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, 2023.
Third Quarter Highlights
- Revenue of $37.0 million, exceeding the upper end of our
guidance which was attributed to an increase in megaproject
revenues.
- Gross margin of 69.9%, higher than our estimates due to a
change in product mix coupled with an increase in sales of our
PX®.
- Operating expenses of $16.7 million, in line with prior
quarters.
- Income from operations of $9.1 million.
- Net income of $9.7 million and adjusted EBITDA(1) of $12.0
million
- Cash and investments of $105.9 million, which include cash,
cash equivalents, and short-term and long-term investments.
- Issued our annual Sustainability Report, which includes our
commitment to reduce our emissions in relation to revenue by 65% by
2026. The full Sustainability Report can be found on our
Sustainability page at energyrecovery.com.
David Moon, Interim Chief Executive Officer, commented on the
financial results, “We delivered strong third quarter results,
beating the upper end of our guidance for the quarter and we remain
well-positioned to deliver on our overall Water guidance for the
full year. As we look to 2024, we see growth in desalination for
the 10th consecutive year despite a challenging macroeconomic
environment and project to potentially double wastewater revenue in
2024. Further, we continue to see a path to our 2026 water revenue
targets.”
Mr. Moon added, “In our CO2 business, we have a number of new
installations of our PX G1300 planned for the fourth quarter, have
received repeat orders for additional deployments from current
end-users, and are currently in advanced talks with a number of
national, and multi-national, supermarket chains in Europe and the
United States. We were also awarded the Refrigeration Innovation of
the Year for the XTE by RAC Cooling Industry Awards, together with
our partner Epta, for Epta’s next-generation commercial CO2
refrigeration system, which utilizes the PX G1300. This award
provides further third-party validation of our technology. It’s an
exciting time to join the Energy Recovery team as the Interim
President and CEO, and I look forward to working with the
management team to help ensure we make substantial progress in
2024.”
Financial Highlights
Quarter-to-Date
Year-to-Date
Q3’2023
Q3’2022
vs. Q3’2022
2023
2022
2023 vs. 2022
(In millions, except net income
per share, percentages and basis points)
Revenue
$37.0
$30.5
up 22%
$71.2
$83.3
down 15%
Gross margin
69.9%
69.1%
up 80 bps
66.9%
69.0%
down 210 bps
Operating margin
24.7%
16.1%
up 860 bps
(2.2%)
12.3%
NM
Net income
$9.7
$4.8
up 102%
$1.7
$10.3
down 84%
Net income per share
$0.17
$0.08
up 113%
$0.03
$0.18
down 83%
Effective tax rate
(114.2%)
3.5%
Cash provided by (used for) operations
$7.7
($1.2)
$12.3
$6.3
Non-GAAP Financial Highlights (1)
Quarter-to-Date
Year-to-Date
Q3’2023
Q3’2022
vs. Q3’2022
2023
2022
2023 vs. 2022
(In millions, except adjusted net
income per share, percentages and basis points)
Adjusted operating margin
29.5%
22.4%
up 710 bps
6.0%
20.3%
NM
Adjusted net income
$11.4
$6.5
up 76%
$6.8
$15.8
down 57%
Adjusted net income per share
$0.20
$0.12
up 67%
$0.12
$0.28
down 57%
Adjusted effective tax rate
(3.5%)
9.1%
Adjusted EBITDA
$12.0
$7.7
$7.3
$19.8
Free cash flow
$7.4
($1.6)
$11.1
$3.3
_______________
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 belief that the Company is well positioned to deliver
on full year water guidance; our belief that desalination revenue
may grow in 2024; our belief that wastewater revenue may
potentially double in 2024; and our belief that a path to 2026
water revenue targets exist. 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, adjusted
net income 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 Third 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 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 per share 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, 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 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 Third Quarter 2023 Financial
Results
LIVE CONFERENCE CALL: Wednesday,
November 1, 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:
December 1, 2023 US / Canada Toll-Free: +1 (877) 660-6853 Local /
International Toll: +1 (201) 612-7415 Access code: 13741003
Investors may access the live call and the replay (approximately
three hours after the live call concludes) over the internet on the
“Events” page 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 our pressure exchanger
technology platform, we design and manufacture reliable,
high-performance solutions that generate cost savings and increase
energy efficiency across several industries. With a strong
foundation in the desalination industry, Energy Recovery has
delivered transformative solutions that optimize operations and
deliver positive environmental impact to our customers worldwide
for more than 30 years. 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)
September 30,
2023
December 31,
2022
(In thousands)
ASSETS
Cash, cash equivalents and investments
$
105,929
$
92,891
Accounts receivable and contract
assets
23,337
35,782
Inventories, net
33,888
28,366
Prepaid expenses and other assets
4,508
3,886
Property, equipment and operating
leases
30,639
32,695
Goodwill
12,790
12,790
Deferred tax assets and other assets
11,570
10,629
TOTAL ASSETS
$
222,661
$
217,039
LIABILITIES AND STOCKHOLDERS’
EQUITY
Liabilities
Accounts payable and accrued expenses
$
13,211
$
15,507
Contract liabilities and other
liabilities, non-current
1,689
1,316
Lease liabilities
13,732
14,878
Total liabilities
28,632
31,701
Stockholders’ equity
194,029
185,338
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
$
222,661
$
217,039
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
(In thousands, except per share
data)
Revenue
$
37,036
$
30,462
$
71,160
$
83,300
Cost of revenue
11,154
9,417
23,580
25,835
Gross profit
25,882
21,045
47,580
57,465
Operating expenses
General and administrative
7,369
7,608
21,704
21,155
Sales and marketing
5,411
4,703
15,397
11,916
Research and development
3,969
3,828
12,043
14,170
Total operating expenses
16,749
16,139
49,144
47,241
Income (loss) from operations
9,133
4,906
(1,564
)
10,224
Other income, net
1,045
254
2,357
477
Income before income taxes
10,178
5,160
793
10,701
Provision for (benefit from) income
taxes
518
371
(906
)
377
Net income
$
9,660
$
4,789
$
1,699
$
10,324
Net income per share
Basic
$
0.17
$
0.09
$
0.03
$
0.18
Diluted
$
0.17
$
0.08
$
0.03
$
0.18
Number of shares used in per share
calculations
Basic
56,443
55,881
56,346
56,291
Diluted
57,969
57,372
57,761
57,708
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September
30,
2023
2022
(In thousands)
Cash flows from operating
activities:
Net income
$
1,699
$
10,324
Non-cash adjustments
8,817
11,136
Net cash provided by (used in) operating
assets and liabilities
1,756
(15,192
)
Net cash provided by operating
activities
12,272
6,268
Cash flows from investing
activities:
Net investment in marketable
securities
(17,278
)
(1,857
)
Capital expenditures
(1,179
)
(2,999
)
Proceeds from sales of fixed assets
82
734
Net cash used in investing
activities
(18,375
)
(4,122
)
Cash flows from financing
activities:
Net proceeds from issuance of common
stock
1,184
2,244
Repurchase of common stock
—
(26,654
)
Net cash provided by (used in)
financing activities
1,184
(24,410
)
Effect of exchange rate differences
27
38
Net change in cash, cash equivalents
and restricted cash
$
(4,892
)
$
(22,226
)
Cash, cash equivalents and restricted
cash, end of period
$
51,566
$
52,235
ENERGY RECOVERY, INC.
SUPPLEMENTAL FINANCIAL
INFORMATION
(Unaudited)
Channel Revenue
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
vs. 2022
2023
2022
vs. 2022
(In thousands, except
percentages)
Megaproject
$
26,829
$
17,347
up 55%
$
42,283
$
51,257
down 18%
Original equipment manufacturer
5,307
9,032
down 41%
16,845
21,392
down 21%
Aftermarket
4,900
4,083
up 20%
12,032
10,651
up 13%
Total revenue
$
37,036
$
30,462
up 22%
$
71,160
$
83,300
down 15%
Segment Activity
Three Months Ended September
30, 2023
Three Months Ended September
30, 2022
Water
Emerging
Technologies
Corporate
Total
Water
Emerging
Technologies
Corporate
Total
(In thousands)
Revenue
$
36,812
$
224
$
—
$
37,036
$
30,462
$
—
$
—
$
30,462
Cost of revenue
11,114
40
—
11,154
9,417
—
—
9,417
Gross profit
25,698
184
—
25,882
21,045
—
—
21,045
Operating expenses
General and administrative
2,039
1,061
4,269
7,369
1,911
878
4,819
7,608
Sales and marketing
3,272
1,560
579
5,411
3,242
960
501
4,703
Research and development
1,098
2,871
—
3,969
1,216
2,612
—
3,828
Total operating expenses
6,409
5,492
4,848
16,749
6,369
4,450
5,320
16,139
Operating income (loss)
$
19,289
$
(5,308
)
$
(4,848
)
$
9,133
$
14,676
$
(4,450
)
$
(5,320
)
$
4,906
Nine Months Ended September
30, 2023
Nine Months Ended September
30, 2022
Water
Emerging Technologies
Corporate
Total
Water
Emerging Technologies
Corporate
Total
(In thousands)
Revenue
$
70,622
$
538
$
—
$
71,160
$
83,191
$
109
$
—
$
83,300
Cost of revenue
23,136
444
—
23,580
25,817
18
—
25,835
Gross profit
47,486
94
—
47,580
57,374
91
—
57,465
Operating expenses
General and administrative
5,837
2,976
12,891
21,704
4,909
3,140
13,106
21,155
Sales and marketing
9,567
4,171
1,659
15,397
8,197
2,120
1,599
11,916
Research and development
3,121
8,922
—
12,043
3,159
11,011
—
14,170
Total operating expenses
18,525
16,069
14,550
49,144
16,265
16,271
14,705
47,241
Operating income (loss)
$
28,961
$
(15,975
)
$
(14,550
)
$
(1,564
)
$
41,109
$
(16,180
)
$
(14,705
)
$
10,224
Share-based Compensation
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
(In thousands)
Stock-based compensation expense
charged to:
Cost of revenue
$
158
$
124
$
555
$
370
General and administrative
905
743
2,628
2,735
Sales and marketing
436
426
1,684
1,232
Research and development
292
205
944
767
Total stock-based compensation
expense
$
1,791
$
1,498
$
5,811
$
5,104
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
Q3'2023
Q3'2022
Q3'2023
Q3'2022
(In millions, except shares, per
share and percentages)
Operating margin
24.7
%
16.1
%
(2.2
%)
12.3
%
Share-based compensation
4.8
4.9
8.2
6.1
Severance
—
—
—
0.4
Accelerated depreciation
—
—
—
1.0
Litigation charges
—
1.4
—
0.5
Adjusted operating margin
29.5
%
22.4
%
6.0
%
20.3
%
Net income
$
9.7
$
4.8
$
1.7
$
10.3
Share-based compensation (2)
1.8
1.5
5.8
5.1
Severance (2)
—
—
—
0.3
Accelerated depreciation (2)
—
—
—
0.7
Litigation charges (2)
—
0.4
—
0.4
Other (2)
—
—
—
—
Share-based compensation discrete tax
item
(0.1
)
(0.2
)
(0.7
)
(1.0
)
Adjusted net income
$
11.4
$
6.5
$
6.8
$
15.8
Net income per share
$
0.17
$
0.08
$
0.03
$
0.18
Adjustments to net income per share
(3)
0.03
0.04
0.09
0.10
Adjusted net income per share
$
0.20
$
0.12
$
0.12
$
0.28
Effective tax rate
(114.2
%)
3.5
%
Adjustments to effective tax rate (3)
110.7
5.6
Adjusted effective tax rate
(3.5
%)
9.1
%
Net income
$
9.7
$
4.8
$
1.7
$
10.3
Share-based compensation
1.8
1.5
5.8
5.1
Severance
—
—
—
0.3
Depreciation and amortization
1.1
0.9
3.1
3.8
Litigation charges
—
0.4
—
0.4
Other
—
—
—
—
Other income, net
(1.0
)
(0.3
)
(2.4
)
(0.5
)
Provision for (benefit from) income
taxes
0.5
0.4
(0.9
)
0.4
Adjusted EBITDA
$
12.0
$
7.7
$
7.3
$
19.8
Free cash flow
Net cash provided by (used in) operating
activities
$
7.7
$
(1.2
)
$
12.3
$
6.3
Capital expenditures
(0.3
)
(0.4
)
(1.2
)
(3.0
)
Free cash flow
$
7.4
$
(1.6
)
$
11.1
$
3.3
_______________
(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
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Investor Relations ir@energyrecovery.com +1 (346) 382-6927
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