Energy Recovery Reports its Third 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 third quarter and nine months ended September 30, 2024 . Third Quarter Highlights Revenue of $38.6 million , reaching the upper end of our guidance of $35 - $39 million . Gross margin of 65.1%, a decrease of 480 bps, as compared to Q3’2023, due primarily to higher manufacturing costs and higher costs related to product mix. Operating expenses of $18.1 million , an increase of 7.8%, as compared to Q3’2023, due primarily to higher consulting costs related to enhancement of our corporate growth strategy and higher employee costs. Income from operations of $7.1 million , a decrease of 22.7%, as compared to Q3’2023, mainly due to higher operating expenses and lower gross margin. Net income of $8.5 million and adjusted EBITDA(1) of $11.6 million . Cash and investments of $139.9 million , which include cash, cash equivalents, and short- and long-term investments. David Moon , President and CEO, commented on the financial results, “We delivered strong third quarter results, hitting the upper end of our guidance for the quarter and, although there is still work to be done, we believe we are well-positioned in this quarter to deliver on our guidance for the full year. Our core desalination business continues to demonstrate durability of growth, our wastewater business continues to expand, and we are making real progress this year in our CO2 refrigeration business.” Mr. Moon continued, “With our PX G1300 summer data collection complete, we just issued a white paper with the measurement and verification results, provided by a third party engineering firm, that we believe will be an important next step to getting the PX G1300 integrated into OEM systems designs and ultimately specified by supermarkets. Finally, we concluded our strategic work on what I have termed our Playbook. This Playbook outlines our five-year plan to grow all three of Energy Recovery’s businesses. It is an ambitious and I believe achievable blueprint for growth that I, along with Mike Mancini , CFO, and our business unit leads, are excited to lay out next month on a live investor webinar we are hosting on November 18 , 2024.” Financial Highlights Quarter-to-Date Year to Date Q3’2024 Q3’2023 vs. Q3’2023 2024 2023 2024 vs. 2023 (In millions, except net income (loss) per share, percentages and basis points) Revenue $38.6 $37.0 up 4% $77.9 $71.2 up 9% Gross margin 65.1% 69.9% down 480 bps 64.0% 66.9% down 290 bps Operating margin 18.3% 24.7% down 640 bps (7.6%) (2.2%) down 540 bps Net income (loss) $8.5 $9.7 down 12% ( $0.4 ) $1.7 down 125% Net income (loss) per share $0.15 $0.17 down $0.02 ( $0.01 ) $0.03 down $0.04 Effective tax rate 62.4% (114.2%) Cash provided by (used for) operations ( $3.0 ) $7.7 $11.6 $12.3 Non-GAAP Financial Highlights (1) Quarter-to-Date Year to Date Q3’2024 Q3’2023 vs. Q3’2023 2024 2023 2024 vs. 2023 (In millions, except adjusted net income per share, percentages and basis points) Adjusted operating margin 27.5% 29.5% down 200 bps 9.7% 6.0% up 370 bps Adjusted net income $12.0 $11.4 up 5% $12.4 $6.8 up 81% Adjusted net income per share $0.21 $0.20 up $0.01 $0.22 $0.12 up $0.10 Adjusted EBITDA $11.6 $12.0 $10.6 $7.3 Free cash flow ( $3.2 ) $7.4 $10.4 $11.1 ___________ (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, including the belief that the Company is well-positioned in the fourth quarter to deliver on our guidance for the full year, the belief that the Company is making real progress this year in its CO2 refrigeration business, the belief that the Company’s recently published white paper is an important next step to getting the PX G1300 integrated into original equipment manufacturers’ systems designs and ultimately specified by supermarkets, and the belief that the Company’s Playbook is an achievable blueprint for growth. 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 (loss) from operations which excludes i) share-based compensation; and ii) executive transition costs, such as executive search costs, retention costs, one-time severance costs and one-time corporate growth strategy costs, divided by revenues. Adjusted net income is a non-GAAP financial measure that the Company defines as net income which excludes i) share-based compensation; ii) executive transition costs; and iii) the applicable tax effect of the excluded items including the share-based compensation discrete tax item. Adjusted net income per share is a non-GAAP financial measure that the Company defines as net income (loss), which excludes i) share-based compensation; ii) executive transition costs and iii) the applicable tax effect of the excluded items including the share-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 (loss) which excludes i) depreciation and amortization; ii) share-based compensation; iii) executive transition costs; iv) other income, net, such as interest income and other non-operating income (expense), net; and v) provision for (benefit from) income taxes. Free cash flow is a non-GAAP financial measure that the Company defines as net cash provided by (used in) operating activities less capital expenditures. Conference Call to Discuss Financial Results LIVE CONFERENCE CALL: Wednesday, October 30, 2024 , 2:00 PM PT / 5:00 PM ET US / Canada Toll-Free: +1 (866) 682-6100 Local / International Toll: +1 (862) 298-0702 CONFERENCE CALL REPLAY: Available approximately three hours after conclusion of the live call. Expiration: Friday, November 29, 2024 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 and Texas with sales and on-site technical support available globally. To learn more, visit https://energyrecovery.com/ . ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) September 30 , 2024 December 31 , 2023 (In thousands) ASSETS Cash, cash equivalents and investments $ 139,911 $ 122,375 Accounts receivable and contract assets 33,319 47,529 Inventories, net 33,464 26,149 Prepaid expenses and other assets 5,295 3,251 Property, equipment and operating leases 26,504 30,168 Goodwill 12,790 12,790 Deferred tax assets and other assets 11,422 10,712 TOTAL ASSETS $ 262,705 $ 252,974 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Accounts payable and accrued expenses $ 13,938 $ 18,583 Contract liabilities and other liabilities, non-current 3,069 1,304 Lease liabilities 11,825 13,279 Total liabilities 28,832 33,166 Stockholders’ equity 233,873 219,808 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 262,705 $ 252,974 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30 , Nine Months Ended September 30 , 2024 2023 2024 2023 (In thousands, except per share data) Revenue $ 38,584 $ 37,036 $ 77,873 $ 71,160 Cost of revenue 13,472 11,154 28,060 23,580 Gross profit 25,112 25,882 49,813 47,580 Operating expenses General and administrative 7,673 7,369 24,771 21,704 Sales and marketing 6,413 5,411 18,669 15,397 Research and development 3,969 3,969 12,264 12,043 Total operating expenses 18,055 16,749 55,704 49,144 Income (loss) from operations 7,057 9,133 (5,891 ) (1,564 ) Other income, net 1,768 1,045 4,771 2,357 Income (loss) before income taxes 8,825 10,178 (1,120 ) 793 Provision for (benefit from) income taxes 344 518 (699 ) (906 ) Net income (loss) $ 8,481 $ 9,660 $ (421 ) $ 1,699 Net income (loss) per share Basic $ 0.15 $ 0.17 $ (0.01 ) $ 0.03 Diluted $ 0.15 $ 0.17 $ (0.01 ) $ 0.03 Number of shares used in per share calculations Basic 57,756 56,443 57,409 56,346 Diluted 58,290 57,969 57,409 57,761 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30 , 2024 2023 (In thousands) Cash flows from operating activities: Net (loss) income $ (421 ) $ 1,699 Non-cash adjustments 11,432 8,817 Net cash provided by (used in) operating assets and liabilities 556 1,756 Net cash provided by operating activities 11,567 12,272 Cash flows from investing activities: Net investment in marketable securities (21,067 ) (17,278 ) Capital expenditures (1,194 ) (1,179 ) Proceeds from sales of fixed assets 90 82 Net cash used in investing activities (22,171 ) (18,375 ) Cash flows from financing activities: Net proceeds from issuance of common stock 5,795 1,184 Net cash provided by financing activities 5,795 1,184 Effect of exchange rate differences (23 ) 27 Net change in cash, cash equivalents and restricted cash $ (4,832 ) $ (4,892 ) Cash, cash equivalents and restricted cash, end of period $ 63,393 $ 51,566 ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Channel Revenue Three Months Ended September 30 , Nine Months Ended September 30 , 2024 2023 vs. 2023 2024 2023 vs. 2023 (In thousands, except percentages) Megaproject $ 29,009 $ 26,829 up 8% $ 48,924 $ 42,283 up 16% Original equipment manufacturer 4,919 5,307 down 7% 15,210 16,845 down 10% Aftermarket 4,656 4,900 down 5% 13,739 12,032 up 14% Total revenue $ 38,584 $ 37,036 up 4% $ 77,873 $ 71,160 up 9% Segment Activity Three Months Ended September 30 , 2024 2023 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 38,344 $ 240 $ — $ 38,584 $ 36,812 $ 224 $ — $ 37,036 Cost of revenue 13,334 138 — 13,472 11,114 40 — 11,154 Gross profit 25,010 102 — 25,112 25,698 184 — 25,882 Operating expenses General and administrative 1,803 906 4,964 7,673 2,039 1,061 4,269 7,369 Sales and marketing 3,777 1,977 659 6,413 3,272 1,560 579 5,411 Research and development 1,145 2,824 — 3,969 1,098 2,871 — 3,969 Total operating expenses 6,725 5,707 5,623 18,055 6,409 5,492 4,848 16,749 Operating income (loss) $ 18,285 $ (5,605 ) $ (5,623 ) $ 7,057 $ 19,289 $ (5,308 ) $ (4,848 ) $ 9,133 Nine Months Ended September 30 , 2024 2023 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 77,351 $ 522 $ — $ 77,873 $ 70,622 $ 538 $ — $ 71,160 Cost of revenue 27,633 427 — 28,060 23,136 444 — 23,580 Gross profit 49,718 95 — 49,813 47,486 94 — 47,580 Operating expenses General and administrative 5,637 2,908 16,226 24,771 5,837 2,976 12,891 21,704 Sales and marketing 11,359 5,484 1,826 18,669 9,567 4,171 1,659 15,397 Research and development 3,318 8,946 — 12,264 3,121 8,922 — 12,043 Total operating expenses 20,314 17,338 18,052 55,704 18,525 16,069 14,550 49,144 Operating income (loss) $ 29,404 $ (17,243 ) $ (18,052 ) $ (5,891 ) $ 28,961 $ (15,975 ) $ (14,550 ) $ (1,564 ) Share-based Compensation Three Months Ended September 30 , Nine Months Ended September 30 , 2024 2023 2024 2023 (In thousands) Stock-based compensation expense charged to: Cost of revenue $ 176 $ 158 $ 980 $ 555 General and administrative 954 905 3,372 2,628 Sales and marketing 845 436 2,767 1,684 Research and development 437 292 1,393 944 Total stock-based compensation expense $ 2,412 $ 1,791 $ 8,512 $ 5,811 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 Q3'2024 Q3'2023 Q3'2024 Q3'2023 (In millions, except shares, per share and percentages) Operating margin 18.3 % 24.7 % (7.6 )% (2.2 )% Share-based compensation 6.3 4.8 10.9 8.2 Executive transition costs 2.9 — 6.4 — Adjusted operating margin 27.5 % 29.5 % 9.7 % 6.0 % Net income (loss) $ 8.5 $ 9.7 $ (0.4 ) $ 1.7 Share-based compensation 2.4 1.8 8.5 5.8 Executive transition costs (2) 1.0 — 4.4 — Share-based compensation discrete tax item 0.1 (0.1 ) (0.1 ) (0.7 ) Adjusted net income $ 12.0 $ 11.4 $ 12.4 $ 6.8 Net income (loss) per share $ 0.15 $ 0.17 $ (0.01 ) $ 0.03 Adjustments to net income (loss) per share (3) 0.06 0.03 0.23 0.09 Adjusted net income per share $ 0.21 $ 0.20 $ 0.22 $ 0.12 Net income (loss) $ 8.5 $ 9.7 $ (0.4 ) $ 1.7 Share-based compensation 2.4 1.8 8.5 5.8 Depreciation and amortization 1.0 1.1 3.1 3.1 Executive transition costs 1.1 — 5.0 — Other income, net (1.8 ) (1.0 ) (4.8 ) (2.4 ) Provision for (benefit from) income taxes 0.3 0.5 (0.7 ) (0.9 ) Adjusted EBITDA $ 11.6 $ 12.0 $ 10.6 $ 7.3 Free cash flow Net cash provided by (used in) operating activities $ (3.0 ) $ 7.7 $ 11.6 $ 12.3 Capital expenditures (0.2 ) (0.3 ) (1.2 ) (1.2 ) Free cash flow $ (3.2 ) $ 7.4 $ 10.4 $ 11.1 ___________ (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/20241030567814/en/ Investor Relations [email protected] Source: Energy Recovery, Inc.

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