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Evoqua Water Technologies Corp. (NYSE:AQUA)
Q1 2020 Earnings Call
Feb 4, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Evoqua Water Technologies First Quarter 2020 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be opened 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 with 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.

Dan Brailer -- Vice President, Investor Relations

Good morning, everyone. Thank you for joining us for Evoqua Water Technologies conference call to review our first quarter 2020 financial results. Joining me 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 will open the call to questions. We ask that you please keep to one question and a follow-up to accommodate as many questions as possible.

This conference call includes forward-looking statements, including our expectations for fiscal year 2020 as well as expectations relating to our two-segment realignment, execution of our digital strategy and the market for treatment of emerging contaminants. Actual results may differ materially from 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 have a discussion of certain non-GAAP financial measures. Information required by Reg G of the Exchange Act with respect to such non-GAAP financial measures is included in the presentation slides for this call, which can be obtained via Evoqua's Investor Relations website. All historical GAAP financial results have been reconciled and included in the Appendix section of the presentation slides.

Unless otherwise specified, references on this call to full year measures or to a year refer to our fiscal year, which ends on September 30th. Means to access this conference call via webcast were disclosed in the press release, which was posted on our corporate website. Replays of this conference call will be archived and available for the next seven days.

With that, I would now like to turn the call over to Ron.

Ron Keating -- President, Chief Executive Officer and Director

Thank you, Dan. Please turn to Slide 3. Profitable growth continues to be our highest priority, and we are very pleased with our first quarter results. We are now one year into our two-segment realignment, and I commend our team's operational focus and performance intensity. The realignment continues to prove beneficial in the way we sell our entire portfolio of solutions, and we are very pleased with our progress and execution in capturing our future growth opportunities.

Evoqua is in an excellent position for long-term profitable growth. First quarter revenues grew over 7%, driven by solid growth in both segments. Organic revenues increased almost 6%, and we believe we are improving our market position as customers are responding favorably to our go-to-market strategy. Service revenue grew by nearly 5%, driven in part by our investments in outsourced water and our focus on capturing the service opportunities that follow our capital projects. Our orders continue to grow and outpace sales again this year, and our pipeline remains robust with solid end market demand.

Adjusted EBITDA increased almost 14% to $44 million as we benefited from volume leverage mix and the benefits from our restructuring efforts. Our digital strategy continues to be a top priority, and we're working to accelerate it throughout the organization to improve operational efficiency, generate stable and recurring revenues, increase profitability and expand our margins.

Our customers are realizing the benefits through improved uptime, better compliance and 24/7 operational monitoring and control. On the heels of our success of our recently launched Water One pay-per-use model, we have decided to extend our digital strategy across multiple businesses. As an example, we are making digital investments in our municipal services business through expanding our feedback connection to wastewater customer sites that have been base level connected for several years. We are working to align all of our connected businesses to Evoqua's companywide digital enterprise system, which reduces the cost to connect, expands our functionality and allows us to accelerate the growth of our connected treatment sites and devices. Increased functionality in businesses like our municipal services odor and corrosion control will enhance our ability to apply data analytics that will improve our performance and efficiency, while optimizing customer site applications.

Our growing order book is in part driven by our capital expenditures as we invest in a variety of high-return outsourced water assets for longer term customer contracts. Our trailing 12-month adjusted free cash flow is over $100 million, and we are well above our 100% conversion target. We were pleased to close on the sale of the Memcor product line on December 31st. We recorded a net pre-tax benefit of $49 million on the transaction and applied $100 million of proceeds to reduce our indebtedness. We have reduced our leverage by nearly a full turn over the past year to 3.4 times, and we will continue to balance investing in growth opportunities, while also working to improve our capital structure.

Please turn to Slide 4. The complexities in treating water are significant and growing, increasing our customers' compliance and production challenges. Evoqua is well equipped to respond to threats to the safety of our water supply. Recycle and reuse, emerging contaminant management and life sciences water purity are just a few examples of some of the increasingly pressing issues facing our local communities and water sources.

Our broad portfolio gives us a unique ability to treat challenges such as PFAS through emergency treatment and mobile assets, while we determine a fit-for-purpose permanent solution across industrial, municipal and commercial markets. Market and regulatory forces are accelerating the establishment of PFAS water standards, yet federal, state and local authorities vary in minimum treatment levels and time lines and the overall treatment adoption rate is highly variable, driven in part by public perception. While the regulatory process evolves, we are actively engaged in responding to opportunities and leveraging our extensive service network and mobile fleet.

Based on management's estimate of large US PFAS installations, we estimate our current share at approximately 30% and we expect the number of installations to grow over the coming years. These installations include municipal drinking water, military bases, industrial sites and landfills. In addition to our current technologies to remove PFAS, we are investing to expand or enhance our product portfolio, we're also investing new technology trials aimed at developing and expanding PFAS destruction technologies as this market evolves through the adoption of federal, state and local regulations.

Please turn to Slide 5. Overall, the business continues to benefit from stable and recurring revenue growth. This graph presents 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 8.5% with adjusted EBITDA growth over 19% during this time.

We primarily pursue capital projects to ultimately drive stable, recurring and profitable service and aftermarket growth. Currently, our service business comprises 41% of total sales, while service and aftermarket combined make up approximately two-thirds of our business. We continue to see strong product revenue growth of 11%, pulling through and accelerating service revenue growth, which is now over 5% compounded annually since 2016.

As we've 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.

I will now turn the presentation over to Ben to review our financial results.

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

Thank you, Ron. Please turn to Slide 6. For the first quarter, revenues grew $23 million or approximately 7% over the prior year to $346 million. Organic revenues grew nearly 6%. Integrated Solutions and Services revenues grew approximately 8% and Applied Product Technologies revenues increased 5% over the prior year.

Adjusted EBITDA was $43.6 million, up approximately 14% over the prior year, for an overall margin of 12.6%, an improvement of 70 basis points over the prior year. First quarter profitability and margins benefited from volume leverage favorable price cost of $3 million and two-segment realignment benefits. Results were partly offset by higher employment costs.

As Ron mentioned, we are very pleased to have completed the Memcor product line sale. Please note, the GAAP profitability shown on the chart include a net pre-tax benefit of $49 million, which is excluded from the adjusted metrics.

Please turn to Slide 7. For the first quarter, Integrated Solutions and Services revenues were up over 8% to $228 million. Capital revenues were up approximately 27% while service revenues were up approximately 5%. We experienced strong growth from customers in the microelectronics and chemical processing industries during the quarter.

Organic revenues grew almost 8% in the quarter. Our recent investment in Frontier contributed approximately $1 million to growth. Adjusted EBITDA margins increased by 100 basis points to nearly 21.4% for the quarter, driven by volume, mix and favorable price cost. As expected, higher employment costs partly offset adjusted EBITDA growth.

Please turn to Slide 8. For the first quarter, Applied Product Technologies revenues increased approximately 5% to $118 million. Organic revenues grew 2% while foreign exchange negatively impacted revenues by approximately $1 million. Adjusted EBITDA grew 13% to approximately $16 million for a margin of 13.4%, up 100 basis points over the prior year. Improvement was driven by volume leverage, favorable mix and two-segment realignment benefits.

Please turn to Slide 9. Capital expenditures in the first quarter were approximately $18 million, nearly the same as last year. Outsourced water projects and mobile fleet expansions drove most of the growth investments. Net working capital decreased sequentially from Q4 of FY '19 by approximately $29 million, which reflects a $23 million reduction from the Memcor divestiture. Net working capital in the quarter includes approximately $2 million from acquisitions.

Please turn to Slide 10. Adjusted free cash flow for the quarter was negative $6 million and positive $103 million on a trailing 12-month basis, an increase of 86% over the prior LTM. First quarter adjusted free cash flow was in line with our average seasonality for the past four years. During the quarter, we financed $3.5 million of growth capex investments related to outsourced water initiatives. Net leverage improved sequentially from 3.8 to 3.4 times in the quarter. As commented earlier, we applied $100 million of net proceeds from the Memcor divestiture to pay down debt on January 17. Our current weighted average cost of debt is approximately 5%.

Please turn to slide 11. The 2020 long-term tailwinds and uncertainties, we outlined last quarter continue to be relevant variables to our full year outlook. We are pleased with the start of the year and we will continue to take a balanced approach that factor in order conversion timing and second half macroeconomic uncertainties. We are reaffirming our full year guidance and, consistent with our comments last quarter, we continue to expect the first half of the year to be approximately 40% of the full year adjusted EBITDA midpoint of $235 million.

Over the past four years, adjusted EBITDA for the first half has averaged approximately 40% of the full year adjusted EBITDA as shown in the appendix of the webcast presentation, which implies second quarter adjusted EBITDA to be in the range of $49 million to $51 million.

I would now like to turn the call back over to Ron for his concluding remarks.

Ron Keating -- President, Chief Executive Officer and Director

Thank you, Ben. Please turn to Slide 12. We're off to a solid start to the year and I'm very proud of our team and our market-leading position. Our two-segment realignment is resulting in a more effective organization aligned around the customer and yielding benefits including strong order growth and a robust pipeline of activity.

We're continuing to invest in people, systems and processes to fulfill our backlog and our expected demand. Water One is our platform that digitally enables our water treatment assets and transitions our customers to pricing models based on usage. We're extending Water One beyond our ISS service deionization business and are pleased with our progress.

Our digital strategy is focused on accelerating market adoption by offering customers a compelling value proposition while improving Evoqua's overall operational efficiencies. We believe our digital strategy is a competitive differentiator and customers are responding positively. PFAS and other emerging contaminants are creating significant challenges for customers and our portfolio of treatment alternatives and expertise have never been more important. We have a comprehensive product portfolio, extensive service network and expertise to assist customers with this growing threat to water quality.

We are fortunate to operate in an industry that we believe has significant long-term tailwinds, since clean water is a mission-critical resource that is becoming increasingly more complex. We believe over the long-term, the water treatment market can grow faster than GDP due to favorable macroeconomic trends and customer outsourcing opportunities. Our goal is to grow organically one to two points faster than the water treatment market.

We expect growth capex spending to remain in the range of 3% of sales, as we invest to meet growing customer demand. Overall capital spending as a percentage of sales should be in the 5% to 6% range from factoring in maintenance capex spending. Additionally, we will maintain our acquisition strategy of pursuing attractively priced tuck-in acquisitions to supplement organic growth and fill identified gaps allowing us to better serve our customers.

We are pleased to have the Memcor product line in the hands of a long-term trusted partner and we look forward to continued access to world-class membrane technologies. We've been diligently working to improve our balance sheet and the Memcor transaction provided an excellent opportunity to accelerate our top line.

We are committed to being the market leader with a strong and sustainable business model. And as Ben indicated, we reaffirm our full year outlook. As in past fiscal years, we expect the first half of the year to represent approximately 40% of our full year adjusted EBITDA with approximately 60% following in the second half of the year.

We will now open the call to your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question will come from the line of Deane Dray of RBC Capital Markets.

Deane Dray -- RBC Capital Markets -- Analyst

Thank you. Good morning, everyone.

Ron Keating -- President, Chief Executive Officer and Director

Good morning, Deane.

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

Good morning, Deane.

Deane Dray -- RBC Capital Markets -- Analyst

Hey, it was great to see this point of highlighting the expansion of digital across multiple platforms not just Water One. It's not surprising, but it's really interesting as what this growth opportunity could be. So. Ron, could you frame for us what inning are you in here? And is there any concern at all with acceptance by customers? Because water customers are notoriously slower to adopt technology even if you do have a better mouse trap? So what is -- do you want to set expectations about the adoption of digital for the -- across the platform beyond Water One?

Ron Keating -- President, Chief Executive Officer and Director

Sure, Deane. And thanks for the questions. We're still early innings in the game of rolling out digital. I would say, nine-inning baseball game we're in the top of the third. Opportunities are tremendously there, and we are finding them.

As I highlighted in the commentary, that we've been connected on a base level line with our odor and erosion control in the municipal space really around just usage of the chemicals that were being used in that space. We've also been connected in a lot of our mobile assets and we're expanding that so that it's much more effective for the customers, much more usable for us around predictive analytics as we go forward. So, customers are accepting it because what it's driving is efficiency in our operations and giving them 24/7 monitoring without us having to have people on-site. They're very happy to see it there.

Deane Dray -- RBC Capital Markets -- Analyst

Great. And then, for my follow-up, I'd like to address some of the points that you highlighted on the PFAS capabilities with Evoqua. And so far, you all have been very measured in terms of what your capabilities are. And my understanding is, you have all of the technologies for PFAS remediation today in-house. Really interesting you're going to add PFAS destruction capabilities, which I assume is incineration. But just talk about how this develops from here. Is it all remediation discussions in terms of what the customers are asking you to do? And what does that mean for Evoqua's growth expectations profitability and so forth?

Ron Keating -- President, Chief Executive Officer and Director

Yeah. It is remediation they're looking for. But one size doesn't fit all. And I think that's the unique benefit that we have. As I pointed out on Slide 4, we have granular-activated carbon ion exchange, RO oxidation processes. We're focusing on advancing our AOP around destruction technologies. That's where we're doing some testing. We actually already have destruction technologies that is already embedded inside of our reactivation facilities, so we're doing that and driving that. That's a form of incineration as you would call it. And as we're reactivating carbon, we're destroying the PFAS as it comes out. But there are other opportunities as we advance the technologies to be able to do through AOP and some other methods.

Deane Dray -- RBC Capital Markets -- Analyst

Great. And just last question for me, if I could. When you say 30% share of this business, which I think has to be in the very early innings in terms of PFAS remediation, how many sites do you have currently? And maybe your exit rate for the year, how many sites do you think you'll be active on a customer basis?

Ron Keating -- President, Chief Executive Officer and Director

Yeah. So, currently we've anticipated and estimate there is more than 100 large sites. We're in 35 to 40 of those and it continues to grow. As you look through the year, it's really going to depend on what the local municipalities and water districts decide. They need treatment as well as customer outcry. So, it's coming down to local regulations. The pipeline is fairly robust. When we look at those, it's too early to speculate what we'll have by the end of the year, but we certainly expect that to continue to grow. And we're investing in mobile assets to be able to treat that as well as permanent solutions that can follow-up.

Deane Dray -- RBC Capital Markets -- Analyst

Thank you.

Ron Keating -- President, Chief Executive Officer and Director

Thanks, Deane.

Operator

Next question comes from the line of Nathan Jones of Stifel.

Nathan Jones -- Stifel -- Analyst

Good morning, everyone.

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

Good morning.

Ron Keating -- President, Chief Executive Officer and Director

Good morning, Nathan.

Nathan Jones -- Stifel -- Analyst

I'm going to start following up from Deane's questions on the connected strategy here. Maybe you could talk a little bit more about the competitive landscape of the places -- of the new places that you're pushing connected technologies into. I know when we get, the light industrial for Water One has very little competition, heavy industrial has some competition. Is this going to be a space that -- where you have that competitive advantage? Is it a more competitive space? And does the model here work similar to Water One where you're going to have to put some capital spending upfront? Or is this going to be paid for by the customer?

Ron Keating -- President, Chief Executive Officer and Director

Nathan, we feel like the space overall is still gives us a competitive advantage because of our footprint, our network, ultimately the amount of mobile assets that we have that are already deployed and are digitally enabled. What we're doing is putting the new system onto our mobile assets, so that we have a stronger feedback loop that's coming from that. In a lot of cases, we already own those assets. So the amount of incremental investment is very small, but enables us to be significantly more efficient as we're providing connected water treatment solutions to our customer base. So around the light industry business, that continues to grow. It continues to expand. We are the national player in that, and we're competing with much smaller regional players that don't have the breadth and depth to be able to expand into that connected solution the way that we are.

Nathan Jones -- Stifel -- Analyst

Okay. I think the second one I'll do is on mix. You guys, through, I think, all of 2018 and probably most of 2019, were talking about negative mix as you were rolling out these capital projects that were expected to generate more aftermarket and service revenue into the future. This quarter, we're talking about positive mix in a lot of these businesses. Is that something that we should now continue to see as these capital projects that went in over the last couple of years now into this aftermarket cycle, and so we should expect to see continued tailwinds for mix over the next at least few quarters?

Ron Keating -- President, Chief Executive Officer and Director

Yeah, so what we're seeing, Nathan, is the mix is becoming more normalized. The larger capital projects that have a follow-on service tail are starting to manifest themselves in the numbers as we had anticipated would happen. Even as you saw our total sales growth be a little greater than our service growth, that still is a very positive sign because, as I even highlighted in the comments at the beginning, as we roll out larger capital projects, we expect the service tail to continue, that's why we go after those. And over time, you should see that mix continue to normalize as we're seeing more in this first quarter.

Nathan Jones -- Stifel -- Analyst

Okay, thanks very much. I'll pass it on.

Operator

Next question comes from the line of Saree Boroditsky of Jefferies.

Saree Boroditsky -- Jefferies -- Analyst

Good morning.

Ron Keating -- President, Chief Executive Officer and Director

Good morning.

Saree Boroditsky -- Jefferies -- Analyst

So you continue to cite some macro uncertainty in the second half of the year despite the strong quarter in order results. So could you just expand on some of these uncertainty items that you're seeing? Or is this largely conservatism on your part?

Ron Keating -- President, Chief Executive Officer and Director

I think it's largely just being realistic around, we can't predict what happens all the way at the end of the fiscal year. What we're seeing in our pipeline and our order rates are very strong, very positive. However, we always want to be cognizant of what's going on in the geopolitical environment, and what could occur by the end of the calendar year.

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

And Saree, we also tend to have 60% in the second half, and Q4 tends to be the strongest quarter for us. So when you think about the furthest quarter away is the strongest, we want to be a little bit cautious as the macro environment unfolds.

Saree Boroditsky -- Jefferies -- Analyst

I appreciate that. And thanks for the earlier comments around PFAS. I was hoping that you could kind of update us on what you're hearing or seeing from a legislative perspective?

Ron Keating -- President, Chief Executive Officer and Director

Yes. So there's still a lot going on the national level, a lot of debates and quite a lot of discussion that's happening there. Nothing has been set in stone and completed as of yet. So what we're really focused is on the state level and the local level, what's occurring there. We do spend a fair amount of time on the hill and have a full effort on making sure that we're at the front end of what's happening here with limits being lowered. And as limits are lowered, the opportunities for the installations are going to increase significantly. But right now, it's being primarily driven on a state and local level.

Saree Boroditsky -- Jefferies -- Analyst

I appreciate it. Thanks for taking my question.

Operator

The next question comes from the line of Andrew Kaplowitz of Citi.

Andrew Kaplowitz -- Citi -- Analyst

Good morning, guys.

Ron Keating -- President, Chief Executive Officer and Director

Good morning.

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

Good morning, Andrew.

Andrew Kaplowitz -- Citi -- Analyst

Ron and Ben, I just want to follow-up on sort of the orders question. I think last quarter, you were worried a little bit about a slowdown in some of your businesses, chemical, power, maybe hydrocarbon in general. Orders did seem to slow a little bit from double digits to low single digits. I imagine that's lumpiness, though. So maybe you can tell us if you did see any slowdown in any of those end markets that you had previously mentioned?

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

No, nothing, nothing. Not much of a change from last quarter. I'd remind you that last quarter was a tough comp, and we had some large orders in those industries you had cited. But our pipeline still looks good and robust. We are continuing to see more and more of these large volume water customers look toward outsourced water, including our outsourced water solutions. And so that's -- and they're taking more time to commit the capital expenditures, but we're not really seeing any material change from last quarter. It's pretty much steady to go. The pipeline also is solid.

Andrew Kaplowitz -- Citi -- Analyst

That's helpful, Ben. And then there's certainly a much more difficult comparison for APT this quarter. But your APT organic growth has been all over the place. I think you did 20% last quarter, 2% this quarter, 2% in Q3 '18. So should we think of APT as just lumpy in kind of short cycle? Are there just projects in the businesses, in businesses like aquatics that regularly come and go? Can you give us any more color into what you think the underlying organic growth rate is of the APT business?

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

Yes, the best way to look at APT is an LTM basis, because it normalizes that quarterly lumpiness that we talk about. It's one of the reasons we show that LTM chart. But a lot of that is just the size and the timing of shipments. And again, aquatics is one of the businesses that move the needle. But there are other businesses, including wastewater, et cetera, that also can create some of that lumpiness. But if you zoom out and you look at it on an LTM basis, it's the best way to analyze the APT business.

Ron Keating -- President, Chief Executive Officer and Director

And Andy, the APT business is a little more product-based, so it's a shorter book-to-bill cycle. We do have good visibility around the pipeline and the pipeline still looks very robust. It's just -- it's a little bit more variable, as Ben said, around lumpiness in a quarter.

Andrew Kaplowitz -- Citi -- Analyst

Is it fair to say like last quarter that four to five of the businesses are growing or all five? Any more color on what's going on inside APT?

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

It's similar to last quarter.

Andrew Kaplowitz -- Citi -- Analyst

Okay. Thanks guys.

Operator

Next question comes from the line of Pavel Molchanov of Raymond James.

Pavel Molchanov -- Raymond James -- Analyst

Thanks for taking the question. Let me go back to one of the earlier questions regarding kind of potential headwinds. What is your current degree of exposure to China? You know, obviously asking the question in the context of what we've been watching for the past 30 days.

Ron Keating -- President, Chief Executive Officer and Director

Yeah, Pavel, what we sell into China is primarily focused just for China. Our supply chain coming out of China is less than $10 million of direct product. So we know that the supply side of it is still staying strong, but we don't have any single component that is coming solely out of China. We have dual sources in multiple areas. So I would say, a lot of people are very concerned about the Coronavirus, we feel this is less than a major impact for us. In fact, we feel very secure as we're looking forward.

Pavel Molchanov -- Raymond James -- Analyst

Okay, good to hear. One other kind of potential headwind as well that I'm sure you guys are aware of. Coal-fired power plant retirements. I mean, this is something that, historically, the power sector has been a big driver for your Industrial business. What is your level of exposure, specifically to coal, across the various geographies?

Ron Keating -- President, Chief Executive Officer and Director

We service all types of power generation. And coal-fired power plant retirements actually is not a negative to us, because what happens when they retire coal-fired power plant is they have to treat the ash pond water. These ash ponds that have water that have been stored in them have many, many years worth of dewatering that will happen, and you have to treat all of that water. It's a very strong pool for our mobile assets as well as our ProAct business as well.

Pavel Molchanov -- Raymond James -- Analyst

Very helpful. Appreciate it guys.

Ron Keating -- President, Chief Executive Officer and Director

Thanks.

Operator

The next question comes from the line of Andrew Buscaglia of Berenberg.

Andrew Buscaglia -- Berenberg -- Analyst

Hey, guys. Just wanted to dig in a little bit on ISS. So you're seeing strength with microelectronics and CPI, and microelectronics has been going on for a little bit now. Can you just remind us what exactly are the drivers behind that? If you expect that strength to continue? And then the same with CPI. Just trying to get some visibility into how long the strength to that.

Ron Keating -- President, Chief Executive Officer and Director

Yeah, so microelectronics is really tied to expansion of capacity as well as capability with new fabs that may be coming in. And then what's happening is the trends on the recycle/reuse back end, where people are wanting to treat the wastewater versus use virgin water. Same thing on CPI. CPI has a lot of recycle/reuse that's being driven. And just across the Industrial business as a whole, and we're seeing that across the ISS platform and portfolio. Even in my opening remarks, one of the things I spoke to is the trends for recycle/reuse that gives us a tremendous opportunity around long-term growth. That's one of the unique things about Evoqua's full product potential is the amount of wastewater that we have on the back end, whether it's organic or inorganic wastewater usage. And then recycling and reusing that water, bringing it back to the front end of the process. So as sustainability is driven, as we've actually rolled out as our fourth value to the company as well as the trends in the marketplace as a whole to get to minimum liquid discharge, it gives us a long-term growth opportunity with the portfolio that we have.

Andrew Buscaglia -- Berenberg -- Analyst

Okay. Yeah, that makes sense. Yeah, and just switching gears, your leverage is down a bit, and you're talking about your continuing to focus on M&A as a use of cash. Just thinking outside the box, is there anything that could evolve your digital strategy inorganically if you wanted to invest? Or is that not really an area you'll be looking to do M&A?

Ron Keating -- President, Chief Executive Officer and Director

We've really focused the digital strategy around deploying digital assets across our platform of products that we have and services we provide. There could be something on the inorganic side if some unique technologies popped up. But right now, everything that we have lined out in our future and what we've rolled out as our strategy, we have the capabilities in-house to be able to execute on that.

Andrew Buscaglia -- Berenberg -- Analyst

Okay, got it. Thank you.

Operator

Next question comes from the line of Brian Lee of Goldman Sachs.

Alex -- Goldman Sachs -- Analyst

This is Alex on for Brian.

Ron Keating -- President, Chief Executive Officer and Director

Hey, Alex.

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

Hey, Alex.

Alex -- Goldman Sachs -- Analyst

Going back to PFAS for a second. We kind of wanted to talk about the peer landscape. So how many peers do you think have the same capabilities that you have? And then I have a follow-up on that.

Ron Keating -- President, Chief Executive Officer and Director

So very few have the full range of treatment technologies that we have. In fact, I would say we are quite unique in that capability. Most of the peers that go after -- will go after it with one single technology, whether it's carbon or it's RO, or it's ion exchange. What we have is the capability to go all the way from carbon to AOP. And that's unique, again, in the portfolio that Evoqua has across the APT side being deployed into the ISS business. So not only are we able to apply it, service it and stay close to the customer, we also have the R&D side that has developed the technologies across the APT business that we have product sales that we ultimately sell to integrators, OEMs and other design firms around the book.

Alex -- Goldman Sachs -- Analyst

Great. And I guess, in light of that, do you expect, as this market continues, it's going to become fragmented or continue to be consolidated? And then, I guess, just in terms of the qualification processes, are those ongoing now? Or do you expect, what do you expect to happen in the near-term here?

Ron Keating -- President, Chief Executive Officer and Director

I think the market, overall, will continue. I mean, it will be a fragmented market around some regional plays, but I do think that the technology providers and the system providers such as Evoqua will have a very strong national play across a full footprint. The other thing that you really have to bear in mind is companies have to invest to be able to prove that what they are, the solutions they're providing are actually solving the problems and the testing on the backside. We're actually able to test that and make sure that our systems are providing the right solutions, and we work in conjunction with universities as well as third-party labs to ensure that what we're doing is creating the right destructive mechanisms. And so it will be something that the technologies are developed, there will be a national deployment across larger players like us that are hitting certain areas in certain geographies, but then you will certainly have some smaller regional players that will pop up and service just one off needs.

Alex -- Goldman Sachs -- Analyst

Thank you.

Operator

[Operator Instructions] Your next question comes from the line of Joe Giordano of Cowen.

Robert -- Cowen and Company -- Analyst

Hey, good morning. This is Robert on for Joe. Just wanted to ask about MEMCOR, and what the impact was in the quarter. And also, just wanted to see if you could talk about the cadence of MEMCOR sales last year, if possible. Just trying to get a sense of like where the impact is going to be felt the most, like in which quarter?

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

So MEMCOR Q1 traditionally has been a very light quarter. Most of their sales and EBITDA traditionally has been in Q4. We don't disclose small acquisitions or divestitures like this on a quarterly basis as part of our process. But I could say that it's very material to the full year, certainly relatively material to the quarter. And again, Q4 tends to be the strongest quarter for MEMCOR. Does that help?

Robert -- Cowen and Company -- Analyst

Yeah, yeah, that helps. And then also, I just want to talk about your organic orders for the quarter, like how are they? And then also, how much of the organic growth was from backlog delivery? And then could you tell us where backlog is today versus last quarter and last year?

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

So again, our orders continue to outpace our sales, both organically and in total. As you can see that the inorganic piece was a huge part of this business [Phonetic], we are pretty much aligned. Backlog remains very robust, and the pipeline remains strong. Comps on orders year-over-year were very tough because last year, we had very strong [Technical Issues], but again, part of this is just timing, the lumpiness of the way orders convert, and our pipeline converts to orders. But we still feel very good about what we're seeing, both in the pipeline and coming orders.

Ron Keating -- President, Chief Executive Officer and Director

And we have a very positive outlook to Q2.

Robert -- Cowen and Company -- Analyst

Okay, thanks. And if I could sneak one more in there, just on PFAS. Is this something that you see incremental opportunities outside of the U.S.? Is that something you're thinking about? And you don't have any sites outside of the U.S. yet, do you?

Ron Keating -- President, Chief Executive Officer and Director

So very similar to the strategy of the business. We are -- we sell fully integrated solutions inside of the U.S. That's where I would anticipate and we will send our mobile assets to work as well as developing solutions. We will sell our product technologies to other integrators, designers and OEMs outside of the U.S. There are third-party channel reps who will be able to replicate what we're doing in the U.S. in the international markets.

Robert -- Cowen and Company -- Analyst

Okay, that's great. Thank you very much for taking my questions.

Operator

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.

Ron Keating -- President, Chief Executive Officer and Director

So thank you for your attention today. Thank you for your interest in Evoqua. I'd like to thank the team members that we have around the globe for delivering as they have through 2019 and through the first quarter of FY '20. We're looking forward to continuing to supply the market with best-in-class technologies that solve the ever-growing challenging needs of water treatment inside of North America and around the globe. And we look forward to speaking with you again next quarter.

Oh, I'm sorry, it sounds like we have one more question, that has popped up.

Operator

We do have a question from Patrick Baumann of JPMorgan.

Patrick Baumann -- JPMorgan -- Analyst

So, hi, good morning guys. Sorry, I hopped on a little bit late. Thanks for sneaking me in here. Just in terms of the balance sheet, I mean, obviously, you've delevered nicely here to start the year. I don't know if you mentioned this in the prelude. I missed the beginning of the call. But what do you plan to do with all that cash on the balance sheet right now? Is there kind of -- what's your framework? And how should we be thinking about it? That's the question.

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

So again, with the MEMCOR proceeds, we did pay down $100 million of debt. We mentioned that earlier, Patrick. But we're going to, we continue to, our priorities remain, for cash, focusing on organic growth, M&A and debt reduction. In that order.

Patrick Baumann -- JPMorgan -- Analyst

Okay. So, but next quarter, we shouldn't expect to see $195 million of cash on the balance sheet?

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

No, no, no. A $100 million of that has already been used to pay down debt.

Patrick Baumann -- JPMorgan -- Analyst

$100 million has already been -- got it, got it. Now I understand. So that was post-quarter that happened?

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

January 17, we paid down a $100 million of debt. Okay?

Patrick Baumann -- JPMorgan -- Analyst

Got it. Yeah, makes sense. Thanks so much.

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

You're welcome.

Ron Keating -- President, Chief Executive Officer and Director

Thank you. So thank you again. And again, thanks to the global team members at Evoqua for doing -- for providing the solutions we provide, and thank you for your interest. We'll speak again next quarter.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Dan Brailer -- Vice President, Investor Relations

Ron Keating -- President, Chief Executive Officer and Director

Ben Stas -- Executive Vice President, Chief Financial Officer and Treasurer

Deane Dray -- RBC Capital Markets -- Analyst

Nathan Jones -- Stifel -- Analyst

Saree Boroditsky -- Jefferies -- Analyst

Andrew Kaplowitz -- Citi -- Analyst

Pavel Molchanov -- Raymond James -- Analyst

Andrew Buscaglia -- Berenberg -- Analyst

Alex -- Goldman Sachs -- Analyst

Robert -- Cowen and Company -- Analyst

Patrick Baumann -- JPMorgan -- Analyst

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