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

SAN LEANDRO, CA / ACCESSWIRE / November 2, 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 G1300^™ fully 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)

		GAAP										Non-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)

		GAAP										Non-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
ir@energyrecovery.com
+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.

View source version on accesswire.com:
https://www.accesswire.com/723554/Energy-Recovery-Reports-47-Quarterly-Product-Revenue-Growth-in-Third-Quarter