was primarily due to favorable sales volume, mix, and price realization across all regions and most product lines. This growth was partially offset by unfavorable operational variances, including material, labor, and freight inflation and availability, and plant productivity variances.

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA in the Applied Product Technologies segment increased $2.6 million, or 11.9%, to $24.5 million in the three months ended December 31, 2022, compared to $21.9 million in the three months ended December 31, 2021. 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 million, or 4.1%, to $40.4 million in the three months ended December 31, 2022, from $38.8 million in the three months ended December 31, 2021. The increase was primarily due to higher costs associated with legal matters, as well as increased employment expenses, including share-based compensation in the current period compared to the prior period. These 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.

**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.

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| | | | |
|:---|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| *(In millions)* | **2022** | **2021** | **% Variance** |
| **Net income** | $9.3 | $6.1 | 52.5% |
| Income tax expense | 3.9 | 1.6 | 143.8% |
| Interest expense | 10.1 | 6.6 | 53.0% |
| **Operating profit** | $23.3 | $14.3 | 62.9% |
| Depreciation and amortization | 33.2 | 28.6 | 16.1% |
| **EBITDA** | $56.5 | $42.9 | 31.7% |
| Restructuring and related business transformation costs<sup>(a)</sup> | 1.7 | 1.4 | 21.4% |
| Share-based compensation<sup>(b)</sup> | 6.3 | 5.3 | 18.9% |
| Transaction costs<sup>(c)</sup> | 3.3 | 0.9 | 266.7% |
| Other losses (gains) and expenses<sup>(d)</sup> | 4.9 | 3.8 | 28.9% |
| **Adjusted EBITDA** | $72.7 | $54.3 | 33.9% |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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:

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A)amounts related to the Company's restructuring initiatives to reduce the cost structure and rationalize location footprint following the sale of the Memcor product line;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B)amounts related to the Company's transition from a three-segment structure to a two-segment operating model designed to better serve the needs of customers worldwide; and

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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.

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(b)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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(c)Transaction costs&nbsp;&nbsp;&nbsp;&nbsp;***

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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(d)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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)impact of foreign exchange gains and losses; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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.

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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:

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **$ Variance** | **$ Variance** | **% Variance** | **% Variance** |
| | **2022** | **2022** | **2021** | **2021** | **$ Variance** | **$ Variance** | **% Variance** | **% Variance** |
| *(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** | $42.7 | $21 | $35.3 | $17.8 | $7.4 | $3.2 | 21% | 18% |
| Depreciation and amortization | 22.5 | 3.4 | 17.8 | 3.5 | 4.7 | (0.1) | 26% | (3)% |
| **EBITDA** | $65.2 | $24.4 | $53.1 | $21.3 | $12.1 | $3.1 | 23% | 15% |
| Restructuring and related business transformation costs (a) | 1.5 | 0.1 | 0.5 | 0.6 | 1.0 | (0.5) | 200% | (83)% |
| Transaction costs (b) | 2.3 |  | (0.1) |  | 2.4 |  | (2400)% | n/a |
| **Adjusted EBITDA** | $69.0 | $24.5 | $53.5 | $21.9 | $15.5 | $2.6 | 29% | 12% |

---

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

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

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

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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 $22.9 million and $20.3 million in the three months ended December 31, 2022 and 2021, 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.

We 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. Our capital expenditures for the three months ended December 31, 2022 and 2021 were $22.7 million and $15.5 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 three months ended December 31, 2022 and 2021, we entered into equipment financing arrangements totaling $9.7 million and $5.9 million, respectively. In addition, we may draw on the 2021 Revolving Credit Facility from time to time to fund or partially fund an acquisition.

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.

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 31, 2022, 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").

------

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 months ended December 31, 2022.

**Cash Flows**

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

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| | | |
|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |
| *(In millions)* | **2022** | **2021** |
| **Statement of Cash Flows Data** |  |  |
| Net cash (used in) provided by operating activities | $(1.3) | $36.4 |
| Net cash used in investing activities | (20.5) | (14.8) |
| Net cash used in financing activities | (10.9) | (15.9) |
| Effect of exchange rate changes on cash | 3.4 | 0.6 |
| Change in cash and cash equivalents | $(29.3) | $6.3 |

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***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 in operating activities totaled $1.3 million in the three months ended December 31, 2022, as compared to net cash provided by operating activities of $36.4 million in the three months ended December 31, 2021.

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![aqua-20221231_g3.jpg](aqua-20221231_g3.jpg)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Operating cash flows in the three months ended December 31, 2022 reflect an increase in net earnings of $3.2 million as compared to the three months ended December 31, 2021.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The aggregate of receivables, inventories, contract assets and liabilities, and accounts payable used $15.0 million in operating cash flows in the three months ended December 31, 2022, compared to providing $21.5 million in the three months ended December 31, 2021, resulting in a decrease to cash flows of $36.5 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The aggregate of the remaining assets and liabilities used $28.7 million of operating cash flows in the three months ended December 31, 2022, compared to using $26.9 million in the three months ended December 31, 2021, resulting in a decrease to cash flows of $1.8 million. This is mainly due to timing of payments.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Income taxes provided $0.4 million of operating cash flow during the three months ended December 31, 2022, as compared to using $0.3 million during the three months ended December 31, 2021, resulting in an increase to cash flows of $0.7 million as compared to the prior year period.

***Investing Activities***

Net cash used in investing activities was $20.5 million in the three months ended December 31, 2022, as compared to net cash used in investing activities of $14.8 million in the three months ended December 31, 2021, resulting in a net decrease to cash flow of $5.7 million as compared to the prior year period. This decrease was largely driven by higher cash outflows associated with purchases of property, plant, and equipment and intangible assets compared to the prior

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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 $10.9 million in the three months ended December 31, 2022, as compared to using $15.9 million in the three months ended December 31, 2021, resulting in a net increase to cash flow of $5.0 million as compared to the prior year period. The increase in cash provided by financing activities for the three months ended December 31, 2022 was primarily due to an increased issuance of debt compared to the prior period as well as a decrease in taxes paid related to net share settlements of share-based compensation awards compared to the prior period. Additionally, cash received from the issuance of common stock in connection with the exercise of stock options increased compared to the prior period. This increase was partially offset by increased repayments of debt compared to the prior 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 under our credit arrangements at December 31, 2022 and September 30, 2022:

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| | | |
|:---|:---|:---|
| *(In millions)* | **December 31,<br>2022** | **September 30,<br>2022** |
| Letters of credit | $8.8 | $9.3 |
| Surety bonds | $136.9 | $134.0 |

---

The longest maturity date of the letters of credit and surety bonds in effect as of December 31, 2022 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.

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**Item 4.&nbsp;&nbsp;&nbsp;&nbsp;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 31, 2022 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. On 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 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 to cooperate with both the SEC and the USAO with respect to these investigations. In accordance with ASC Topic No. 450, Contingencies, has recorded a charge of $8.5 million for anticipated settlement costs with respect to the SEC investigation. 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):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• 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.&nbsp;&nbsp;&nbsp;&nbsp;Defaults Upon Senior Securities**

None.

**Item 4.&nbsp;&nbsp;&nbsp;&nbsp;Mine Safety Disclosures** 

None.

**Item 5.&nbsp;&nbsp;&nbsp;&nbsp;Other Information** 

None.

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**Item 6.&nbsp;&nbsp;&nbsp;&nbsp;Exhibits** 

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

---

| | |
|:---|:---|
| **Exhibit**<br>**No.** | **Exhibit Description** |
| <u>[2.1†](http://www.sec.gov/Archives/edgar/data/1604643/000119312523012554/d436060dex21.htm)</u> | <u>[Agreement and Plan of Merger, dated as of January](http://www.sec.gov/Archives/edgar/data/1604643/000119312523012554/d436060dex21.htm)[22](http://www.sec.gov/Archives/edgar/data/1604643/000119312523012554/d436060dex21.htm)[, 2023, by and among Evoqua Water Technologies Corp.,](http://www.sec.gov/Archives/edgar/data/1604643/000119312523012554/d436060dex21.htm)[Xylem](http://www.sec.gov/Archives/edgar/data/1604643/000119312523012554/d436060dex21.htm)[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](http://www.sec.gov/Archives/edgar/data/1604643/000119312523012554/d436060dex21.htm)[23](http://www.sec.gov/Archives/edgar/data/1604643/000119312523012554/d436060dex21.htm)[, 2023 (File No. 001-38272)).](http://www.sec.gov/Archives/edgar/data/1604643/000119312523012554/d436060dex21.htm)</u> |
| <u>[31.1\*](q1fy23ceocertexhibit311.htm)</u> | <u>[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.](q1fy23ceocertexhibit311.htm)</u> |
| <u>[31.2\*](q1fy23cfocertexhibit312.htm)</u> | <u>[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.](q1fy23cfocertexhibit312.htm)</u> |
| <u>[32.1\*\*](q1fy23soxcertexhibit321.htm)</u> | <u>[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.](q1fy23soxcertexhibit321.htm)</u> |
| <u>[32.2\*\*](q1fy23soxcertexhibit322.htm)</u> | <u>[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.](q1fy23soxcertexhibit322.htm)</u> |
| 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.

------

**SIGNATURES**

&nbsp;&nbsp;&nbsp;&nbsp;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.

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

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## Exhibit 31.1

**Exhibit 31.1**

**CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER**

**PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002** 

I, Ronald C. Keating, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2022 of Evoqua Water Technologies Corp.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
| | | <u>/s/ RONALD C. KEATING</u> |
| Date: | January 31, 2023 | Ronald C. Keating<br>*President, Chief Executive Officer and Director*<br>*(Principal Executive Officer)* |

---

## Exhibit 31.2

**Exhibit 31.2**

**CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER**

**PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002** 

I, Benedict J. Stas, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2022 of Evoqua Water Technologies Corp.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
| | | <u>/s/ BENEDICT J. STAS</u> |
| Date: | January 31, 2023 | Benedict J. Stas<br>*Chief Financial Officer*<br>*(Principal Financial Officer and Principal Accounting Officer)* |

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## Exhibit 32.1

**Exhibit 32.1**

**CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER**

**PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In connection with the Quarterly Report on Form 10-Q of Evoqua Water Technologies Corp., a Delaware corporation (the "Company"), for the quarterly period ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Ronald C. Keating, President, Chief Executive Officer and Director of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| | | |
|:---|:---|:---|
| | | <u>/s/ RONALD C. KEATING</u> |
| Date: | January 31, 2023 | <br>Ronald C. Keating<br>*President, Chief Executive Officer and Director*<br>*(Principal Executive Officer)* |

---

## Exhibit 32.2

**Exhibit 32.2**

**CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER**

**PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Quarterly Report on Form 10-Q of Evoqua Water Technologies Corp., a Delaware corporation (the "Company"), for the quarterly period ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Benedict J. Stas, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| | | |
|:---|:---|:---|
| | | <u>/s/ BENEDICT J. STAS</u> |
| Date: | January 31, 2023 | <br>Benedict J. Stas<br>*Chief Financial Officer*<br>*(Principal Financial Officer and Principal Accounting Officer)* |

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