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Energy Recovery Announces Second Quarter 2022 Financial Results and Commissioning of the First PX G1300(TM) for CO2 Refrigeration

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·15 min read
Energy Recovery
In this article:
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SAN LEANDRO, CA / ACCESSWIRE / August 3, 2022 / Energy Recovery, Inc. (NASDAQ:ERII) ("Energy Recovery" or the "Company") today announced its financial results for the second quarter ended June 30, 2022.

Second Quarter Highlights:

  • Revenue of $20.3 million, as guided in the first quarter. Full year revenue guidance of $130 million, or 25% year-on-year growth, reaffirmed within gross margin expectations guided last year.

  • Loss from operations of $2.9 million and adjusted loss from operations (1) of $41 thousand driven by lower revenue during the quarter due to the expected timing of mega project shipments and one-time expenses of $1.3 million related to the cessation of the VorTeqcommercialization efforts.

  • Adjusted EBITDA (1) of $1.0 million.

  • Net loss per share of $0.04, adjusted net income per share (1) of less than $0.01.

  • Share repurchases of $18.6 million, or 1.0 million shares, pursuant to the Company's March 2021 share buyback program. The program was completed on July 1, 2022.

  • Cash and investments of $86.5 million, which include cash, cash equivalents, and short-term and long-term investments.

  • IR Magazine awarded Energy Recovery as the winner of the "Best ESG Reporting (small to mid-cap company)" and "Best ESG Communications" for our 2020 ESG Report and proactive and transparent investor engagement on the topic.

  • Our MSCI ESG rating was upgraded for the second year in a row to "AA" in April.

"Our desalination and industrial wastewater businesses remain on track for the year, and in fact we are seeing a long-awaited resurgence in OEM desalination sales. We expect significant increases in sales in the second half of fiscal 2022 to achieve our target revenue of $130 million for the year," said Robert Mao, Chairman, President and Chief Executive Officer of Energy Recovery.

"In a key milestone for our CO 2 business, we successfully commissioned our PX G1300 with our partner in a new supermarket in southern Europe in late June and are very encouraged by its strong initial performance. We also entered into a second joint-development agreement with a U.S. refrigeration rack manufacturer in early July and are continuing discussions with several others. This new partnership should lead to a second supermarket installation in the U.S. and is another important milestone as we prove the value of our PX technology to help the refrigeration industry transition to more climate-friendly, natural refrigerants."

Financial Highlights

Second Quarter (Quarter to Date)

GAAP

Non-GAAP (1)

Q2 2022

Q2 2021

vs. Q2 2021

Q2 2022

Q2 2021

vs. Q2 2021

(In millions except for percentages, basis points and per share amounts)

Revenue

$

20.3

$

20.6

down 2%

$

20.3

$

20.6

down 2%

Gross margin

65.9

%

65.1

%

up 75 bps

66.4

%

65.6

%

up 80 bps

Operating margin

(14.3

%)

1.4

%

down 1570 bps

(0.2

%)

8.3

%

down 853 bps

Net (loss) income

$

(2.4

)

$

1.1

down 321%

$

0.2

$

1.8

down 88%

Net (loss) income per share

$

(0.04

)

$

0.02

down 300%

$

0.00

$

0.03

down 100%

Effective tax rate

15.7

%

(227.9

%)

(215.4

%)

(0.3

%)

Adjusted EBITDA

$

1.0

$

2.7

down 64%

Free cash flow

$

8.5

$

9.7

down 12%

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

$

52.8

$

49.5

up 7%

$

52.8

$

49.5

up 7%

Gross margin

68.9

%

67.4

%

up 155 bps

69.4

%

67.8

%

up 155 bps

Operating margin

10.1

%

13.0

%

down 292 bps

19.0

%

19.7

%

down 68 bps

Net income

$

5.5

$

7.9

down 30%

$

9.3

$

8.9

up 4%

Net income per share

$

0.10

$

0.13

down 23%

$

0.16

$

0.16

no change

Effective tax rate

0.1

%

(21.1

%)

14.6

%

14.8

%

Adjusted EBITDA

$

12.1

$

11.8

up 3%

Free cash flow

$

4.9

$

9.1

down 46%

(1) "Adjusted loss 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 guidance, the resurgence of the OEM market, our expectation of significant increases in sales in the second half of fiscal 2022, our expectation of future PX G1300 supermarket installations, and the Company's belief that our PX technology will help the refrigeration industry transition to more climate-friendly, natural refrigerants. 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 (loss) 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 Second Quarter and Year to Date 2022 Financial Results

  • Adjusted income (loss) from operations is a non-GAAP financial measure that the Company defines as income (loss) from operations which excludes share-based compensation, 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 adjusted net income, which excludes share-based compensation, non-recurring costs, such as severance costs, accelerated depreciation and the applicable tax effect, divided by basic shares outstanding.

  • Adjusted EBITDA is a non-GAAP financial measure that the Company defines as income (loss) from operations which excludes depreciation, amortization, share-based compensation, non-recurring costs, such as severance costs.

  • Free cash flow is a non-GAAP financial measure that the Company defines as net cash provided by operating activities less capital expenditures.

Conference Call to Discuss Second Quarter 2022 Financial Results
LIVE CONFERENCE CALL:
Wednesday, August 3, 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: Saturday, September 3, 2022
US / Canada Toll-Free: +1 (877) 660-6853
Local / International Toll: +1 (201) 612-7415
Access code: 13731126

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 creates technologies that solve complex challenges for industrial fluid-flow markets worldwide. Building on our pressure exchanger technology platform, we design and manufacture solutions that make 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, research and development facilities across California and Texas with sales and on-site technical support available globally. For more information, please visit www.energyrecovery.com .

Contact
Investor Relations
ir@energyrecovery.com
+1 (281) 962-8105

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

June 30,

2022

December 31,

2021

(In thousands)

ASSETS

Cash, cash equivalents and investments

$

86,511

$

107,988

Accounts receivable and contract assets

14,225

21,108

Inventories, net

28,235

20,383

Prepaid expenses and other assets

4,914

4,582

Property, equipment and operating leases

32,856

35,014

Goodwill and other intangible assets

12,822

12,827

Deferred tax assets and other assets

11,913

11,788

TOTAL ASSETS

$

191,476

$

213,690

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities

Accounts payable and accrued expenses

$

12,199

$

14,903

Contract liabilities

1,560

3,406

Lease liabilities

15,682

16,443

Other liabilities, non-current

174

159

Total liabilities

29,615

34,911

Stockholders' equity

161,861

178,779

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

191,476

$

213,690

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

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

(In thousands, except per share data)

Revenue

$

20,292

$

20,607

$

52,838

$

49,547

Cost of revenue

6,920

7,181

16,418

16,162

Gross profit

13,372

13,426

36,420

33,385

Operating expenses

General and administrative

6,996

6,178

13,547

12,788

Sales and marketing

3,849

2,537

7,213

5,240

Research and development

5,431

4,424

10,342

8,926

Total operating expenses

16,276

13,139

31,102

26,954

Income (loss) from operations

(2,904

)

287

5,318

6,431

Other income, net

106

39

223

121

Income (loss) before income taxes

(2,798

)

326

5,541

6,552

Provision for (benefit from) income taxes

(439

)

(743

)

6

(1,383

)

Net income (loss)

$

(2,359

)

$

1,069

$

5,535

$

7,935

Net income (loss) per share

Basic

$

(0.04

)

$

0.02

$

0.10

$

0.14

Diluted

$

(0.04

)

$

0.02

$

0.10

$

0.13

Number of shares used in per share calculations

Basic

56,218

57,253

56,499

57,066

Diluted

56,218

58,999

57,858

58,822

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

Six Months Ended June 30,

2022

2021

(In thousands)

Cash flows from operating activities:

Net income

$

5,535

$

7,935

Non-cash adjustments

7,542

4,921

Net cash (used in) provided by operating assets and liabilities

(5,598

)

(1,315

)

Net cash provided by operating activities

7,479

11,541

Cash flows from investing activities:

Net investment in marketable securities

(10,543

)

2,827

Capital expenditures

(2,436

)

(2,444

)

Net cash (used in) provided by investing activities

(12,979

)

383

Cash flows from financing activities:

Net proceeds from issuance of common stock

985

8,697

Repurchase of common stock

(26,623

)

(11,554

)

Net cash used in financing activities

(25,638

)

(2,857

)

Effect of exchange rate differences

4

(20

)

Net change in cash, cash equivalents and restricted cash

$

(31,134

)

$

9,047

Cash, cash equivalents and restricted cash, end of period

$

43,327

$

103,405

ENERGY RECOVERY, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)

Channel Revenue

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

vs. 2021

2022

2021

vs. 2021

(In thousands, except percentages)

Megaproject

$

10,070

$

13,275

down 24%

$

33,910

$

37,032

down 8%

Original equipment manufacturer

7,689

4,274

up 80%

12,360

7,065

up 75%

Aftermarket

2,533

3,058

down 17%

6,568

5,450

up 21%

Total Revenues

$

20,292

$

20,607

down 2%

$

52,838

$

49,547

up 7%

Segment Activity

Three Months Ended June 30, 2022

Three Months Ended June 30, 2021

Water

Emerging Technologies

Corporate

Total

Water

Emerging Technologies

Corporate

Total

(In thousands)

Revenue

$

20,213

$

79

$

-

$

20,292

$

20,568

$

39

$

-

$

20,607

Cost of revenue

6,920

-

-

6,920

7,181

-

-

7,181

Gross profit

13,293

79

-

13,372

13,387

39

-

13,426

Operating expenses

General and administrative

1,534

1,354

4,108

6,996

1,779

1,315

3,084

6,178

Sales and marketing

2,654

633

562

3,849

2,121

229

187

2,537

Research and development

1,143

4,288

-

5,431

595

3,829

-

4,424

Total operating expenses

5,331

6,275

4,670

16,276

4,495

5,373

3,271

13,139

Operating income (loss)

$

7,962

$

(6,196

)

$

(4,670

)

$

(2,904

)

$

8,892

$

(5,334

)

$

(3,271

)

$

287

Six Months Ended June 30, 2022

Six Months Ended June 30, 2021

Water

Emerging Technologies

Corporate

Total

Water

Emerging Technologies

Corporate

Total

(In thousands)

Revenue

$

52,729

$

109

$

-

$

52,838

$

49,508

$

39

$

-

$

49,547

Cost of revenue

16,400

18

-

16,418

16,162

-

-

16,162

Gross profit

36,329

91

-

36,420

33,346

39

-

33,385

Operating expenses

General and administrative

2,998

2,262

8,287

13,547

3,340

2,481

6,967

12,788

Sales and marketing

4,955

1,160

1,098

7,213

4,285

408

547

5,240

Research and development

1,943

8,399

-

10,342

1,096

7,830

-

8,926

Total operating expenses

9,896

11,821

9,385

31,102

8,721

10,719

7,514

26,954

Operating income (loss)

$

26,433

$

(11,730

)

$

(9,385

)

$

5,318

$

24,625

$

(10,680

)

$

(7,514

)

$

6,431

Share-based Compensation

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

(In thousands)

Stock-based compensation expense charged to:

Cost of revenue

$

100

$

90

$

246

$

228

General and administrative

1,024

711

1,992

1,607

Sales and marketing

373

333

806

777

Research and development

227

295

562

731

Total stock-based compensation expense

$

1,724

$

1,429

$

3,606

$

3,343

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

Q2'2022

Q2'2021

2022

2021

(In millions, except shares, per share and percentages)

Gross margin

65.9

%

65.1

%

68.9

%

67.4

%

Share-based compensation as a percent of revenue

0.5

%

0.5

%

0.5

%

0.5

%

Adjusted gross margin

66.4

%

65.6

%

69.4

%

67.8

%

Income (loss) from operations

$

(2.9

)

$

0.3

$

5.3

$

6.4

Share-based compensation

1.7

1.4

3.6

3.3

Severance

0.3

-

0.3

-

Accelerated depreciation

0.9

-

0.9

-

Adjusted income (loss) from operations

$

-

$

1.7

$

10.1

$

9.8

Operating margin

(14.3

%)

1.4

%

25.3

%

21.2

%

Share-based compensation as a percent of revenue

14.1

%

6.9

%

9.0

%

6.8

%

Adjusted operating margin

(0.2

%)

8.3

%

19.0

%

19.7

%

Net income (loss)

$

(2.4

)

$

1.1

$

5.5

$

7.9

Share-based compensation

1.7

1.4

3.6

3.3

Severance

0.3

-

0.3

-

Accelerated depreciation

0.8

-

0.7

-

Share-based compensation discrete tax item

(0.2

)

(0.7

)

(0.8

)

(2.4

)

Adjusted net income

$

0.2

$

1.8

$

9.3

$

8.9

Net income (loss) per share

$

(0.04

)

$

0.02

$

0.10

$

0.13

Adjustments to net income (loss) per share (2)

0.04

0.01

0.06

0.03

Adjusted net income per share

$

-

$

0.03

$

0.16

$

0.16

Diluted shares used in calculating adjusted net income per diluted share (in thousands)

56,218

57,253

56,499

57,066

Effective tax rate

15.7

%

(227.9

%)

0.1

%

(21.1

%)

Adjustments to effective tax rate (3)

(231.1

%)

227.6

%

9.4

%

31.0

%

Adjusted effective tax rate

(215.4

%)

(0.3

%)

9.5

%

9.9

%

Income (loss) from operations

$

(2.9

)

$

0.3

$

5.3

$

6.4

Share-based compensation

1.7

1.4

3.6

3.3

Severance

0.3

-

0.3

-

Depreciation and amortization

1.9

1.0

2.9

2.0

Adjusted EBITDA

$

1.0

$

2.7

$

12.1

$

11.8

Free cash flow

Net cash provided by operating activities

$

9.1

$

11.5

$

7.5

$

11.5

Capital expenditures

(0.6

)

(1.8

)

(2.6

)

(2.4

)

Free cash flow (non-GAAP)

$

8.5

$

9.7

$

4.9

$

9.1

(1) Amounts may not total due to rounding.
(2) Adjustments to net income (loss) per share reflects the adjustments for share-based compensation, share-based compensation discrete tax item, and severance costs and accelerated depreciation, net of taxes, on a per share basis.
(3) Adjustments to effective tax rate reflects adjustments for share-based compensation, share-based compensation discrete tax item, severance costs and accelerated depreciation.

SOURCE: Energy Recovery, Inc.



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