eResearch | The Water and Wastewater Treatment industry includes (1) Treatment Technologies, (2) Delivery Equipment, (3) Treatment Chemicals, and (4) Instrumentation. The industry is growing as both industrial companies and municipalities put a stronger focus on Environmental, Social, and Corporate Governance (“ESG”) initiatives.
Evoqua Water Technologies
Evoqua Water Technologies (NYSE: AQUA) is a U.S. water solutions company focused on cost-effective water treatment systems and services, which ensures the safety and quality of water, in addition to compliance measures for regulatory and environmental standards.
Evoqua operates through two main business segments, including:
- Integrated Solutions and Services, which offers tailored solutions for water companies who have a market vertical focus, to improve operational reliability, performance, and environmental compliance.
- Applied Product Technologies, which provides customized water treatment technology products for filtration and separation, disinfection, wastewater management, and electro chlorination.
In FQ3/2020, for the three months ended June 30, 2020, Evoqua reported Revenue of $348 million, a 3.5% decrease year-over-year, with a Net Income of $21.8 million versus $4.3 million in the prior year’s comparable period, due to higher gross margins and lower interest costs.
This past quarter, Evoqua experienced a decrease in revenue year-over-year, mainly due to a 12% decrease in sales from its Applied Product Technology segment, which was negatively impacted due to the pandemic forcing customer site closures and delays.
Evoqua continues to expand through acquisitions. Last week, it announced the acquisition of Aquapure Technologies, a U.S. water treatment systems designer and manufacturer, with over 30 years of experience delivering services in the Ohio region.
Last year, Evoqua announced a majority stake investment in Frontier Water Systems, a U.S. water company focused on developing patented solutions for the treatment and removal of metals such as selenium and nitrate from complex waste streams.
Evoqua recently announced the pricing of a secondary public offering of 8 million shares, at $20.75 per share, providing up to $166 million in funds. Goldman Sachs Group (NYSE: GS), the sole underwriter of the offering, has the option to purchase up to 1.2 million additional shares.
Evoqua’s stock is currently trading at $20.42 per share, an 8% increase this year and a 23% increase in the past twelve months, with a market cap of $2.4 billion.
H2O Innovations
H2O Innovations (TSXV: HEO) is a Canadian wastewater treatment solutions company that supports industrial and municipal partners through membrane filtration technologies, with 750 systems installed and 200 utilities serviced across North America.
H2O operates through three main business segments, including:
- Water & Wastewater Projects & Aftermarket Services (“Projects”), which offers digital solutions to monitor and optimize water treatment plants.
- Specialty Products, which develops specialized chemicals and consumables from its subsidiaries such as Maple, PWT, Genesys, and Piedmont.
- Operation and Maintenance (“O&M”), which operates more than 175 utilities in two Canadian provinces under the brands, Utility Partners, and Hays Utility South.
In FQ3/2020, for the three months ended March 31, 2020, H2O reported Revenue of C$36.1 million, a 12% increase year-over-year, with a Net Loss of C$3.1 million (includes C$4.7 million in impairment charges) versus a Net Income of C$0.5 million in FQ3/2019.
Last month, H2O announced it secured six new water treatment projects in North America, including three from municipal clients and three from industrial clients, which together represent C$17.8 million in revenue.
H2O also drove revenue growth through acquisitions, as it recently announced a C$3.7 million acquisition of Gulf Utility Service (“GUS”), a U.S. water utilities company. In 2019, GUS had revenues of approximately US$5.0 million and EBITDA of US$0.6. H2O’s management believes that this acquisition will be accretive to its earnings.
Last year, H2O announced a C$28 million acquisition of Genesys, a U.K. owned group of companies focused on developing specialty chemicals for water treatment, which added C$3.1 million in revenue during the past quarter.
Almost 90% of H2O’s revenue streams are recurring, and the Projects and O&M business segments currently have a backlog of C$136 million in performance obligations.
Because of the COVID-19 pandemic, H2O performed an impairment test for its goodwill and intangible assets, which resulted in C$5.3 million in impairment charges, mainly from its Projects segment.
H2O’s stock is currently trading at C$1.15 per share, a 15% increase this year but an 11% decrease in the past twelve months. H2O has a market cap of C$89 million.
Xylem
Xylem (NYSE: XYL) is a U.S. water technology company focused on designing, manufacturing, and servicing wastewater solutions that support transporting, treating, and analyzing water for both municipalities and industrial clients.
Xylem operates through three main business segments, including:
- Water Infrastructure, which provides services such as wastewater transport and treatment, clean water delivery, and dewatering.
- Applied Water, which focuses on water transportation and monitoring offerings, to support residential and commercial building services companies.
- Measurement & Control Solutions, which includes products and services such as smart metering, network technologies, advanced infrastructure analytics, and analytic instrumentation.
In the second quarter, for the three months ended June 30, 2020, Xylem reported Revenue of $1.2 billion, a 14% decrease year-over-year, with a Net Income of $31 million versus $139 million in the second quarter of 2019.
This past quarter, Xylem experienced a decrease in revenue due to several COVID-19 Impacts, as orders were down 11% year-over-year. In addition, the pandemic resulted in site restrictions, which delayed large project deployments and various service operations.
However, Xylem recently signed two milestone deals, which includes a $115 million large-scale irrigation project in India and a $90 million smart metering project for Anglian Water, a water supplier based in the U.K.
Xylem also recently announced a $1 billion green bond offering in senior unsecured notes, which consisted of $500 million at a 1.95% interest rate and $500 million at a 2.25% interest rate. The funds are expected to be used towards eligible projects under Xylem’s Green Finance Framework, a guideline with sustainability and ESG standards.
In response to the COVID-19 pandemic, Xylem partnered with UNICEF, a United Nations agency providing humanitarian aid to children worldwide, to provide access to safe water and sanitation for vulnerable children and families.
Xylem’s stock is currently trading at $85.21 per share, a 7% increase this year, and a 9% increase in the past twelve months. Xylem has a market cap of $15.4 billion.
Water and Wastewater Treatment Market
The Water and Wastewater Treatment market experienced high activity and growth due to declining water qualities and growing demand for cost-efficient and environmentally friendly water technologies and services.
However, several challenges obstruct the Water and Wastewater Treatment market, including high capital costs for equipment, outdated and inefficient water infrastructures, and excess sludge production.
According to Meticulous Research, the Water and Wastewater Treatment market is expected to reach $211 billion by 2025, growing at a CAGR of 6.5% from 2019.
CHART 1: NASDAQ 100 (black) vs AQUA (purple), HEO (orange), and XYL (blue) – 1 Year Chart
