Energy Recovery, Inc. · NASDAQ:ERII
Energy Recovery — Investor Presentation (August 2019)
35 slides from Energy Recovery's investor presentation, Aug 8, 2019
Slide 1: Energy Recovery Investor Presentation August 2019
Oo energy recovery’ Energy Recovery Investor Presentation August 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 Seawater Reverse Osmosis (SWRO) Desalination Continues to Drive Growth © 2019 YTD revenues continue record pace © Revenue growth for 2019 forecasted to be as high as the low teens © Industry trends continue to point to a lengthened growth cycle, possibly extending the
Slide 4: Q2 2019 Financial Update
Q2 2019 FINANCIAL UPDATE © 10% Q2 revenue growth over Q2 2018 2 2018 vs. 022019 YTD 2018 vs. YTD 2019 © 23% revenue growth YTD sss bai © Net cash (and securities) position of sau ‘soma ™ Hn nis ais vos vio19 Compelling Product Gross Margins Product Gross Margins © Profitability driven by PX Pressure
Slide 5: About Energy Recovery
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Slide 6: Energy Recovery Snapshot
ENERGY RECOVERY SNAPSHOT Who Are We o Anengineering-driven technology company delivering innovative solutions for industrial fluid flow processes o Our technologies drive meaningful cost savings and operational efficiencies for customers Our Approach o Convert wasted pressure energy into a reusable
Slide 7: Our Products and Solutions
OUR PRODUCTS AND SOLUTIONS Energy Recovery Devices ing, Clg PX® Pressure Exchanger® AT Turbocharger AquaBold™ High Vertical Horizontal Pressure Pump Circulation Pump Circulation Pump Sf energy recovery’ Confidential& Prop Oil & Gas Hydraulic Fracturing Solution
Slide 8: Our Core Technology Is the PX Pressure Exchanger
OUR CORE TECHNOLOGY IS THE PX PRESSURE EXCHANGER Pressure Exchanger Key Gomponents Fluid Hows in PX Pressure Exchanger Housing Transfers energy with only one moving part (rotor) +— End cover +— Sleeve + Rotor Cartridge How the PX Pressure Exchanger Works Rotor duct rotates to High pressure motive fl
Slide 9: Distribution Strategy Leverages Our Strengths in Each Market
DISTRIBUTION STRATEGY LEVERAGES OUR STRENGTHS IN EACH MARKET Seasoned Water Salesforce and Global Oil & Gas Sales Strategy Differs Due to Distribution Channel Our Position © Salesforce’s tenure delivers strategic o Licensing model is more effective for a advantages ina relationship-driven market new
Slide 10: Strategic Objectives
STRATEGIC OBJECTIVES Build and enhance Commission Commercial infrastructure for growth Development Center Grow and expand existing market Commercialize VorTeq presence in seawater desalination and beyond Sf energy recovery’
Slide 11: 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 © Refocused on key strategic imperatives — Water growth/reinvestment; Vo
Slide 12: Strategically Shifting to an Engineering Driven Organization
STRATEGICALLY SHIFTING TO AN ENGINEERING DRIVEN ORGANIZATION Investing in multi-disciplinary engineering talent R&D Spend as % of OPEX © Over 5x increase in R&D headcount since 2013 sai 37% = One-third of our company now holds saat engineering degrees 21% = 9 PhDs and 14 Masters Degrees Realigning R
Slide 13: 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 o Best practices ensure high-quality production process = Approxim
Slide 14: Historical Financial Results
HISTORICAL FINANCIAL RESULTS Revenue: 25% CAGR 2014-2018 Product Gross Margin Strength seam $75M $58M 64% $asm 55% peas $30M 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Net Cash and Securities Position of over $96M We are positioned to make critical investments in our business o Organic or ino
Slide 15: Water
Water Global Demand Trends Driving Robust Future Outlook for Energy Recovery
Slide 16: 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 20301 © Potable water demand expected to increase
Slide 17: Thermal Desalination Decommissioning Creating Incremental Demand
THERMAL DESALINATION DECOMMISSIONING CREATING INCREMENTAL DEMAND Thermal seawater desalination was the dominant technology through the 1990s o 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 18: Our PX Pressure Exchanger Recycles Hydraulic Energy, Reduces Energy Costs
OUR PX PRESSURE EXCHANGER RECYCLES HYDRAULIC ENERGY, REDUCES ENERGY COSTS Without Energy Recovery Devices (ERD: Seawater Low pressure potable water es Wich PRESSURE PUMP H X Energy wasted as high pressure brine hits valve Pump pushes high pressure seawater through membranes The Ocean? o Energy consu
Slide 19: Our Water Solutions
OUR WATER SOLUTIONS Energy Recovery Devices PX Pressure Exchanger © Unmatched efficiencies for desalination up to 98% © Highest uptime in the market (99.8%) © Designed for up to 25+ years of useful life AT Turbocharger © Efficiencies up to 80% © Volute insert technology for best efficiency range © L
Slide 20: We Maintain a Strong Market Share in SWRO Energy Recovery Devices
WE MAINTAIN A STRONG MARKET SHARE IN SWRO ENERGY RECOVERY DEVICES The PX Pressure Exchanger, our flagship desalination solution, delivers meaningful benefits © Reduces energy costs by up to 60%, delivering nearly $28 savings/year? ‘© Lowers project lifecycle costs due to durability of products © SWR
Slide 21: Global Reach of Energy Recovery Products
GLOBAL REACH OF ENERGY RECOVERY PRODUCTS 4assuming all deployed devices are in operation; Energy Recovery estimates Sf energy recovery) onwensie.rtoreay —_—_—_—__—_)
Slide 22: Our IP and Global Footprint Have Driven Growth and Profitability
OUR IP AND GLOBAL FOOTPRINT HAVE DRIVEN GROWTH AND PROFITABILITY Consistent revenue growth © Mega projects continue to drive 2019 revenues © Owing to our robust pipeline and backlog, we expect strong growth to continue into 2020 and beyond Extended growth cycle © Upward revenue trend since 2014 o Ev
Slide 23: Focused on Expanding Our Water Business
FOCUSED ON EXPANDING OUR WATER BUSINESS We currently focus on only 1-2% of a project’s Average Desal Project Capital Spend* capital spend © Energy recovery devices make up a small aN caine fraction of CAPEX and are critical to make plant bid Engineering operations affordable elton Bee © We have a sm
Slide 24: Oil & Gas
Slide 25: We Are Applying Our Water Expertise to Oil & Gas
WE ARE APPLYING OUR WATER EXPERTISE TO OIL & GAS Water and Oil & Gas have similarities o High pressure fluid environments o Potential transference of hydraulic energy from a high-pressure fluid to a low-pressure fluid © Opportunities to eliminate waste in system — increase efficiencies and decrease
Slide 26: Our Solutions
OUR SOLUTIONS o Hydraulic fracturing technology solution o Mud pumping technology solution © Houses 12 PX Pressure Exchangers o Houses three PX Pressure Exchangers o Designed to isolate and save frac pumps o Designed to isolate and save mud pumps o Addresses pump failure at frac sites Addresses pump
Slide 27: VorTeq Protects High Pressure Pumps, Reduces Costs
VORTEQ PROTECTS HIGH PRESSURE PUMPS, REDUCES COSTS > Hostile fluids | processed by Zs aa” © Pumps process water, chemicals and sand o Pump assets quickly destroyed S 6 B=, Pumps are water, sand and isolated, chemicals clean water fed to pumps © Maintenance savings ($3M - $4M?) o Lower pump redundanc
Slide 28: VorTeq Commercialization Remains Our Focus
VORTEQ COMMERCIALIZATION REMAINS OUR FOCUS Materially advancing VorTeq technology o Confident in core pressure exchanger technology © Substantial progress in advancing and implementing system level design enhancements = Required prior to Milestone 1 = Critical for technology commercialization © Tech
Slide 29: Our Commercial Development Center Is Critical to Growth
OUR COMMERCIAL DEVELOPMENT CENTER IS CRITICAL TO GROWTH Rigorous VorTeq system testing and validation ongoing o Facility uses industry standard equipment to simulate the pressures, flow, and operating conditions of a real frac site © Allows us to confirm system reliability and repeatability in varia
Slide 30: 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 31: MudTeq Replaces Positive Displacement Pumps, Reduces Costs
MTEQ REPLACES POSITIVE DISPLACEMENT PUMPS, REDUCES COSTS © Positive displacement pumps process drilling fluid today, wearing down and destroying pump assets © energy recovery o Highly efficient centrifugal pumps process clean water, reduce/preserve pump assets, lengthen life and reduce costs
Slide 32: We Are Proactively Preparing for Post Commercialization Execution
WE ARE PROACTIVELY PREPARING FOR POST COMMERCIALIZATION EXECUTION Manufacturing © Construction has begun on manufacturing facility © Building infrastructure to support testing and commercial production levels = Procuring advanced equipment to precision machine, inspect and test tungsten carbide comp
Slide 33: Strategic Summary
S@ energy recovery" Strategic Summary )
Slide 34: Energy Recovery — A Balanced Risk/Reward Approach
ENERGY RECOVERY — A BALANCED RISK/REWARD APPROACH Steady, Visible Growth o Global water demand outlook continues to improve and leads to further optimism © Robust backlog and pipeline driving expected water segment growth in 2019 and beyond o Thermal to SWRO transition adds to potential long-term de
Slide 35: Thank You
OS energy recovery’ Thank You
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