Evoqua Water Technologies Corp. (AQUA) Q1 2022 Earnings Call Transcript

Evoqua Water Technologies Corp. (AQUA)
Q1 2022 Earnings Call
Feb 01, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the Evoqua Water Technologies first quarter 2022 earnings conference call. [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.

Dan Brailer -- Vice President, Investor Relations

Thank you, Britney. Thanks, everyone, for joining us for today's call to review our first-quarter 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 '22 expectations. Statements relating to the 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 would now like to turn the call over to Ron. Ron?

Ron Keating -- President and Chief Executive Officer

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 one, 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 continue 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 is a performance-driven water technology company focused on delivering strong financial results.

As you can see, we have 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 order demand by end market. We have updated the relative sizes of our end markets and included Mar Cor's 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 is a combination of the healthcare, 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 light 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 order flow pick 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 end 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 includes 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 tests and use in hospital laboratories. APT has seen strong demand for EDI 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 Mar Cor 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 the 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's service techs bring significant expertise and know-how 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 onto our SAP platform, and we are 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 to 24 months.

One example of value creation will come from branch consolidation. 25 of Mar Cor's 27 service branches are located near Evoqua branches, providing an opportunity to optimize our footprint. The addition of the Mar Cor service techs will enhance our service capabilities, our capacity, and our technical expertise. We provided more information on Mar Cor 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 are very pleased to gain two notable corporate recognitions recently. The Corporate Knights placed 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 in 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 ISS 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-phase deployment. In the first phase, we will treat approximately 46 million gallons of drinking water per day for the majority of the city's 370,000 residents. Phase two 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 were pleased to see the 2022 National Defense Act get signed into law. This authorizes funding for military activities, including $517 million above the President's budget request for cleanup 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?

Ben Stas -- Executive Vice President and Chief Financial Officer

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 EBITDA increased 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, and mix were drivers of improved profitability. Please turn to Slide 11.

Our integrated solutions and services segment's 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 end 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 one 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 electro-chlorination, advanced filtration and separation, aquatics, and disinfection. Adjusted EBITDA 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 have featured a new APT product, and we are pleased to highlight the MKIV Chloropac system.

This new-generation system has a smaller footprint, has improved self-cleaning capabilities, and lower maintenance requirements. The MKIV uses electricity to produce chlorine from seawater that is circulated through cooling pipes in offshore renewable energy electrical transformers. The chlorine prevents zebra 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, an 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 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 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. 2 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?

Ron Keating -- President and Chief Executive Officer

Thanks, Ben. Please turn to Slide 18. We had an excellent quarter with outstanding results across the key metrics of the business. We were pleased with the strong broad-based organic revenue growth across both segments, all regions, and 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 segment's highly recurring revenue model. Our balance sheet remains strong with high liquidity, even after the pro forma addition of the Mar Cor acquisition.

We are 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 are 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 FY '22 EBITDA 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.

Questions & Answers:

Operator

[Operator instructions] And we will take our first question from Bryan Blair with Oppenheimer. Your line is now open.

Bryan Blair -- Oppenheimer and Company -- Analyst

Thank you. Good morning for a solid start to the year.

Ron Keating -- President and Chief Executive Officer

Thank you.

Bryan Blair -- Oppenheimer and Company -- Analyst

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've set?

Ron Keating -- President and Chief Executive Officer

Yes. Thanks, Bryan. I think as I highlighted in the remarks earlier, 25 out of their 27 branches are located in the same area that 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've 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 time frame that I highlighted.

Bryan Blair -- Oppenheimer and Company -- Analyst

OK. 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 pro forma 2.8, 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?

Ron Keating -- President and Chief Executive Officer

I think it gives us a real opportunity. I think the scale of the deal, it's very similar to any single-branch tuck-in acquisition we'll 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 the time frame to get there.

Bryan Blair -- Oppenheimer and Company -- Analyst

Understood. And one more, if I may. APT margin was above expectations. So it 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?

Ben Stas -- Executive Vice President and Chief Financial Officer

No, Bryan. They're about the same. I mean, 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. The one area that's of obviously the largest challenge is 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, mainly pass-through versus availability. But the area that we got to keep our eye on very closely is electronic components.

Bryan Blair -- Oppenheimer and Company -- Analyst

That makes sense. Appreciate the color. Thanks again.

Operator

And we will take our next question from Deane Dray with RBC Capital Markets. Your line is now open.

Deane Dray -- RBC Capital Markets -- Analyst

Thank you. Good morning, everyone. Hey. I 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, etc. So for a hospital today, what percent of their water treatment is in-sourced 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.

Ron Keating -- President and Chief Executive Officer

Yes, Deane. I would say a pretty high percentage is in-sourced inside of hospitals today. I mean we provide the products in 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 through, as we highlighted the Vantage SPD 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 manage their own water system. We do the preventative maintenance. We service it.

But the opportunity for outsourcing is certainly there.

Deane Dray -- RBC Capital Markets -- Analyst

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 with similar needs for ultrapure water?

Ron Keating -- President and Chief Executive Officer

A lot of -- the tipping point is really us driving the technology in. 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, it has been a great benefit. The other driver for them is 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 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 of doing that conversion.

Deane Dray -- RBC Capital Markets -- Analyst

Good to hear. And just a second question for Ben. Look, I know we're not going to extrapolate the 200% free cash flow conversion. But your working capital sales right now is top quartile easily.

But your guidance for low teens, is that 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?

Ben Stas -- Executive Vice President and Chief Financial Officer

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 project in the municipal space. And in that particular area, there is a little more pressure on working capital. Generally, municipal does.

We feel pretty good about being able to manage that. We certainly like to keep it at world-class levels. However, those types of projects, if they start coming on along with the infrastructure build, put some temporary pressure on working capital. So we've left a little room in the working capital outlook.

Operator

And we will take our next question from Nathan Jones with Stifel. Your line is now open.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Good morning, everyone. I want to start with one on microelectronics. There's been a number of fabs announced in the U.S., some in the Southwest Ohio. Can you talk about the opportunity that presents for Evoqua? Some of these microelectronics projects can be quite large in terms of the water infrastructure that's going 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?

Ron Keating -- President and Chief Executive Officer

Yes. So the microelectronics bubble end market, as you saw on Slide 5, is certainly green. It's very green, and we're pleased with it. Microelectronics fabs, even though they announced them, 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 highlighted that market as green on quarter-over-quarter order expected demand coming in the second quarter. But those projects can run out 12 to 36 months.

Nathan Jones -- Stifel Financial Corp. -- Analyst

OK. 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 with 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, target of 50%? Where did you actually get to in those three years?

Ron Keating -- President and Chief Executive Officer

Well, if you look at what we've identified as outsourced waters of roughly one-third of ISS's business, and so that is pretty much in line with what our targets were when you talk about applicable customers that we can actually install outsourced water systems in. The opportunities, though, 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 in this Mar Cor acquisition is the opportunity to be able to 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.

Nathan Jones -- Stifel Financial Corp. -- Analyst

You talked about that 20% of installations being market share gains for outsourced water, but I haven't 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?

Ron Keating -- President and Chief Executive Officer

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 in-source. So whether it's actually an outsourced water model where they're buying quantity and quality or they're allowing us to provide them with the products and the treatment systems that they have historically put together and manage themselves with preventative maintenance.

So being able to continue to convince our customers to outsource what they in-source gives us an opportunity. As the market grows, we're gaining share.

Operator

And we will take our next question from Andrew Buscaglia with Berenberg. Your line is now open.

Andrew Buscaglia -- Berenberg -- Analyst

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 -- first of all, how much was the raise more like if you could parse out core guidance versus the acquisition? And then secondly, does the guidance not imply that your margins might see some year-over-year declines in the back half of the year?

Ben Stas -- Executive Vice President and Chief Financial Officer

Yes. So we factored in the beat plus an extra $2 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 with what we've seen with our most recent historical years.

Andrew Buscaglia -- Berenberg -- Analyst

OK. And then looking at the ISS backlog composition. So services 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's kind of holding it up at this point?

Ben Stas -- Executive Vice President and Chief Financial Officer

It's going to convert. We have -- if you can see the -- 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 backlog has been converting as we've expected.

And this quarter, we obviously, versus the prior quarter due to 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're pretty much broad-based across 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 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.

Operator

And we will take our next question from Mike Halloran with Baird. Your line is now open.

Mike Halloran -- Baird -- Analyst

Hello, everyone. Good morning. Kind of taking on that and taking on something that was asked earlier a little bit. Do you think you're at that tipping point then with the model conversion, where you talked about backlog kind of converting in line with what you're thinking? Are we at the point where we're starting to see a little bit more normalization between what's been a multiyear run of really strong orders and starting to see that normalize a little bit toward what that revenue growth number would look like? Or is kind of the sequential improvement we're seeing here more tied to a broader range of things than just that?

Ben Stas -- Executive Vice President and Chief Financial Officer

I think we will see normalization as the pandemic subsides, things turn back to normal. But again, we've still got -- 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 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.

Ron Keating -- President and Chief Executive Officer

But, Mike, with continued outsourced opportunities that are multiyear in the pipeline, we expect the backlog will continue to grow.

Ben Stas -- Executive Vice President and Chief Financial Officer

Right. It's going to be steady and stable. That's -- this business model.

Mike Halloran -- Baird -- Analyst

That makes a lot of sense. And then on the Mar Cor transaction, I think you mentioned in the 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 earlier.

And now that you have it, what's the opportunity set from a broadening perspective?

Ron Keating -- President and Chief Executive Officer

Yes. 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 challenge as other companies dealing with water issues are, emerging contaminants, challenges on what they have as well as the 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 sized it around $300 million. But it could -- it will continue to grow over time and has had pretty good growth trends in the past.

Mike Halloran -- Baird -- Analyst

Is that differentiated, that one-stop shop within that market differentiated? I know that's differentiated in a lot of the end markets you serve. More curious on that one specifically.

Ron Keating -- President and Chief Executive Officer

It does fully differentiate us in that market, having that ability to take the entire water challenge that a hospital campus would face.

Operator

And we will take our next question from Andy Kaplowitz with Citigroup. Your line is now open.

Andy Kaplowitz -- Citi -- Analyst

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 that market in aquatics and the bubbles there turn from yellow last quarter to blue this quarter. Do you think municipal wastewater actually begins to pick up on the end of your fiscal year here? And then have you seen any significant improvement in the aquatics market yet? Or are they still being held down by virus-related uncertainty?

Ron Keating -- President and Chief Executive Officer

Yes. That's a great question. We absolutely do feel like we'll see the municipal wastewater turn to green as we progress through the fiscal year. And that was one thing I commented in the remarks.

The infrastructure bill is going to be fantastic for fueling demand, fueling 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 terrific indications as we're 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 will come in the latter half of the year. Aquatics is getting better. Again, as we said, I mean there are -- I think a lot of the delays that we've seen on new parks opening 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.

Andy Kaplowitz -- Citi -- Analyst

And then, Ron, you've been highlighting new products basically every quarter now from APT when you update us in your quarterly earnings presentation. So how should we translate the proliferation of new products into potential growth as your new product vitality index continue to go higher here? So we should think about all these new products contributing more to that sort of 3% to 5% longer-term guide, organic guide that you have?

Ron Keating -- President and Chief Executive Officer

Absolutely. And that's one of the things that we're focused on. We continue to drive innovation and drive patents. We just opened our new sustainability and innovation hub here very close to the headquarters in Pittsburgh, where we're investing and bringing out new solutions and new opportunities.

Just like, again, highlighting the Mar Cor, we're thrilled about that. And really, as we see the markets evolve, we see 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 I would say APT has done a terrific job of launching this.

Operator

And we will take our next question from John Walsh with Credit Suisse. Your line is now open.

John Walsh -- Credit Suisse -- Analyst

Hi. Good morning, everyone. Hey. 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?

Ron Keating -- President and Chief Executive Officer

Yes. 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 entities. So we've had communications with them going back four or five years. And the opportunity came to fruition once STERIS had closed on the acquisition of Cantel, which gave us an opportunity 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 of 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 at seven times to nine times pre-synergy and somewhere around four times to six times post-synergy.

John Walsh -- Credit Suisse -- Analyst

Great. And then I guess, last couple of quarters, you've talked a lot about emerging contaminants. You've talked about PFAS. It looks like 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 might be additional kind of regulatory drivers, either state or federal level?

Ron Keating -- President and Chief Executive Officer

I think the opportunities are really what we've been highlighting in the past. A lot of it is PFAS, it's micro-plastics. It's different kind of pharmaceuticals and water as well as the power industry converts to more renewables and coal-fired power plants are shut down. We continue to treat around challenged contaminants such as selenium with technologies that are very unique in the marketplace and give us a competitive advantage.

Operator

We will take our next question from Brian Lee with Goldman Sachs. Your line is now open.

Brian Lee -- Goldman Sachs -- Analyst

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 -- with 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 and realizing that your guidance at the midpoint is up about $120 million.

I think it would imply Mar Cor is 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 raise, just if I look at the numbers here?

Ben Stas -- Executive Vice President and Chief Financial Officer

Plus it's the first quarter, right, that we owned them. We've got to assess the business. We've got to understand a lot about the seasonality, etc. And any time 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 axe on this on how we rolled 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.

Brian Lee -- Goldman Sachs -- Analyst

Right. Fair enough. Makes all the sense in the world. Just second question on the infrastructure there.

And you mentioned sometimes, munis pausing as they try to figure out the new state of the state. As it relates to the PFAS side of things, can you kind of give us an update as to what you're seeing in terms of backlog trends as well as any feedback post the infrastructure bill passing here on the PFAS side specifically for you guys?

Ron Keating -- President and Chief Executive Officer

Yes. I think a little bit of what we're seeing is across PFAS is the same thing that we're 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.

And 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 it's going to happen more toward the back half of the year.

Operator

And we will take our next question from Pavel Molchanov with Raymond James. Your line is now open.

Pavel Molchanov -- Raymond James -- Analyst

Thanks for taking the question. A follow-up on what you guys were just asked regarding the infrastructure package. Given that PFAS as a single contaminant is 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 dozens of others?

Ron Keating -- President and Chief Executive Officer

Yes. I mean, Pavel, 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 is 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.

Pavel Molchanov -- Raymond James -- Analyst

OK. 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?

Ben Stas -- Executive Vice President and Chief Financial Officer

Yes. So we still remain committed to our 2.5 times to three 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 delever quickly into that range.

So we feel very committed to staying -- keeping our EBITDA range at 2.5 times to three times.

Operator

And we will take our next question from Joseph Giordano with Cowen. Your line is now open.

Unknown speaker

Good morning. This is Michael. Nice to see you. In for Joe.

I wanted to touch on the organic growth results for the APT segment. Do you believe any demand has been pulled forward in any way? Can you provide any color for this development?

Ben Stas -- Executive Vice President and Chief Financial Officer

Actually, no. It's probably been the other way around. We could have grown more with an 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.

Unknown speaker

And one more, if I may. I apologize if this was covered prior. But is there a breakdown of organic growth by segment for the full year?

Ben Stas -- Executive Vice President and Chief Financial Officer

No. We did not break it down in organic growth outlook for the full year. But for the most part, you can take out Mar Cor, the remaining portion of our outlook was really organic.

Operator

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.

Ron Keating -- President and Chief Executive Officer

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 Mar Cor team into the Evoqua organization. And we thank our team members every day for executing on our mission, our purpose of transforming water, enriching life.

So we'll talk to you again next quarter. Thank you.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Dan Brailer -- Vice President, Investor Relations

Ron Keating -- President and Chief Executive Officer

Ben Stas -- Executive Vice President and Chief Financial Officer

Bryan Blair -- Oppenheimer and Company -- Analyst

Deane Dray -- RBC Capital Markets -- Analyst

Nathan Jones -- Stifel Financial Corp. -- Analyst

Andrew Buscaglia -- Berenberg -- Analyst

Mike Halloran -- Baird -- Analyst

Andy Kaplowitz -- Citi -- Analyst

John Walsh -- Credit Suisse -- Analyst

Brian Lee -- Goldman Sachs -- Analyst

Pavel Molchanov -- Raymond James -- Analyst

Unknown speaker

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