ERII Energy Recovery Inc

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

Third Quarter Highlights

• Revenue of $38.6 million, reaching the upper end of our guidance of $35 - $39 million.
• Gross margin of 65.1%, a decrease of 480 bps, as compared to Q3’2023, due primarily to higher manufacturing costs and higher costs related to product mix.
• Operating expenses of $18.1 million, an increase of 7.8%, as compared to Q3’2023, due primarily to higher consulting costs related to enhancement of our corporate growth strategy and higher employee costs.
• Income from operations of $7.1 million, a decrease of 22.7%, as compared to Q3’2023, mainly due to higher operating expenses and lower gross margin.
• Net income of $8.5 million and adjusted EBITDA(1) of $11.6 million.
• Cash and investments of $139.9 million, which include cash, cash equivalents, and short- and long-term investments.

David Moon, President and CEO, commented on the financial results, “We delivered strong third quarter results, hitting the upper end of our guidance for the quarter and, although there is still work to be done, we believe we are well-positioned in this quarter to deliver on our guidance for the full year. Our core desalination business continues to demonstrate durability of growth, our wastewater business continues to expand, and we are making real progress this year in our CO2 refrigeration business.”

Mr. Moon continued, “With our PX G1300 summer data collection complete, we just issued a white paper with the measurement and verification results, provided by a third party engineering firm, that we believe will be an important next step to getting the PX G1300 integrated into OEM systems designs and ultimately specified by supermarkets. Finally, we concluded our strategic work on what I have termed our Playbook. This Playbook outlines our five-year plan to grow all three of Energy Recovery’s businesses. It is an ambitious and I believe achievable blueprint for growth that I, along with Mike Mancini, CFO, and our business unit leads, are excited to lay out next month on a live investor webinar we are hosting on November 18, 2024.”

Financial Highlights

 

Quarter-to-Date

 

 

Year to Date

 

Q3’2024

 

Q3’2023

 

vs. Q3’2023

 

 

2024

 

2023

 

2024 vs. 2023

 

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

Revenue

$38.6

 

$37.0

 

up 4%

 

 

$77.9

 

$71.2

 

up 9%

Gross margin

65.1%

 

69.9%

 

down 480 bps

 

 

64.0%

 

66.9%

 

down 290 bps

Operating margin

18.3%

 

24.7%

 

down 640 bps

 

 

(7.6%)

 

(2.2%)

 

down 540 bps

Net income (loss)

$8.5

 

$9.7

 

down 12%

 

 

($0.4)

 

$1.7

 

down 125%

Net income (loss) per share

$0.15

 

$0.17

 

down $0.02

 

 

($0.01)

 

$0.03

 

down $0.04

Effective tax rate

 

 

 

 

 

 

 

62.4%

 

(114.2%)

 

 

Cash provided by (used for) operations

($3.0)

 

$7.7

 

 

 

 

$11.6

 

$12.3

 

 

Non-GAAP Financial Highlights (1)

 

Quarter-to-Date

 

 

Year to Date

 

Q3’2024

 

Q3’2023

 

vs. Q3’2023

 

 

2024

 

2023

 

2024 vs. 2023

 

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

Adjusted operating margin

27.5%

 

29.5%

 

down 200 bps

 

 

9.7%

 

6.0%

 

up 370 bps

Adjusted net income

$12.0

 

$11.4

 

up 5%

 

 

$12.4

 

$6.8

 

up 81%

Adjusted net income per share

$0.21

 

$0.20

 

up $0.01

 

 

$0.22

 

$0.12

 

up $0.10

Adjusted EBITDA

$11.6

 

$12.0

 

 

 

 

$10.6

 

$7.3

 

 

Free cash flow

($3.2)

 

$7.4

 

 

 

 

$10.4

 

$11.1

 

 

___________

(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.

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 the belief that the Company is well-positioned in the fourth quarter to deliver on our guidance for the full year, the belief that the Company is making real progress this year in its CO2 refrigeration business, the belief that the Company’s recently published white paper is an important next step to getting the PX G1300 integrated into original equipment manufacturers’ systems designs and ultimately specified by supermarkets, and the belief that the Company’s Playbook is an achievable blueprint for growth. 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, adjusted net income 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 income (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 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 per share is a non-GAAP financial measure that the Company defines as net income (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 income (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) 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, October 30, 2024, 2:00 PM PT / 5:00 PM ET US / Canada Toll-Free: +1 (866) 682-6100 Local / International Toll: +1 (862) 298-0702

CONFERENCE CALL REPLAY: Available approximately three hours after conclusion of the live call. Expiration: Friday, November 29, 2024 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13749222

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)

 

 

September 30,

2024

 

December 31,

2023

 

(In thousands)

ASSETS

 

 

 

Cash, cash equivalents and investments

$

139,911

 

$

122,375

Accounts receivable and contract assets

 

33,319

 

 

47,529

Inventories, net

 

33,464

 

 

26,149

Prepaid expenses and other assets

 

5,295

 

 

3,251

Property, equipment and operating leases

 

26,504

 

 

30,168

Goodwill

 

12,790

 

 

12,790

Deferred tax assets and other assets

 

11,422

 

 

10,712

TOTAL ASSETS

$

262,705

 

$

252,974

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Liabilities

 

 

 

Accounts payable and accrued expenses

$

13,938

 

$

18,583

Contract liabilities and other liabilities, non-current

 

3,069

 

 

1,304

Lease liabilities

 

11,825

 

 

13,279

Total liabilities

 

28,832

 

 

33,166

 

 

 

 

Stockholders’ equity

 

233,873

 

 

219,808

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

262,705

 

$

252,974

 

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2024

 

2023

 

2024

 

2023

 

(In thousands, except per share data)

Revenue

$

38,584

 

$

37,036

 

$

77,873

 

 

$

71,160

 

Cost of revenue

 

13,472

 

 

11,154

 

 

28,060

 

 

 

23,580

 

Gross profit

 

25,112

 

 

25,882

 

 

49,813

 

 

 

47,580

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

General and administrative

 

7,673

 

 

7,369

 

 

24,771

 

 

 

21,704

 

Sales and marketing

 

6,413

 

 

5,411

 

 

18,669

 

 

 

15,397

 

Research and development

 

3,969

 

 

3,969

 

 

12,264

 

 

 

12,043

 

Total operating expenses

 

18,055

 

 

16,749

 

 

55,704

 

 

 

49,144

 

Income (loss) from operations

 

7,057

 

 

9,133

 

 

(5,891

)

 

 

(1,564

)

Other income, net

 

1,768

 

 

1,045

 

 

4,771

 

 

 

2,357

 

Income (loss) before income taxes

 

8,825

 

 

10,178

 

 

(1,120

)

 

 

793

 

Provision for (benefit from) income taxes

 

344

 

 

518

 

 

(699

)

 

 

(906

)

Net income (loss)

$

8,481

 

$

9,660

 

$

(421

)

 

$

1,699

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

 

 

 

 

 

 

Basic

$

0.15

 

$

0.17

 

$

(0.01

)

 

$

0.03

 

Diluted

$

0.15

 

$

0.17

 

$

(0.01

)

 

$

0.03

 

 

 

 

 

 

 

 

 

Number of shares used in per share calculations

 

 

 

 

 

 

 

Basic

 

57,756

 

 

56,443

 

 

57,409

 

 

 

56,346

 

Diluted

 

58,290

 

 

57,969

 

 

57,409

 

 

 

57,761

 

 

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Nine Months Ended September 30,

 

 

2024

 

 

 

2023

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

Net (loss) income

$

(421

)

 

$

1,699

 

Non-cash adjustments

 

11,432

 

 

 

8,817

 

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

 

556

 

 

 

1,756

 

Net cash provided by operating activities

 

11,567

 

 

 

12,272

 

 

 

 

 

Cash flows from investing activities:

 

 

 

Net investment in marketable securities

 

(21,067

)

 

 

(17,278

)

Capital expenditures

 

(1,194

)

 

 

(1,179

)

Proceeds from sales of fixed assets

 

90

 

 

 

82

 

Net cash used in investing activities

 

(22,171

)

 

 

(18,375

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Net proceeds from issuance of common stock

 

5,795

 

 

 

1,184

 

Net cash provided by financing activities

 

5,795

 

 

 

1,184

 

 

 

 

 

Effect of exchange rate differences

 

(23

)

 

 

27

 

Net change in cash, cash equivalents and restricted cash

$

(4,832

)

 

$

(4,892

)

Cash, cash equivalents and restricted cash, end of period

$

63,393

 

 

$

51,566

 

 

ENERGY RECOVERY, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(Unaudited)

 

Channel Revenue

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2024

 

2023

 

vs. 2023

 

2024

 

2023

 

vs. 2023

 

(In thousands, except percentages)

Megaproject

$

29,009

 

$

26,829

 

up 8%

 

$

48,924

 

$

42,283

 

up 16%

Original equipment manufacturer

 

4,919

 

 

5,307

 

down 7%

 

 

15,210

 

 

16,845

 

down 10%

Aftermarket

 

4,656

 

 

4,900

 

down 5%

 

 

13,739

 

 

12,032

 

up 14%

Total revenue

$

38,584

 

$

37,036

 

up 4%

 

$

77,873

 

$

71,160

 

up 9%

 

Segment Activity

 

 

Three Months Ended September 30,

 

2024

 

2023

 

Water

 

Emerging Technologies

 

Corporate

 

Total

 

Water

 

Emerging Technologies

 

Corporate

 

Total

 

(In thousands)

Revenue

$

38,344

 

$

240

 

 

$

—

 

 

$

38,584

 

$

36,812

 

$

224

 

 

$

—

 

 

$

37,036

Cost of revenue

 

13,334

 

 

138

 

 

 

—

 

 

 

13,472

 

 

11,114

 

 

40

 

 

 

—

 

 

 

11,154

Gross profit

 

25,010

 

 

102

 

 

 

—

 

 

 

25,112

 

 

25,698

 

 

184

 

 

 

—

 

 

 

25,882

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

1,803

 

 

906

 

 

 

4,964

 

 

 

7,673

 

 

2,039

 

 

1,061

 

 

 

4,269

 

 

 

7,369

Sales and marketing

 

3,777

 

 

1,977

 

 

 

659

 

 

 

6,413

 

 

3,272

 

 

1,560

 

 

 

579

 

 

 

5,411

Research and development

 

1,145

 

 

2,824

 

 

 

—

 

 

 

3,969

 

 

1,098

 

 

2,871

 

 

 

—

 

 

 

3,969

Total operating expenses

 

6,725

 

 

5,707

 

 

 

5,623

 

 

 

18,055

 

 

6,409

 

 

5,492

 

 

 

4,848

 

 

 

16,749

Operating income (loss)

$

18,285

 

$

(5,605

)

 

$

(5,623

)

 

$

7,057

 

$

19,289

 

$

(5,308

)

 

$

(4,848

)

 

$

9,133

 

Nine Months Ended September 30,

 

2024

 

 

2023

 

Water

 

Emerging Technologies

 

Corporate

 

Total

 

Water

 

Emerging Technologies

 

Corporate

 

Total

 

(In thousands)

Revenue

$

77,351

 

$

522

 

 

$

—

 

 

$

77,873

 

 

$

70,622

 

$

538

 

 

$

—

 

 

$

71,160

 

Cost of revenue

 

27,633

 

 

427

 

 

 

—

 

 

 

28,060

 

 

 

23,136

 

 

444

 

 

 

—

 

 

 

23,580

 

Gross profit

 

49,718

 

 

95

 

 

 

—

 

 

 

49,813

 

 

 

47,486

 

 

94

 

 

 

—

 

 

 

47,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

5,637

 

 

2,908

 

 

 

16,226

 

 

 

24,771

 

 

 

5,837

 

 

2,976

 

 

 

12,891

 

 

 

21,704

 

Sales and marketing

 

11,359

 

 

5,484

 

 

 

1,826

 

 

 

18,669

 

 

 

9,567

 

 

4,171

 

 

 

1,659

 

 

 

15,397

 

Research and development

 

3,318

 

 

8,946

 

 

 

—

 

 

 

12,264

 

 

 

3,121

 

 

8,922

 

 

 

—

 

 

 

12,043

 

Total operating expenses

 

20,314

 

 

17,338

 

 

 

18,052

 

 

 

55,704

 

 

 

18,525

 

 

16,069

 

 

 

14,550

 

 

 

49,144

 

Operating income (loss)

$

29,404

 

$

(17,243

)

 

$

(18,052

)

 

$

(5,891

)

 

$

28,961

 

$

(15,975

)

 

$

(14,550

)

 

$

(1,564

)

 

Share-based Compensation

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2024

 

2023

 

2024

 

2023

 

(In thousands)

Stock-based compensation expense charged to:

 

 

 

 

 

 

 

Cost of revenue

$

176

 

$

158

 

$

980

 

$

555

General and administrative

 

954

 

 

905

 

 

3,372

 

 

2,628

Sales and marketing

 

845

 

 

436

 

 

2,767

 

 

1,684

Research and development

 

437

 

 

292

 

 

1,393

 

 

944

Total stock-based compensation expense

$

2,412

 

$

1,791

 

$

8,512

 

$

5,811

 

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

 

Q3'2024

 

Q3'2023

 

Q3'2024

 

Q3'2023

 

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

Operating margin

 

18.3

%

 

 

24.7

%

 

 

(7.6

)%

 

 

(2.2

)%

Share-based compensation

 

6.3

 

 

 

4.8

 

 

 

10.9

 

 

 

8.2

 

Executive transition costs

 

2.9

 

 

 

—

 

 

 

6.4

 

 

 

—

 

Adjusted operating margin

 

27.5

%

 

 

29.5

%

 

 

9.7

%

 

 

6.0

%

 

 

 

 

 

 

 

 

Net income (loss)

$

8.5

 

 

$

9.7

 

 

$

(0.4

)

 

$

1.7

 

Share-based compensation

 

2.4

 

 

 

1.8

 

 

 

8.5

 

 

 

5.8

 

Executive transition costs (2)

 

1.0

 

 

 

—

 

 

 

4.4

 

 

 

—

 

Share-based compensation discrete tax item

 

0.1

 

 

 

(0.1

)

 

 

(0.1

)

 

 

(0.7

)

Adjusted net income

$

12.0

 

 

$

11.4

 

 

$

12.4

 

 

$

6.8

 

 

 

 

 

 

 

 

 

Net income (loss) per share

$

0.15

 

 

$

0.17

 

 

$

(0.01

)

 

$

0.03

 

Adjustments to net income (loss) per share (3)

 

0.06

 

 

 

0.03

 

 

 

0.23

 

 

 

0.09

 

Adjusted net income per share

$

0.21

 

 

$

0.20

 

 

$

0.22

 

 

$

0.12

 

 

 

 

 

 

 

 

 

Net income (loss)

$

8.5

 

 

$

9.7

 

 

$

(0.4

)

 

$

1.7

 

Share-based compensation

 

2.4

 

 

 

1.8

 

 

 

8.5

 

 

 

5.8

 

Depreciation and amortization

 

1.0

 

 

 

1.1

 

 

 

3.1

 

 

 

3.1

 

Executive transition costs

 

1.1

 

 

 

—

 

 

 

5.0

 

 

 

—

 

Other income, net

 

(1.8

)

 

 

(1.0

)

 

 

(4.8

)

 

 

(2.4

)

Provision for (benefit from) income taxes

 

0.3

 

 

 

0.5

 

 

 

(0.7

)

 

 

(0.9

)

Adjusted EBITDA

$

11.6

 

 

$

12.0

 

 

$

10.6

 

 

$

7.3

 

 

 

 

 

 

 

 

 

Free cash flow

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

$

(3.0

)

 

$

7.7

 

 

$

11.6

 

 

$

12.3

 

Capital expenditures

 

(0.2

)

 

 

(0.3

)

 

 

(1.2

)

 

 

(1.2

)

Free cash flow

$

(3.2

)

 

$

7.4

 

 

$

10.4

 

 

$

11.1

 

___________

(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.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20241030567814/en/

Investor Relations ir@energyrecovery.com