ERII Energy Recovery Inc

Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the first quarter ended March 31, 2024.

First Quarter Highlights

• Revenue of $12.1 million, which is in-line with our February 2024 guidance.
• Gross margin of 59.0%, a decrease of 190 bps, as compared to Q1’2023, due primarily to higher manufacturing costs and an increase in inventory scrap.
• Operating expenses of $18.1 million, an increase of 11%, as compared to Q1’2023, due primarily to increased investments within sales and marketing and Executive transition costs.
• Loss from operations of $10.9 million, mainly due to lower revenues and gross margin as previously guided.
• Net loss of $8.3 million and adjusted EBITDA(1) loss of $6.2 million.
• Cash and investments of $129.5 million, which include cash, cash equivalents, and short- and long-term investments.

David Moon, President and CEO, commented on the financial results: “The first quarter was a busy one for us and played out as we expected. Q1 revenue of $12.1 million was in line with our guidance of $10-$13 million, and based on the visibility we have today, we expect to be in-line with our full year revenue guidance of $140-$150 million. As of today, we have signed contracts with potential revenue opportunity equal to 60% of the mid-point of our 2024 guidance, which represents an increase of 26% over the same period in 2023.”

Mr. Moon added, “In our CO2 business, we completed a successful 30-day field test in Europe of our next generation PX G1300, as well as successful testing of our latest system architecture with Vallarta, our partner in California. We are now in the process of commissioning multiple new deployments at existing and new customer sites for this summer, which will provide the key uninterrupted summer runtime data that is vital for us to begin significant commercial adoption of the PX G1300. As we look out to the remainder of the year, my top priority is to execute on the goals and milestones laid out for this year.”

Financial Highlights

 

Year-to-Date

 

2024

 

2023

 

2024 vs. 2023

 

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

Revenue

$12.1

 

$13.4

 

down 10%

Gross margin

59.0%

 

60.9%

 

down 190 bps

Operating margin

(90.4%)

 

(60.5%)

 

NM

Net loss

($8.3)

 

($6.3)

 

down 31%

Net loss per share

($0.14)

 

($0.11)

 

down 27%

Effective tax rate

13.5%

 

15.5%

 

 

Cash provided by operations

$6.5

 

$8.7

 

 

Non-GAAP Financial Highlights (1)

 

Year-to-Date

 

2024

 

2023

 

2024 vs. 2023

 

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

Adjusted operating margin

(59.4%)

 

(43.3%)

 

NM

Adjusted net loss

($4.6)

 

($4.5)

 

down 4%

Adjusted net loss per share

($0.08)

 

($0.08)

 

no change

Adjusted effective tax rate

19.8%

 

13.0%

 

 

Adjusted EBITDA

($6.2)

 

($4.8)

 

 

Free cash flow

$5.7

 

$8.4

 

 

___________________

(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 and potential new deployments. 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 loss, adjusted net loss per share, adjusted effective tax rate, 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, divided by revenues.
• Adjusted net 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 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 effective tax rate reflects adjustments for i) share-based compensation discrete tax item; ii) share-based compensation; and iii) executive transition costs.
• 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 income (expense), net; and v) benefit from income taxes.
• Free cash flow is a non-GAAP financial measure that the Company defines as net cash provided by operating activities less capital expenditures.

Conference Call to Discuss First Quarter 2024 Financial Results

LIVE CONFERENCE CALL: Wednesday, May 1, 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: Expiration: Friday, May 31, 2024 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13745736

Investors may access the live call and the replay (approximately three hours after the live call concludes) over the internet on the “Events” page 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)

 

 

March 31, 2024

 

December 31, 2023

 

(In thousands)

ASSETS

 

 

 

Cash, cash equivalents and investments

$

129,495

 

$

122,375

Accounts receivable and contract assets

 

25,647

 

 

47,529

Inventories, net

 

31,671

 

 

26,149

Prepaid expenses and other assets

 

3,696

 

 

3,251

Property, equipment and operating leases

 

28,927

 

 

30,168

Goodwill

 

12,790

 

 

12,790

Deferred tax assets and other assets

 

12,039

 

 

10,712

TOTAL ASSETS

$

244,265

 

$

252,974

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Liabilities

 

 

 

Accounts payable and accrued expenses

$

11,834

 

$

18,583

Contract liabilities and other liabilities, non-current

 

3,581

 

 

1,304

Lease liabilities

 

12,813

 

 

13,279

Total liabilities

 

28,228

 

 

33,166

 

 

 

 

Stockholders’ equity

 

216,037

 

 

219,808

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

244,265

 

$

252,974

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended March 31,

 

 

2024

 

 

 

2023

 

 

(In thousands, except per share data)

Revenue

$

12,090

 

 

$

13,401

 

Cost of revenue

 

4,955

 

 

 

5,246

 

Gross profit

 

7,135

 

 

 

8,155

 

 

 

 

 

Operating expenses

 

 

 

General and administrative

 

7,566

 

 

 

7,066

 

Sales and marketing

 

6,152

 

 

 

4,894

 

Research and development

 

4,351

 

 

 

4,306

 

Total operating expenses

 

18,069

 

 

 

16,266

 

Loss from operations

 

(10,934

)

 

 

(8,111

)

Other income, net

 

1,389

 

 

 

656

 

Loss before income taxes

 

(9,545

)

 

 

(7,455

)

Benefit from income taxes

 

(1,285

)

 

 

(1,159

)

Net loss

$

(8,260

)

 

$

(6,296

)

 

 

 

 

Net loss per share

 

 

 

Basic

$

(0.14

)

 

$

(0.11

)

Diluted

$

(0.14

)

 

$

(0.11

)

 

 

 

 

Number of shares used in per share calculations

 

 

 

Basic

 

57,102

 

 

 

56,228

 

Diluted

 

57,102

 

 

 

56,228

 

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Three Months Ended March 31,

 

 

2024

 

 

 

2023

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

Net loss

$

(8,260

)

 

$

(6,296

)

Non-cash adjustments

 

3,300

 

 

 

2,539

 

Net cash provided by operating assets and liabilities

 

11,457

 

 

 

12,414

 

Net cash provided by operating activities

 

6,497

 

 

 

8,657

 

 

 

 

 

Cash flows from investing activities:

 

 

 

Net investment in marketable securities

 

(4,249

)

 

 

1,364

 

Capital expenditures

 

(824

)

 

 

(279

)

Proceeds from sales of fixed assets

 

87

 

 

 

82

 

Net cash (used in) provided by investing activities

 

(4,986

)

 

 

1,167

 

 

 

 

 

Cash flows from financing activities:

 

 

 

Net proceeds from issuance of common stock

 

1,190

 

 

 

165

 

Net cash provided by financing activities

 

1,190

 

 

 

165

 

 

 

 

 

Effect of exchange rate differences

 

(19

)

 

 

8

 

Net change in cash, cash equivalents and restricted cash

$

2,682

 

 

$

9,997

 

Cash, cash equivalents and restricted cash, end of period

$

70,907

 

 

$

66,455

 

ENERGY RECOVERY, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(Unaudited)

 

Channel Revenue

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

vs. 2023

 

(In thousands, except percentages)

Aftermarket

$

4,644

 

$

3,322

 

up 40%

Megaproject

 

4,100

 

 

3,243

 

up 26%

Original equipment manufacturer

 

3,346

 

 

6,836

 

down 50%

Total revenue

$

12,090

 

$

13,401

 

down 9%

Segment Activity

 

 

Three Months Ended March 31, 2024

 

Three Months Ended March 31, 2023

 

Water

 

Emerging Technologies

 

Corporate

 

Total

 

Water

 

Emerging Technologies

 

Corporate

 

Total

 

(In thousands)

Revenue

$

12,089

 

$

1

 

 

$

—

 

 

$

12,090

 

 

$

13,296

 

$

105

 

 

$

—

 

 

$

13,401

 

Cost of revenue

 

4,954

 

 

1

 

 

 

—

 

 

 

4,955

 

 

 

5,101

 

 

145

 

 

 

—

 

 

 

5,246

 

Gross profit (loss)

 

7,135

 

 

—

 

 

 

—

 

 

 

7,135

 

 

 

8,195

 

 

(40

)

 

 

—

 

 

 

8,155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

1,922

 

 

1,018

 

 

 

4,626

 

 

 

7,566

 

 

 

1,938

 

 

968

 

 

 

4,160

 

 

 

7,066

 

Sales and marketing

 

3,745

 

 

1,807

 

 

 

600

 

 

 

6,152

 

 

 

3,175

 

 

1,170

 

 

 

549

 

 

 

4,894

 

Research and development

 

1,100

 

 

3,251

 

 

 

—

 

 

 

4,351

 

 

 

1,180

 

 

3,126

 

 

 

—

 

 

 

4,306

 

Total operating expenses

 

6,767

 

 

6,076

 

 

 

5,226

 

 

 

18,069

 

 

 

6,293

 

 

5,264

 

 

 

4,709

 

 

 

16,266

 

Operating income (loss)

$

368

 

$

(6,076

)

 

$

(5,226

)

 

$

(10,934

)

 

$

1,902

 

$

(5,304

)

 

$

(4,709

)

 

$

(8,111

)

Share-based Compensation

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

(In thousands)

Stock-based compensation expense charged to:

 

 

 

Cost of revenue

$

343

 

$

249

General and administrative

 

1,407

 

 

960

Sales and marketing

 

1,010

 

 

698

Research and development

 

523

 

 

397

Total stock-based compensation expense

$

3,283

 

$

2,304

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.

 

 

Year-to-Date

 

Q1'2024

 

Q1'2023

 

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

Operating margin

 

(90.4

%)

 

 

(60.5

%)

Share-based compensation

 

27.2

 

 

 

17.2

 

Executive transition costs

 

3.9

 

 

 

—

 

Adjusted operating margin

 

(59.4

%)

 

 

(43.3

%)

 

 

 

 

Net loss

$

(8.3

)

 

$

(6.3

)

Share-based compensation (2)

 

3.3

 

 

 

2.3

 

Executive transition costs (2)

 

0.4

 

 

 

—

 

Share-based compensation discrete tax item

 

(0.1

)

 

 

(0.5

)

Adjusted net loss

$

(4.6

)

 

$

(4.5

)

 

 

 

 

Net loss per share

$

(0.14

)

 

$

(0.11

)

Adjustments to net loss per share (3)

 

0.06

 

 

 

0.03

 

Adjusted net loss per share

$

(0.08

)

 

$

(0.08

)

 

 

 

 

Effective tax rate

 

13.5

%

 

 

15.5

%

Adjustments to effective tax rate (3)

 

6.4

 

 

 

(2.5

)

Adjusted effective tax rate

 

19.8

%

 

 

13.0

%

 

 

 

 

Net loss

$

(8.3

)

 

$

(6.3

)

Share-based compensation

 

3.3

 

 

 

2.3

 

Depreciation and amortization

 

1.0

 

 

 

1.0

 

Executive transition costs

 

0.5

 

 

 

—

 

Other income, net

 

(1.4

)

 

 

(0.7

)

Benefit from income taxes

 

(1.3

)

 

 

(1.2

)

Adjusted EBITDA

$

(6.2

)

 

$

(4.8

)

 

 

 

 

Free cash flow

 

 

 

Net cash provided by operating activities

$

6.5

 

 

$

8.7

 

Capital expenditures

 

(0.8

)

 

 

(0.3

)

Free cash flow

$

5.7

 

 

$

8.4

 

_______________________

(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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Investor Relations ir@energyrecovery.com +1 (346) 382-6927