UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
June 30, 2021
or
☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from _____ to _____

Commission File Number: 001-38272

EVOQUA WATER TECHNOLOGIES CORP.

(Exact name of registrant as specified in its charter)

 

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

(724) 772-0044

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

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

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

There were 120,232,936 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of July 30, 2021.

EVOQUA WATER TECHNOLOGIES CORP.

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
Item 1	Financial Statements		3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operation		40
Item 3	Quantitative and Qualitative Disclosures About Market Risk		68
Item 4	Controls and Procedures		68
PART II - OTHER INFORMATION
Item 1	Legal Proceedings		69
Item 1A	Risk Factors		70
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		70
Item 3	Defaults Upon Senior Securities		70
Item 4	Mine Safety Disclosures		70
Item 5	Other Information		70
Item 6	Exhibits		71

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, 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 “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “projection,” “seek,” “should,” “will” or “would,” or the negative thereof, or other variations thereon or comparable terminology. In particular, statements about the markets in which we operate, including growth of our various markets, our expectations, beliefs, plans, strategies, objectives, prospects, assumptions, or future events or performance, statements regarding our restructuring actions and expected restructuring charges and cost savings for fiscal 2021 and beyond, statements regarding our cash requirements, working capital needs and expected capital expenditures, and statements related to the COVID-19 pandemic and its ongoing impact on our business contained in this Report are forward‑looking statements.

We have based these forward‑looking statements 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, including those discussed in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, as filed with the Securities and Exchange Commission (“SEC”) on November 20, 2020, and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of this Report 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:

•general global economic and business conditions, including the impacts of the COVID-19 pandemic and disruptions in global supply chains;

•our ability to compete successfully in our markets;

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

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

•our ability to meet our customers’ safety standards or the potential for adverse publicity affecting our reputation as a result of incidents such as workplace accidents, mechanical failures, spills, uncontrolled discharges, damage to customer or third‑party property or the transmission of contaminants or diseases;

•our ability to continue to develop or acquire new products, services and solutions and adapt our business to meet the demands of our customers, comply with changes to government regulations and achieve market acceptance with acceptable margins;

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

•our ability to operate or integrate any acquired businesses, assets or product lines profitably or otherwise successfully implement our growth strategy;

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

•material and other cost inflation and our ability to mitigate the impact of inflation by increasing selling prices and/or improving our productivity efficiencies;

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

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

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

1

•our ability to retain our senior management and other key personnel and to attract key talent in increasingly competitive labor markets;

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

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

•litigation, regulatory or enforcement actions and reputational risk as a result of the nature of our business or our participation in large‑scale projects;

•seasonality of sales and weather conditions;

•risks related to government customers, including potential challenges to our government contracts or our eligibility to serve government customers;

•the potential for our contracts with federal, state and local governments to be terminated or adversely modified prior to completion;

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

•risks associated with international sales and operations, including our operations in the People’s Republic of China;

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

•risks related to our substantial indebtedness;

•our need for a significant amount of cash, which depends on many factors beyond our control; and

•other risks and uncertainties, including those listed under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, as filed with the SEC on November 20, 2020, and in other filings we may make from time to time with the SEC.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward‑looking statements. The forward‑looking statements contained in this Report are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward‑looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward‑looking statements contained in this Report, they may not be predictive of results or developments in future periods.

Any forward‑looking statement that we make in this Report speaks only as of the date of such statement. 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, whether as a result of new information, future events or otherwise, after the date of this Report.

2

Part I - Financial Information

Item 1. Financial Statements

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Evoqua Water Technologies Corp.
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and September 30, 2020	4
Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2021 and 2020	5
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended June 30, 2021 and 2020	6
Unaudited Consolidated Statements of Changes in Equity for the Three and Nine Months Ended June 30, 2021 and 2020	7
Unaudited Consolidated Statements of Changes in Cash Flow for the Nine Months Ended June 30, 2021 and 2020	9
Unaudited Supplemental Disclosure of Cash Flow Information for the Nine Months Ended June 30, 2021 and 2020	10
Notes to Unaudited Consolidated Financial Statements	11

3

Evoqua Water Technologies Corp.

Consolidated Balance Sheets

(In thousands)

	(Unaudited)
	June 30, 2021		September 30, 2020
ASSETS
Current assets	$	664,060	$	695,712
Cash and cash equivalents	141,524		193,001
Receivables, net	246,619		260,479
Inventories, net	161,228		142,379
Contract assets	69,343		80,759
Prepaid and other current assets	43,444		18,715
Income tax receivable	1,902		379
Property, plant, and equipment, net	372,399		364,461
Goodwill	409,756		397,205
Intangible assets, net	297,674		309,967
Deferred income taxes, net of valuation allowance	1,710		3,639
Operating lease right-of-use assets, net	47,307		45,965
Other non‑current assets	50,252		27,509
Total assets	$	1,843,158	$	1,844,458
LIABILITIES AND EQUITY
Current liabilities	$	370,703	$	349,555
Accounts payable	144,426		153,890
Current portion of debt, net of deferred financing fees and discounts	11,474		14,339
Contract liabilities	36,915		26,259
Product warranties	8,063		6,115
Accrued expenses and other liabilities	165,127		143,389
Income tax payable	4,698		5,563
Non‑current liabilities	$	927,276	$	1,012,840
Long-term debt, net of deferred financing fees and discounts	778,170		861,695
Product warranties	2,629		1,724
Obligation under operating leases	38,541		37,796
Other non‑current liabilities	95,924		98,456
Deferred income taxes	12,012		13,169
Total liabilities	$	1,297,979	$	1,362,395
Commitments and Contingent Liabilities (Note 19)
Shareholders’ equity
Common stock, par value $0.01: authorized 1,000,000 shares; issued 121,837 shares, outstanding 120,173 at June 30, 2021; issued 119,486 shares, outstanding 117,291 at September 30, 2020	$	1,219	$	1,189
Treasury stock: 1,664 shares at June 30, 2021 and 2,195 shares at September 30, 2020	(2,837)		(2,837)
Additional paid-in capital	573,892		564,928
Retained deficit	(38,040)		(62,664)
Accumulated other comprehensive income (loss), net of tax	9,342		(20,472)
Total Evoqua Water Technologies Corp. equity	$	543,576	$	480,144
Non-controlling interest	1,603		1,919
Total shareholders’ equity	$	545,179	$	482,063
Total liabilities and shareholders’ equity	$	1,843,158	$	1,844,458

See accompanying notes to these Unaudited Consolidated Financial Statements

4

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)

	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
Revenue from product sales	$	218,427	$	207,575	$	600,908	$	610,104
Revenue from services	151,254		140,252		437,530		435,491
Revenue from product sales and services	$	369,681	$	347,827	$	1,038,438	$	1,045,595
Cost of product sales	(152,591)		(143,457)		(428,173)		(428,069)
Cost of services	(100,061)		(94,136)		(291,972)		(290,371)
Cost of product sales and services	$	(252,652)	$	(237,593)	$	(720,145)	$	(718,440)
Gross profit	$	117,029	$	110,234	$	318,293	$	327,155
General and administrative expense	(50,837)		(44,867)		(146,048)		(152,767)
Sales and marketing expense	(35,871)		(29,855)		(103,629)		(101,845)
Research and development expense	(3,413)		(2,782)		(9,929)		(9,655)
Total operating expenses	$	(90,121)	$	(77,504)	$	(259,606)	$	(264,267)
Other operating income	1,662		621		2,653		61,859
Other operating expense	(260)		(285)		(618)		(834)
Income before interest expense and income taxes	$	28,310	$	33,066	$	60,722	$	123,913
Interest expense	(11,224)		(10,485)		(28,292)		(37,320)
Income before income taxes	$	17,086	$	22,581	$	32,430	$	86,593
Income tax expense	(3,887)		(740)		(7,672)		(3,336)
Net income	$	13,199	$	21,841	$	24,758	$	83,257
Net income attributable to non‑controlling interest	44		457		134		916
Net income attributable to Evoqua Water Technologies Corp.	$	13,155	$	21,384	$	24,624	$	82,341
Basic income per common share	$	0.11	$	0.18	$	0.21	$	0.71
Diluted income per common share	$	0.11	$	0.18	$	0.20	$	0.68

See accompanying notes to these Unaudited Consolidated Financial Statements

5

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
Net income	$	13,199	$	21,841	$	24,758	$	83,257
Other comprehensive income (loss)
Foreign currency translation adjustments	591		1,366		22,605		(5,301)
Unrealized derivative (loss) gain on cash flow hedges, net of tax	(3,524)		(3,314)		6,569		(3,525)
Change in pension liability, net of tax	266		235		640		706
Total other comprehensive (loss) income	$	(2,667)	$	(1,713)	$	29,814	$	(8,120)
Less: Comprehensive income attributable to non‑controlling interest	(44)		(457)		(134)		(916)
Comprehensive income attributable to Evoqua Water Technologies Corp.	$	10,488	$	19,671	$	54,438	$	74,221

See accompanying notes to these Unaudited Consolidated Financial Statements

6

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Changes in Equity

(In thousands)

	Common Stock			Treasury Stock			Additional Paid‑in Capital		Retained Deficit		Accumulated Other Comprehensive (Loss) Income		Non‑controlling Interest		Total
	Shares	Cost		Shares	Cost
Balance at September 30, 2020	119,486	$	1,189	2,195	$	(2,837)	$	564,928	$	(62,664)	$	(20,472)	$	1,919	$	482,063
Equity based compensation expense	—	—		—	—		3,019		—		—		—		$	3,019
Issuance of common stock, net	1,264	13		1	—		14,250		—		—		—		$	14,263
Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(250)		$	(250)
Net income	—	—		—	—		—		6,433		—		44		$	6,477
Other comprehensive loss	—	—		—	—		—		—		(3,611)		—		$	(3,611)
Balance at December 31, 2020	120,750	$	1,202	2,196	$	(2,837)	$	582,197	$	(56,231)	$	(24,083)	$	1,713	$	501,961
Equity based compensation expense	—	—		—	—		3,214		—		—		—		$	3,214
Issuance of common stock, net	692	13		(532)	—		(21,377)		—		—		—		$	(21,364)
Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(100)		$	(100)
Net income	—	—		—	—		—		5,036		—		46		$	5,082
Other comprehensive income	—	—		—	—		—		—		36,092		—		$	36,092
Balance at March 31, 2021	121,442	$	1,215	1,664	$	(2,837)	$	564,034	$	(51,195)	$	12,009	$	1,659	$	524,885
Equity based compensation expense	—	—		—	—		4,228		—		—		—		$	4,228
Issuance of common stock, net	395	4		—	—		5,630		—		—		—		$	5,634
Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(100)		$	(100)
Net income	—	—		—	—		—		13,155		—		44		$	13,199
Other comprehensive loss	—	—		—	—		—		—		(2,667)		—		$	(2,667)
Balance at June 30, 2021	121,837	$	1,219	1,664	$	(2,837)	$	573,892	$	(38,040)	$	9,342	$	1,603	$	545,179

7

	Common Stock			Treasury Stock			Additional Paid‑in Capital		Retained Deficit		Accumulated Other Comprehensive (Loss) Income		Non‑controlling Interest		Total
	Shares	Cost		Shares	Cost
Balance at September 30, 2019	116,008	$	1,154	1,664	$	(2,837)	$	552,422	$	(174,976)	$	(13,004)	$	3,063	$	365,822
Cumulative effect of adoption of new accounting standards	—	—		—	—		—		(2,023)		—		—		$	(2,023)
Equity based compensation expense	—	—		—	—		3,680		—		—		—		$	3,680
Issuance of common stock, net	1,645	16		419	—		4,030		—		—		—		$	4,046
Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(1,250)		$	(1,250)
Divestiture of Memcor product line	—	—		—	—		(16,895)		—		—		—		$	(16,895)
Net income	—	—		—	—		—		53,145		—		361		$	53,506
Other comprehensive income	—	—		—	—		—		—		8,244		—		$	8,244
Balance at December 31, 2019	117,653	$	1,170	2,083	$	(2,837)	$	543,237	$	(123,854)	$	(4,760)	$	2,174	$	415,130
Cumulative effect of adoption of new accounting standards	—	—		—	—		—		686		—		—		$	686
Equity based compensation expense	—	—		—	—		2,304		—		—		—		$	2,304
Issuance of common stock, net	1,417	15		111	—		11,309		—		—		—		$	11,324
Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(200)		$	(200)
Net income	—	—		—	—		—		7,812		—		98		$	7,910
Other comprehensive loss	—	—		—	—		—		—		(14,651)		—		$	(14,651)
Balance at March 31, 2020	119,070	$	1,185	2,194	$	(2,837)	$	556,850	$	(115,356)	$	(19,411)	$	2,072	$	422,503
Equity based compensation expense	—	—		—	—		2,520		—		—		—		$	2,520
Issuance of common stock, net	322	2		1	—		2,577		—		—		—		$	2,579
Dividends paid to non-controlling interest	—	—		—	—		—		—		—		(400)		$	(400)
Net income	—	—		—	—		—		21,384		—		457		$	21,841
Other comprehensive loss	—	—		—	—		—		—		(1,713)		—		$	(1,713)
Balance at June 30, 2020	119,392	$	1,187	2,195	$	(2,837)	$	561,947	$	(93,972)	$	(21,124)	$	2,129	$	447,330

See accompanying notes to these Unaudited Consolidated Financial Statements

8

Evoqua Water Technologies Corp.

Unaudited Consolidated Statements of Changes in Cash Flows

(In thousands)

	Nine Months Ended June 30,
	2021		2020
Operating activities
Net income	$	24,758	$	83,257
Reconciliation of net income to cash flows provided by operating activities:
Depreciation and amortization	83,707		80,056
Amortization of deferred financing fees (includes $1,333 and $1,795 write off of deferred financing fees)	2,814		3,504
Deferred income taxes	994		(1,422)
Share-based compensation	10,461		8,504
Loss on sale of property, plant and equipment	2,456		767
Loss (gain) on sale of business	193		(68,051)
Foreign currency exchange gains on intercompany loans and other non-cash items	(4,628)		(2,438)
Changes in assets and liabilities
Accounts receivable	18,931		8,685
Inventories	(18,261)		(25,523)
Contract assets	12,059		(1,486)
Prepaids and other current assets	(21,869)		1,359
Accounts payable	(10,587)		8,938
Accrued expenses and other liabilities	23,065		(1,738)
Contract liabilities	9,337		(7,893)
Income taxes	(2,489)		1,620
Other non‑current assets and liabilities	(28,083)		12,528
Net cash provided by operating activities	102,858		100,667
Investing activities
Purchase of property, plant and equipment	(54,147)		(65,924)
Purchase of intangibles	(1,206)		(708)
Proceeds from sale of property, plant and equipment	1,108		379
Proceeds from sale of business, net of cash of $0 and $12,117	897		118,894
Acquisitions	(21,059)		(10,884)
Net cash (used in) provided by investing activities	(74,407)		41,757
Financing activities
Issuance of debt, net of deferred issuance costs	747,877		12,859
Borrowings under credit facility	—		2,597
Repayment of debt	(837,082)		(113,572)
Repayment of finance lease obligation	(10,173)		(9,988)
Payment of earn-out related to previous acquisitions	—		(175)
Proceeds from issuance of common stock	18,096		9,596
Taxes paid related to net share settlements of share-based compensation awards	(1,315)		(9,828)
Distribution to non‑controlling interest	(450)		(1,850)
Net cash used in financing activities	(83,047)		(110,361)
Effect of exchange rate changes on cash	3,119		793
Change in cash and cash equivalents	(51,477)		32,856
Cash and cash equivalents
Beginning of period	193,001		109,881
End of period	$	141,524	$	142,737

See accompanying notes to these Unaudited Consolidated Financial Statements

9

Evoqua Water Technologies Corp.

Unaudited Supplemental Disclosure of Cash Flow Information

(In thousands)

	Nine Months Ended June 30,
	2021		2020
Supplemental disclosure of cash flow information
Cash paid for taxes	$	7,536	$	3,865
Cash paid for interest	$	20,643	$	31,200
Non‑cash investing and financing activities
Finance lease transactions	$	12,300	$	8,401
Operating lease transactions	$	11,699	$	12,085
Purchase Right	$	—	$	7,167

See accompanying notes to these Unaudited Consolidated Financial Statements

10

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 January 15, 2014, the Company acquired, through its wholly owned subsidiaries, EWT Holdings II Corp. (“EWT II”) and EWT Holdings III Corp. (“EWT III”), Siemens Water Technologies, a group of legal entities formerly owned by Siemens AG (“Siemens”). The stock purchase closed on January 15, 2014 and was effective January 16, 2014 (the “Acquisition”). On November 6, 2017, the Company completed its initial public offering (“IPO”).

On December 4, 2020, the Company completed a secondary public offering, pursuant to which 12,000 shares of common stock were sold by certain selling shareholders. On February 11, 2021, the Company completed an additional secondary public offering, pursuant to which 16,383 shares of common stock were sold by certain selling shareholders. Upon completion of these offerings, AEA Investors LP disposed of all of their shares of the Company’s common stock. The Company did not receive any proceeds from the sale of shares by the selling shareholders in either of these secondary public offerings.

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, the Republic of Korea 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, 2020, as filed with the SEC on November 20, 2020 (“2020 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 2020 Annual Report. Certain prior period amounts have been reclassified to conform to the current period presentation.

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Correction of Immaterial Errors

During the quarter ended March 31, 2021, the Company identified errors related to the reporting of tax remittances associated with certain equity awards, resulting in a classification error of $18,669 between additional paid in capital and accumulated other comprehensive loss. Management recorded the correction to additional paid in capital and accumulated other comprehensive balances during the quarter ended March 31, 2021. Management considered both the quantitative and qualitative factors within the provisions of SEC Staff Accounting Bulletin No. 99, Materiality, and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. Based on evaluation of the errors, management has concluded that the prior period errors were immaterial to the previously issued financial statements. As a result of that classification error, management also identified a second, related immaterial classification error for the understatement of net cash provided by operating cash flows of $18,669 and an overstatement of net cash provided by financing activities of $18,669 for the period from October 1, 2019 to September 30, 2020. The Company has elected to voluntarily correct the identified immaterial classification error in the prior period Unaudited Consolidated Statements of Changes to Cash Flows to enhance comparability. In doing so, balances in the Unaudited Consolidated Statements of Changes to Cash Flows included in this Form 10-Q have been adjusted to reflect the voluntary immaterial classification error correction of $18,182 between financing and operating in the prior period. Future filings that include prior periods will be corrected, as needed, when filed.

The correction of the above classification errors did not have any effect on the Unaudited Consolidated Statements of Operations in any of the periods previously presented.

2. Recent Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which was amended by the subsequent issuance in January 2021 of ASU 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”). ASU 2020-04 became effective immediately and expires on December 21, 2022. ASU 2020-04 allows eligible contracts that are modified to be accounted for as a continuation of those contracts, permits companies to preserve their hedging accounting during the transition period and enables companies to make a one-time election to transfer or sell held-to-maturity debt securities that are affected by rate reform. ASU 2021-01 provides optional expedients and exceptions for contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. The Company is currently assessing the impact of the adoption of ASU 2020-04 and ASU 2021-01 on the Company’s Unaudited Consolidated Financial Statements and related disclosures.

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Accounting Pronouncements Recently Adopted

The Company adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on October 1, 2020 (“ASU 2016-13”). ASU 2016-13 requires entities to use a new forward-looking “expected loss” model that reflects expected credit losses, including credit losses related to trade receivables, and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, which generally will result in the earlier recognition of allowances for losses. The Company adopted ASU 2016-13 using a modified retrospective approach and determined that there was no cumulative-effect adjustment to its beginning Retained deficit on the Consolidated Balance Sheets. The adoption of this standard did not have a material impact on the Company’s Unaudited Consolidated Financial Statements. See Note 7, “Accounts Receivable” for further details and related disclosures.

The following accounting pronouncements were adopted by the Company on October 1, 2020, and the adoptions did not have a material impact on the Company’s Unaudited Consolidated Financial Statements or disclosures:

Accounting Standards Updates

ASU 2020-03, Codification Improvements to Financial Instruments

ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses

ASU 2018-18, Collaborative Arrangements (Topic 808) Clarifying the Interaction between Topic 808 and Topic 606

ASU 2018-13, Fair Value Measurement (Subtopic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

3. Variable Interest Entities

Treated Water Outsourcing (“TWO”) is a joint venture between the Company and Nalco Water, an Ecolab company, in which the Company holds a 50% partnership interest. The Company is obligated to absorb all risk of loss up to 100% of the joint venture partner’s equity. As such, the Company fully consolidates TWO as a variable interest entity (“VIE”) under ASC Topic No. 810, Consolidation. The Company has not provided, and is not contractually required to provide, additional financial support to this entity, and the Company does not have the ability to use the assets of TWO to settle obligations of the Company’s other subsidiaries.

The following provides a summary of TWO’s balance sheet as of June 30, 2021 and September 30, 2020, and summarized financial information for the three and nine months ended June 30, 2021 and 2020.

	June 30, 2021		September 30, 2020
Current assets (includes cash of $1,580 and $2,088)	$	3,529	$	4,016
Property, plant and equipment	963		1,145
Goodwill	2,206		2,206
Total liabilities	(1,287)		(1,324)

	Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
Total revenue	$	843	$	1,328	$	2,511	$	5,180
Total operating expenses	(748)		(803)		(2,217)		(3,847)
Income from operations	$	95	$	525