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Energy Recovery Reports Third Quarter Financial Results

SAN LEANDRO, CA / ACCESSWIRE / October 29, 2020 / Energy Recovery Inc. (Nasdaq:ERII) ("Energy Recovery," "we," "our," or the "Company"), a leader in pressure energy technology for industrial fluid flows, today announced its financial results for the third quarter ended September 30, 2020.

Third Quarter 2020 Highlights:

  • Product revenue of $27.4 million, an all-time quarterly record and an increase of 26% year-over-year
  • Product gross margin of 71.5%, a decrease of 360 basis points year-over-year and in-line with expectations for the year
  • Net income of $5.4 million, or diluted earnings per share of $0.10, an increase of $0.01 year-over-year

Year-to-Date 2020 Highlights:

  • Product revenue of $65.7 million, an increase of 15% year-over-year
  • Total revenue of $92.6 million, an increase of 37% year-over-year, of which $24.4 million is related to accelerated revenue recognition from the termination of the license agreement between the Company and Schlumberger
  • Product gross margin of 69.5%, a decrease of 270 basis points year-over-year, of which 230 basis points are due to COVID-19 temporary reductions in manufacturing
  • Net income of $22.9 million, or diluted earnings per share of $0.41, an increase of $0.20 year-over-year in part related to accelerated revenue recognition from the termination of the license agreement between the Company and Schlumberger

"We surpassed our previous year's quarterly product revenue record by 26 percent this quarter, which is a testament to our singular focus on meeting customer demand while keeping our employees safe. We remain on pace to achieve 25 percent year-over-year revenue growth in our water division this year, and we are preparing for further growth in 2021 and beyond. The desalination industry remains robust despite global economic uncertainty because affordable desalination is critical to meet growing water demand for people around the world. We are proud of the impact our technology has in making desalination more energy efficient and sustainable and believe the time has come to introduce pressure exchanger technology to other industries where we can drive efficiency improvements," said Bob Mao, Chairman of the Board, President and Chief Executive Officer of Energy Recovery.

Mr. Mao continued, "Today we are advancing new products built on our pressure exchanger technology platform: the VorTeq, as well as incubation initiatives including a solution to improve the energy efficiency of wastewater treatment. We did not have an opportunity to go to a live well with the VorTeq last quarter, but we are ready to deploy and continue to pursue live well opportunities. While we remain confident in our ability to clear the hurdles that remain before full commercial deployment of the VorTeq, we have not lost sight of the need to produce results or stop investing. This same principle holds for all of our incubation initiatives, and I believe this disciplined approach will allow us to more rapidly achieve our profit and ROI objectives and deliver shareholder value."

COVID-19 Pandemic

The Company's production remained strong during the third quarter, with minimal impacts on production outputs due to the COVID-19 pandemic ("COVID-19"). COVID-19 has similarly had a limited effect on Energy Recovery's financials; however, the Company's gross margin for the nine months of 2020 was negatively affected due to reduced production output while its San Leandro facility was underutilized due to temporary suspension of manufacturing activities at the beginning of the COVID-19 pandemic. Enhanced safety measures for employees remain in effect today in the Company's facilities, including staggered shifts to ensure social distancing between workers, personal safety equipment for each worker, including masks and gloves, cleanings and disinfections between and during shifts, and, starting in July 2020, weekly COVID-19 testing of employees working on-site.

The Company successfully overcame challenges posed by COVID-19 to commission its Tracy, California production facility in July 2020, which further strengthens the Company's ability to fulfill its strong backlog of orders through the remainder of fiscal year 2020 and beyond.

Third Quarter 2020

Revenues

For the third quarter ended September 30, 2020, the Water segment generated total product revenue of $27.4 million, an all-time quarterly record, and an increase of $5.7 million, or 26%, compared to $21.8 million in the third quarter ended September 30, 2019. This increase was due primarily to higher Mega-Project Development ("MPD") shipments, offset by lower Original Equipment Manufacturer ("OEM") and Aftermarket ("AM") shipments.

For the third quarter ended September 30, 2020, there was no license and development revenue recognized as a result of the termination of the license agreement between the Company and Schlumberger.

Product Gross Margin

For the third quarter ended September 30, 2020, product gross margin was 71.5%, a decrease of 360 basis points from 75.1% in the third quarter ended September 30, 2019. The decrease in gross margin was due primarily to lower average selling prices due to higher MPD channel mix and costs related to reduced utilization of our manufacturing facilities related to COVID-19, partially offset by product mix.

Operating Expenses

For the third quarter ended September 30, 2020, operating expenses were $13.5 million, a decrease of $1.3 million, or (9%), compared to $14.9 million for the third quarter ended September 30, 2019. This decrease was due primarily to lower Oil & Gas testing expenditures as we reduce VorTeq related testing activities, lower depreciation expense related to long-lived assets, and lower travel expenses, partially offset by higher personnel-related costs and other R&D costs to support our incubation initiatives.

COVID-19 did not have a material effect on operating expenditures during the three months ended September 30, 2020.

Bottom Line Summary

To summarize the Company's financial performance, on a quarterly basis, the Company reported a net income of $5.4 million, or $0.10 per diluted share for the third quarter ended September 30, 2020, compared to a net income of $5.1 million, or $0.09 per diluted share for the third quarter ended September 30, 2019.

Cash Flow Highlights

The Company finished the third quarter ended September 30, 2020 with cash and cash equivalents of $80.1 million, and short-term and long-term investments of $25.8 million, which represents a combined total of $105.9 million.

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 Company's belief that the Company will achieve 25 percent year-over-year revenue growth in its water division in 2020; that the Company will achieve further growth in 2021 and beyond; and that the Company will be able to clear the hurdles that remain before full commercial deployment of the VorTeq. 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, 2019 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.

Conference Call to Discuss Third Quarter 2020 Financial Results

LIVE CONFERENCE CALL:

Thursday, October 29, 2020, 2:00 PM PDT / 5:00 PM EDT
Listen-only, US / Canada Toll-Free: +1 (877) 709-8150
Listen-only, Local / International Toll: +1 (201) 689-8354
Access code: 13710080

CONFERENCE CALL REPLAY:

Expiration: Sunday, November 29, 2020
US / Canada Toll-Free: +1 (877) 660-6853
Local / International Toll: +1 (201) 612-7415
Access code: 13710080

Investors may also access the live call or the replay over the internet at ir.energyrecovery.com. 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 Inc.

For more than 20 years, Energy Recovery, Inc. (NASDAQ: ERII) has created technologies that solve complex challenges in industrial fluid-flow markets. We design and manufacture solutions that reduce waste, improve operational efficiencies, and lower the production costs of clean water and oil and gas. What began as a game-changing invention for water desalination has grown into a global business delivering solutions that enable more affordable access to these critical resources. Headquartered in the San Francisco Bay Area, Energy Recovery has manufacturing, research and development facilities across California and Texas. In addition, our worldwide sales and technical service organization provides on-site support for our line of water solutions. For more information, please visit www.energyrecovery.com.

Contact

Investor Relations
ir@energyrecovery.com
(281) 962-8105

ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

   September 30,2020    December 31,2019 
   (In thousands) 
ASSETS         
Current assets:         
Cash and cash equivalents  80,149    26,387 
Short-term investments    24,373      58,736 
Accounts receivable, net    11,055      12,979 
Inventories, net    10,662      10,317 
Prepaid expenses and other current assets    4,959      4,548 
Total current assets    131,198      112,967 
Long-term investments    1,418      15,419 
Deferred tax assets, non-current    11,454      16,897 
Property and equipment, net    20,535      18,843 
Operating lease, right of use asset    16,444      11,195 
Goodwill    12,790      12,790 
Other intangible assets, net    53      65 
Other assets, non-current    645      598 
Total assets  194,537    188,774 
LIABILITIES AND STOCKHOLDERS' EQUITY               
Current liabilities:               
Accounts payable  1,951    1,192 
Accrued expenses and other current liabilities    8,654      9,869 
Lease liabilities    1,209      1,023 
Contract liabilities    1,160      15,746 
Total current liabilities    12,974      27,830 
Lease liabilities, non-current    16,802      11,533 
Contract liabilities, non-current    104      13,120 
Other non-current liabilities    672      278 
Total liabilities    30,552      52,761 
                
Stockholders' equity:               
Common stock    61      61 
Additional paid-in capital    174,929      170,028 
Accumulated other comprehensive income (loss)    100      (37)
Treasury stock    (30,486)    (30,486)
Accumulated earnings (deficit)    19,381      (3,553)
Total stockholders' equity    163,985      136,013 
Total liabilities and stockholders' equity  194,537    188,774 
         

ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

   Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
   2020    2019    2020    2019 
   (In thousands, except per share data) 
Product revenue  27,408    21,752    65,665    57,050 
Product cost of revenue    7,816      5,425      20,049      15,843 
Product gross profit    19,592      16,327      45,616      41,207 
                                
License and development revenue    -      3,098      26,895      10,391 
                                
Operating expenses:                               
General and administrative    6,271      5,711      18,751      16,790 
Sales and marketing    2,141      2,367      5,776      6,710 
Research and development    5,098      6,620      18,159      16,354 
Amortization of intangible assets    4      156      12      469 
Impairment of long-lived assets    -      -      2,332      - 
Total operating expenses    13,514      14,854      45,030      40,323 
Income from operations    6,078      4,571      27,481      11,275 
                                
Other income (expense):                               
Interest income    134      500      809      1,551 
Other non-operating expense, net    (29)    (5)    (59)    (77)
Total other income, net    105      495      750      1,474 
Income before income taxes    6,183      5,066      28,231      12,749 
Provision for (benefit from) income taxes    796      (83)    5,297      1,227 
Net income  5,387    5,149    22,934    11,522 
                                
Earnings per share:                               
Basic  0.10    0.09    0.41    0.21 
Diluted  0.10    0.09    0.41    0.21 
                                
Number of shares used in per share calculations:                               
Basic    55,692      54,975      55,573      54,594 
Diluted    56,471      56,384      56,443      55,971 
                 

ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

   Nine Months Ended
September 30,
 
   2020    2019 
   (In thousands) 
Cash flows from operating activities:         
Net income  22,934    11,522 
Adjustments to reconcile net income to cash provided by operating activities               
Stock-based compensation    3,672      4,425 
Depreciation and amortization    3,963      3,440 
Amortization (accretion) of premiums and discounts on investments    311      (37)
Deferred income taxes    5,443      1,198 
Provision for warranty claims    316      339 
Impairment of long-lived assets    2,332      - 
Other non-cash adjustments    -      197 
Changes in operating assets and liabilities:               
Accounts receivable, net    1,862      (10,617)
Contract assets    (747)    2,993 
Inventories, net    (506)    (1,885)
Prepaid and other assets    295      383 
Accounts payable    656      (94)
Accrued expenses and other liabilities    (2,561)    (1,264)
Income taxes    (18)    30 
Contract liabilities    (27,602)    (10,127)
Net cash provided by operating activities    10,350      503 
Cash flows from investing activities:               
Sales of marketable securities    10,573      3,535 
Maturities of marketable securities    50,467      70,040 
Purchases of marketable securities    (12,855)    (66,253)
Capital expenditures    (6,019)    (5,501)
Net cash provided by investing activities    42,166      1,821 
Cash flows from financing activities:               
Net proceeds from issuance of common stock    1,260      5,424 
Tax payment for employee shares withheld    (23)    (89)
Net cash provided by financing activities    1,237      5,335 
Effect of exchange rate differences on cash and cash equivalents    11      - 
Net change in cash, cash equivalents and restricted cash    53,764      7,659 
Cash, cash equivalents and restricted cash, beginning of year    26,488      22,138 
Cash, cash equivalents and restricted cash, end of period  80,252    29,797 
         

ENERGY RECOVERY, INC.
SUPPLEMENTAL FINANCIAL INFORMATION

(Unaudited)

   Three Months Ended September 30, 2020    Three Months Ended September 30, 2019 
   Water    Oil & Gas    Corporate    Total    Water    Oil & Gas    Corporate    Total 
   (In thousands) 
Product revenue  27,408    -    -    27,408    21,752    -    -    21,752 
Product cost of revenue    7,816      -      -      7,816      5,425      -      -      5,425 
Product gross profit    19,592      -      -      19,592      16,327      -      -      16,327 
                                                                
License and development revenue    -      -      -      -      -      3,098      -      3,098 
                                                                
Operating expenses                                                               
General and administrative    606      439      5,226      6,271      359      431      4,921      5,711 
Sales and marketing    1,507      30      604      2,141      1,850      92      425      2,367 
Research and development    723      2,956      1,419      5,098      886      5,667      67      6,620 
Amortization of intangible assets    4      -      -      4      156      -      -      156 
Total operating expenses    2,840      3,425      7,249      13,514      3,251      6,190      5,413      14,854 
                                                                
Operating income (loss)  16,752    (3,425)  (7,249)    6,078    13,076    (3,092)  (5,413)    4,571 
Other income, net                            105                              495 
Income before income taxes                          6,183                            5,066 
                                 
                                 
   Nine Months Ended September 30, 2020    Nine Months Ended September 30, 2019 
   Water    Oil & Gas    Corporate    Total    Water    Oil & Gas    Corporate    Total 
   (In thousands) 
Product revenue  65,665    -    -    65,665    56,946    104    -    57,050 
Product cost of revenue    20,049      -      -      20,049      15,655      188      -      15,843 
Product gross profit (loss)    45,616      -      -      45,616      41,291      (84)    -      41,207 
                                                                
License and development revenue    -      26,895      -      26,895      -      10,391      -      10,391 
                                                                
Operating expenses                                                               
General and administrative    1,467      1,601      15,683      18,751      1,456      1,207      14,127      16,790 
Sales and marketing    4,307      106      1,363      5,776      5,058      674      978      6,710 
Research and development    2,585      12,720      2,854      18,159      2,794      13,335      225      16,354 
Amortization of intangible assets    12      -      -      12      469      -      -      469 
Impairment of long-lived assets    -      2,332      -      2,332      -      -      -      - 
Total operating expenses    8,371      16,759      19,900      45,030      9,777      15,216      15,330      40,323 
                                                                
Operating income (loss)  37,245    10,136    (19,900)    27,481    31,514    (4,909)  (15,330)    11,275 
Other income, net                            750                              1,474 
Income before income taxes                          28,231                            12,749 

SOURCE: Energy Recovery Inc. via EQS Newswire



View source version on accesswire.com:
https://www.accesswire.com/613356/Energy-Recovery-Reports-Third-Quarter-Financial-Results

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