Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the
“Company”) today announced its financial results for the second
quarter and six months ended June 30, 2023.
Second Quarter Highlights
- Revenue of $20.7 million, within the lower end of guidance.
Revenue was lower due to a timing delay of a $5.7 million
megaproject shipment that will subsequently be recognized in the
third quarter.
- Gross margin of 65.4%, within the upper range of our guidance
of 64% – 66% for the quarter for Water.
- Operating expenses of $16.1 million, which included growing
investments in sales and marketing, and research and development to
support business expansion.
- Loss from operations of $2.6 million primarily attributable to
lower revenue and gross margin due to timing of revenue recognition
of a megaproject shipment.
- Net loss of $1.7 million and adjusted EBITDA(1) of $0.2
million.
- Cash and investments of $97.5 million which include cash, cash
equivalents, and short-term and long-term investments.
- Expanded the PX U Series product line used in and tailored for
ultra high-pressure reverse osmosis applications.
Robert Mao, Chairman, President and CEO, commented on the
financial results, “We delivered second quarter results in line
with our previous guidance and we expect our outlook for the
remainder of the year to be unchanged. As of today, our
desalination and wastewater businesses are on track, and the
significant increases in megaproject shipments expected in the
second half of 2023, give us confidence in our ability to achieve
our full-year revenue guidance.”
Mr. Mao added, “We continue to achieve new milestones in our CO2
business. We were awarded the prestigious Refrigeration Innovation
of the Year Award by ATMO for our PX G1300™ in June. We are also
partnering with a major U.S. refrigeration manufacturer on a new
training center in California that will incorporate our PX G1300,
providing us a unique opportunity to educate the market further on
our device. We continue to deploy the PX G1300 at new locations in
Europe with our partners Fieuw Koeltechniiek nv and Epta S.p.A.,
and in North America. We are focused on building and enhancing
relationships within the industry, as well as expanding our team in
both the U.S. and Europe.”
Financial Highlights
Quarter-to-Date
Year-to-Date
Q2’2023
Q2’2022
vs. Q2’2022
2023
2022
2023 vs. 2022
(In millions, except net income
(loss) per share, percentages and basis points)
Revenue
$20.7
$20.3
up 2%
$34.1
$52.8
down 35%
Gross margin
65.4%
65.9%
down 50 bps
63.6%
68.9%
down 530 bps
Operating margin
(12.5%)
(14.3%)
up 180 bps
(31.3%)
10.1%
NM
Net income (loss)
($1.7)
($2.4)
up 29%
($8.0)
$5.5
down 244%
Net income (loss) per share
($0.03)
($0.04)
up 25%
($0.14)
$0.10
down 240%
Effective tax rate
15.2%
0.1%
Cash provided by (used for)
operations
($4.1)
$9.1
$4.5
$7.5
Non-GAAP Financial Highlights (1)
Quarter-to-Date
Year-to-Date
Q2’2023
Q2’2022
vs. Q2’2022
2023
2022
2023 vs. 2022
(In millions, except adjusted net
income (loss) per share, percentages and basis points)
Adjusted operating margin
(4.2%)
(0.2%)
down 400 bps
(19.6%)
19.0%
NM
Adjusted net income (loss)
($0.1)
$0.2
down 138%
($4.6)
$9.3
down 149%
Adjusted net income (loss) per
share
$0.00
$0.00
no change
($0.08)
$0.16
down 150%
Adjusted effective tax rate
15.1%
9.5%
Adjusted EBITDA
$0.2
$1.0
($4.7)
$12.1
Free cash flow
($4.7)
$8.5
$3.7
$4.9
____________________
NM
Not material
(1)
Refer to the sections “Use of Non-GAAP
Financial Measures” and “Reconciliation of Non-GAAP Financial
Measures” for definition of adjustment to GAAP presentation.
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 beliefs about our future financial performance; our
beliefs relating to our wastewater and desalination businesses; our
expectation that there will be significant increases in megaproject
shipments in the second half of 2023; and our expectations for
multiple PX G1300 commissions in multiple countries this year in
North America and Europe. 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 risks relating to the future demand for our
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, 2022, as supplemented by the risks
discussed under “Risk Factors” in our Quarterly Report on Form 10-Q
for the quarter ended March 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 (loss),
adjusted net income (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 Second Quarter 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) non-core operational costs,
such as VorTeq-related severance costs and accelerated
depreciation, divided by revenues.
- Adjusted net income (loss) is a non-GAAP financial measure that
the Company defines as net income which excludes i) share-based
compensation; ii) non-core operational costs, such as
VorTeq-related severance costs and accelerated depreciation; and
iii) the applicable tax effect of the excluded items including the
share-based compensation discrete tax item.
- Adjusted net income (loss) per share is a non-GAAP financial
measure that the Company defines as net income (loss), which
excludes i) share-based compensation; and ii) non-core operational
costs, such as VorTeq-related 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 effective tax rate reflects adjustments for
share-based compensation discrete tax item, share-based
compensation, and VorTeq-related severance costs and accelerated
depreciation.
- 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) non-core
operational costs, such as VorTeq-related severance costs; iv)
other income, net, such as interest income and other non-operating
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 Second Quarter 2023 Financial
Results
LIVE CONFERENCE CALL: Wednesday,
August 2, 2023, 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:
September 1, 2023 US / Canada Toll-Free: +1 (877) 660-6853 Local /
International Toll: +1 (201) 612-7415 Access code: 13739675
Investors may access the live call and the replay (approximately
three hours after the live call concludes) over the internet at:
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/.
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
June 30, 2023
December 31,
2022
(In thousands)
ASSETS
Cash, cash equivalents and
investments
$
97,542
$
92,891
Accounts receivable and contract
assets
15,726
35,782
Inventories, net
36,315
28,366
Prepaid expenses and other
assets
3,544
3,886
Property, equipment and operating
leases
31,697
32,695
Goodwill
12,790
12,790
Deferred tax assets and other
assets
12,060
10,629
TOTAL ASSETS
$
209,674
$
217,039
LIABILITIES AND STOCKHOLDERS’
EQUITY
Liabilities
Accounts payable and accrued
expenses
$
12,232
$
15,507
Contract liabilities and other
liabilities, non-current
1,483
1,316
Lease liabilities
14,177
14,878
Total liabilities
27,892
31,701
Stockholders’ equity
181,782
185,338
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
$
209,674
$
217,039
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
(In thousands, except per share
data)
Revenue
$
20,723
$
20,292
$
34,124
$
52,838
Cost of revenue
7,180
6,920
12,426
16,418
Gross profit
13,543
13,372
21,698
36,420
Operating expenses
General and administrative
7,269
6,996
14,335
13,547
Sales and marketing
5,092
3,849
9,986
7,213
Research and development
3,768
5,431
8,074
10,342
Total operating
expenses
16,129
16,276
32,395
31,102
Income (loss) from
operations
(2,586
)
(2,904
)
(10,697
)
5,318
Other income, net
656
106
1,312
223
Income (loss) before income
taxes
(1,930
)
(2,798
)
(9,385
)
5,541
Provision for (benefit from)
income taxes
(265
)
(439
)
(1,424
)
6
Net income (loss)
$
(1,665
)
$
(2,359
)
$
(7,961
)
$
5,535
Net income (loss) per
share
Basic
$
(0.03
)
$
(0.04
)
$
(0.14
)
$
0.10
Diluted
$
(0.03
)
$
(0.04
)
$
(0.14
)
$
0.10
Number of shares used in per
share calculations
Basic
56,363
56,218
56,296
56,499
Diluted
56,363
56,218
56,296
57,858
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June
30,
2023
2022
(In thousands)
Cash flows from operating
activities:
Net (loss) income
$
(7,961
)
$
5,535
Non-cash adjustments
5,204
7,542
Net cash provided by (used in)
operating assets and liabilities
7,280
(5,598
)
Net cash provided by operating
activities
4,523
7,479
Cash flows from investing
activities:
Net investment in marketable
securities
(16,269
)
(10,543
)
Capital expenditures and proceeds
from sales of fixed assets
(767
)
(2,436
)
Net cash used in investing
activities
(17,036
)
(12,979
)
Cash flows from financing
activities:
Net proceeds from issuance of
common stock
379
985
Repurchase of common stock
—
(26,623
)
Net cash provided by (used in)
financing activities
379
(25,638
)
Effect of exchange rate
differences
41
4
Net change in cash, cash
equivalents and restricted cash
$
(12,093
)
$
(31,134
)
Cash, cash equivalents and
restricted cash, end of period
$
44,365
$
43,327
ENERGY RECOVERY, INC.
SUPPLEMENTAL FINANCIAL
INFORMATION
(Unaudited)
Channel Revenue
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
vs. 2022
2023
2022
vs. 2022
(In thousands, except
percentages)
Megaproject
$
12,211
$
10,070
up 21%
$
15,454
$
33,910
down 54%
Original equipment
manufacturer
4,702
7,689
down 39%
11,538
12,360
down 7%
Aftermarket
3,810
2,533
up 50%
7,132
6,568
up 9%
Total revenue
$
20,723
$
20,292
up 2%
$
34,124
$
52,838
down 35%
Segment Activity
Three Months Ended June 30,
2023
Three Months Ended June 30,
2022
Water
Emerging Technologies
Corporate
Total
Water
Emerging Technologies
Corporate
Total
(In thousands)
Revenue
$
20,514
$
209
$
—
$
20,723
$
20,213
$
79
$
—
$
20,292
Cost of revenue
6,921
259
—
7,180
6,920
—
—
6,920
Gross profit (loss)
13,593
(50
)
—
13,543
13,293
79
—
13,372
Operating expenses
General and administrative
1,860
947
4,462
7,269
1,534
1,354
4,108
6,996
Sales and marketing
3,120
1,441
531
5,092
2,654
633
562
3,849
Research and development
843
2,925
—
3,768
1,143
4,288
—
5,431
Total operating
expenses
5,823
5,313
4,993
16,129
5,331
6,275
4,670
16,276
Operating income
(loss)
$
7,770
$
(5,363
)
$
(4,993
)
$
(2,586
)
$
7,962
$
(6,196
)
$
(4,670
)
$
(2,904
)
Six Months Ended June 30,
2023
Six Months Ended June 30,
2022
Water
Emerging Technologies
Corporate
Total
Water
Emerging Technologies
Corporate
Total
(In thousands)
Revenue
$
33,810
$
314
$
—
$
34,124
$
52,729
$
109
$
—
$
52,838
Cost of revenue
12,022
404
—
12,426
16,400
18
—
16,418
Gross profit (loss)
21,788
(90
)
—
21,698
36,329
91
—
36,420
Operating expenses
General and administrative
3,798
1,915
8,622
14,335
2,998
2,262
8,287
13,547
Sales and marketing
6,295
2,611
1,080
9,986
4,955
1,160
1,098
7,213
Research and development
2,023
6,051
—
8,074
1,943
8,399
—
10,342
Total operating
expenses
12,116
10,577
9,702
32,395
9,896
11,821
9,385
31,102
Operating income
(loss)
$
9,672
$
(10,667
)
$
(9,702
)
$
(10,697
)
$
26,433
$
(11,730
)
$
(9,385
)
$
5,318
Share-based Compensation
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
(In thousands)
Stock-based compensation
expense charged to:
Cost of revenue
$
148
$
100
$
397
$
246
General and administrative
763
1,024
1,723
1,992
Sales and marketing
550
373
1,248
806
Research and development
255
227
652
562
Total stock-based compensation
expense
$
1,716
$
1,724
$
4,020
$
3,606
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
Q2'2023
Q2'2022
Q2'2023
Q2'2022
(In millions, except shares, per
share and percentages)
Operating margin
(12.5
%)
(14.3
%)
(31.3
%)
10.1
%
Share-based compensation
8.3
%
8.5
%
11.8
%
6.8
%
Severance
—
%
1.5
%
—
%
0.6
%
Accelerated depreciation
—
%
4.2
%
—
%
1.6
%
Other
—
%
(0.1
%)
—
%
(0.1
%)
Adjusted operating
margin
(4.2
%)
(0.2
%)
(19.6
%)
19.0
%
Net income (loss)
$
(1.7
)
$
(2.4
)
$
(8.0
)
$
5.5
Share-based compensation (2)
1.7
1.7
4.0
3.6
Severance (2)
—
0.3
—
0.3
Accelerated depreciation (2)
—
0.8
—
0.7
Share-based compensation discrete
tax item
(0.1
)
(0.2
)
(0.6
)
(0.8
)
Adjusted net income
(loss)
$
(0.1
)
$
0.2
$
(4.6
)
$
9.3
Net income (loss) per
share
$
(0.03
)
$
(0.04
)
$
(0.14
)
$
0.10
Adjustments to net income (loss)
per share (3)
0.03
0.04
0.06
0.06
Adjusted net income (loss) per
share
$
—
$
—
$
(0.08
)
$
0.16
Effective tax rate
15.2
%
0.1
%
Adjustments to effective tax rate
(3)
(0.1
%)
9.4
%
Adjusted effective tax
rate
15.1
%
9.5
%
Net income (loss)
$
(1.7
)
$
(2.4
)
$
(8.0
)
$
5.5
Share-based compensation
1.7
1.7
4.0
3.6
Severance
—
0.3
—
0.3
Depreciation and amortization
1.0
1.9
2.0
2.9
Other income, net
(0.7
)
(0.1
)
(1.3
)
(0.2
)
Provision for (benefit from)
income taxes
(0.3
)
(0.4
)
(1.4
)
—
Adjusted EBITDA
$
0.2
$
1.0
$
(4.7
)
$
12.1
Free cash flow
Net cash provided by (used in)
operating activities
$
(4.1
)
$
9.1
$
4.5
$
7.5
Capital expenditures
(0.6
)
(0.6
)
(0.8
)
(2.6
)
Free cash flow
$
(4.7
)
$
8.5
$
3.7
$
4.9
____________________
(1)
Amounts may not total due to rounding.
(2)
Amount 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/20230802790191/en/
Investor Relations ir@energyrecovery.com +1 (346) 382-6927
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