Investor Relations

Investor Relations

News Release

<< Back


11/11/08

Energy Recovery, Inc. Reports Third Quarter 2008 Financial Results


SAN LEANDRO, Calif.--(BUSINESS WIRE)--Nov. 11, 2008--Energy Recovery, Inc. (Nasdaq:ERII), a global leading provider of ultra efficient energy recovery products and technology for seawater desalination, announced today the results of its third quarter ended September 30, 2008. In the third quarter of 2008, ERI achieved net revenue of $9.0 million, exceeding the Company's guidance of $6.8 million to $7.2 million. Year to date 2008 net revenue was $30.1 million, which represented an increase of 40% over net revenue of $21.6 million for the nine months ended September 30, 2007. ERI reported net income of $623 thousand, or $0.01 per diluted share, for the three months ended September 30, 2008 compared to $2.4 million, or $0.06 per diluted share, for the same period last year. Year to date net income was $3.4 million, or $0.07 per diluted share, compared to $3.1 million, or $0.08 per diluted share, for the same period last year.

In July 2008, ERI sold an aggregate of 16,100,000 shares of its common stock in its initial public offering ("IPO") at $8.50 per share, including the underwriters' over-allotment option. Of the shares sold in the offering, 10,178,566 shares were sold by the Company and 5,921,434 shares were sold by selling stockholders. ERI received net proceeds of approximately $76.8 million from the IPO, after deducting underwriting discounts and commissions and direct expenses. The financial effect of the IPO is reflected in the Company's third quarter financial results.

"We exceeded our sales forecast in the third quarter due to stronger than expected demand from our OEM customer group whose projects are under 50,000 cubic meters per day," said GG Pique, President and CEO of Energy Recovery, Inc. "We continue to see strong demand among both our large EPC customers as well as our OEM customers as reflected in our fourth quarter guidance. Our fourth quarter alone is expected to exceed our total annual revenue in 2006."

ERI provides the following guidance for the fourth quarter of 2008 and the full year (in thousands, except per share data):

                         Q4 2008                Full Year 2008

Estimated net revenue    $20.0 to $22.0 million $50.0 to $52.0 million

Estimated net income     $3.4 to $4.1 million   $6.8 to 7.5 million

Estimated earnings per
 diluted share           $0.07 to $0.08         $0.14 to $0.16

Forward Looking Statements

This press release includes "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. Such forward-looking statements include statements regarding the Company's ability to achieve certain levels of revenue and earnings in the fourth quarter and full year for 2008, the Company's ability to successfully implement its strategic initiatives and the Company's position in the desalination industry. Because such forward-looking statements involve risks and uncertainties, the Company's actual results may differ materially from those projected in such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, cyclical nature of sea water reverse osmosis plants, delays or postponements in the construction of desalination plants, the ability of our customer to obtain financing for the construction of their plants, the ability of our customers to obtain other key components of a plant, delays in governmental approvals, changes in customers' budgets for desalination plans and the timing of their purchasing decision, interruption in the supply of key production components such as ceramic parts, shipping delays, and other risks detailed in the Company's filings with the Securities and Exchange Commission ("SEC"). All forward-looking statements are made as of today, and the Company assumes no obligation to update such statements. For more details relating to the risks and uncertainties that could cause actual results to differ materially from those anticipated in our forward-looking statements, please refer to the Company's SEC filings.

Conference Call to Discuss Third Quarter 2008 Results

The conference call scheduled today at 1:30 p.m. PDT will be in a "listen-only" mode for all participants other than the investment professionals who regularly follow the Company. The toll-free phone number for the call is 800-951-9235 or 706-758-9752 and the access code is 68565515. Callers should dial in approximately 15 minutes prior to the scheduled start time. A telephonic replay will be available at 800-642-1687 or 706-645-9291, Access Code: 68565515, from 5:30 p.m. PDT on Tuesday, November 11, 2008 to 8:59 p.m. PDT on Tuesday, November 24, 2008. Investors may also access the live call or the replay over the internet at www.streetevents.com; www.earnings.com and www.energyrecovery.com. The replay will be available approximately three hours after the live call concludes.

About ERI(R)

Energy Recovery, Inc. (ERI) is a leading manufacturer of energy recovery devices, which significantly reduce energy consumption and help make desalination affordable. ERI's PX Pressure Exchanger(R) technology (PX(R)) is a rotary positive displacement pump that recovers energy from the high pressure reject stream of seawater reverse osmosis systems at up to 98% efficiency with no downtime or scheduled maintenance.

The Company has research, development and manufacturing facilities in San Leandro, California as well as direct sales offices and technical support centers in key desalination hubs such as Madrid, UAE, Shanghai and Florida. ERI service representatives are based in Algeria, Australia, China, India, Korea, Mexico, Taiwan and the Caribbean. For more information on ERI and PX technology, please visit www.energyrecovery.com.

                        ENERGY RECOVERY, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (in thousands, except per share data)
                             (unaudited)

                                 Three Months Ended Nine Months Ended
                                   September 30,      September 30,
                                 ------------------ ------------------
                                   2008      2007      2008     2007
                                 --------- -------- --------- --------
Net revenue                      $  9,044  $10,978   $30,125  $21,569
Cost of revenue (1)                 3,497    4,096    11,122    8,524
                                 --------- -------- --------- --------
Gross profit                        5,547    6,882    19,003   13,045
Operating expenses:
   Sales and marketing (1)          1,467    1,372     4,263    3,787
   General and administrative
    (1)                             2,696    1,053     8,211    2,786
   Research and development (1)       678      392     1,723    1,221
                                 --------- -------- --------- --------
Total operating expenses            4,841    2,817    14,197    7,794
                                 --------- -------- --------- --------
Income from operations                706    4,065     4,806    5,251
Other income (expense):
     Interest expense                 (17)     (17)      (62)     (42)
     Interest and other income        217       85       841      121
                                 --------- -------- --------- --------
Income before provision for
 income taxes                         906    4,133     5,585    5,330
Provision for income taxes            283    1,736     2,186    2,238
                                 --------- -------- --------- --------
Net income                       $    623  $ 2,397   $ 3,399  $ 3,092
                                 ========= ======== ========= ========
Earnings per share:
     Basic                       $   0.01  $  0.06   $  0.08  $  0.08
                                 ========= ======== ========= ========
     Diluted                     $   0.01  $  0.06   $  0.07  $  0.08
                                 ========= ======== ========= ========
Number of shares used in per
 share calculations:
     Basic                         49,646   39,631    43,114   38,821
                                 ========= ======== ========= ========
     Diluted                       52,396   42,080    45,647   41,192
                                 ========= ======== ========= ========


(1) Includes stock-based compensation expense as follows:

                                 Three Months Ended Nine Months Ended
                                   September 30,      September 30,
                                 ------------------ ------------------
                                   2008      2007      2008     2007
                                 --------- -------- --------- --------
Cost of revenue                  $     34  $    30   $    65  $    80
Sales and marketing                   122       95       224      263
General and administrative            149       92       290      280
Research and development               52       38        97      108
                                 --------- -------- --------- --------
   Total stock-based
    compensation                 $    357  $   255   $   676  $   731
                                 ========= ======== ========= ========
                        ENERGY RECOVERY, INC.
                CONDENSED CONSOLIDATED BALANCE SHEETS
                  (in thousands, except share data)
                             (unaudited)

                                           September 30, December 31,
                                               2008          2007
                                           ------------- -------------
ASSETS
  Current assets:
    Cash and cash equivalents              $     79,821  $        240
    Restricted cash                                   -           366
    Accounts receivable, net of allowance
     for doubtful accounts of $76 and $121
     at September 30, 2008 and December
     31, 2007, respectively                      13,333        12,849
    Unbilled receivables, current                 3,576         1,733
    Notes receivable from stockholders                -            20
    Inventories                                   9,779         4,791
    Deferred tax assets, net                      1,052         1,052
    Prepaid expenses and other current
     assets                                       3,060           369
                                           ------------- -------------
       Total current assets                     110,621        21,420
  Unbilled receivables, non-current                 119         2,457
  Restricted cash, non-current                        -         1,221
  Property and equipment, net                     1,694         1,671
  Intangible assets, net                            323           345
  Deferred tax assets, non-current, net             148           148
  Other assets, non-current                          51            42
                                           ------------- -------------
       Total assets                        $    112,956  $     27,304
                                           ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
    Accounts payable                       $      2,090  $      1,697
    Accrued expenses and other current
     liabilities                                  4,613         1,868
    Liability for early exercise of stock
     options                                          -            20
    Income taxes payable                            540         1,154
    Accrued warranty reserve                        248           868
    Deferred revenue                                594           488
    Customer deposits                             2,739           318
    Current portion of long-term debt               172           172
    Current portion of capital lease
     obligations                                     36            38
                                           ------------- -------------
       Total current liabilities                 11,032         6,623
    Long-term debt                                  428           557
    Capital lease obligations, non-current           36            63
                                           ------------- -------------
       Total liabilities                         11,496         7,243
                                           ------------- -------------
    Commitments and contingencies
  Stockholders' equity
    Preferred stock, $0.001 par value;
     10,000,000 shares authorized; no
     shares issued or outstanding                     -             -
    Common stock, $0.001 par value;
     200,000,000 shares authorized;
     50,008,118 and 39,777,446 shares
     issued and outstanding at September
     30, 2008 and December 31, 2007,
     respectively                                    50            40
    Additional paid-in capital                   98,250        20,762
    Notes receivable from stockholders             (307)         (835)
    Accumulated other comprehensive loss            (31)           (5)
    Retained earnings                             3,498            99
                                           ------------- -------------
       Total stockholders' equity               101,460        20,061
                                           ------------- -------------
       Total liabilities and stockholders'
        equity                             $    112,956  $     27,304
                                           ============= =============
                        ENERGY RECOVERY, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (in thousands)
                             (unaudited)

                                                     Nine Months Ended
                                                       September 30,
                                                     -----------------
                                                       2008     2007
                                                     -------- --------
Cash Flows From Operating Activities
   Net income                                        $ 3,399  $ 3,092
   Adjustments to reconcile net income to net cash
    from operating activities:
      Depreciation and amortization                      378      222
      Interest accrued on notes receivables from
       stockholders                                      (12)     (23)
      Stock-based compensation                           676      731
      Gain on foreign currency transactions             (383)       -
      Provision for doubtful accounts                      6      (13)
      Provision for warranty claims                     (531)      31
      Provision for excess or obsolete inventory          29        -
   Changes in operating assets and liabilities:
      Accounts receivable                               (107)     883
      Unbilled receivables                               495   (3,396)
      Inventories                                     (5,017)  (2,439)
      Prepaid and other assets                        (2,700)    (105)
      Accounts payable                                   393      451
      Accrued expenses and other liabilities           2,653      118
      Income taxes payable                              (614)     142
      Deferred revenue                                   106      237
      Customer deposits                                2,421       52
                                                     -------- --------
         Net cash provided by (used in) operating
          activities                                   1,192      (17)
                                                     -------- --------
Cash Flows From Investing Activities
   Capital expenditures                                 (376)    (884)
   Restricted cash                                     1,587      (33)
   Other                                                  (1)     (45)
                                                     -------- --------
         Net cash provided by (used in) investing
          activities                                   1,210     (962)
                                                     -------- --------
Cash Flows From Financing Activities
   Proceeds from long-term debt                            -      639
   Repayment of long-term debt                          (129)     (44)
   Repayments of revolving note, net                       -     (438)
   Repayment of capital lease obligation                 (28)     (30)
   Net proceeds from issuance of common stock         76,808    5,119
   Repayment of notes receivables from stockholders      560       23
   Other short term financing activities                  (6)    (129)
                                                     -------- --------
         Net cash provided by (used in) financing
          activities                                  77,205    5,140
                                                     -------- --------
Effect of exchange rate differences on cash and cash
 equivalents                                             (26)       3
                                                     -------- --------
Net change in cash and cash equivalents               79,581    4,164
Cash and cash equivalents, beginning of period           240       42
                                                     -------- --------
Cash and cash equivalents, end of period             $79,821  $ 4,206
                                                     ======== ========
Supplemental disclosure of cash flow information
   Cash paid for interest                            $    60  $    39
                                                     ======== ========
   Cash paid for income taxes                        $ 4,706  $ 2,120
                                                     ======== ========
Supplemental disclosure of non-cash transactions
   Issuance of common stock in exchange for notes
    receivable from stockholders                     $    20  $     6
                                                     ======== ========

CONTACT: Energy Recovery, Inc.
Tom Willardson, 510-483-7370
Chief Financial Officer

SOURCE: Energy Recovery, Inc.