Energy Recovery, Inc. (NASDAQ:ERII) ("Energy Recovery" or the "Company") today announced its financial results for the first quarter ended March 31, 2022.
News Summary
"We not only delivered record first quarter revenue, but also grew our quarterly operating income 34% year-on-year despite the inflationary environment as we execute on our disciplined growth path," said Robert Mao, Chairman, President and Chief Executive Officer of Energy Recovery.
"Our Q1 results included industrial wastewater sales equivalent to nearly 50% of 2021's total sales in this market. In addition, we are preparing for the installation of a CO2 refrigeration rack fully integrated with our PX G1300 for Vallarta Supermarkets in California," said Mr. Mao.
"The transformation of Energy Recovery the past two years is significant, but is just the beginning." Mr. Mao continued, "Our disciplined approach to sustainable growth and commitment to transparency and accountability will continue to guide us as we innovate and create value for our customers and shareholders."
First Quarter Financial Highlights
| GAAP | Non-GAAP(1) | ||||||||||||||||||
| Q1 2022 | Q1 2021 | vs. Q1 2021 | Q1 2022 | Q1 2021 | vs. Q1 2021 | ||||||||||||||
| (In millions except for percentages, basis points and per share amounts) | |||||||||||||||||||
Revenue | $ | 32.5 | $ | 28.9 | up 12% | $ | 32.5 | $ | 28.9 | up 12% | |||||||||
Gross margin | 70.8 | % | 69.0 | % | up 185 bps | 71.3 | % | 69.4 | % | up 183 bps | |||||||||
Operating margin | 25.3 | % | 21.2 | % | up 403 bps | 31.0 | % | 27.8 | % | up 312 bps | |||||||||
Net income | $ | 7.9 | $ | 6.9 | up 15% | $ | 9.1 | $ | 7.2 | up 28% | |||||||||
Net income per share | $ | 0.14 | $ | 0.12 | up 17% | $ | 0.16 | $ | 0.13 | up 23% | |||||||||
Effective tax rate | 5.3 | % | (10.3 | %) | up 1560 bps | 10.2 | % | 12.1 | % | down 193 bps | |||||||||
Adjusted EBITDA | $ | 11.1 | $ | 9.1 | up 22% | ||||||||||||||
Free cash flow | $ | (3.6 | ) | $ | (0.6 | ) | up 530% | ||||||||||||
(1) "Adjusted income from operations," "Adjusted net income per share," "Free cash flow" and "Adjusted EBITDA" are non-GAAP financial measures. Refer to the sections "Use of Non-GAAP Financial Measures" and "Reconciliation of Non-GAAP Financial Measures."
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 timing of the installation of the Company's PX G1300, and the Company's belief that it will be able to continue to innovate and create value for its customers and shareholders. These forward-looking statements are based on information currently available to us and on management's beliefs, assumptions, estimates, or projections and are not guarantees of future events or results. Potential risks and uncertainties include 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, 2021, 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 income from operations, adjusted net income per share, free cash flow and adjusted EBITDA. 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 First Quarter 2022 Financial Results
Conference Call to Discuss First Quarter 2022 Financial Results
LIVE CONFERENCE CALL:
Wednesday, May 4, 2022, 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: Saturday, June 4, 2022
US / Canada Toll-Free: +1 (877) 660-6853
Local / International Toll: +1 (201) 612-7415
Access code: 13727335
Investors may also access the live call or the replay over the internet at ir.energyrecovery.com/websites/energyrecover/English/2200/calendar.html. The replay will be available approximately three hours after the live call concludes.
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 creates technologies that solve complex challenges for industrial fluid-flow markets worldwide. Building on our pressure exchanger technology platform, we design and manufacture solutions that make industrial processes more efficient and sustainable. What began as a game-changing invention for desalination has grown into a global business accelerating the environmental sustainability of customers' operations in multiple industries. Headquartered in the San Francisco Bay Area, Energy Recovery has manufacturing, research and development facilities across California and Texas with sales and on-site technical support available globally. For more information, please visit www.energyrecovery.com.
Contact
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ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 2022 | December 31, 2021 | |||||||
| (In thousands) | ||||||||
ASSETS | ||||||||
Cash, cash equivalents and investments | $ | 96,556 | $ | 107,988 | ||||
Accounts receivable and contract assets | 27,466 | 21,108 | ||||||
Inventories, net | 23,482 | 20,383 | ||||||
Prepaid expenses and other assets | 5,802 | 4,582 | ||||||
Property, equipment and operating leases | 34,211 | 35,014 | ||||||
Goodwill and other intangible assets | 12,824 | 12,827 | ||||||
Deferred tax assets and other assets | 11,435 | 11,788 | ||||||
TOTAL ASSETS | $ | 211,776 | $ | 213,690 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 12,453 | $ | 14,903 | ||||
Contract liabilities | 2,124 | 3,406 | ||||||
Lease liabilities | 16,074 | 16,443 | ||||||
Other liabilities, non-current | 159 | 159 | ||||||
Total liabilities | 30,810 | 34,911 | ||||||
Stockholders' equity | ||||||||
Common stock and additional paid-in capital | 198,275 | 195,657 | ||||||
Accumulated other comprehensive loss | (418 | ) | (149 | ) | ||||
Treasury stock | (61,888 | ) | (53,832 | ) | ||||
Retained earnings | 44,997 | 37,103 | ||||||
Total stockholders' equity | 180,966 | 178,779 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 211,776 | $ | 213,690 | ||||
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| (In thousands, except per share data) | ||||||||
Revenue | $ | 32,546 | $ | 28,940 | ||||
Cost of revenue | 9,498 | 8,981 | ||||||
Gross profit | 23,048 | 19,959 | ||||||
Operating expenses | ||||||||
General and administrative | 6,551 | 6,610 | ||||||
Sales and marketing | 3,364 | 2,703 | ||||||
Research and development | 4,911 | 4,502 | ||||||
Total operating expenses | 14,826 | 13,815 | ||||||
Income from operations | 8,222 | 6,144 | ||||||
Other income, net | 117 | 82 | ||||||
Income before income taxes | 8,339 | 6,226 | ||||||
Provision for (benefit from) income taxes | 445 | (640 | ) | |||||
Net income | $ | 7,894 | $ | 6,866 | ||||
Net income per share | ||||||||
Basic | $ | 0.14 | $ | 0.12 | ||||
Diluted | $ | 0.14 | $ | 0.12 | ||||
Number of shares used in per share calculations | ||||||||
Basic | 56,783 | 56,877 | ||||||
Diluted | 58,181 | 58,597 | ||||||
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| (In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 7,894 | $ | 6,866 | ||||
Non-cash adjustments | 3,964 | 2,650 | ||||||
Net cash used in operating assets and liabilities | (13,460 | ) | (9,462 | ) | ||||
Net cash (used in) provided by operating activities | (1,602 | ) | 54 | |||||
Cash flows from investing activities: | ||||||||
Net investment in marketable securities | (18,956 | ) | 5,710 | |||||
Capital expenditures | (1,976 | ) | (622 | ) | ||||
Net cash (used in) provided by investing activities | (20,932 | ) | 5,088 | |||||
Cash flows from financing activities: | ||||||||
Net proceeds from issuance of common stock | 763 | 6,059 | ||||||
Repurchase of common stock | (8,056 | ) | - | |||||
Net cash (used in) provided by financing activities | (7,293 | ) | 6,059 | |||||
Effect of exchange rate differences | (11 | ) | (25 | ) | ||||
Net change in cash, cash equivalents and restricted cash | (29,838 | ) | 11,176 | |||||
Cash, cash equivalents and restricted cash, end of period | $ | 44,623 | $ | 105,534 | ||||
ENERGY RECOVERY, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)
Channel Revenue
| Three Months Ended March 31, | ||||||||||
| 2022 | 2021 | vs. 2021 | ||||||||
| (In thousands, except percentages) | ||||||||||
Megaproject | $ | 23,840 | $ | 23,757 | no change | |||||
Original equipment manufacturer | 4,671 | 2,791 | up 67% | |||||||
Aftermarket | 4,035 | 2,392 | up 69% | |||||||
Total Revenues | $ | 32,546 | $ | 28,940 | up 12% | |||||
Segment Activity
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||||
| Water | Emerging Technologies | Corporate | Total | Water | Emerging Technologies | Corporate | Total | |||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
Revenue | $ | 32,516 | $ | 30 | $ | - | $ | 32,546 | $ | 28,940 | $ | - | $ | - | $ | 28,940 | ||||||||||||||||
Cost of revenue | 9,480 | 18 | - | 9,498 | 8,981 | - | - | 8,981 | ||||||||||||||||||||||||
Gross profit | 23,036 | 12 | - | 23,048 | 19,959 | - | - | 19,959 | ||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
General and administrative | 1,464 | 908 | 4,179 | 6,551 | 1,561 | 1,166 | 3,883 | 6,610 | ||||||||||||||||||||||||
Sales and marketing | 2,301 | 527 | 536 | 3,364 | 2,164 | 179 | 360 | 2,703 | ||||||||||||||||||||||||
Research and development | 800 | 4,111 | - | 4,911 | 501 | 4,001 | - | 4,502 | ||||||||||||||||||||||||
Total operating expenses | 4,565 | 5,546 | 4,715 | 14,826 | 4,226 | 5,346 | 4,243 | 13,815 | ||||||||||||||||||||||||
Operating income (loss) | $ | 18,471 | $ | (5,534 | ) | $ | (4,715 | ) | $ | 8,222 | $ | 15,733 | $ | (5,346 | ) | $ | (4,243 | ) | $ | 6,144 | ||||||||||||
Share-based Compensation
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| (In thousands) | ||||||||
Stock-based compensation expense charged to: | ||||||||
Cost of revenue | $ | 146 | $ | 138 | ||||
General and administrative | 968 | 896 | ||||||
Sales and marketing | 433 | 444 | ||||||
Research and development | 335 | 436 | ||||||
Total stock-based compensation expense | $ | 1,882 | $ | 1,914 | ||||
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.
Gross margin | 70.8 | % | 69.0 | % | ||||
Share-based compensation as a percent of revenue | 0.5 | % | 0.5 | % | ||||
Adjusted gross margin | 71.3 | % | 69.4 | % | ||||
Income from operations | $ | 8.2 | $ | 6.1 | ||||
Share-based compensation | 1.9 | 1.9 | ||||||
Adjusted income from operations | $ | 10.1 | $ | 8.1 | ||||
Operating margin | 25.3 | % | 21.2 | % | ||||
Share-based compensation as a percent of revenue | 5.7 | % | 6.6 | % | ||||
Adjusted operating margin | 31.0 | % | 27.8 | % | ||||
Net income | $ | 7.9 | $ | 6.9 | ||||
Share-based compensation | 1.9 | 1.9 | ||||||
Share-based compensation discrete tax item | (0.6 | ) | (1.6 | ) | ||||
Adjusted net income | $ | 9.1 | $ | 7.2 | ||||
Net income per share | $ | 0.14 | $ | 0.12 | ||||
Adjustments to net income per share (2) | 0.02 | 0.01 | ||||||
Adjusted net income per share | $ | 0.16 | $ | 0.13 | ||||
Diluted shares used in calculating net income per diluted share | 56,783 | 56,877 | ||||||
Effective tax rate | 5.3 | % | (10.3 | %) | ||||
Adjustments to effective tax rate (3) | 4.9 | % | 22.4 | % | ||||
Adjusted effective tax rate | 10.2 | % | 12.1 | % | ||||
Income from operations | $ | 8.2 | $ | 6.1 | ||||
Share-based compensation | 1.9 | 1.9 | ||||||
Depreciation and amortization | 1.0 | 1.0 | ||||||
Adjusted EBITDA | $ | 11.1 | $ | 9.1 | ||||
Net cash (used in) provided by operating activities | $ | (1.6 | ) | $ | 0.1 | |||
Capital expenditures | (2.0 | ) | (0.6 | ) | ||||
Free cash flow (non-GAAP) | $ | (3.6 | ) | $ | (0.6 | ) |
| Last Trade: | US$18.01 |
| Daily Change: | -0.03 -0.17 |
| Daily Volume: | 356,649 |
| Market Cap: | US$1.040B |
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