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Hello, and welcome to the Evoqua Water Technologies First Quarter 2022 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. After the speakers’ opening remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, this conference call is being recorded, and your participation implies consent to our recording of this call. If you do not agree to these terms, please disconnect at this time. Thank you.
I would now like to turn the call over to Dan Brailer, Vice President of Investor Relations. Please go ahead.
Thank you, Brittany. Thanks, everyone, for joining us for today’s call to review our first quarter’s financial results. Participating on today’s call are Ron Keating, President and Chief Executive Officer; and Ben Stas, Executive Vice President and Chief Financial Officer. After our prepared remarks, we’ll open the call to questions.
This conference call includes forward-looking statements, including first half and full fiscal year 2022 expectations, statements relating to demand outlook in our end markets, growth opportunities, our order pipeline, our acquisition strategy and pipeline, integration and future performance of the Mar Cor business, PFAS and infrastructure related legislation, supply chain challenges, inflation, labor shortages, general macroeconomic conditions, and statements related to the ongoing impact of the COVID-19 pandemic. Actual results may differ materially from our expectations. For additional information on Evoqua, please refer to the company’s SEC filings including the risk factors described therein.
On this conference call, we’ll also discuss certain non-GAAP financial measures. Information with respect to such non-GAAP financial measures is included in the appendix of the presentation slides for this call, which can be obtained at Evoqua’s Investor Relations website. Unless otherwise specified, references on this call to full-year measures or to a year refer to our fiscal year, which ends on September 30. Means to access this conference call via webcast were disclosed in the press release, which was posted on our Investor Relations website. Replays of this conference call will be archived and available for the next 14 days.
With that, I’d now like to turn the call over to Ron. Ron?
Thank you, Dan, and thank you, for joining us. I appreciate your interest in Evoqua. And I'm pleased to provide insight into our results and outlook.
Please turn to slide 3. We reported very strong first quarter results measured across all key metrics. Market demand continues to be robust, driven by the growing global need for safe and available water. We're helping customers solve problems and achieve their sustainability targets.
Both segments reported double-digit organic revenue growth, with broad-based demand across capital, service and aftermarket in all regions and most product lines. Our book-to-bill ratio was above 1 and our pipeline, and demand indications remain robust. Price cost was positive, with solid price realization across both segments.
Supply chain challenges, inflationary pressures and talent recruitment continued to result in unpredictable order conversion visibility. Our team has navigated these constraints effectively to date, and pricing initiatives across the organization have been and will remain a priority.
Cash flow was strong and we continue to drive improvements to the balance sheet. Adjusted free cash flow conversion was north of 200%. Net working capital was approximately 10% of trailing 12 month revenue. Liquidity improved sequentially, and our net leverage ratio improved to 2.4 times.
We'll discuss the Mar Cor, January 3 acquisition in a few minutes. However, when including Mar Cor’s expected annualized EBITDA and purchase price on a pro forma basis, our net leverage would have been 2.8 times as of December 31. This is well within our targeted range, with liquidity remaining solid at $270 million.
Please turn to Slide 4. Evoqua was a performance-driven water technology company focused on delivering strong financial results. As you can see, we've delivered outstanding results across these six key metrics over the past several years.
We have a talented and dedicated team focused on solving some of the world's most complex water problems. Our results demonstrate the strength of our business model and focused execution. We're proud of the progress we've made, and we remain focused on the daily actions that lead to executing our strategy.
Please turn to Slide 5. This chart represents our second quarter expected ordered demand by end markets. We have updated the relative sizes of our end markets and included more course pro forma annualized sales. We have renamed the healthcare end market as Life Sciences, which is now the largest market we serve.
The Life Sciences end market as a combination of the health care, pharmaceutical and biotech industries. We expect to see strong order demand in the second quarter across most end markets, including life sciences, microelectronics, power, food and beverage, and the life and general industries market.
Demand in our municipal wastewater end market is temporarily muted, largely due to spending deferrals aligned with the recent passage of the infrastructure bill. Our municipal wastewater pipeline is robust and we expect to see water flow picked up in the near future. Overall, we expect to see a robust demand outlook across most of our end markets in 2022. We'll be happy to address questions about specific market drivers during the Q&A session.
Please turn to slide 6. Throughout the year, we plan to highlight specific end markets and to provide additional insight into our portfolio of solutions. Life Sciences include a collection of large and growing vertical markets and we expect both segments to execute on long-term opportunities for growth. We have played an important role to the Life Sciences market throughout the pandemic, providing customers with a reliable source of ultrapure water for vaccine research and development, manufacturing of COVID test and use in hospital laboratories.
APT is seeing strong demand for EDR modules in the global pharmaceutical market and we expect pharma demand to continue. Last year, we announced the rollout of Vantage SPD, a next generation high purity water solution that provides a water one digitally enabled system for medical device reprocessing. This innovative technology has been well-received in the market. The addition of Mark Ward expands our offerings in the Life Sciences market and completes our offerings to the hospital industry.
Please turn to slide 7, we’re pleased to have Mar Cor team as a part of Evoqua. We’re attracted to the opportunity for several reasons. Mar Cor is the market leader in providing critical water solutions to FDA regulated dialysis applications. They have an extensive service branch. They have large installed base and highly recurring revenues.
Mar Cor service tax brings significant expertise and knowhow in providing high purity water to a regulated market. We were able to purchase the business for slightly over seven times annualized EBITDA, which speaks to the validity of our one to one M&A strategy.
We're working on plans to move Mar Cor under our SAP platform, and we're well underway core under our SAP platform, and we're well underway on our business integration plan. This is a highly synergistic transaction and we expect adjusted EBITDA margins for this business to reach 25% over the next 18 months to 24 months.
One example of value creation will come from branch consolidation, 25, of our Mar Cor 27 service branches are located near Evoqua branches, providing an opportunity to optimize our footprint. The addition of the Mar Cor’s service tax will enhance our service capabilities, our capacity and our technical expertise. We provided more information and more product lines on slide 23 in the appendix.
Please turn to slide 8. This slide highlights the many water treatment needs within a hospital. We've been a provider of all these capabilities for many years, with the exception of hemodialysis. The addition of Mar Cor satisfies the remaining gap in our hospital water treatment offering, allowing us to provide complete solutions for a hospital campus. We feel that the life sciences market focus could also provide additional organic and inorganic growth opportunities.
Please turn to slide 9. We were very pleased to gain two notable corporate recognitions recently. The corporate knights placed at Evoqua at 19th on its 100 most sustainable corporations ranking. We are honored to be recognized for our impact and our commitment to sustainability. We also received the Frost & Sullivan 2021 Global Company of the Year Award for Sustainability on the Water Technology Market. We appreciate this recognition of our investment in technology, innovation and our focus on sustainability.
We highlighted a PFAS handprint win in our assets segment. The city of Anaheim selected Evoqua to provide the capital and ongoing service requirements to remove PFAS from their drinking water systems in a two phased deployment. In the first phase, we’ll treat approximately 46 gallons -- 46 million gallons of drinking water per day for the majority of the city’s 370,000 residents.
Phase 2 will expand the PFAS removal treatment to industrial and commercial businesses and the remaining residents. We continue to closely monitor the impact of the recently passed infrastructure bill on the markets we serve. While it's too soon to see an immediate impact in PFAS treatment, we expect to see quoting activity ramping as we progress through the year.
We’re pleased to see the 2022 National Defence Act is signed into law. This authorizes funding for military activities, including $517 million above the president's budget request for clean-up of military communities impacted by PFAS and $100 million for environmental remediation to the base realignment and closure account.
I would now like to turn the call over to Ben. Ben?
Thank you, Ron. Please turn to slide 10. For the first quarter, reported revenues were up approximately 14% to $366 million. Organic revenues grew approximately 13%, with both segments reporting double digit growth driven by broad-based volume growth and price realization.
We saw revenues increase in services, capital and aftermarket, as well as growth across all regions and most product lines versus the prior year. First quarter adjusted to increase 21.2% to $54.3 million for an overall margin of 14.8%, an increase of 90 basis points over the prior year. Strong volume, favorable price, cost – favorable price cost and mix were drivers of improved profitability.
Please turn to slide 11. Our Integrated Solutions and Services segments, first quarter revenues were up approximately 14% to $245 million. Organic revenues grew approximately 13%. Strong volume and price realization contributed to revenue growth. Capital sales were up driven by chemical processing and microelectronics.
Service revenues were up across all divisions and driven by light and general industry, food and beverage and life sciences and markets. Digitally enabled revenues grew 12% for the quarter versus the prior year. Outsourced water continues to have a robust pipeline across multiple end markets.
Adjusted EBITDA increased 23.8% to $54 million due to higher volume, favorable price cost, mix and productivity improvements. Adjusted EBITDA margin for the quarter was 21.8%, up 170 basis points from the prior year. Profitability and margins on digitally enabled revenues and outsourced water remains strong and highly accretive to overall ISS margins.
Please turn to slide 12. We continue to see strong year over year growth in ISS backlog. First quarter backlog was up $100 million or 15% over the prior year, with growth coming from both capital and outsourced water orders. Our pipeline continues to be robust with opportunities across multiple end markets. We expect to see our book to bill ratio remain above 1 throughout fiscal 2022.
Please turn to slide 13. Applied Product Technologies first quarter revenues were $121 million, up nearly 13%. Organic revenues increased $13.6 million, or 12.7%, driven by strong volume growth and price. Revenues grew across all regions and across most product lines, including Electrochlorination, Advanced Filtration and Separation, Aquadex and Disinfection. Adjusted EBIDTA for the quarter increased 15.3% to approximately $22 million. Adjusted EBITDA margins increased 40 basis points to 18.1%.
Please turn to slide 14. One of APT’s long-term organic growth initiatives is to develop new and innovative technology that furthers our portfolio of sustainable products and to pursue market share gains in core end markets. Each quarter we featured a new APT product and we're pleased to highlight the mark for Mark IV Chloropac system. This new generation system has a smaller footprint has improved self-cleaning capabilities and lower maintenance requirements.
The Mark IV uses electricity to produce chlorine from seawater that is circulated through cooling pipes and offshore renewable energy electrical transformers. The chlorine prevents either mussels and other marine growth in cooling pipes, which improves reliability and lowers transformer maintenance costs, which are critical drivers for our customers as the number of unmanned offshore platforms continues to increase.
Please turn to slide 15. Capital spending, primarily for outsourced water orders was approximately $16 million for the quarter or approximately 4.2% of revenues. The Mar Cor CapEx spending is expected to be in the range of Evoqua’s historical average of 5% to 6% of total sales. We expect Mar Cor’s CapEx to be less than 2% of sales after completion of integration activities.
First quarter net working capital was 10.4% of LTM sales and improvement of 280 basis points over the prior year. Over the long term, we anticipate net working capital to sales could now be in the low teens range given some products -- projects may have varying amounts of working capital requirements.
Please turn to slide 16. Operating cash flow improved to $36 million in Q1 versus $23 million in the prior year. Adjusted free cash flow as a percentage of adjusted net income continues to be well above our 100% conversion goal and at over 200% for the quarter. Our net leverage ratio finished at 2.4 times of adjusted EBITDA.
As Ron mentioned earlier, our leverage as of the end of Q1 on a pro forma basis with the expected annualized impact of Mar Cor results is approximately 2.8 times well within our targeted range. Maintaining a strong balance sheet with net leverage within our targeted range over the long run remains a key priority.
Our weighted average cost of debt for the fourth quarter is approximately 2.8%, an improvement of approximately 60 basis points over the prior year. We were very pleased to have received an upgrade in January to our Moody's credit rating to Ba3 with a stable outlook following the Mar Cor acquisition.
Please turn to slide 17. Two key long-term financial targets are 3% to 5% organic revenue growth and 20% adjusted EBITDA margins. This graph shows our performance since 2018 for both metrics. We are pleased with our performance, especially considering the constraints placed on the business from the pandemic. On the right hand side we have highlighted multiple organic revenue opportunities, as well as the actions we expect will help us achieve our adjusted EBITDA margin target. We also expect Mar Cor will be accretive to adjusted EBITDA margins post synergies, helping us to achieve our long-term goal of 20%.
I would now like to turn the call back over to Ron. Ron?
Thanks, Ben. Please turn to slide 18. We had an excellent quarter with outstanding results across the key metrics of the business. We're pleased with the strong broad-based organic revenue growth across both segments, all regions in most product lines. Our pricing actions are a priority and are expected to contribute to growth during the year.
Adjusted EBITDA margin expanded 90 basis points, driven by strong volume, favorable price cost and mix. Outsourced Water continues to make excellent progress and is contributing to the ISS segments, highly recurring revenue model. Our balance sheet remains strong with high liquidity, even after the pro forma addition of the Mar Cor acquisition.
We're very pleased with the Mar Cor acquisition and the growth opportunities and margin enhancement that it brings to the organization. Our M&A pipeline remains active and we continue to pursue other tuck-in opportunities. We're raising our full year outlook to adjust for the Mar Cor acquisition and for performance to date.
We expect full year revenues and adjusted EBITDA to be in the range of $1.62 billion to $1.70 billion and $280 million to $300 million, respectively. Additionally, we expect the first half of that FY 2022 EBITA as a percentage of full year EBITDA to be in the low 40% range, which is consistent with prior years, as shown on slide 21 in the appendix.
I will now open the call for your questions.
[Operator Instructions] And we will take our first question from Bryan Blair with Oppenheimer. Your line is now open.
Thank you. Good morning for a solid start to the year. I was hoping you could offer a little more color on the key sources of Mar Cor synergies and maybe how we should think about the timing of drop through as you progress toward the 25% margin target you said.
Yeah. Thanks, Bryan. I think as I highlighted in the remarks earlier, 25 out of their 27 branches are located in the same area that the Evoqua branches are, so being able to optimize our footprint in those locations are going to be key. The other thing I would say is we got a very talented team that's coming over across the service tech network, giving us additional capacity opportunities for growth and just penetrating that market is going to continue to drive success in this acquisition.
As far as the timing goes, it really goes with my remarks. I mean, we expect to hit this in 18 to 24 months. We're working hard on the integration of the business. We've got a dedicated team from Evoqua that is there as well as their dedicated team and we anticipate we'll -- this will probably ramp up in that timeframe that I highlighted.
Okay. Understood. And does the scale of the deal in any way restrict your team from moving forward with the more typical tuck-in kind of M&A that you do? I'm not referring to financial capacity, I know net leverage performance 2.8 year, you're well within target range. I'm just thinking about, potential complexity of the integration, those moving parts, maybe requiring exclusive focus for a period of time?
I think it gives us a real opportunity. I think the scale of the deal is very similar to any single branch tuck-in acquisition will do. I mean, so what we did is we dedicated a stronger team of Evoqua team members full time into driving the integration. We want to integrate quickly. We want to make sure that we're driving the opportunities there and again, I mean, doing it 25 times versus doing it once obviously adds a degree of complexity. But that's why we've captured 18 to 24 months as a time frame to get there.
Understood and one more, if I may. APT margin was above expectations, that was kind of a watch item coming into the quarter, given the more global exposure you have there. How did Q1 supply chain constraints compare to your Q4 experience? And is there any meaningful shifts in the early part of Q2 to date?
No, Brian, about the same. I mean, I would say overall, it's the same I would say overall, it's the same type of challenges we saw in the prior quarter, we're seeing now and maybe we have a little more experience managing them. It’s the one area that's of obviously the largest challenges, electronics, components, we've been doing a pretty good job of managing that. But the rest of them are really energy related, but it's more of a price situation minimal pass through versus availability. But the area that we got to keep our eye on very closely is electronic components.
That makes sense. Appreciate the color. Thanks again.
And we will take our next question from Deane Dray with RBC Capital Markets. Your line is now open.
Thank you. Good morning, everyone. Hey. Appreciate all the color on the Mar Cor deal and like seeing that life sciences is now your largest served end market. And so maybe we can start about with sizing the addressable market here for these between hospitals, pharma, et cetera. So for a hospital today, what percent of their water treatment is in source that they're doing themselves and that kind of gives us a sense of what that opportunity is for Evoqua to come in and offer the outsourcing?
Yeah. Deane, I would say a pretty high percentage is insourced inside of hospitals today. I mean, we provide the products and a lot of cases, as we identified on that slide that we showed the diagram. So we would sell them equipment, sell them products and then we've been driving though, as we highlighted the vantage SPV into more smart water into more applications where it is truly an outsourced water where they're worried about quantity and quality instead of the equipment themselves. But to-date, the majority of hospitals managed their own water system. We do the preventative maintenance, we service it, but the opportunity for outsourcing is certainly there.
That's great to hear. What's usually the tipping point where they flip the switch and say, yes, we'd rather outsource this to you. And how does that compare to, let's say, the electronics market semiconductor market where similar needs for ultra-pure water?
A lot of -- the tipping point is really us driving the technology. And the opportunities that we've been able to show the hospital systems with us being able to be on site digitally 24/7 without actually having to have team members there. It has been a great benefit. The other driver for them is it's just the need to find talent.
I mean, their difficulty in being able to staff for what they're going after is a very good trend that helps us continue to promote let us do what we do well, which is provide you quantity and quality of water and you do what you do well, which is provide the healthcare services that the people need. As far as microelectronics, I would say that it's something that will be synonymous going forward, but right now, it's the hospital systems are much earlier or much later in the cycle during that conversion.
Good to hear. And just second question for Ben, look I know we're not going to extrapolate the 200% free cash flow conversion, but you're working capital sales right now is top quartile easily, but your guidance for low-teens is that's just giving you some wiggle room here on working capital and what would be some examples of projects that would drive CapEx, working capital a bit higher into that low teens number?
It has given us some wiggle room Deane and one of the things that could turn on as we head into the second half of the year is wastewater projects in the municipal space, and in that particular area, it's low pressure on working capital generally municipal does. We feel pretty good about being able to manage that and certainly like it to keep it at world class levels. However, those types of projects, if they start coming on along with the infrastructure bill, could put some temporary pressure on working capital. So we've left a little room in the working capital outlook.
And we will take our next question from Nathan Jones with Stifel. Your line is now open.
Good morning, everyone. I want to start with one on microelectronics, there’s been a number of bugs announced in the US, some in the Southwest, Ohio. Can you talk about the opportunity that presents for [indiscernible] some of these microelectronics projects can be quite large in terms of the water infrastructure that's got to go in there? Just any color you can give on what you think the opportunity around those projects are and what kind of timing you might be looking at?
Yeah. So the microelectronics bubbles end market as you saw on slide 5 is certainly green, it’s very green and we're pleased with it. Microelectronics bounce even though they announced it still takes a fair amount of time for them to place the order, but also just get the infrastructure up and running so that we actually can put the water system in. So as far as the timing on the projects go, Nathan, we've got a great pipeline coming in right now Again, we've highlighted that market as green on quarter over quarter order expected demand coming in the second quarter. But those projects can run out, you know, 12 to 36 months.
Okay. And I wanted to look a little bit back in history. It was a little over three years ago now that you rolled out the Outsourced Water Initiative across the U.S and some targets that you targeted 50% conversion of your own customer base -- the applicable customer base onto an outsourced water business model within three years. Where are you with the conversion of that customer base targeted 50%? Where did you actually get to in those three years?
Well, if you look at what we've identified as outsource waters of roughly a third of ISS's business. And so that is, you know, pretty much in line with what our targets were. When you talk about applicable customers that we can actually install outsource water systems and the opportunities I think will continue to grow much to one of the other earlier questions we got as we expand more broadly into vertical markets. And that's one of the things that we highlight. And this mark or acquisition is the opportunity to be able to, you know, take a new solution to outsource water. And by having a full complement of products to service the hospital system and other life sciences applications, it gives us a real opportunity.
You talked about that 20% of installations being market share gains for outsourced water, but I've not asked about that for a while. Is that still the case that you're continuing to use and leverage that model to gain market share?
It is. And I mean, I would say it continues in the same number that we've seen historically and a lot of that Nathan is coming again from getting customers to outsource what they insource. So whether it's actually an outsourced water model to where they're buying quantity and quality or they're allowing us to provide them with the product and the treatment systems that they have historically put together and managed themselves with preventative maintenance. So being able to continue to convince our customers to outsource what they insource gives us an opportunity, as the market grows we're gaining share.
And we will take our next question from Andrew Buscaglia with Berenberg. Your line is now open.
Good morning, guys. I was hoping you can give me a little bit more color on the guidance you put out there. Mainly it seems like the guidance -- how much was the race more like if you could parse out core guidance versus the acquisition? And then secondly, does the guidance not imply that your margins with this year-over-year declines in the back half of the year?
Yeah. So we factored in the B plus an extra 42 million on the core, so about $5 million was the base business of that improvement. The rest was Mar Cor on the EBITDA line. And then -- we believe that the traditional seasonality when you look at page 21 should be essentially the same. And so we also are keeping our quarterly outlooks consistent what we've seen with our most recent historical years.
Okay. And then looking at the ISS backlog composition, so service versus capital backlog has been relatively the same now for some time, just looking for, like what exactly -- I guess, going forward, what you're expecting and what exactly would prompt some accelerated conversion of that services piece into revenues? I guess, what -- I guess, what's kind of holding it up at this point?
Well, it's going to convert. We have, if you can see that on page 12, we also have the amount of time in which that backlog converts by category to help you with that. But, it should stay relatively stable. Our backlogs have been converting, as we've expected.
And this quarter, we obviously, versus the prior quarter, due to the pandemic, there's been a little better backlog conversion, obviously. But, we have a strong robust pipeline. I want to be very clear about that and we are pretty much broad-based across the ISS. And within that services growth, as I mentioned in the script, it was very broad-based as well.
So, right now, the key for us is managing the supply chain, making sure that availability of talent and making sure that we continue to stay focused on managing the supply chain challenges. So, demand is good and it's very solid, and the backlog remains robust.
And we will take our next question from Mike Halloran with Baird. Your line is now open.
Hello, everyone. Good morning. Kind of, taking on that and taking on something they'd asked earlier a little bit. Do you -- do you think you're at that tipping point then with the model conversion, where you talk about backlog kind of converting in line with that you're thinking? Are we at the point where we're starting to see a little bit more normalization between what's been a multi-year run of really strong orders and starting to see that normalize a little bit towards what that revenue growth number would look like or as kind of a sequential improvement we're seeing here more tied to a broader range of things than just that.
I think – I think we will see normalization as the pandemic subsides, things turn back to normal, but again, we're still got the supply chain remains the key constraint, Mike, but the pipeline remains robust, the end markets are good. The constraining factor is really the supply chain and our ability to convert. And I also want to throw labor in there as well. That's another key issue we have to manage through. We've been doing a good job, but that's also a key part of the equation as well.
But Mike with continued outsource opportunities that are multi-year in the pipeline, yeah, we expect the backlog will continue to grow.
Right. It's going to be steady and stable. That's this business model.
That makes a lot of sense. And then, on the Mar Cor transaction, I think you mentioned in prepared remarks, this essentially fills a product portfolio gap, you feel like you've got a whole hospital solution at this point. Maybe what was the not having that preventing you from attacking that earlier and now that you have it, what's the opportunity said from a broadening perspective?
Yeah, that's a great question. Not having it stopped hospital systems from being able to have a one stop shop. So, us going in and providing the full opportunity to take the entire complex, and as we've seen hospital systems actually consolidate across the country, those opportunities with corporate contracts are becoming much, much stronger.
And again, hospitals are facing the same challenges other companies dealing with water issues or emerging contaminants, challenges on what they have, as well as a labor shortage. So, that provides us a real opportunity to go in and be able to be, the full solution provider for them. And the market size itself, I think in the dialysis market as a whole, I think we've -- we size it around $300 million, but it could -- it will continue to grow over time and has had pretty good growth trends in the past.
It is that differentiated that that one stop shop within that market differentiator, I know that's differentiated in a lot of the other markets you serve more curious on that one specifically.
It does fully differentiate us in that market having that ability to take the entire water challenge that a hospital campus would face.
And we will take our next question from Andy Kaplowitz with Citigroup. Your line is now open.
Good morning guys. Ron and Ben, I know you mentioned that you're still seeing some delays in municipal wastewater, but it is still a positive to see the market and aquatics in above their turn from yellow last quarter to blue this quarter. Do you think municipal wastewater actually begins to pick up by the end of your fiscal year here and then have you seen any significant improvement in aquatics markets yet or are they still being held down by various related uncertainty?
Yeah. That's a great question. We absolutely do feel like we'll see the municipal wastewater turn to green, as we progress through the through the fiscal year. And that was one thing I commented in the remarks. The infrastructure bill is going to be fantastic for fuelling demand, fuelling the opportunities for growth, but it does create a bit of a pause, while municipalities wait to see what kind of funds flow they're going to get.
And so we've got some terrific indications as we're looking out -- looking at our pipeline, seeing what the opportunities are certainly there are a lot in the prelim stages, but this chart specifically is highlighting what books in the quarter, and we think that'll come in the latter half of the year.
Aquatics is getting better. Again, as we said, I mean, there, I think a lot of the delays that we've seen on new parks openings still exist. But a lot of the opportunities to make sure that things are up and operational and running to the standard is actually what's helping the market return.
Thanks for that. And then Ron, you've been highlighting new products basically every quarter now from APT, when you update us and in your quarterly earnings presentation. So how should we translate the proliferation of new products into potential growth as your new product Vitality Index, you know, continue to go higher here, so we should think about, you know, all these new products contributing more to that sort of 3% to 5% longer term guide, organic guide that you have.
Absolutely, you know, and that's one of the things that we're focused on. We continue to, you know, drive innovation and drive patents. We just opened our new sustainability and innovation hub here, you know, very close to the headquarters in Pittsburgh, where we're investing and bringing out new solutions and new opportunities, just like, you know, again, highlighting the more affordable, we’re thrilled about that.
And really, as we see the markets evolve, we see, you know, continued challenges in treating water with emerging contaminants. We have to change our product range, and we're going to continue to drive the Vitality Index and - and I would say APT has done a terrific job of launching this.
And we will take our next question from John Walsh with Credit Suisse. Your line is now open.
Hi, good morning, everyone. Hey. I wanted to go back to -- I wanted to go back to the Mar Cor transaction. Obviously, it looks like, you were able to get it at a very attractive valuation, especially for what it's going to bring to the organization. Just, can you give us a little bit more history about how that came to be and maybe a little bit about what you're seeing for valuations in your pipeline?
Yeah, we've -- we've been working on being able to close the Mar Cor acquisition for quite a number of years, as they've been owned by different -- different entities. So, we've -- we've had communications with them, going back four or five years. And the opportunity came to fruition once TerrAscend closed on -- on the acquisition of 00:40:09, which gave us an opportunity to -- to move that forward and progress it more quickly.
So, again, in my remarks, I made the comment about we, typically, are in bilateral negotiations, one to one. We don't participate in a lot of auctions. Our process has really worked and this is more evidence of our process working.
As we look at our pipeline, again, it's a lot of tuck-in acquisitions that we've identified the opportunities on, and we continue to see those, 7 to 9 times pre-synergy and somewhere around 4 to 6 post-synergy.
Great, thank you for that. And then, I guess, we -- last couple of quarters, we've talked a lot about emerging contaminants. We've -- we've talked about PFAS. It looks like the -- the EPA is starting to do some more regulations around air quality and air pollution. Just curious if you're seeing anything broader on the waterfront, trickling out that that might be additional kind of regulatory drivers, either state or federal level?
I think the opportunity is are really what we’ve been highlighting in the past, a lot of it’s PFAS, it’s micro-plastics, it's different kind of pharmaceuticals and water as well as the power industry is the power industry converts to more renewables and coal fired power plants are shut down. We continue to treat around challenge contaminants such as selenium with technologies that that are very unique in the marketplace and give us a competitive advantage.
And we will take our next question from Brian Lee with Goldman Sachs. Your line is now open.
Hey, guys, good morning. Thanks for taking the questions. Maybe just going back to Mar Cor, maybe this is a seasonality issue, but I think when you make the deal, you talked about $180 million of annualized revenue. You just kind of beat expectations by a decent amount here in the quarter. And if I kind of take the three quarters of revenue contribution annualizing that or -- that your guidance at the midpoint is up about $120 million I think it would imply Mar Cor’s adding like $135 million. Is there some seasonality in the Mar Cor business or is there something else we're missing as to why the revenue from this quarter, which was nice and then the Mar Cor contribution, isn't adding up to maybe a bigger guidance rate just if I look at the numbers here?
Well, it's the first quarter, right, that we own them, we've got to assess the business, we got to understand a lot about the seasonality, et cetera. And anytime you do an acquisition, there's always a little bit of disruption until people settle in. So we did try to make sure that we took a measured approach until we really get to know the business and understand it, which we're in the process of doing.
More to come on that later as in our next earnings call, but for now we did – we cut with an ex on this, on how we rolled it out. The totals are fine. We're very confident in that. We're getting down to monthly expectations. It takes a little more work considering the integration plan that we have in place.
Right. Fair enough. Thanks. That makes all the sense in the world. The second question on the infrastructure bill and you mentioned sometimes means pausing as they try to figure out the new state of the state as it – as it relates to the PFAS side of things, can you give us an update as to what you're seeing in terms of you backlog trends as well as any feedback, post the infrastructure bill passing here on the PFAS side specifically for you guys?
Yeah, I think a little bit of what we're seeing is across PFAS is the same thing that were seeing across municipal wastewater. There's a bit of a pause to wait and see what the dollars are going to look like and see where the regulations are going to be set, but the pipeline is very strong. I think in the latter half of the year, we'll see a pickup in orders around PFAS specific treatment. We highlighted the one in a two phase approach that we won in the city of Anaheim in the opening remarks, but I think we'll see more of that continue, but I imagine this is going to happen more towards the back half of the year.
And we will take our next question from Pavel Molchanov with Raymond James. Your line is now open.
Thanks for taking the question. Follow-up on what you guys were just asked regarding the infrastructure package, given that PFAS as a single contaminant, given that PFAS as a single contaminant, it's very difficult to kind of disaggregate from the overall issue of water quality. What does it mean in practical terms for billions of dollars to be allocated to clean up of just one contaminant within a spectrum of thousands of others?
Yeah, I mean, -- I think it's just -- it's going to give us and give the market as a whole very good secular tailwinds that the government's going to address and fix. So billions of dollars going there, as you're cleaning up the PFAS, you're going to be cleaning up other contaminants inside of the water train and inside of the chain. And so I think the opportunity there is very strong for the years to come. And, but one thing that does have to happen is we have to define the treatment specification and we have to define what it means to have clean water on the backside when you're identifying something like PFAS.
Okay, that's helpful. The -- with the STERIS acquisition, your leverage is obviously higher than it has been, maybe in the last 12 months or so, although, still well below historical highs. Can you just remind us where you want to kind of cap debt to EBITDA or any other metrics that we should focus on?
Yes, we still remain committed to our 2.5 times, 3 times range over the long run. We -- and I think when we look at our outlook, we could stay within that range. It's not that we would not exceed that for a very, very good deal that made one heck of a lot of sense. But we would deliver quickly into that range. So we feel very committed to staying, and keeping our EBITDA range after 3 times.
And we will take our next question from Joseph Giordano with Cowen. Your line is now open.
Good morning. This is Michael [Indiscernible] in for Joe. I wanted to touch on the organic growth results for the APT segment, do you believe any demand has been pull forward in any way. Can you provide any color for this development?
Actually, no. It's probably been the other way around. We could have grown more within APT had it not been for some of the supply chain challenges. So there was nothing in this quarter that I can that was obvious in terms of a pull in, it was more of a push out.
Thanks and one more, if I may. I apologies if this was covered prior, but is there a breakdown of organic growth by segment for the full year?
No, we did not break it down and organic growth outlook for the full year, but for the most part, you could take out Mar Cor the remaining portion of our outlook was really organic.
Thank you. That concludes our question-and-answer period. I would now like to turn the call over to Ron Keating for his closing remarks.
Thank you again for joining us today. We greatly appreciate your interest in Evoqua and thank you for your time and attention and questions. We are absolutely thrilled to welcome the team into the Evoqua organization and we thank our team members every day for executing on our mission and our purpose of transforming water enriching life. So we'll talk to you again next quarter. Thank you.
Thank you. That concludes today's Evoqua Water Technologies first quarter 2021 earnings conference call. You may now disconnect your lines, and thank you for your interest in Evoqua.