ERII Energy Recovery Inc

Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the second quarter and six months ended June 30, 2024.

Second Quarter Highlights

• Revenue of $27.2 million, exceeding the upper end of our guidance of $20 - $25 million.
• Gross margin of 64.6%, a decrease of 80 bps, as compared to Q2’2023, due primarily to higher manufacturing costs.
• Operating expenses of $19.6 million, an increase of 21.4%, as compared to Q2’2023, due primarily to the enhancement of our corporate growth strategy, increased investments within sales and marketing, and executive transition costs.
• Loss from operations of $2.0 million, mainly due to lower gross margin and higher operating expenses.
• Net loss of $0.6 million and adjusted EBITDA of $5.2 million.
• Cash and investments of $138.0 million, which include cash, cash equivalents, and short- and long-term investments.

David Moon, President and CEO, commented on the financial results: “Operationally, the second quarter played out as we expected and second quarter revenue of $27 million exceeded the top-end of our guidance of $20–$25 million. As we have stated since the beginning of the year, this year’s revenue cadence is heavily weighted to the third and fourth quarters, and we reaffirm our full-year revenue guidance of $140–$150 million.”

Mr. Moon added, “In our CO2 business, we commissioned nine second-generation PX G1300 deployments at both existing and new customer sites with a tenth site to be commissioned by the end of August. We believe the summer runtime data we are collecting now, and will be collecting over the next few months, is crucial to the commercial adoption of the PX G1300.”

Mr. Moon continued, “On the corporate side, my team and I have made excellent progress on the strategic work undertaken earlier this year and have completed the Where to Play phase and we are now in the How to Play phase. I look forward to presenting the strategy and roadmap for using our PX technology to drive growth and to create real value for our shareholders.”

 

Financial Highlights

 

Quarter-to-Date

 

 

Year to Date

 

Q2’2024

 

Q2’2023

 

vs. Q2’2023

 

 

2024

 

2023

 

2024 vs. 2023

 

(In millions, except net loss per share, percentages and basis points)

Revenue

$27.2

 

$20.7

 

up 31%

 

 

$39.3

 

$34.1

 

up 15%

Gross margin

64.6%

 

65.4%

 

down 80 bps

 

 

62.9%

 

63.6%

 

down 70 bps

Operating margin

(7.4%)

 

(12.5%)

 

up 510 bps

 

 

(33.0%)

 

(31.3%)

 

down 170 bps

Net loss

($0.6)

 

($1.7)

 

up 61%

 

 

($8.9)

 

($8.0)

 

down 12%

Net loss per share

($0.01)

 

($0.03)

 

up 67%

 

 

($0.16)

 

($0.14)

 

down 14%

Effective tax rate

 

 

 

 

 

 

 

10.5%

 

15.2%

 

 

Cash provided by (used for) operations

$8.1

 

($4.1)

 

 

 

 

$14.6

 

$4.5

 

 

 

Non-GAAP Financial Highlights (1)

 

Quarter-to-Date

 

 

Year to Date

 

Q2’2024

 

Q2’2023

 

vs. Q2’2023

 

 

2024

 

2023

 

2024 vs. 2023

 

(In millions, except adjusted net income (loss) per share, percentages and basis points)

Adjusted operating margin

15.3%

 

(4.2%)

 

NM

 

 

(7.7%)

 

(19.6%)

 

NM

Adjusted net income (loss)

$5.1

 

($0.1)

 

NM

 

 

$0.5

 

($4.6)

 

up 111%

Adjusted net income (loss) per share

$0.09

 

$0.00

 

NM

 

 

$0.01

 

($0.08)

 

up 113%

Adjusted EBITDA

$5.2

 

$0.2

 

 

 

 

($1.0)

 

($4.7)

 

 

Free cash flow

$7.9

 

($4.7)

 

 

 

 

$13.5

 

$3.7

 

 

_____________ (1)

Refer to the sections “Use of Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” for definitions of our non-GAAP financial measures and reconciliations of GAAP to non-GAAP amounts, respectively.

NM

Not Material

Forward-Looking Statements

Certain matters discussed in this press release and on the conference call are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including expectations regarding revenue guidance for the year, the timing of potential new CO2 deployments, our belief that the summer runtime data is crucial to the commercial adoption of the PX G1300 . These forward-looking statements are based on information currently available to the Company and on management’s beliefs, assumptions, estimates, or projections and are not guarantees of future events or results. Potential risks and uncertainties include risks relating to the future demand for the Company’s products, risks relating to performance by our customers and third-party partners, risks relating to the timing of revenue, and any other factors that may have been discussed herein regarding the risks and uncertainties of the Company’s business, and the risks discussed under “Risk Factors” in the Company’s Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) for the year ended December 31, 2023, as well as other reports filed by the Company with the SEC from time to time. Because such forward-looking statements involve risks and uncertainties, the Company’s actual results may differ materially from the predictions in these forward-looking statements. All forward-looking statements are made as of today, and the Company assumes no obligation to update such statements.

Use of Non-GAAP Financial Measures

This press release includes certain non-GAAP financial measures, including adjusted operating margin, adjusted net income (loss), adjusted net income (loss) per share, adjusted EBITDA and free cash flow. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either exclude or include amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles in the United States of America, or GAAP. These non-GAAP financial measures do not reflect a comprehensive system of accounting, differ from GAAP measures with the same captions, and may differ from non-GAAP financial measures with the same or similar captions that are used by other companies. As such, these non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company uses these non-GAAP financial measures to analyze its operating performance and future prospects, develop internal budgets and financial goals, and to facilitate period-to-period comparisons. The Company believes these non-GAAP financial measures reflect an additional way of viewing aspects of its operations that, when viewed with its GAAP results, provide a more complete understanding of factors and trends affecting its business.

Notes to the Financial Results

• Adjusted operating margin is a non-GAAP financial measure that the Company defines as loss from operations which excludes i) share-based compensation; and ii) executive transition costs, such as executive search costs, retention costs, one-time severance costs and one-time corporate growth strategy costs, divided by revenues.

• Adjusted net income (loss) is a non-GAAP financial measure that the Company defines as net income which excludes i) share-based compensation; ii) executive transition costs; and iii) the applicable tax effect of the excluded items including the share-based compensation discrete tax item.

• Adjusted net income (loss) per share is a non-GAAP financial measure that the Company defines as net loss, which excludes i) share-based compensation; ii) executive transition costs and iii) the applicable tax effect of the excluded items including the share-based compensation discrete tax item, divided by basic shares outstanding.

• Adjusted EBITDA is a non-GAAP financial measure that the Company defines as net loss which excludes i) depreciation and amortization; ii) share-based compensation; iii) executive transition costs; iv) other income, net, such as interest income and other non-operating expense, net; and v) provision for (benefit from) income taxes.

• Free cash flow is a non-GAAP financial measure that the Company defines as net cash provided by (used in) operating activities less capital expenditures.

Conference Call to Discuss Financial Results

LIVE CONFERENCE CALL: Wednesday, July 31, 2024, 2:00 PM PT / 5:00 PM ET Listen-only, US / Canada Toll-Free: +1 (877) 709-8150 Listen-only, Local / International Toll: +1 (201) 689-8354

CONFERENCE CALL REPLAY: Available approximately three hours after conclusion of the live call. Expiration: Friday, August 30, 2024 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13747957

Investors may also access the live call and the replay over the internet on the “Events” page of the Company’s website located at https://ir.energyrecovery.com/news-events/ir-calendar.

Disclosure Information

Energy Recovery uses the investor relations section on its website as means of complying with its disclosure obligations under Regulation FD. Accordingly, investors should monitor Energy Recovery’s investor relations website in addition to following Energy Recovery’s press releases, SEC filings, and public conference calls and webcasts.

About Energy Recovery

Energy Recovery (Nasdaq: ERII) is a trusted global leader in energy efficiency technology. Building on the Company’s pressure exchanger technology platform, the Company designs and manufactures reliable, high-performance solutions that generate cost savings and increase energy efficiency across several industries. With a strong foundation in the desalination industry, the Company has delivered transformative solutions that optimize operations and deliver positive environmental impact to its customers worldwide for more than 30 years. Headquartered in the San Francisco Bay Area, the Company has manufacturing and research and development facilities across California and Texas with sales and on-site technical support available globally. To learn more, visit https://energyrecovery.com/.

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

June 30, 2024

 

December 31, 2023

 

(In thousands)

ASSETS

 

 

 

Cash, cash equivalents and investments

$

138,027

 

$

122,375

Accounts receivable and contract assets

 

21,198

 

 

47,529

Inventories, net

 

33,659

 

 

26,149

Prepaid expenses and other assets

 

3,690

 

 

3,251

Property, equipment and operating leases

 

27,847

 

 

30,168

Goodwill

 

12,790

 

 

12,790

Deferred tax assets and other assets

 

11,832

 

 

10,712

TOTAL ASSETS

$

249,043

 

$

252,974

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Liabilities

 

 

 

Accounts payable and accrued expenses

$

14,906

 

$

18,583

Contract liabilities and other liabilities, non-current

 

3,300

 

 

1,304

Lease liabilities

 

12,324

 

 

13,279

Total liabilities

 

30,530

 

 

33,166

 

 

 

 

Stockholders’ equity

 

218,513

 

 

219,808

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

249,043

 

$

252,974

 

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2024

 

 

 

2023

 

 

 

2024

 

 

 

2023

 

 

(In thousands, except per share data)

Revenue

$

27,199

 

 

$

20,723

 

 

$

39,289

 

 

$

34,124

 

Cost of revenue

 

9,633

 

 

 

7,180

 

 

 

14,588

 

 

 

12,426

 

Gross profit

 

17,566

 

 

 

13,543

 

 

 

24,701

 

 

 

21,698

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

General and administrative

 

9,532

 

 

 

7,269

 

 

 

17,098

 

 

 

14,335

 

Sales and marketing

 

6,104

 

 

 

5,092

 

 

 

12,256

 

 

 

9,986

 

Research and development

 

3,944

 

 

 

3,768

 

 

 

8,295

 

 

 

8,074

 

Total operating expenses

 

19,580

 

 

 

16,129

 

 

 

37,649

 

 

 

32,395

 

Loss from operations

 

(2,014

)

 

 

(2,586

)

 

 

(12,948

)

 

 

(10,697

)

Other income, net

 

1,614

 

 

 

656

 

 

 

3,003

 

 

 

1,312

 

Loss before income taxes

 

(400

)

 

 

(1,930

)

 

 

(9,945

)

 

 

(9,385

)

Provision for (benefit from) income taxes

 

242

 

 

 

(265

)

 

 

(1,043

)

 

 

(1,424

)

Net loss

$

(642

)

 

$

(1,665

)

 

$

(8,902

)

 

$

(7,961

)

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

 

Basic

$

(0.01

)

 

$

(0.03

)

 

$

(0.16

)

 

$

(0.14

)

Diluted

$

(0.01

)

 

$

(0.03

)

 

$

(0.16

)

 

$

(0.14

)

 

 

 

 

 

 

 

 

Number of shares used in per share calculations

 

 

 

 

 

 

 

Basic

 

57,366

 

 

 

56,363

 

 

 

57,234

 

 

 

56,296

 

Diluted

 

57,366

 

 

 

56,363

 

 

 

57,234

 

 

 

56,296

 

 

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Six Months Ended June 30,

 

 

2024

 

 

 

2023

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

Net loss

$

(8,902

)

 

$

(7,961

)

Non-cash adjustments

 

7,586

 

 

 

5,204

 

Net cash provided by (used in) operating assets and liabilities

 

15,886

 

 

 

7,280

 

Net cash provided by operating activities

 

14,570

 

 

 

4,523

 

 

 

 

 

Cash flows from investing activities:

 

 

 

Net investment in marketable securities

 

(42,895

)

 

 

(16,269

)

Capital expenditures

 

(1,025

)

 

 

(849

)

Proceeds from sales of fixed assets

 

90

 

 

 

82

 

Net cash used in investing activities

 

(43,830

)

 

 

(17,036

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Net proceeds from issuance of common stock

 

1,502

 

 

 

379

 

Net cash provided by financing activities

 

1,502

 

 

 

379

 

 

 

 

 

Effect of exchange rate differences

 

(24

)

 

 

41

 

Net change in cash, cash equivalents and restricted cash

$

(27,782

)

 

$

(12,093

)

Cash, cash equivalents and restricted cash, end of period

$

40,443

 

 

$

44,365

 

 

ENERGY RECOVERY, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(Unaudited)

Channel Revenue

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2024

 

 

2023

 

vs. 2023

 

 

2024

 

 

2023

 

vs. 2023

 

(In thousands, except percentages)

Megaproject

$

15,815

 

$

12,211

 

up 30%

 

$

19,915

 

$

15,454

 

up 29%

Original equipment manufacturer

 

6,945

 

 

4,702

 

up 48%

 

 

10,291

 

 

11,538

 

down 11%

Aftermarket

 

4,439

 

 

3,810

 

up 17%

 

 

9,083

 

 

7,132

 

up 27%

Total revenue

$

27,199

 

$

20,723

 

up 31%

 

$

39,289

 

$

34,124

 

up 15%

 

Segment Activity

 

Three Months Ended June 30,

 

2024

 

2023

 

Water

 

Emerging Technologies

 

Corporate

 

Total

 

Water

 

Emerging Technologies

 

Corporate

 

Total

 

(In thousands)

Revenue

$

26,918

 

$

281

 

 

$

—

 

 

$

27,199

 

 

$

20,514

 

$

209

 

 

$

—

 

 

$

20,723

 

Cost of revenue

 

9,345

 

 

288

 

 

 

—

 

 

 

9,633

 

 

 

6,921

 

 

259

 

 

 

—

 

 

 

7,180

 

Gross profit (loss)

 

17,573

 

 

(7

)

 

 

—

 

 

 

17,566

 

 

 

13,593

 

 

(50

)

 

 

—

 

 

 

13,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

1,912

 

 

984

 

 

 

6,636

 

 

 

9,532

 

 

 

1,860

 

 

947

 

 

 

4,462

 

 

 

7,269

 

Sales and marketing

 

3,837

 

 

1,700

 

 

 

567

 

 

 

6,104

 

 

 

3,120

 

 

1,441

 

 

 

531

 

 

 

5,092

 

Research and development

 

1,073

 

 

2,871

 

 

 

—

 

 

 

3,944

 

 

 

843

 

 

2,925

 

 

 

—

 

 

 

3,768

 

Total operating expenses

 

6,822

 

 

5,555

 

 

 

7,203

 

 

 

19,580

 

 

 

5,823

 

 

5,313

 

 

 

4,993

 

 

 

16,129

 

Operating income (loss)

$

10,751

 

$

(5,562

)

 

$

(7,203

)

 

$

(2,014

)

 

$

7,770

 

$

(5,363

)

 

$

(4,993

)

 

$

(2,586

)

 

 

Six Months Ended June 30,

 

2024

 

2023

 

Water

 

Emerging Technologies

 

Corporate

 

Total

 

Water

 

Emerging Technologies

 

Corporate

 

Total

 

(In thousands)

Revenue

$

39,007

 

$

282

 

 

$

—

 

 

$

39,289

 

 

$

33,810

 

$

314

 

 

$

—

 

 

$

34,124

 

Cost of revenue

 

14,299

 

 

289

 

 

 

—

 

 

 

14,588

 

 

 

12,022

 

 

404

 

 

 

—

 

 

 

12,426

 

Gross profit (loss)

 

24,708

 

 

(7

)

 

 

—

 

 

 

24,701

 

 

 

21,788

 

 

(90

)

 

 

—

 

 

 

21,698

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

3,834

 

 

2,002

 

 

 

11,262

 

 

 

17,098

 

 

 

3,798

 

 

1,915

 

 

 

8,622

 

 

 

14,335

 

Sales and marketing

 

7,582

 

 

3,507

 

 

 

1,167

 

 

 

12,256

 

 

 

6,295

 

 

2,611

 

 

 

1,080

 

 

 

9,986

 

Research and development

 

2,173

 

 

6,122

 

 

 

—

 

 

 

8,295

 

 

 

2,023

 

 

6,051

 

 

 

—

 

 

 

8,074

 

Total operating expenses

 

13,589

 

 

11,631

 

 

 

12,429

 

 

 

37,649

 

 

 

12,116

 

 

10,577

 

 

 

9,702

 

 

 

32,395

 

Operating income (loss)

$

11,119

 

$

(11,638

)

 

$

(12,429

)

 

$

(12,948

)

 

$

9,672

 

$

(10,667

)

 

$

(9,702

)

 

$

(10,697

)

 

Share-based Compensation

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2024

 

2023

 

2024

 

2023

 

(In thousands)

Stock-based compensation expense charged to:

 

 

 

 

 

 

 

Cost of revenue

$

461

 

$

148

 

$

804

 

$

397

General and administrative

 

1,011

 

 

763

 

 

2,418

 

 

1,723

Sales and marketing

 

912

 

 

550

 

 

1,922

 

 

1,248

Research and development

 

433

 

 

255

 

 

956

 

 

652

Total stock-based compensation expense

$

2,817

 

$

1,716

 

$

6,100

 

$

4,020

 

ENERGY RECOVERY, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (1)

(Unaudited)

 

This press release includes certain non-GAAP financial information because we plan and manage our business using such information. The following table reconciles the GAAP financial information to the non-GAAP financial information.

 

 

Quarter-to-Date

 

Year to Date

 

Q2'2024

 

Q2'2023

 

Q2'2024

 

Q2'2023

 

(In millions, except shares, per share and percentages)

Operating margin

 

(7.4

)%

 

 

(12.5

)%

 

 

(33.0

)%

 

 

(31.3

)%

Share-based compensation

 

10.4

 

 

 

8.3

 

 

 

15.5

 

 

 

11.8

 

Executive transition costs

 

12.3

 

 

 

—

 

 

 

9.7

 

 

 

—

 

Adjusted operating margin

 

15.3

%

 

 

(4.2

)%

 

 

(7.7

)%

 

 

(19.6

)%

 

 

 

 

 

 

 

 

Net loss

$

(0.6

)

 

$

(1.7

)

 

$

(8.9

)

 

$

(8.0

)

Share-based compensation

 

2.8

 

 

 

1.7

 

 

 

6.1

 

 

 

4.0

 

Executive transition costs (2)

 

3.0

 

 

 

—

 

 

 

3.5

 

 

 

—

 

Share-based compensation discrete tax item

 

(0.1

)

 

 

(0.1

)

 

 

(0.2

)

 

 

(0.6

)

Adjusted net income (loss)

$

5.1

 

 

$

(0.1

)

 

$

0.5

 

 

$

(4.6

)

 

 

 

 

 

 

 

 

Net loss per share

$

(0.01

)

 

$

(0.03

)

 

$

(0.16

)

 

$

(0.14

)

Adjustments to net loss per share (3)

 

0.10

 

 

 

0.03

 

 

 

0.17

 

 

 

0.06

 

Adjusted net income (loss) per share

$

0.09

 

 

$

—

 

 

$

0.01

 

 

$

(0.08

)

 

 

 

 

 

 

 

 

Net loss

$

(0.6

)

 

$

(1.7

)

 

$

(8.9

)

 

$

(8.0

)

Share-based compensation

 

2.8

 

 

 

1.7

 

 

 

6.1

 

 

 

4.0

 

Depreciation and amortization

 

1.0

 

 

 

1.0

 

 

 

2.0

 

 

 

2.0

 

Executive transition costs

 

3.3

 

 

 

—

 

 

 

3.8

 

 

 

—

 

Other income, net

 

(1.6

)

 

 

(0.7

)

 

 

(3.0

)

 

 

(1.3

)

Provision for (benefit from) income taxes

 

0.2

 

 

 

(0.3

)

 

 

(1.0

)

 

 

(1.4

)

Adjusted EBITDA

$

5.2

 

 

$

0.2

 

 

$

(1.0

)

 

$

(4.7

)

 

 

 

 

 

 

 

 

Free cash flow

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

$

8.1

 

 

$

(4.1

)

 

$

14.6

 

 

$

4.5

 

Capital expenditures

 

(0.2

)

 

 

(0.6

)

 

 

(1.0

)

 

 

(0.8

)

Free cash flow

$

7.9

 

 

$

(4.7

)

 

$

13.5

 

 

$

3.7

 

__________ (1)

Amounts may not total due to rounding.

(2)

Amounts presented are net of tax.

(3)

Refer to the sections “Use of Non-GAAP Financial Measures” for description of items included in adjustments.

 

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