Energy Recovery, Inc. · NASDAQ:ERII
Energy Recovery — Investor Presentation (November 2019)
38 slides from Energy Recovery's investor presentation, Nov 13, 2019
Slide 1: Energy Recovery Investor Presentation November 2019
BS energy recovery’ Energy Recovery Investor Presentation November 2019 NASDAQ; ERI
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 report include, but are not limited to, statements about our expectations, objectives, antic
Slide 3: Strategic and Commercial Update
STRATEGIC AND COMMERCIAL UPDATE Board Chairman Robert Mao appointed Interim President and CEO © President & CEO Chris Gannon resigned November 1, 2019 citing personal reasons © No shift in business strategy — continued focus on water growth, VorTeq commercialization Seawater Reverse Osmosis (SWRO) D
Slide 4: Q3 2019 Financial Update
Q3 2019 FINANCIAL UPDATE o 12% Q3 revenue growth over Q3 2018 $67™M © 19% revenue growth YTD $57 © Net cash (and securities) position of Beta over $97M $22 03'18 Q3'19 ‘YTD'18 YTD'19 Compelling Product Gross Margins © Profitability driven by PX Pressure Exchanger sales © High margins expected to con
Slide 5: About Energy Recovery
About Energy Recovery ©)
Slide 6: Energy Recovery Snapshot
ENERGY RECOVERY SNAPSHOT © For more than 20 years, Energy Recovery has created technologies that solve complex challenges for industrial fluid flow markets © We design and manufacture solutions that reduce waste, improve operational efficiency, and drive significant cost-savings for our customers in
Slide 7: Why Energy Recovery?
WHY ENERGY RECOVERY? o energy recovery’ 2} energy recovery” 6000 Our technologies lower production costs of clean water and oil & gas, enabling more affordable access to these critical resources Our Water solutions are in desalination facilities on seven continents, reducing carbon emissions and hel
Slide 8: Our Products and Solutions
OUR PRODUCTS AND SOLUTIONS Energy Recovery Devices tg, Cig, Oil & Gas Hydraulic Fracturing Solution PX® Pressure AT Turbocharger VorTeq™ Exchanger® Pumps Mud Pumping Solution AquaBold™ High Vertical Horizontal Pressure Pump Circulation Pump Circulation Pump Confidentil& Proprietary 2} energy recover
Slide 9: Our Core Technology Is the Pressure Exchanger (PX)
OUR CORE TECHNOLOGY IS THE PRESSURE EXCHANGER (PX) © Our pressure exchanger acts like a fluid piston, transferring energy between high- and low- pressure fluids through continuously rotating ducts © PX technology provides benefits in a variety of industrial applications using high-pressure fluids *
Slide 10: How Pressure Exchanger Technology Works
HOW PRESSURE EXCHANGER TECHNOLOGY WORKS Sealed Phase Pressure Exchange Phase ‘Two fluids on opposite sides of PX; rotor duct is sealed, isolating high, low pressure fluid streams . Low pressure driven fluid Rotor duct rotates to enters the rotor duct pressure exchange phase High pressure motive flui
Slide 11: Pressure Exchanger Technology in a System
PRESSURE EXCHANGER TECHNOLOGY IN A SYSTEM. © Works as an energy recovery device ™ Recycles pressure energy in an SWRO system * Up to 60% less energy consumption cercutanionrume ————7 Brine leaves PX transfers pressure membranes at energy from brine to high pressure, incoming seawater (blue flow), pu
Slide 12: Strategic Objectives
STRATEGIC OBJECTIVES Build and enhance Commission Commercial infrastructure for growth Development Center Grow and expand market presence Commercialize VorTeq in SWRO desalination and beyond oS energy recovery” co
Slide 13: Building and Enhancing Infrastructure for Growth
BUILDING AND ENHANCING INFRASTRUCTURE FOR GROWTH In 2018, we began investing in infrastructure to ensure we can deliver on growth expectations © Realigned organization to ensure proper focus on execution and resource allocation o Refocused on key strategic imperatives — Water growth/reinvestment; Vo
Slide 14: Strategically Shifting to an Engineering Driven Organization
STRATEGICALLY SHIFTING TO AN ENGINEERING DRIVEN ORGANIZATION Investing in multi-disciplinary engineering talent o Over 5x increase in R&D headcount since 2013 * One-third of our company now holds engineering degrees * 9 PhDs and 14 Masters Degrees Realigning R&D organization to improve focus and abi
Slide 15: Evolving Manufacturing Capabilities
EVOLVING MANUFACTURING CAPABILITIES Advanced ceramics manufacturing capabilities help drive water success © Vertically integrated ceramics manufacturing facility located in-house in CA " Creates potential competitive barrier to entry © Best practices ensure high-quality production process = Approxim
Slide 16: Distribution Strategy Leverages Our Strengths in Each Market
DISTRIBUTION STRATEGY LEVERAGES OUR STRENGTHS IN EACH MARKET Global Water Distribution Channel Oil & Gas Strategy Differs Due to Our Position © Sales and technical service organization's © Licensing model is more effective for a tenure and global reach delivers advantages newcomer in a mature, compe
Slide 17: Historical Financial Results
HISTORICAL FINANCIAL RESULTS. Revenue: 25% CAGR 2014-2018 Product Gross Margin Strength $75M $69M 61% 71% $58M 64% $asM 5% 56% $30M 2014 2015 2016 (2017 2018 2014 «2015-2016. «S 2017-2018 Net Cash and Securities Position of over $97M We are positioned to make critical investments in our business ‘©
Slide 18: Water — Global
Water — Global Demand Trends Driving Robust Future Outlook for Energy Recovery
Slide 19: Fresh Water Scarcity Is Increasing
FRESH WATER SCARCITY IS INCREASING Fresh water demand is increasing, creating global demand gaps © Water demand driven by population growth, industrialization, rapid urbanization, climate change © The world will only have 60% of the water it needs by 2030* © Potable water demand expected to increase
Slide 20: Thermal Desalination Decommissioning Creating Incremental Demand
THERMAL DESALINATION DECOMMISSIONING CREATING INCREMENTAL DEMAND Thermal seawater desalination was the dominant technology through the 1990s © Operational savings from devices like the PX made SWRO significantly cheaper than thermal = Thermal OPEX costs today are roughly 2x higher than SWRO = $1B SW
Slide 21: PX Pressure Exchanger Recycles Hydraulic Energy, Reduces Energy Costs
PX PRESSURE EXCHANGER RECYCLES HYDRAULIC ENERGY, REDUCES ENERGY COSTS Without Energy Recovery Devices (ERDs) Seawater Low pressure potable water HIGH PRESSURE PUMP % Energy wasted "as high pressure brine hits valve Pump pushes highpressure seawater through membranes The Ocean? © Energy consumption a
Slide 22: Our Water Solutions
OUR WATER SOLUTIONS Energy Recovery De' PX Pressure Exchanger 0 © Most widely used ERD in SWRO © Efficiencies up to 80% © Unmatched efficiencies for desalination © Volute insert technology for best up to 98% efficiency range © Highest uptime in the market (99.8%) © Lower initial capital costs ° Desi
Slide 23: Our Water Solutions: Pump Products
OUR WATER SOLUTIONS Pump Products AquaBold High Pressure Pump Vertical and Horizontal Circulation Pumps © Water lubricated bearing for long life and © Specialized pumps pair with PX application low maintenance © Designed for long life with low maintenance © Cast, duplex stainless steel hydraulics fo
Slide 24: Global Reach of Energy Recovery Water Solutions
GLOBAL REACH OF ENERGY RECOVERY WATER SOLUTIONS na a d bad © e tad %, e - ® i @ Ne * y » = € - rw 17M cubic Helps produce water >11.5M metric tons meters/day of to meet daily ‘$2.0B/year saved for CO, emissions >20,000 devices potable water ption of Pp ‘/year — produced >50M people ‘equal to >2.4M c
Slide 25: Our IP and Global Footprint Have Driven Growth and Profitability
OUR IP AND GLOBAL FOOTPRINT HAVE DRIVEN GROWTH AND PROFITABILITY ‘ Water Revenue and Gross Margin Consistent revenue growth ei $57M © Mega projects continue to drive $a7m 71% 73% 2019 revenues © Owing to our robust pipeline and backlog, we expect strong growth to continue into 2020 and beyond yipie
Slide 26: Focused on Expanding Our Water Business
FOCUSED ON EXPANDING OUR WATER BUSINESS We currently focus on only 1-2% of a project’s capital spend © Energy recovery devices make up a small fraction of CAPEX and are critical to make plant operations affordable ° We have a small offering of high efficiency Pumps (<1%) ° Currently no exposure to o
Slide 27: Oil & Gas — Material Progress Made on Path to Commercializing VorTeq
C5} energy recovery" Oil & Gas — Material Progress Made on Path to Commercializing the VorTeq Technology
Slide 28: We Are Applying Our Water Expertise to Oil & Gas
WE ARE APPLYING OUR WATER EXPERTISE TO OIL & GAS Water and Oil & Gas have similarities © High pressure fluid environments © Potential to transfer pressure energy from a high-pressure fluid to a low-pressure fluid © Opportunities to eliminate waste in system — increase efficiencies and decrease costs
Slide 29: Our Solutions
OUR SOLUTIONS ° Hydraulic fracturing technology solution ° Houses 12 pressure exchangers ° Designed to isolate and save frac pumps ° Addresses pump failure at frac sites ° Re-routes hostile frac fluid away from critical and costly pumps ° Currently in R&D stage 2} energy recovery” Proprietary © Mud
Slide 30: VorTeq Protects High Pressure Pumps, Reduces Costs
VORTEQ PROTECTS HIGH PRESSURE PUMPS, REDUCES COSTS Frac fluid ) DP processed by pumps o Pumps handle frac fluid (water, chemicals and sand) © Pumps quickly destroyed handles frac fluid isolated, clean water a | een | Ea B i VorTeq Pumps are fed to pumps © Capital savings ($1M - $2M*) — less pump red
Slide 31: VorTeq Commercialization Remains Our Focus
VORTEQ COMMERCIALIZATION REMAINS OUR FOCUS Materially advancing VorTeq technology © Confident in core pressure exchanger technology o Substantial progress in advancing and implementing system level design enhancements * Required prior to Milestone 1 " Critical for technology commercialization © Tech
Slide 32: Our Commercial Development Center Is Critical to Growth
OUR COMMERCIAL DEVELOPMENT CENTER IS CRITICAL TO GROWTH Rigorous VorTeq testing ongoing © Center uses industry standard equipment to simulate pressures, flow, and operating conditions of a frac site © Allows us to confirm system reliability and repeatability in real-world conditions Expanded testing
Slide 33: VorTeq Agreement & Commercialization Path
VORTEQ AGREEMENT & COMMERCIALIZATION PATH Entered into a 15-year license agreement with Schlumberger Technology Corporation © Exclusive rights to VorTeq for on-shore hydraulic fracturing * Upfront $75M exclusivity fee = Two separate $25M milestone payments (for a total of $50M) subject to certain KP
Slide 34: MTeq Replaces Positive Displacement Pumps, Reduces Costs
MTEQ REPLACES POSITIVE DISPLACEMENT PUMPS, REDUCES COSTS Status Quo Samvcoaraceror re ize © Positive displacement pumps process drilling fluid © Wears down and destroys pumps Confidential& © Centrifugal pumps can process clean water © Can reduce and preserve pumps, lengthen life and reduce costs 2}
Slide 35: We Are Preparing for Post Commercialization Execution
WE ARE PREPARING FOR POST COMMERCIALIZATION EXECUTION Manufacturing © Construction ongoing on manufacturing facility © Building infrastructure to support testing and commercial production levels * Procuring advanced equipment to precision machine, inspect and test tungsten carbide components = Enabl
Slide 36: Strategic Summary
PG energy recovery’ Strategic Summary ©)
Slide 37: Energy Recovery — A Balanced Risk / Reward Approach
ENERGY RECOVERY — A BALANCED RISK / REWARD APPROACH Steady, Visible Growth © Global water demand outlook continues to improve and leads to further optimism ° Robust backlog and pipeline driving significant growth in 2019 and 2020-2021 Thermal to SWRO transition adds to potential long-term demand tre
Slide 38: Thank You
BS energy recovery’ Thank You
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