Energy Recovery Reports its Fourth Quarter 2024 Financial Results

About this update from Energy Recovery, Inc.

SAN LEANDRO, Calif. --(BUSINESS WIRE)-- Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the fourth quarter and year ended December 31, 2024 . Fourth Quarter Highlights Revenue of $67.1 million , an increase of 17% as compared to Q4’2023 and resulting in full-year revenue at the midpoint of guidance. Gross margin of 70.2%, an increase of 110 bps, as compared to Q4’2023, due primarily to benefits from our manufacturing transformation. Operating expenses of $21.5 million , an increase of 13.9%, as compared to Q4’2023, due primarily to $2.5 million of restructuring costs related to our announced workforce reduction and executive transition costs. Income from operations of $25.6 million , an increase of 24.3%, as compared to Q4’2023, mainly due to higher revenue and higher gross margin. Net income of $23.5 million and adjusted EBITDA(1) of $31.3 million . Cash and investments of $99.9 million , which includes cash, cash equivalents, and short- and long-term investments. In conjunction with these financial results, management has released a letter to shareholders reviewing business and financial updates from the fourth quarter and discussing our outlook for 2025. This letter is located under “Financial Info” in the “Investors” section on the Energy Recovery website ( https://ir.energyrecovery.com/financial-information ). Financial Highlights Quarter-to-Date Year to Date Q4’2024 Q4’2023 vs. Q4’2023 2024 2023 2024 vs. 2023 (In millions, except net income per share, percentages and basis points) Revenue $67.1 $57.2 up 17% $144.9 $128.3 up 13% Gross margin 70.2% 69.1% up 110 bps 66.9% 67.8% down 90 bps Operating margin 38.2% 36.0% up 220 bps 13.6% 14.8% down 120 bps Net income $23.5 $19.8 up 19% $23.1 $21.5 up 7% Net income per share $0.41 $0.34 up $0.07 $0.40 $0.37 up $0.03 Effective tax rate 10.4% 5.3% Cash provided by operations $9.0 $13.8 $20.5 $26.1 Non-GAAP Financial Highlights (1) Quarter-to-Date Year to Date Q4’2024 Q4’2023 vs. Q4’2023 2024 2023 2024 vs. 2023 (In millions, except adjusted net income per share, percentages and basis points) Adjusted operating margin 45.2% 39.9% up 530 bps 26.2% 21.1% up 510 bps Adjusted net income $28.3 $22.0 up 29% $40.7 $28.9 up 41% Adjusted net income per share $0.50 $0.39 up $0.11 $0.71 $0.51 up $0.20 Adjusted EBITDA $31.3 $23.9 $42.0 $31.2 Free cash flow $8.9 $12.4 $19.2 $23.5 _______________ (1) Refer to the sections “Use of Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” for definitions of our non-GAAP financial measures and reconciliations of GAAP to non-GAAP amounts, respectively. 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. These forward-looking statements are based on information currently available to the Company and on management’s beliefs, assumptions, estimates, or projections and are not guarantees of future events or results. Potential risks and uncertainties include risks relating to the future demand for the Company’s products, risks relating to performance by our customers and third-party partners, risks relating to the timing of revenue, and 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, 2023 , 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 operating margin, adjusted net income, 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 Financial Results Adjusted operating margin is a non-GAAP financial measure that the Company defines as income from operations which excludes i) stock-based compensation; ii) executive transition costs, such as executive search costs, retention costs, one-time severance costs and one-time corporate growth strategy costs; and iii) restructuring charges, divided by revenues. Adjusted net income is a non-GAAP financial measure that the Company defines as net income which excludes i) stock-based compensation; ii) executive transition costs; iii) restructuring charges; and iv) the applicable tax effect of the excluded items including the stock-based compensation discrete tax item. Adjusted net income per share is a non-GAAP financial measure that the Company defines as net income, which excludes i) stock-based compensation; ii) executive transition costs; iii) restructuring charges; and iv) the applicable tax effect of the excluded items including the stock-based compensation discrete tax item, divided by basic shares outstanding. Adjusted EBITDA is a non-GAAP financial measure that the Company defines as net income which excludes i) depreciation and amortization; ii) stock-based compensation; iii) executive transition costs; iv) restructuring charges; v) other income, net, such as interest income and other non-operating income (expense), net; and vi) provision for income taxes. 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 Financial Results LIVE CONFERENCE Q&A CALL: Wednesday, February 26, 2025 , 2:00 PM PT / 5:00 PM ET US / Canada Toll-Free: +1 (866) 682-6100 Local / International Toll: +1 (862) 298-0702 CONFERENCE Q&A CALL REPLAY: Available approximately three hours after conclusion of the live call. Expiration: Tuesday, March 25, 2025 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13749222 Investors may also access the live call and the replay over the internet on the “Events” page of the Company’s website located at https://ir.energyrecovery.com/news-events/ir-calendar . 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 (Nasdaq: ERII) is a trusted global leader in energy efficiency technology. Building on the Company’s pressure exchanger technology platform, the Company designs and manufactures reliable, high-performance solutions that generate cost savings and increase energy efficiency across several industries. With a strong foundation in the desalination industry, the Company has delivered transformative solutions that optimize operations and deliver positive environmental impact to its customers worldwide for more than 30 years. Headquartered in the San Francisco Bay Area , the Company has manufacturing and research and development facilities across California with sales and on-site technical support available globally. To learn more, visit https://energyrecovery.com/ . ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) December 31 , 2 024 December 31 , 2 023 (In thousands) ASSETS Cash, cash equivalents and investments $ 99,851 $ 122,375 Accounts receivable and contract assets 66,842 47,529 Inventories, net 24,906 26,149 Prepaid expenses and other assets 3,889 3,251 Property, equipment and operating leases 25,119 30,168 Goodwill 12,790 12,790 Deferred tax assets and other assets 9,395 10,712 TOTAL ASSETS $ 242,792 $ 252,974 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Accounts payable, accrued expenses, and other liabilities, current $ 20,837 $ 18,583 Contract liabilities and other liabilities, non-current 628 1,304 Lease liabilities 11,317 13,279 Total liabilities 32,782 33,166 Stockholders’ equity 210,010 219,808 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 242,792 $ 252,974 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended December 31 , Years Ended December 31 , 2024 2023 2024 2023 (In thousands, except per share data) Revenue $ 67,075 $ 57,189 $ 144,948 $ 128,349 Cost of revenue 19,955 17,690 48,015 41,270 Gross profit 47,120 39,499 96,933 87,079 Operating expenses General and administrative 8,303 7,160 33,074 28,864 Sales and marketing 6,754 6,767 25,423 22,164 Research and development 3,972 4,958 16,236 17,001 Restructuring charges 2,476 — 2,476 — Total operating expenses 21,505 18,885 77,209 68,029 Income from operations 25,615 20,614 19,724 19,050 Other income, net 1,240 1,298 6,011 3,655 Income before income taxes 26,855 21,912 25,735 22,705 Provision for income taxes 3,384 2,107 2,685 1,201 Net income $ 23,471 $ 19,805 $ 23,050 $ 21,504 Net income per share Basic $ 0.41 $ 0.35 $ 0.40 $ 0.38 Diluted $ 0.41 $ 0.34 $ 0.40 $ 0.37 Number of shares used in per share calculations Basic 56,629 56,735 57,213 56,444 Diluted 57,236 57,671 57,822 57,740 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Years Ended December 31 , 2024 2023 (In thousands) Cash flows from operating activities: Net income $ 23,050 $ 21,504 Non-cash adjustments 16,214 13,889 Net cash used in operating assets and liabilities (18,742 ) (9,339 ) Net cash provided by operating activities 20,522 26,054 Cash flows from investing activities: Net investment in marketable securities (14,489 ) (16,634 ) Capital expenditures (1,298 ) (2,567 ) Proceeds from sales of fixed assets 133 87 Net cash used in investing activities (15,654 ) (19,114 ) Cash flows from financing activities: Net proceeds from issuance of common stock 7,100 4,794 Repurchase of common stock (50,384 ) — Net cash (used in) provided by financing activities (43,284 ) 4,794 Effect of exchange rate differences (52 ) 33 Net change in cash, cash equivalents and restricted cash $ (38,468 ) $ 11,767 Cash, cash equivalents and restricted cash, end of year $ 29,757 $ 68,225 ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Channel Revenue Three Months Ended December 31 , Years Ended December 31 , 2024 2023 vs. 2023 2024 2023 vs. 2023 (In thousands, except percentages) Megaproject $ 46,475 $ 41,382 up 12% $ 95,399 $ 83,665 up 14% Original equipment manufacturer 16,315 9,150 up 78% 31,525 25,995 up 21% Aftermarket 4,285 6,657 down 36% 18,024 18,689 down 4% Total revenue $ 67,075 $ 57,189 up 17% $ 144,948 $ 128,349 up 13% Segment Activity Three Months Ended December 31 , 2024 2023 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 66,959 $ 116 $ — $ 67,075 $ 57,103 $ 86 $ — $ 57,189 Cost of revenue 19,756 199 — 19,955 17,154 536 — 17,690 Gross profit (loss) 47,203 (83 ) — 47,120 39,949 (450 ) — 39,499 Operating expenses General and administrative 2,490 913 4,900 8,303 1,914 951 4,295 7,160 Sales and marketing 4,324 1,856 574 6,754 4,124 1,882 761 6,767 Research and development 1,205 2,767 — 3,972 1,130 3,828 — 4,958 Restructuring charges 1,147 832 497 2,476 — — — — Total operating expenses 9,166 6,368 5,971 21,505 7,168 6,661 5,056 18,885 Operating income (loss) $ 38,037 $ (6,451 ) $ (5,971 ) 25,615 $ 32,781 $ (7,111 ) $ (5,056 ) 20,614 Other income, net 1,240 1,298 Income before income taxes $ 26,855 $ 21,912 Years Ended December 31 , 2024 2023 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 144,310 $ 638 $ — $ 144,948 $ 127,725 $ 624 $ — $ 128,349 Cost of revenue 47,389 626 — 48,015 40,290 980 — 41,270 Gross profit (loss) 96,921 12 — 96,933 87,435 (356 ) — 87,079 Operating expenses General and administrative 8,127 3,821 21,126 33,074 7,751 3,927 17,186 28,864 Sales and marketing 15,683 7,340 2,400 25,423 13,691 6,053 2,420 22,164 Research and development 4,523 11,713 — 16,236 4,251 12,750 — 17,001 Restructuring charges 1,147 832 497 2,476 — — — — Total operating expenses 29,480 23,706 24,023 77,209 25,693 22,730 19,606 68,029 Operating income (loss) $ 67,441 $ (23,694 ) $ (24,023 ) 19,724 $ 61,742 $ (23,086 ) $ (19,606 ) 19,050 Other income, net 6,011 3,655 Income before income taxes $ 25,735 $ 22,705 Stock-based Compensation Three Months Ended December 31 , Years Ended December 31 , 2024 2023 2024 2023 (In thousands) Stock-based compensation expense charged to: Cost of revenue $ 96 $ 164 $ 1,076 $ 719 General and administrative 641 1,033 4,013 3,661 Sales and marketing 722 649 3,489 2,333 Research and development 351 381 1,744 1,325 Total stock-based compensation expense $ 1,810 $ 2,227 $ 10,322 $ 8,038 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 Q4'2024 Q4'2023 2024 2023 (In millions, except shares, per share and percentages) Operating margin 38.2 % 36.0 % 13.6 % 14.8 % Stock-based compensation 2.7 3.9 7.1 6.3 Executive transition costs 0.7 — 3.7 — Restructuring charges 3.7 — 1.7 — Adjusted operating margin 45.2 % 39.9 % 26.2 % 21.1 % Net income $ 23.5 $ 19.8 $ 23.1 $ 21.5 Stock-based compensation 1.8 2.2 10.3 8.0 Executive transition costs (2) 0.4 — 4.8 — Restructuring charges (2) 2.2 — 2.2 — Stock-based compensation discrete tax item 0.4 — 0.3 (0.7 ) Adjusted net income $ 28.3 $ 22.0 $ 40.7 $ 28.9 Net income per share $ 0.41 $ 0.34 $ 0.40 $ 0.37 Adjustments to net income per share (3) 0.09 0.05 0.31 0.14 Adjusted net income per share $ 0.50 $ 0.39 $ 0.71 $ 0.51 Net income $ 23.5 $ 19.8 $ 23.1 $ 21.5 Stock-based compensation 1.8 2.2 10.3 8.0 Depreciation and amortization 1.0 1.0 4.0 4.1 Executive transition costs 0.4 — 5.4 — Restructuring charges 2.5 — 2.5 — Other income, net (1.2 ) (1.3 ) (6.0 ) (3.7 ) Provision for income taxes 3.4 2.1 2.7 1.2 Adjusted EBITDA $ 31.3 $ 23.9 $ 42.0 $ 31.2 Free cash flow Net cash provided by operating activities $ 9.0 $ 13.8 $ 20.5 $ 26.1 Capital expenditures (0.1 ) (1.4 ) (1.3 ) (2.6 ) Free cash flow $ 8.9 $ 12.4 $ 19.2 $ 23.5 _______________ (1) Amounts may not total due to rounding. (2) Amounts presented are net of tax. (3) Refer to the sections “Use of Non-GAAP Financial Measures” for description of items included in adjustments. View source version on businesswire.com : https://www.businesswire.com/news/home/20250226400707/en/ Investor Relations [email protected] Source: Energy Recovery, Inc.

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