Q3 2020 Evoqua Water Technologies Corp Earnings Call
20 earnings conference call.
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Thank you I would now like to turn the call over to Dan Brailer, Vice President of Investor Relations. Please go ahead.
Thank you Laurie and thanks, everyone for joining us for today's call to review, our third quarter 2020 financial results.
Speaking on today's call or Ron Keating, President and Chief Executive Officer, and bench Test Executive Vice President and Chief Financial Officer.
After our prepared remarks, we will open the call to questions. We ask that you keep to one question and follow up to accommodate as many questions as possible.
This conference call include forward looking statements, including our expectations for fiscal 2020, it's Wallace expectations relating to the impact of the cobot 19 pandemic execution of our digital strategy and the market for treat matter for merchant contaminants actual results may differ materially from expectations.
For additional information out of Oclock, please refer to the Companys FCC filings, including the risk factors described herein.
This conference call will also have a discussion of certain non-GAAP financial measures information required by regulation G.. If the exchange Act with respect to such non-GAAP financial measures is included in the presentation slides for this call, which can be obtained by a vote close investor Relations website.
All historical non-GAAP financial results have been reconciled and included in the appendix section of the presentation slides unless otherwise specified references on this call. The full year measures work to a year refer to our fiscal year, which ends on September thirtyth.
Yeah, So axis Thisconference call via webcast were disclosed in the press release, which was posted on our corporate website replays of this conference call will be archived in available for the next seven days.
That would now like to turn the call over to Ron Ron.
Dan as we manage through this challenging period I'm extremely proud of our Boco team and how well they responded to an evolving dynamics at a market conditions.
Also very pleased with our solid third quarter results the represent the a central nature and resiliency of our business.
Scott last quarter, our three overarching properties helped us successfully navigate many of the challenges brought about by cover 90.
Our first and most important priority is protecting our employees by ensuring they have the proper PPD and procedures to safely perform their jobs.
We're falling CDC and local H.C. help guidelines and keeping employees and form a frequent companywide communications, we aren't a central business and have deployed resiliency actions intended to maximize customers uptime maintain operations at all plans and drive productivity and cost reduction.
We expect these actions to support our short term priorities and the service foundation and driving our long term strategic goals.
We're actively managing the business to improve liquidity and balance sheet flexibility and are seeing success in this area.
Throughout the webcast, we will provide details on our result, but again, we're very pleased with the corner.
Please turn to slide four.
Got it 19 as represented challenges across many facets of our business, but our team has responded well.
As reflected in our results, we delivered a very solid quarter in a challenging operating environment. Our business model is working well the long term strategy is intact and we have an outstanding team that is working to deliver on our expectations.
We believe are well positioned as we move into 2021 and beyond.
Operationally I'm very pleased with our execution as we maintain continuity of operations across our manufacturing and service branch facilities.
Continue to work through these challenges and have plans in place to keep them, we say whether working in the field in the office remotely.
We ended the quarter strongly with the book to Bill ratio of one times and our overall order intake was largely as expected.
We're pleased to have the strong pipeline of outsourced water opportunities and water what opportunities that should convert to orders over the next several quarters enhancing our steady and recurring revenue stream over the coming years.
We reported very strong capital growth in both by assassinate beat in the quarter in particular microelectronics demand continued to be a highlight overall demand trends as expected we are uneven across various end markets, which we will discuss more and more detailed on slide five.
Our service models resilient customers continue to rely on invoke went to maintain operational uptime.
We experienced some cobot induced pressure in our service business due to delays shutdowns and productivity impacts specifically on our refining and chemical processing and markets.
The end market trends reviewed last quarter have not changed and were repeat that outlook on the next slide.
As we indicated last quarter, we've taken temporary cost actions in line with our business resiliency and liquidity priorities and to preserve jobs.
We're closely monitoring our expenses and have the capacity to respond quickly and according to customer demand and macroeconomic conditions.
Finally, I'm very proud of the team for the actions taken on liquidity management.
We continue to meet our customers' needs, while improving our operating cash flow as a result, we reported a sequential improvement in net leverage for the quarter.
Please turn to slide five.
Based on our current expectations. This chart represents what we're hearing from sales and operating teams regarding demand and our primary end markets.
To refresh we sort of abroad and diversified set of end markets as represented on the slide.
Our smallest end markets on the bottom of the page representing low to mid single digits rising in value to the top accounting for approximately 20% of RF why 19 annual revenue.
And as previously previously stated our end market expectations for the remainder of the or have not changed from last quarter.
We saw like support end markets and disinfection pharma and biotech remaining strong the need for Ultrapure water is in high demand and we're prioritizing our service capabilities to these essential markets.
Healthcare needs varied by region as hospitals manage the number of elective surgeries and normal appointments allowed while maintaining treatment capacity for the expected cobot 19 emissions.
Microelectronics continues to have a solid demand and performed well in the quarter.
Refining and oil and gas had significant declines in the event driven business, particularly around they pretty guessing at hydrostatic mobile testing.
Municipal demand overall was stable and we are monitoring new budgets announcements for the coming year.
Aquatic was impacted in the quarter from covered 19 as contractors experienced delays on active projects and various regions delayed openings.
Overall, the end market demand in Q3 was largely as we expected.
We have seen increased interest in our digital offerings.
Provide efficiency increase uptime and in this environment increased safety for our customers.
Also we expect the treatment for PFS and other emerging contaminants to remain highly visible and important to customers despite covered constraint.
We'll be happy to address questions about specific end market drivers during Q and during the Q and I session.
Please turn to slide six.
We are committed to drive sustainable initiatives across our business, we think of sustainability in two ways first by enabling our customers to become more sustainable through our solutions and service offerings and second by driving a book would have become more sustainable within our own internal operations.
Lets featured in our 2020 sustainability report, we've called out to companywide initiative for return offices sustainability.
One to reduce our water usage and second to reduce our total number of accidents.
To date, we're showing progress from 2017 to 2019, our five leading us facilities, we've reduced water usage by 26% and across the company. We've reduced the total number of accidents by 14%.
The slide also highlights to case studies on how we felt that felt our customers become more sustainable.
Through our technology deployment at ABT, our buyback and come back systems have become well established solutions treaty wastewater for nearly 500000 people daily and we recently suppressed surpassed a milestone of more than 100 billion gallons of water treatment.
In the second after facing droughts in southern California Air products called on our ISS team to design, a solution, including our digital and water reuse technologies to save up to 75 million gallons of water per year. This allowed their california facility to increase their capacity and lower their overall cost.
Last quarter I mentioned that we've received a letter of intent for a large p. fast treatment system for a west coast water Purveyor I'm pleased to report that we received the purchase order for 30 large treatment systems to remove PFS at the wellhead before being transported to the main drinking water system.
The systems are uniquely designed providing built in flexibility by allowing the customer to switch between different treatment media.
We continue to have additional opportunities in the pipeline to treat PFS selenium and other emerging contaminants.
This system is designed to treat up to 86 million gallons per day, providing clean and safe drinking water for approximately 1.3 million people.
When it comes to pass and other emerging contaminants customers continue to call out of open for the full suite of solutions, both temporary and permanent.
Please turn to slide so.
We're pleased with our third quarter results organic revenues adjusted primarily for them EMCORE divestiture were essentially flat our book to Bill ratio was above one and the size and quality of our pipeline continues to improve specific or specifically related to outsource water and water when opportunities.
Adjusted EBITDA was approximately 64 million up more than 5% from the prior year.
We have strong operational execution across the business supported by favorable cost control comprised of permanent changes and also temporary cobot actions.
Our liquidity increased by $36 million sequentially to 256 million driven primarily by strong working capital management.
I would like to specifically note that working capital of the trailing 12 month sales decreased 13.1% down from 17.7% in the prior year.
I'm very proud of their employees across the company involved in managing our working capital and specifically collections during these challenging times.
Adjusted free cash flow conversion was well over 100% and net leverage improved to 3.1 times from 3.3 times in the second quarter.
We are actively monitoring our capital structure and we have no near term maturities.
Please turn to slide eight.
Overall, the business continues to benefit from stable and recurring revenue growth.
This graph represents our revenue and adjusted EBITDA on a rolling 12 month basis from quarter to quarter since 2016.
Our overall revenues have grown at a rate of 7% with adjusted EBITDA growth sub 17% annually. During this time.
We primarily pursue capital projects to ultimately drive stable recurring and profitable service in aftermarket growth.
Currently our service business comprises 41% of our total sales while service and aftermarket combined make up approximately 60% of our business.
As we previously discussed the nature of our business is subject to quarterly variability. However, we have high visibility into our revenues from products and services on an annualized basis and believe our model will continue to service well during this uncertain period.
I would now like to turn the call over to bet that.
Thank you Ron.
Please turn to slide nine.
As Rob noted, we reported stable revenues in the quarter with strong cash generation.
Organic revenues, which exclude the net impact of the men for divestiture and the acquisitions of frontier and ATP were essentially flat versus prior year.
All key financial metrics improve or were relatively stable on a year over year basis.
Q3, adjusted EBITDA was up 5.3%.
To approximately 64 million for an overall average margin of 18.3%.
Cost reduction actions taken across the company, both permanent and temporary solid operational execution favorable price and mix, mostly in APTP helped drive adjusted EBIDTA growth.
Price cost was favorable approximately 2 million in the quarter.
Please turn to slide 10.
Our integrated solutions and services segment had organic growth of approximately 1%.
Mostly driven by the strength in the microelectronics and light sustaining related health care end markets, partly offset by soft demand in refining related end markets service revenues were impacted by coded 19 as Ron discussed earlier.
We're pleased to see customers continuing to move to our digital offering with water one pay per gallon sales growing at high single digit rates versus the prior year.
Our outlook for outsource water opportunities continues to be very positive.
Adjusted EBITDA declined slightly due to unfavorable mix in cobot 19 impacts we experienced some lower demand on on demand service volumes and negative service productivity in the quarter.
Please turn to slide 11.
Applied product technologies organic revenues declined 2.5% driven primarily from soft demand in the aquatic some disinfection product lines as we saw delays in projects and pull openings.
Thanks negatively impacted sales by approximately 100 basis points.
Adjusted EBITDA grew 5.9% will or 410 basis points to a margin of 24.3% favorable overall product mix price cost containment actions and operational benefits from the two segment structure realignment improved profitability year over year.
Please turn to slide 12.
Capital spending of $27 million for the quarter and 66 million on a year to date basis was mostly to support outsource water contracts that are expected to remain on track.
We are monitoring growth capex projects underway.
As well as a robust pipeline of opportunities that has the potential decision dates in the coming months.
Third quarter net working capital continued to improve to 13.1% of LTM Q3 sales. We continue to actively manage the quality of our accounts receivable and inventory levels. Overall, we improved net working capital days 11 days versus Q3 of the prior year.
Please turn to slide 13.
Adjusted free cash flow improve significantly versus the prior year in the quarter.
And on an LTM basis exceeding our 100% conversion rate targets.
Leverage improved to 3.1 times, which was down sequentially from Q2 and improved more than a full term compared to the prior year.
Our weighted average cost of debt is approximately 3.8% down almost 180 basis points over Q3 of last year interest expense declined 4.4 million due to reduction of debt from the men or sell benefits of the February refinancing and overall lower interest rates.
I'd now like to turn to call back over to Ron for his summary comments.
Thanks, Ben Please turn to slide 14.
In summary, we had an excellent quarter against a challenging macro environment, we will continue to prioritize the health and safety of our employees and customers, while remaining focused on our business resilience and enhancing our liquidity and financial strength.
Liquidity improved during the quarter adjusted free cash flow was strong at our net leverage ratio improved sequentially I'm very pleased with how we executed operationally and financially.
We expect the overall market to be challenge with uneven demand as we progress through the fourth quarter.
We have good overall momentum going into the quarter, but the market is still difficult to read with certainty.
Our book to Bill ratio was north of one at the ended the quarter and I'm very pleased with our pipeline of opportunities, particularly with a number of outsourced water and water one projects on the horizon.
We continue to see the operational and sales channel efficiencies across the business from the two segment realignment.
Our digital offerings provide customers with increased safety and operational uptime, and we continue to see strong interest in growth as we expand our capabilities.
We're well positioned to respond to the growing demand for the treatment emergent contaminants, we have the branch network and portfolio solutions that we believe allows us to be the go to provide.
We're very pleased to have been awarded the large PFS project that was highlighted.
Outsource water is expected to provide long term recurring and profitable revenues, we will continue to invest in growth Capex that supports customer orders now and in the future.
Our pipeline is strong and growing across the broad portfolio solutions due to our leading position in servicing our systems and ensuring customer uptime.
As a final point historically, our fourth quarter is our strongest quarter with an average sequential third to fourth quarter EBITDA increase of 24%.
Given the macroeconomic uncertainty and order conversion timing, we expect this year to be muted with a sequential increase from third to fourth quarter in the range of flat to up 10%.
I would now like to open the call for your questions.
Thank you at this time I would like to remind everyone. If you'd like to ask your question. Please press Star then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the Q press the pound key and the interest of time, we do ask that you limit yourself to one question and one follow up.
So that everyone has a chance to ask their questions.
Our first question comes from the line of Deane Dray of RBC capital markets.
Thank you good morning, everyone.
Morning, Dane good morning.
Hey, Ron maybe you can start with a seen here we were hearing more of the industrial companies talking about how post co bid there they need to change the business model they need to pivot more to doing things like remote monitoring.
And it looks to me that evoke way as a big headstart already.
Especially outsource water, especially all your digital offerings, but where and how might evoke was business and business model change in this post cobot landscape.
Dave Thanks for the question.
It is a part of our strategy is what we've been focused on for quite some time deploying outsourced water solutions and certainly connected solutions across the entire enterprise. So as Youll recall, we started this in service of the optimization, we've expanded it into a much broader portion of our four portfolio over time and so.
As you look forward, what our customers are asking to do is to do what we do well. So they can do what they new wells so treat their process water treat their wastewater help them close the loop around recycle and reuse, but do it in a manner in which we are onsite 24, seven remotely and watching what happens.
Without having to have people on site, so thats a little bit of the methods that we see.
Tranche transforming into the future and frankly the basis that we have established and the footprint that we put into place enables us to really be successful on that going going forward.
That's good to hear and the second question is on this p. Foster when which is a big deal and if you could just provide some more color when I. When you talk about the 30 large systems. These are these skidded systems that you ship to the customer.
This is not a remediation where you're running at for them. They are still going to run these systems and maybe talk about what that aftermarket is because it sounds like you can swap out what type of filters. Your user sure. So they are permanent systems actually so not to get it but they are permanent installations that are going and they're going on around.
Water wells and a large.
Water purveyor that provides water to 1.3 million people on the West coast. So what we're doing is we're doing a pre treatment from the well before it goes to the water treatment plant itself to take the PFS out and what we've designed these for us where they can use either granular activated carbon or resin.
And to to actually take the people costs out and concentrated up and so the ongoing service on the box audit that will be around the granular activated carbon reactivate equipment or resin exchanges, which we do as well they'll run the systems will provide the aftermarket in the support on the back so.
Good day here and with the success and the scale of this type of beef costs when what's the pipeline look like.
And just if you project out the next one or two years, how meaningful can this be for evolve.
The pipeline continues to grow very strongly and it can be significantly meaningful and a lot of its is happening based on what the local water districts or requiring as people were testing more the federal government is getting involved in that youre applying funds out of federal level for P. Foster Creek.
When the PFS remediation, but it's much more focused at the local level and that's where we continue to operate across the larger systems NP five us at the local level being very connected to the water districts themselves and making sure. They have the right solutions in place.
Great to hear thank you thank Steve.
Your next question comes from the line of Nathan Jones at Stifel.
Good morning, everyone, putting Nathan.
Just like just started following up to that the very loss of your prepared comments that run me said for a few sequentially EBITDA seasonality is going to be a bit the price this year flat to up 10.
Can you talk a little bit more about the puts and takes their or their temporary costs things like DNA that we're out in that quarter that come back in the fourth quarter that.
Moving things around a little bit anymore color you can give us on on whats modifying that normal seasonality.
Hey, Nathan its Ben.
Yes, most of it is the uneven demand on the topline that we're we're looking at that we've already highlighted on page five regarding the bottom line, we feel very confident we'll be able to you to manage our expenses.
To help offset some of that sequential bump that we would normally get through seasonality that that might be a bit on even in this period of time.
So we feel good about that the the cost reduction actions, we put in place both permanent and temporary in are very much in line with what we communicated last quarter.
Which will help us mitigate that that topline.
Impact that we expect to see in the code World.
And that we just want to be very mindful of forthcoming Nathan as we go into Q4 with a little bit of uncertainty in the end markets and we're still watching those.
Page five highlights some of the once again that are that are strong versus not and I think that historically when you see that big ramp up in fourth quarter. We've seen it's a big fall through we want to make sure that you are aware of what the outlook us.
Fair enough.
Follow up question is going to be on working capital and cash flow.
I think I can remember the busts due diligence meeting before you guys IP I'd move we're talking about 26% working capital targets, so something like if we could now about half that.
Where do you think the right level of working capital days to run the business just working capital naturally come out of the business with more outsourced water runs through capex rather than.
Maybe running through your balance sheet here do you think that's more opportunities or or.
Working capital getting much lower than they start to impinge on so this levels or anything like that.
Well, we certainly improved the working capital profile the company due to the sales mix and the company and certainly the outsource water you're absolutely correct.
Does help our working capital profile.
Obviously, jettisoning the men core business and and increasing our industrial versus our municipal exposure has shortened our working capital days, but we've also have several programs in place that we've actually worked on our receivables.
Quality has never been better and while we do have some inventory.
Safety stock on hand during this coated crisis just to make sure that we don't have any disruption. We also has continued to improve our inventory days out and our Essen ESI LP process and I don't want to ignore payables. We've done several things in terms of supply chain financing and working with vendors to extend payment terms and it's been all three.
Sorry in terms of that 11 days improvement. So we think weve actually shifted the working capital profile of the company more positive through all of those things, but I don't want to under emphasized the importance of the men for divestiture, increasing our industrial sales mix and reducing our our municipal sales mix Nathan as we can to.
Due to drive the strategy bone brown recurring and visible revenue that service that that.
Hi, so significant impact on working capital service revenues clearly helps our working capital.
Yet so it sounds like you do think that potential for these degree of take down little bit lower than where it is now.
Potentially yes, I think.
As a stated goal weve been targeting that low to mid teens working capital and we feel very good about being able to stay in that range.
Great. Thanks for taking my question.
Your next question comes from the line of Andrew Kaplowitz of Citi.
Hi, This is a time bookbinder on brandy.
Good morning, good morning, eight on.
Good morning, so with a book to bill above one in the quarter.
Yes.
With a book to bill above one in the quarter and realizing that you may have better visibility on a 12 month basis that any specific whether because of the shipment timing can you give a high level view of what you're seeing over the next 12 months.
Yes, I mean, we continue to see order activity be fairly robust we're pleased with it as long as book to Bill stays above one.
It's always a great indication for us, but I think the thing that we want to make sure that we continue to emphasize is how we're driving outsource water projects were driving more water, one connectivity and more digital deployment, which creates longer term contracts that actually will give us an huh.
Chance to more visible revenue over years to come so just because the book to Bill is over one and a lot of cases, we're booking outsourced water contracts that are longer term that we'll continue to to feed the business as we go forward into the coming years.
So over the next 12 months I would say that we're still.
Being a bit cautious on just the uncertainty of the end markets, but we've seen the end markets stabilize we're actually seeing.
Some of the supply challenges that you did we dealt with early encoded materialize.
Start to subside a bit and we're continuing to execute on the business, which we're very pleased with.
Thanks, that's helpful and I guess generally service an aftermarket businesses are expected to be more resilient and challenged environment, but in the quarter capital sales increase across both segments, while service and aftermarket declined in both can you talk about maybe what you're seeing that might be causing this dynamic.
Or if this potential for deferred service and maintenance that to bounce back over the coming quarters, Yes, I mean, as we highlighted actually during the opening remarks are doing the remarks earlier.
Microelectronics business continues to be strong for us as we sell capital into microelectronics and into other end markets that has a significant pull through of service in aftermarket business that will continue so we're seeing stability in our service and aftermarket business with the exception of some small disruptions that we've had out a co.
Hi, good with customers actually being shut down in some of the end markets we highlighted.
Pool startups, a lot of the aquatic business, we spoke about on.
On the disinfection side, but what we do anticipate seeing is when those markets normalize they'll come back to normal deserves an aftermarket business again continues to be very resilient and then the the capital business that we put into microelectronics and some other end markets that have had an uptick.
Continue to pull service in aftermarket for.
Thank you I'll pass it along thanks.
Your next question comes from Brian Lee of Goldman Sachs.
Hey, guys. Good morning, Thanks for taking the questions.
Well I think maybe first on APTP.
Margins years seem to have broken out a bit.
Just wondering how sustainable are these levels as we think about the price mix benefits you mentioned this quarter and also the savings from the realignment.
Even with the near term revenue uncertainty is it reasonable to assume one kind of seeing a bit of a new normal for ABT going forward any reason, we would want to back off of that view.
Brian I think what we've seen is.
Historically has been had some variability in the margins, but what we've been able to do is more normalized the operations we've gone through.
A significant amount of restructuring of the business as we went to the two segment realignment, that's helped quite a bit and we're starting to see the benefit pull through so we're pleased with their theres always a bit of a mix impact in that business, but we're pleased with what they've been able to deliver and im very pleased with the margins that are falling through.
As a result of the two segment realignment.
Okay Fair enough and then maybe just another question on the PFS opportunity.
Design win that Thirtys.
The 30.
The 30 sites that you mentioned in the West coast for that one.
Thank you letter design I think New York recently announced a new drinking standards for P. Foster NPS away can you kind of speak to whether you have any footprint in that region, maybe how big of an opportunity that might be and then.
The legislation the inks not really drying it but any.
Sense for how quickly the needle could move in a situation like that where the.
The standard being set is fairly stringent at that 10 parts per million.
From what we understand.
We do operate throughout the country, obviously affect the east coast is generally where we have historically operated more strongly on emerging contaminant removal, that's where our service business is more concentrated so we have a very good footprint on the eastern eastern side of the United States in fact, that's where our initial.
Joel.
PFS treatment systems were going into into the northeast, we'll continue to expand our portfolio in our footprint on the eastern side around emerging contaminants that are Pos and then other emerging contaminants that or even much more broader selenium and others that we referred to.
Tom will tell on what's going to happen with.
The legislative bills that are passed as well as what's happening in in the individual water District in New York and New York State. We will continue to monitor it we're staying very close to customers and and obviously.
The full suite of solutions that we have which actually highlighted generally makes us one of the very first calls to come and one that can come in on a temporary system.
And solve the problem, while we develop want to determine the right permanent solution that goes on so we're pleased with the changes that are occurring it actually bodes very well for the pipeline that of vocal works through and NP. Pos is just one of the many contaminants that we focus on.
Hi, Thanks, guys appreciate it thank you.
Your next question comes from the line of Joe Giordano of Cowen.
Yes, good morning.
Morning.
You called out of micro electronics, a couple times.
Yes.
This is where area we're seeing.
The cost across.
Hi suppliers into that industry. Just curious how are you. How you think about the sustainability of that and then can you talk about maybe putting in capital now to get the aftermarket down the road, which makes a lot of sense, but how does that transition look like when you have a big ramp of the capital going in and how did that transition from that to like a slowdown or the capital.
Well into the aftermarket whether that look like.
Yes, so Joe what we see on the micro electronics businesses. It is a good market the markets very strong we have an anticipation that it will continue to be strong.
One of the things that microelectronics customers are trying to do is there they're continuing to.
Increase the density around the chips that they provide increased the capabilities and that increases the need for more and more purities in water and the focus on.
Very very.
Hi broker.
We removed the other thing they're going to do as minimize their lives this charge and get into a restock reuse environment. So that they're doing the right for sustainability, which is ultimately going to provide so what are your or someone that enables our customers to be very sustainable and what they focus on so with the.
Capital systems that go in what we've.
Spoke about many times is typically following a capital sale run process water. There generally is about 22 and a half sense of service in aftermarket that flows a little app little over a year to year and a half after the capital system has gone and we would anticipate seeing that kind of flow through occur in these capital investments.
Or capital installations as well.
Your next question comes from the line Baumohl cannot of Marine and Jane.
Thanks for taking the question guys.
I asked this three months ago.
Your perspective again.
M&A out for you guys I think the last acquisition was frontier. So almost a year ago now clearly there are some distressed situation out there given that the climate.
What are kind of what are you seeing in terms of deal multiples and any motivated sellers that are.
Potentially opportunistic for you.
Well, it's a great question and thank you for following up with that three months later.
We are actually seeing some good opportunities that are coming forward and.
Type line around M&A, we have a pretty strong focus.
As Weve really discussed from the very beginning of the company being an IPO is build out our product portfolio. One of those acquisitions was the frontier acquisition, but also expanding our service capability in service reach into vertical markets and geographies.
But we feel like we can get better customer customer concentration, that's where you'll see the focus come over the next.
Few quarters I anticipate is going to be around service tuck in service opportunities, we're seeing the multiples hold pretty much where they were historically, even on a little bit of depressed.
EBITDA for the multiples have an accelerated they're continuing to hold where they are.
So we see great opportunities for us to be able to.
Complete some tuck in acquisitions around the service side.
Bring those at a very good multiple certainly post synergy because in a lot of cases, we consolidate the facilities into ours, and we can see EBIT or gross margin fold EBITDA, because we took the overhead cost out so.
We've said before they're kind of mid to high single digits in the multiple post synergy there somewhere in the.
Mid to lower single digits, and we continue to see that as an opportunity.
Okay.
One of the up slightly quarter key aspects of the pandemic is.
An increase in household way, particularly plastic waste some of which obviously makes its way into the.
Wastewater and sell for us I'm curious to what extent that again slightly kind of bizarre issue has come on your radar in your customers radar specifically.
Over the last 100 days or so and potentially adding to some.
Service revenue for him.
I think that we've seen a fairly.
Consistent.
Request around wastewater improvements wastewater capabilities and treatment trains that hasn't necessarily changed dramatically over the last 100 days, we were already dealing with micro plastics as a an emerging contaminants that was creating a lot of challenges inside of wastewater treatment systems. We continue.
Due to focus on that with our service offerings that we have as well as our capital offerings around around treatment expansion and the upgrades of treatment facility.
Thanks, very much okay.
Thanks for though.
Your next question comes from the line of Patrick Baumann of JP Morgan.
Hi, Good morning, Ron Good morning, Ben Thanks for taking my questions.
First of all orders the book to Bill you said north of one in the quarter and you said the dealers were in line with your expectations. Just curious how they looked versus last year on year over year basis, and then if you could on that basis, what will be the pluses and minuses by end market, and then versus equipment and equipment versus service within that would be helpful.
Yes, we don't disclose orders in terms of your performance. Unfortunately, I can't really talk about that other than what we've already said, but overall I think 20 turn to page five our orders.
Really manifest itself very much inline with what we expected on page five.
And our expectations for the second half or very can grown to page five.
So I'm sorry, what was the second part of your question.
I think that that kind of answer and that was was the.
Was that.
PFS order you mentioned was that.
Recorded during the quarter. The ticket was finished when the west coast. One yes. The order was recorded during the quarter.
But but no revenues coming of that yet that will the revenue will come later on that.
Understood.
And then MPT.
Margins there were much stronger than we expected in the quarter I just I'm just trying to understand better what the adjusted based margins were for 2019, if you pull out and were just potentially be able to probably not all the fourth quarter right in third quarter. We obviously too. So just wondering if you give us some help on.
Prior year based margins excluding men core yes, so if we disclose at mentor and of prior year overall for the year is about 60 million revenue in about $8 million of an EBITDA for Q3.
Core was just under $14 million in revenue and just under 2 million EBITDA.
But.
As a business it was very strong in Q4, so Q4.
Revenues were about 26 million in the prior year.
So you see is a pretty steep ramp.
And we had about $6 million of EBITDA in the prior year in Q4.
Yes, that's super helpful. Thanks for the color on that and then.
You mentioned higher sequentially EBITDA fourth quarter versus third quarter and you also typically have higher free cash flow sequentially can you just confirm that that you still expect that this year.
Yes.
Michael I think very much the.
Ron gave you the revenue, but are the EBITDA sequentially, but obviously that will be driven by increased revenue.
See you next makes sense and then last one for me if you could.
Help me understand how to read slide five like what is what is the embedded like weighted end market profile for you what does that equate to its hard this hard to tell if it's you expect similar to be down a bit were flat.
Just not sure how to read that slide yes, so slide five I mean as you look at it starts with the lowest markets on the bottom refining and food and beverage so that would be our smallest end markets leading up to the top.
Growth, obviously is going to be.
Up in the high single digits still low double digits neutrals going to be flat too.
Probably call it up or down to 3% slight decline down mid single digits.
Delays cancellations are going to be down double digits. So as you look at it you can see that six out of 10 of our end markets are all performing extremely well are growing.
Two of the markets that are decent size for us or slightly declining and then two of our smaller markets were seeing delays and cancellations.
And then Im surprised you have neutral Muni are you seeing like.
Well what are you seeing from budget announcements freeze it too early to see any impacts from Covidien electrode little early right now we're watching mute the municipal budgets and obviously that's based on their doctor revenue, where things are coming and we actually still do have.
Very nice pipeline of opportunities.
At are coming up for treatment investment and we're very focused on retrofit and aftermarket and the installed base that we already have as well as in the installed base. We have a unique capability in a field direct team that can actually go in and treated on site operating as of the contractor as well as the.
Supplier. So we've got some capabilities there that our municipal team is very well able to to make sure that theyre executing well with the municipal contractors and a lot of cases, we can do one to one negotiations with them.
Great. Thanks for the color appreciate it good luck. Thank you. Thank you.
Your next question comes from Andrew the Scalia of Berenberg.
Morning, guys.
Can you talk a little bit.
Can you.
The book to Bill question earlier.
I think you don't give a ton of granularity but.
Are you able to talk about the split by segment is one segment.
Were they both above water has been one higher than the other.
Weve tip, Andrew we really don't give that kind of granularity but.
But I would just value that we continue to to do well in the business. If you think about ISS that are our longer term business that typically going to be longer outsource water contract on longer term, even service contracts coming up.
80 is more tied to our book to Bill business, because it's more of a products business other than some of the areas like wastewater treatment that are little longer cycle, because or municipal.
Okay.
And do a good granularity there Andrew and just as a net bye.
Most of your blocks businesses and isn't APTP.
As an example also most of the refining isn't ISS okay.
Okay. Okay.
Okay and then.
You're talking about some maybe some areas that.
Our.
Seem more disruption with co bid maybe with the lock down.
At 50, some pent up demand coming back.
I think you mentioned aquatic over the other ones and then.
Would that duty or how does that stream your mix going forward I would imagine I'd be a positive contribution.
That should be I mean, as you think about markets coming back online such as chemical processing some of the refineries as they start back up it's a fair amount of prep work and water usage as they get going even in some of our light industry in General General Engineering General industry type businesses, if they've shut down and they.
They are ramping back up they have to clear the lines. They have to do some flushing on the lines and so it brings a fairly nice bow wave of demand across our industrial business, our ISS businesses, there assisting these customers and ramping up their operation income.
Alright, thank you.
Thank you.
Once again, if you would like to ask your question. Please press star one on your telephone keypad.
Thank you that concludes our question and answer period I would now like to turn the call back over to Ron Keating for his closing remarks.
So thank you very much for joining us for the call today first of all I would like to thank the local team members for their care safety and their dedication on supporting our customers and our operations and ensuring that we're driving sustainable solutions throughout the marketplace.
We continue to execute our strategy and I think it's paying those paying nice dividends and it's showing well in the results. The business is very resilient. We're continuing to operate very closely we're staying close to the end markets and we'll continue to deliver but we're going to actively manage the business against the market challenges and what's happening as we see macro.
Economic changes unfold, but ultimately.
What a vocals provided is providing is required it's necessary the customers continue to rely on us for our full suite of solutions. We're pleased with the portfolio in the strategy that we've developed so again. Thank you for participating. Thank you for your interest in a vocal and I wish you all.
Save quarter and look forward to speaking to again next quarter. Thank you.
Thank you that concludes today's of local water technologies third quarter 2020 earnings Conference call. You May now disconnect. Your lines at this time and have a safe today.
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