Else Nutrition

Energy Recovery Reports 47% Quarterly Product Revenue Growth in Third Quarter

02 November 2022

Energy Recovery, Inc. (NASDAQ:ERII) ("Energy Recovery" or the "Company") today announced its financial results for the third quarter ended September 30, 2022.

Third Quarter Highlights:

  • Revenue of $30.5 million. Full year revenue guidance of $121-$125 million, or 16%-20% year-on-year growth, within gross margin expectations guided last year.
  • Income from operations of $4.9 million and adjusted income from operations(1) of $6.8 million.
  • Net income of $4.8 million, or $0.08 per share, and adjusted net income per share(1) of $0.12.
  • Adjusted EBITDA(1) of $7.7 million.
  • Cash and investments of $86.6 million, which include cash, cash equivalents, and short-term and long-term investments.
  • We successfully installed and commissioned our PX G1300fully integrated with the CO2 refrigeration rack for Vallarta Supermarkets in California.
  • We released our third annual Environmental, Social, and Governance ("ESG") report, which can be found on our website and using this link: https://ir.energyrecovery.com/websites/energyrecover/English/6500/esg-at-energy-recovery.html#.

Robert Mao, Chairman, President and CEO, commented on the financial results, "We continue to make important strides in all three of our businesses, and believe we have the right products and strategy to deliver on our goals despite the challenging macro-economic environment. In our CO2 refrigeration business, we have gone live with the installation of our PX G1300 with Vallarta Supermarkets in California. This is the second installation in a grocery store for the PX G1300, and we are collecting valuable data and proving the efficiency gains the PX G1300 delivers in CO2 refrigeration racks."

Mr. Mao added, "In addition, the reference designs published on our website have piqued the interest of additional commercial and industrial refrigeration manufacturers. As a result of this, we will be shipping PX G1300 units to various customers for installation in the later part of this year, or early 2023. These units will be used for initial deployments in both commercial and industrial refrigeration applications."

"Sales in our industrial wastewater business continue to grow and we should exceed our full-year guidance of $3.0 million. In our water business we launched the PX Q400 pressure exchanger, which is the next evolution of our PX® Pressure Exchanger® technology. This new addition to our PX offering is our most efficient PX available for use in both SWRO and industrial wastewater applications."

Financial Highlights
Third Quarter (Quarter to Date)

 
 GAAPNon-GAAP(1)   
 
  Q3 2022   Q3 2021 
vs. Q3 2021
  Q3 2022   Q3 2021 
vs. Q3 2021
   
 (In millions except for percentages, basis points and per share amounts)
Revenue
 $30.5  $20.8 
up 47%
 $30.5  $20.8 
up 47%
   
Gross margin
  69.1%  70.6%
down 150 bps
  69.5%  71.1%
down 160 bps
   
Operating margin
  16.1%  6.9%
up 920 bps
  22.4%  12.8%
up 960 bps
   
Net income
 $4.8  $1.1 
up 347%
 $6.5  $2.3 
up 182%
   
Net income per share
 $0.08  $0.02 
up 300%
 $0.12  $0.04 
up 200%
   
Effective tax rate
  7.2%  26.8%   8.7%  14.9%    
Adjusted EBITDA
          $7.7  $3.7 
up 109%
   
Free cash flow
          $(1.6) $(6.7)    

Fiscal Year (Year to Date)

  GAAPNon-GAAP(1) 
 
 2022  2021 
2022 vs. 2021
 2022  2021 
2022 vs. 2021
 
  (In millions, except net income per share, percentages and basis points) 
Revenue
 $83.3  $70.3 
up 18%
 $83.3  $70.3 
up 18%
 
Gross margin
  69.0%  68.4%
up 60 bps
  69.4%  68.8%
up 60 bps
 
Operating margin
  12.3%  11.2%
up 110 bps
  20.3%  17.7%
up 260 bps
 
Net income
 $10.3  $9.0 
up 15%
 $15.8  $11.2 
up 41%
 
Net income per share
 $0.18  $0.15 
up 20%
 $0.28  $0.20 
up 40%
 
Effective tax rate
  3.5%  (12.4%)
 
  9.1%  11.0%
 
 
Adjusted EBITDA
          $19.8  $15.5 
up 28%
 
Free cash flow
          $3.3  $2.4   
  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 our expectations on full year revenue and gross margin guidance; our belief that the PX Q400 is the highest performing PX available for SWRO and industrial wastewater facilities; and our belief that the Company has the right products and strategy to survive the macro-economic environment and our goals. 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, 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 Third Quarter and Year to Date 2022 Financial Results

  • Adjusted income from operations is a non-GAAP financial measure that the Company defines as income from operations which excludes i) share-based compensation; and ii) non-recurring costs, such as severance costs and accelerated depreciation.
  • Adjusted net income per share is a non-GAAP financial measure that the Company defines as net income, which excludes i) share-based compensation; and ii) non-recurring costs, such as severance costs and accelerated depreciation, 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 which excludes i) depreciation and amortization; ii) share-based compensation; iii) non-recurring costs, such as severance costs; iv) other income, net, such as interest income and other non-operating (expense) income, 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 Third Quarter 2022 Financial Results

LIVE CONFERENCE CALL:

Wednesday, November 2, 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: Friday, December 2, 2022
US / Canada Toll-Free: +1 (877) 660-6853
Local / International Toll: +1 (201) 612-7415
Access code: 13732700

Investors may access the live call and the replay (approximately three hours after the live call concludes) over the internet at:
https://ir.energyrecovery.com/websites/energyrecover/English/2200/calendar.html

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, Inc., creates technologies that solve complex challenges for commercial and industrial fluid-flow markets worldwide. Building on an innovative pressure exchanger technology platform, they design and manufacture solutions that make commercial and 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 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/.

Contact

Investor Relations
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+1 (281) 962-8105

ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

 
 
September 30,
2022
  
December 31,
2021
 
  (In thousands) 
ASSETS
      
Cash, cash equivalents and investments
 $86,558  $107,988 
Accounts receivable and contract assets
  19,313   21,108 
Inventories, net
  32,132   20,383 
Prepaid expenses and other assets
  5,486   4,582 
Property, equipment and operating leases
  32,234   35,014 
Goodwill and other intangible assets
  12,819   12,827 
Deferred tax assets and other assets
  11,579   11,788 
TOTAL ASSETS
 $200,121  $213,690 
         
LIABILITIES AND STOCKHOLDERS' EQUITY
        
Liabilities
        
Accounts payable and accrued expenses
 $13,250  $14,903 
Contract liabilities
  2,209   3,406 
Lease liabilities
  15,284   16,443 
Other liabilities, non-current
  75   159 
Total liabilities
  30,818   34,911 
         
Stockholders' equity
  169,303   178,779 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 $200,121  $213,690 

ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
 Three Months Ended September 30,  Nine Months Ended September 30, 
 
 2022  2021  2022  2021 
 
 (In thousands, except per share data) 
Revenue
 $30,462  $20,781  $83,300  $70,328 
Cost of revenue
  9,417   6,089   25,835   22,251 
Gross profit
  21,045   14,692   57,465   48,077 
                 
Operating expenses
                
General and administrative
  7,608   5,853   21,155   18,641 
Sales and marketing
  4,703   2,996   11,916   8,236 
Research and development
  3,828   4,416   14,170   13,342 
Total operating expenses
  16,139   13,265   47,241   40,219 
Income from operations
  4,906   1,427   10,224   7,858 
Other income, net
  254   37   477   158 
Income before income taxes
  5,160   1,464   10,701   8,016 
Provision for (benefit from) income taxes
  371   393   377   (990)
Net income
 $4,789  $1,071  $10,324  $9,006 
                 
Net income per share
                
Basic
 $0.09  $0.02  $0.18  $0.16 
Diluted
 $0.08  $0.02  $0.18  $0.15 
                 
Number of shares used in per share calculations
                
Basic
  55,881   57,026   56,291   57,053 
Diluted
  57,372   58,709   57,708   58,785 

ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
 Nine Months Ended September 30, 
 
 2022  2021 
  (In thousands) 
Cash flows from operating activities:
      
Net income
 $10,324  $9,006 
Non-cash adjustments
  11,136   8,153 
Net cash used in operating assets and liabilities
  (15,192)  (9,865)
Net cash provided by operating activities
  6,268   7,294 
         
Cash flows from investing activities:
        
Net investment in marketable securities
  (1,857)  (22,653)
Capital expenditures, net
  (2,265)  (4,894)
Net cash used in investing activities
  (4,122)  (27,547)
         
Cash flows from financing activities:
        
Net proceeds from issuance of common stock
  2,244   8,939 
Repurchase of common stock
  (26,654)  (17,156)
Net cash used in financing activities
  (24,410)  (8,217)
         
Effect of exchange rate differences
  38   (40)
Net change in cash, cash equivalents and restricted cash
 $(22,226) $(28,510)
Cash, cash equivalents and restricted cash, end of period
 $52,235  $65,848 

ENERGY RECOVERY, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)

Channel Revenue

  Three Months Ended September 30,Nine Months Ended September 30, 
 
 2022  2021 
vs. 2021
 2022  2021 
vs. 2021
 
 
 (In thousands, except percentages) 
Megaproject
 $17,347  $13,275 
up 31%
 $51,257  $50,307 
up 2%
 
Original equipment manufacturer
  9,032   4,844 
up 86%
  21,392   11,909 
up 80%
 
Aftermarket
  4,083   2,662 
up 53%
  10,651   8,112 
up 31%
 
Total Revenues
 $30,462  $20,781 
up 47%
 $83,300  $70,328 
up 18%
 

Segment Activity

 
 Three Months Ended September 30, 2022  Three Months Ended September 30, 2021 
 
 Water  Emerging Technologies  Corporate  Total  Water  Emerging Technologies  Corporate  Total 
 
 (In thousands) 
Revenue
 $30,462  $-  $-  $30,462  $20,767  $14  $-  $20,781 
Cost of revenue
  9,417   -   -   9,417   6,089   -   -   6,089 
Gross profit
  21,045   -   -   21,045   14,678   14   -   14,692 
                                 
Operating expenses
                                
General and administrative
  1,911   878   4,819   7,608   1,437   1,373   3,043   5,853 
Sales and marketing
  3,242   960   501   4,703   2,250   327   419   2,996 
Research and development
  1,216   2,612   -   3,828   762   3,654   -   4,416 
Total operating expenses
  6,369   4,450   5,320   16,139   4,449   5,354   3,462   13,265 
Operating income (loss)
 $14,676  $(4,450) $(5,320) $4,906  $10,229  $(5,340) $(3,462) $1,427 
 
 Nine Months Ended September 30, 2022  Nine Months Ended September 30, 2021 
 
 Water  Emerging Technologies  Corporate  Total  Water  Emerging Technologies  Corporate  Total 
 
 (In thousands) 
Revenue
 $83,191  $109  $-  $83,300  $70,275  $53  $-  $70,328 
Cost of revenue
  25,817   18   -   25,835   22,251   -   -   22,251 
Gross profit
  57,374   91   -   57,465   48,024   53   -   48,077 
                                 
Operating expenses
                                
General and administrative
  4,909   3,140   13,106   21,155   4,777   3,854   10,010   18,641 
Sales and marketing
  8,197   2,120   1,599   11,916   6,535   735   966   8,236 
Research and development
  3,159   11,011   -   14,170   1,858   11,484   -   13,342 
Total operating expenses
  16,265   16,271   14,705   47,241   13,170   16,073   10,976   40,219 
Operating income (loss)
 $41,109  $(16,180) $(14,705) $10,224  $34,854  $(16,020) $(10,976) $7,858 

Share-based Compensation

 
 Three Months Ended September 30,  Nine Months Ended September 30, 
 
 2022  2021  2022  2021 
  (In thousands) 
Stock-based compensation expense charged to:
            
Cost of revenue
 $124  $86  $370  $314 
General and administrative
  743   628   2,735   2,235 
Sales and marketing
  426   271   1,232   1,048 
Research and development
  205   248   767   979 
Total stock-based compensation expense
 $1,498  $1,233  $5,104  $4,576 

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 
  Q3'2022  Q3'2021  2022  2021 
  (In millions, except shares, per share and percentages) 
Gross margin (GAAP)
  69.1%  70.6%  69.0%  68.4%
Share-based compensation
  0.4%  0.5%  0.4%  0.4%
Adjusted gross margin (non-GAAP)
  69.5%  71.1%  69.4%  68.8%
                 
Income from operations (GAAP)
 $4.9  $1.4  $10.2  $7.9 
Share-based compensation
  1.5   1.2   5.1   4.6 
Severance
  -   -   0.3   - 
Accelerated depreciation
  -   -   0.9   - 
Litigation charges
  0.4   -   0.4   - 
Adjusted income from operations (non-GAAP)
 $6.8  $2.7  $16.9  $12.4 
                 
Operating margin (GAAP)
  16.1%  6.9%  12.3%  11.2%
Share-based compensation
  4.9%  5.9%  6.1%  6.5%
Severance
  -%  -%  0.4%  -%
Accelerated depreciation
  -%  -%  1.0%  -%
Litigation charges
  1.4%  -%  0.5%  -%
Adjusted operating margin (non-GAAP)
  22.4%  12.8%  20.3%  17.7%
                 
Net income (GAAP)
 $4.8  $1.1  $10.3  $9.0 
Share-based compensation (2)
  1.5   1.2   5.1   4.6 
Severance (2)
  -   -   0.3   - 
Accelerated depreciation (2)
  -   -   0.7   - 
Litigation charges (2)
  0.4   -   0.4   - 
Share-based compensation discrete tax item
  (0.2)  -   (1.0)  (2.4)
Adjusted net income (non-GAAP)
 $6.5  $2.3  $15.8  $11.2 
                 
Net income per share (GAAP)
 $0.08  $0.02  $0.18  $0.15 
Adjustments to net income per share (3)
  0.04   0.02   0.10   0.05 
Adjusted net income per share (non-GAAP)
 $0.12  $0.04  $0.28  $0.20 
                 
Shares used in calculating adjusted net income per share (in thousands)
                
Diluted shares (GAAP)
  57,372   58,709   57,708   58,785 
Less: Dilutive equity awards
  1,491   1,683   1,417   1,732 
Diluted shares (non-GAAP)
  55,881   57,026   56,291   57,053 
                 
Effective tax rate (GAAP)
  7.2%  26.8%  3.5%  (12.4%)
Adjustments to effective tax rate (4)
  1.5%  (11.9%)  5.6%  23.3%
Adjusted effective tax rate (non-GAAP)
  8.7%  14.9%  9.1%  11.0%
                 
Net income (GAAP)
 $4.8  $1.1  $10.3  $9.0 
Share-based compensation
  1.5   1.2   5.1   4.6 
Severance
  -   -   0.3   - 
Depreciation and amortization
  0.9   1.0   3.8   3.1 
Litigation charges
  0.4   -   0.4   - 
Other income, net
  (0.3)  -   (0.5)  (0.2)
Provision for (benefit from) income taxes
  0.4   0.4   0.4   (1.0)
Adjusted EBITDA (non-GAAP)
 $7.7  $3.7  $19.8  $15.5 
                 
Free cash flow
                
Net cash provided by (used in) operating activities
 $(1.2) $(4.2) $6.3  $7.3 
Capital expenditures
  (0.4)  (2.5)  (3.0)  (4.9)
Free cash flow (non-GAAP)
 $(1.6) $(6.7) $3.3  $2.4 
  1. Amounts may not total due to rounding.
  2. Amount presented are net of tax.
  3. Adjustments to net income per share reflects the adjustments for share-based compensation discrete tax item, and share-based compensation, severance costs and accelerated depreciation, net of taxes, on a per share basis.
  4. Adjustments to effective tax rate reflects adjustments for share-based compensation discrete tax item, share-based compensation, severance costs and accelerated depreciation.

SOURCE: Energy Recovery, Inc.

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