Energy Recovery, Inc. · NASDAQ:ERII
Energy Recovery — Investor Day (December 2014)
81 slides from Energy Recovery's investor day presentation, Dec 8, 2014
Slide 1: Investor Day
ALF tl! et i eee Investor Day Mandarin Oriental, New York December 8, 2014
Slide 2: Forward Looking Statement
Forward Looking Statement This presentation contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this presentation include statements about market trends, possible future revenue growth, and bus
Slide 3: Today's Presenters
Today’s Presenters Tom Rooney President and CEO Joel Gay Chief Financial Officer Ron Gusek Vice President, Technology Liberty Oilfield Services
Slide 4: Tom Rooney, President and CEO
Slide 5: Today's Agenda
Today’s Agenda 9:30 — 10:00 AM Introduction 10:00 — 11:30 AM Introducing VorTeq 11:30 — 12:30 PM Growth and Existing Markets 12:30 — 1:30 PM Lunch Break 1:30 — 2:30 PM Q&A
Slide 6: Corporate Overview
Corporate Overview NASDAQ: ERII + Market Cap $250M + IPO in 2008 * Headquartered in San Leandro, CA * 125+ employees * Global presence + Strong Balance Sheet — ($38M: Cash, No debt) + As of Sopramber 30,2014 includes cash ‘ane cash equivalents
Slide 7: Our First Disruptive Technology - Desalination
Our First Disruptive Technology - Desalination The “PX Pressure Exchanger” 7 + 15,000 PX Devices Installed Worldwide + 3-Month Payback il + 25-year Life with No Maintenance + 90% Market Share Globally * 65%+ Gross Margins «¥
Slide 8: 2011: The Dawn of a New ERI
2011: The Dawn of a New ERI Three - Prong Strategy Regain Cut Costs Market Share
Slide 9: Diversification
Diversification + Why? + Desalination Market is Small and Lumpy ° How? + Ignited a Dormant Innovation Engine A Culture of Innovation (Video)
Slide 10: Investing in Innovation Leads to Explosive IP
Investing in Innovation Leads to Explosive IP Number of patent applications filed
Slide 11: Diversification
Diversification + Why? + Desalination Market is Small and Lumpy ° How? + Ignited a Dormant Innovation Engine + Where? + Large Markets with Strong Value Propositions
Slide 12: $5 Billion+ New Addressable Markets
$5 Billion+ New Addressable Markets ws A g Gas Processing Pipolinos ee Fracking Annual Recurring TAM ~ $4B ——
Slide 13: The Fracking Opportunity
Slide 14: Russell Gold quote on fracking
"To a remarkable extent, this once-obscure oil-field technique defines the nation's economic and environmental future." Russell Gold, Energy Reporter, Wall Street Journal, author of "The Boom" 14
Slide 15: What is Fracking?
What is Fracking? The Most Important Geo-political Shift of the Modern Era Large Substantial High Growth Market Assets Market PaeWest
Slide 16: 1-2 Miles Deep
3DG 1-2 Miles Deep Locate Rock Formations Horizontal Directional Drilling Create Wellbore Hydraulic Fracturing Create Cracks in Rock Formations Imaging
Slide 17: Slide 17
Slide 18: Pain Point
Pain Point Pump Failures are the #1_Operational Challenge Faced by the Industry aa High Pump Maintenance Costs Abrasive and Sporadic.and Excessive Downtime Highly Viscous Frac Fluid (Pump Failures) High Levels-of Redundancy (Mitigate Pump Failures) The Mechanical Equivalent of Adding Sand to Your Ca
Slide 19: PURE GRIT
PURE GRIT
Slide 20: Our Solution
Slide 21: Possibly the Most Disruptive Product
Possibly the Most Disruptive Product Ever Developed by Energy Recovery 2
Slide 22: Our Solution
Our Solution Introducing the VorTeq: “This Changes Everything” e VorTeq Re-routes VorTeq Will , Gare mead ppued te Hostile Frac Fluid Revolutionize the Isolate and Save G2 eee Away From Critical Fracking Pum Frac Pumps Fracking Sites i vacant and Costly Pumps Paradigm
Slide 23: Hydraulic Fracturing Without VorTeq
Our Solution: Hydraulic Fracturing Without VorTeq o > > an ———— High PRESSURE PUMP FLEET = 7 1 | ~ W — T » — Wh = E> DOWNHOLE BLENDER HIGH PRESSURE PUMP FLEET
Slide 24: Hydraulic Fracturing with the VorTeq
Our Solution: Hydraulic Fracturing with the VorTeq sano CHEMICAL . TANK Sank water | vane fii, ro mae FLUID \ iN x i 7 HIGH PRESSURE pRESSUR We CLEAN 7 We FRAC sen WATER VorTeq Fy ‘our DOWNHOLE
Slide 25: Value Proposition: Value Creation
Value Proposition: Value Creation Reduced Maintenance Costs Decreased Pump + Redundancy/ Lower CAPEX _ Pumping “" Paradigm Shift
Slide 26: Value Proposition: Reduced Maintenance Cost
Value Proposition: Reduced Maintenance Cost Status-Quo VorTeq Optimized Cost Savings $ VorTeq Rental uty Pump Maintenance $4.1M Fleet Impact Per Year (Based on 2,000 pumping hours py)
Slide 27: Approximately Saving the Fracking Industry
Approximately Saving the 850 Fracking Industry $850 Fleets Globally Mili ni lion p/Yr
Slide 28: Value Proposition: Improved Life Expectancies from the VorTeq
Value Proposition: Improved Life Expectancies from the VorTeq Life Expectancy Guide’ ‘Status Quo VorTeq Optimized Component Hours Multiple Hours - Valve 49 3.0x 148 8 Seat 54 3.0x 161 B wsPecking 86 3.0x 258 === Plunger 194 3.0x 581 = Fluid End 581 2.0x 1,162 “Source: Pac West Consulting Pariners Va
Slide 29: Value Proposition: Redundancy
Value Proposition: Redundancy “ Decreased Pump Redundancy / Lower CAPEX Avg # of Redundant Pumps pifleet: 4 Eliminate Future CAPEX and Maintenance: $3M _ 3 Eliminate Opportunity Cost of Idle Capacity: Avg. Cost $10 - 14M p/Yr dj p/Pump: $1.5M Revenue Generation Pumpers will be able to decrease redun
Slide 30: Value Proposition: VorTeq Optimized
Value Proposition: VorTeq Optimized Paradigm Shift 3-4 Centrifugal Pumps with Gas Turbines Status Quo: 12 Migrate to a More Efficient and Cost Effective Pumping Model Alleviates Pumping Constraints Faced by Completions Engineers Proppant Frac Volume and Loading Chemistry Flow Rates
Slide 31: Market Opportunity: TAM Derivation
Market Opportunity: TAM Derivation Revenue Model Fleet Count + Ce Procurement Vehicle Operating lease ‘849,600,000 VorTeq Missiles p/Fleet 4 Canada 12 Canada 179,200,000 VortTeq Rental Rate p/Yr $1,600,000 ROW 214 ROW 342,400,000 Market Growth: US >10%, International >20% “Source: Pac West Consuting
Slide 32: N. America Market Segmentation
N. America Market Segmentation) Strategically Targeting the Harshest Operating Conditions ‘Mocellus (Marcellus 8,000 $66,544,401 a ints in 43 1D Basin * High Pressure ‘Sauewsh sa sass ‘Slick Water & Hybrid Chemistry a “GiherAnaiak hon easan nd + High Capacity Utilization Other us Market by Basin® Cl
Slide 33: Timeline: VorTeq Evolution
Timeline: VorTeq Evolution Vorteq Gon-3 Fabricated Aug 2013 July 2014 Q1 2015 Q42015 42015 | H Q1 2016 Sere otal vorag VF rns sree invented Agent Fabricated A Planning Field Testing Commercialization
Slide 34: The VorTeq Transformation: Manufacturer to Oilfield Services Provider
The VorTeq Transformation: Manufacturer to Oilfield Services Provider 34
Slide 35: VorTeq Evolution
VorTeq Evolution Operating Model Procurement Vehicle Supply Chain Logistics Oilfield Service Operating Phased Basin-specific Provider Lease In-sourcing Service Facilities
Slide 36: Strategic Partner
Strategic Partner LIBERTY OILFIELD SERVICES + Nimble + Iconic Leadership + Known Innovator Collaborative with ERI Respected Well Capitalized + Pumper and E&P
Slide 37: Conclusion
Conclusion Pain Point of Pump Failures is a Multi-billion Dollar Problem A Powerful, Multi-dimensional and Multi-billion Dollar Value Proposition to the Industry Massive Market Opportunity for ERI Moving Rapidly: Field Validation to Commercialization The Right Partner in Liberty Inevitable Market Ad
Slide 38: PURE GRIT
PURE GRIT
Slide 39: Growth Markets
Growth Markets
Slide 40: $5 Billion+ New Addressable Markets
$5 Billion+ New Addressable Markets = A g Desal Gas Processing $627M Pipolinos Fracking Annual Recurring TAM ~ $4B Gomomony
Slide 41: Oil & Gas Market: Gas Processing Eco-System
Oil & Gas Market: Gas Processing Eco-System THEE nam
Slide 42: The Current Amine Process
The Current Amine Process SWEET GAS ACIO GAS 7 Er LEAN AMINE CONTACTOR x N REGENERATOR HIGH PRESSURE ‘PUMP H SOUR GAS n — lJ
Slide 43: Pain Points
Pain Points Downtime is Costly Excessive High Energy Consumption Redundancy & ise smcey Maintenance
Slide 44: Our Solution: IsoBoost System
Our Solution: IsoBoost System Without IsoBoost
Slide 45: Our Solution: IsoBoost System
Our Solution: IsoBoost System * Increased Uptime + Reduces Maintenance + Reduces Energy Consumption
Slide 46: Our Initial Value Proposition: Energy Savings Alone
Our Initial Value Proposition: Energy Savings Alone A Strong Value Proposition... ‘Strong Customer Interest ewer Initial value found Selling Price: from just energy $3M savings Annual Energy Savings: $.5M mm. D jam ME) sl F--~ Payback 2 Years $100M Sales Pipeline
Slide 47: Sinopec customer quote
“The energy savings Sinopec would realize by using the Energy Recovery system is about 25% of total power consumption. In US dollars, that’s around $1 million in annual savings.” - Mr. Zhou Hanlin General Manager Sinopec Songnan Gas Plant, Northeast Oil & Gas Branch ar
Slide 48: A New Game Changing Value Proposition
A New “Game Changing’ Value Proposition November 2014 Partnered with Aramco June 2014 ‘on 3 Party RAM Case study: ‘Saudi Aramco (Reliability, Availability, Fadhili gas plant alts Jackiope Maintainability) study (KSA) Plant, Texas IURBO White paper findings will be co- presented with Aramco at ASME T
Slide 49: Enhanced Value Proposition
Enhanced Value Proposition SELLING PRICE: $3M 27 Extra Runtime Hours Added: Case study: a Fadhili Gas Plant Annual Energy Savings: ia 1.5M Annual Maintenance Savings: 5,000 “This is a Game Changer.”
Slide 50: Customer and expert quotes on IsoBoost
“The IsoBoost does not affect plant availability. /f anything, it runs better. You are not using the big engines, or putting so much strain on electrical equipment. We are saving electricity and emission compliance by not using gas engines. Roughly we save 50% of the energy with the turbocharger.” -
Slide 51: Amine Gas Plants Worldwide
ai 88 Europe 141 Oceania 45 fy Amine Gas Plants Worldwide Flow Ranges 50 - 10,000 GPM
Slide 52: Market Opportunity: Converting to an Annual TAM
Market Opportunity: Converting to an Annual TAM GAS PROCESSING MARKET OPPORTUN| Region Plants Capacity (MMcf) _ Market Size America 253 26,274,632 $198,005,705 $782,631 Soueas: (0) SOC Energy nto, seb 2014's To Naa Gas" and Management etna 12) Sut ondManoganant estates
Slide 53: IsoBoost: Laying Foundation and Intensifying Value
IsoBoost: Laying Foundation and Intensifying Value 2011 2012 2013 2014 2015 2016 2017 Developmental Period Commence Sales and Marketing New Value Propl Discovered Acceleration Based on New Value Prop 53
Slide 54: Growth Markets
Growth Markets ®) ary nb. igi Re 64
Slide 55: $5 Billion+ New Addressable Markets
$5 Billion+ New Addressable Markets xB A @ Dosal Gas Processing ‘Ammonia Pipotines Urea $1.05B: Fracking Annual Recurring TAM ~ $4B momen
Slide 56: The Market: Pipelines
The Market: Pipelines Over 2,000 Pipelines Globally Traversing High ‘ Elevations . \ a ¥ Wasted Pressure t Sepia Energy ” -_— a _ “
Slide 57: The Market
The Market G\, (mm Choke Valve ©, (mm Choke Valve Ay Sy Gemmmm Choke Valve Q . ail Pumping station Terminal or refinery Vertical Pipelines Must be Depressurized
Slide 58: Pain Point: Wasted Energy
Pain Point Wasted Energy
Slide 59: The Solution: IsoGen
The Solution: lsoGen Pressure Generating Power Pumping station Terminal or refinery 85% Efficiency Quick Payback Flexible
Slide 60: Opportunities Worldwide
More than 328 Opportunities Worldwide ZN. Global Market $1.05B NW
Slide 61: Market Opportunity
Market Opportunity IASI Global Market $1.05B WY’ There are Over 328 Opportunities Worldwide
Slide 62: Market Opportunity: Converting to an Annual TAM
Market Opportunity: Converting to an Annual TAM Maret seth $189,773 tenance i i placement 305,925 vo 0) S0C Energy natn, Cobar 2014 rutin To Natal Gan Management strats 12) Stats and Manogemen esratos
Slide 63: Growth Markets: Chemicals: Ammonia
Growth Markets Chemicals: Ammonia ©)
Slide 64: $5 Billion+ New Addressable Markets
$5 Billion+ New Addressable Markets Fracking Annual Recurring TAM ~ $4B momen
Slide 65: The Market: Ammonia
The Market: Ammonia THEE
Slide 66: The Current Ammonia Process
The Current Ammonia Process TREATED SYNGAS co, PRooUCT ) —— LEAN SoLvENT — ak, Fee, f ‘SyvGas lJ REGENERATOR
Slide 67: Pain Points
Pain Points Excessive Downtime is Costly Redundancy & High Energy ($2.5M/day) Maintenance Consumption
Slide 68: Our Solution: IsoBoost
Our Solution: IsoBoost Lean sowvent — ele seca REQUIRED my) fh — __ lsoBoost~ h Sea System Hl wowsowwenr pas t} Issues and Technologies are Almost Identical to Sour Gas Processing 6s
Slide 69: Enhanced Value Proposition
Enhanced Value Proposition SELLING PRICE: $3M 27 Extra Runtime Hours Added: Case study: . Prototypical Annual Energy Savings: Ammonia Plant $1.51 Annual Maintenance Savings: $105,000 ROI “This is a Game Changer.”
Slide 70: Market Opportunity
Market Opportunity IASON Global Market $1.43B WY There are Over 735 Addressable Plants Worldwide
Slide 71: Market Opportunity- Converting to an Annual TAM
Market Opportunity- Converting to an Annual TAM - OnetimeTAM Region Plants Capacity(KMT) North america 272 90814 $461,365,068 $1,696,195, South America 111 50709 223819892 2:016,395, Europe 92 43421 195725236 2138.3 MEA 7 34684 167939378 2125.815, Asia 48 110156310 2.294923 Indio st 26492 114916456
Slide 72: Emerging Markets: Chemicals: Urea
Emerging Markets Chemicals: Urea
Slide 73: $5 Billion+ New Addressable Markets
$5 Billion+ New Addressable Markets Fracking Annual Recurring TAM ~ $4B mone
Slide 74: Urea is Used as a Fertilizer for Crops and as Raw Material for Chemicals
Slide 75: The Market: Urea
The Market: Urea Gasification THEE
Slide 76: The Solution: Leveraging Co-location of Ammonia & Urea
The Solution: Leveraging Co-location of Ammonia & Urea [ Energy Savings ] Ammonia Plant [ Eliminating Pump Failures ] Outside Tulsa, Oklahoma:
Slide 77: Market Opportunity
Market Opportunity SWZ There are Over 664 Applicable Plants Worldwide
Slide 78: $5 Billion+ New Addressable Markets
$5 Billion+ New Addressable Markets Fracking Annual Recurring TAM ~ $4B momen
Slide 79: Conclusion
Conclusion + Strong Balance Sheet & Strong Management Team + Proven Ability to Disrupt and Dominate a Global Market + Vibrant Innovation Engine + Diversification Well Underway * 3 years into a 5-year initiative + Disruptive Value Propositions + Massive Addressable Markets (100x Growth)
Slide 80: Thank You
energy recovery” Thank You 000
Slide 81: Questions & Answers