Energy Recovery Reports Unaudited Financial Results for the Fourth Quarter and Fiscal Year of 2014

FOURTH QUARTER SUMMARY:

• Total revenue decreased by 36% to $14.8 million in the current period, from $23.2 million in the fourth quarter of 2013
• Gross profit margin was 61% in the current period, compared to 63% in the fourth quarter of 2013, as a result of lower production levels and, to a lesser extent, a shift in mix
• Operating expenses increased by $6.0 million, or 78%, from $7.8 million in the fourth quarter of 2013 to $13.8 million in the current period due to an increase in research & development and legal expenses
• Net loss of $(4.9) million, or $(0.09) per share, in the current period, compared to net income of $6.7 million, or $0.13 per share, in the fourth quarter of 2013, on lower volume, higher operating expenses and a shift in mix

FULL YEAR SUMMARY:

• Total revenue decreased by $12.6 million, from $43.0 million in 2013 to $30.4 million in 2014
• Gross profit margin decreased from 60% in 2013 to 55% in 2014 as a result of lower production levels and, to a lesser extent, a shift in mix
• Operating expenses increased by $6.6 million, or 23%, from $28.6 million in 2013 to $35.2 million in 2014
• Net loss of $(18.7) million, or $(0.36) per share in 2014, compared to $(3.1) million, or $(0.06) per share in 2013, on lower volume, higher operating expenses and a shift in mix
• Net cash flow of $1.1 million in 2014
• At December 31, 2014, excluding current and non-current restricted cash of $5.5 million, the Company reported unrestricted cash of $15.5 million, short-term investments of $13.1 million, and long-term investments of $0.3 million, all of which represent a combined total of $28.9 million.

SAN LEANDRO, Calif., March 5, 2015 (GLOBE NEWSWIRE) -- Energy Recovery Inc. (Nasdaq:ERII), the leader in pressure energy technology for industrial fluid flows, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2014.

Joel Gay, Chief Financial Officer, remarked, "Examining our performance in 2014 presents a mixed picture. While we were able to discern a new and exciting market opportunity in fracking through significant R&D investment, our financial performance was nonetheless disappointing. While we continue to maintain a commanding market position in desalination, our overall performance is a function of the health of the market. The long-term fundamentals of global desalination remain strong, however continued uncertainty resulted in project delays and the shifting of opportunities into future periods. This ultimately limited our potential in 2014. Regarding our commercialization efforts in oil & gas, despite executing our first capital sale of an IsoBoost™ system to ConocoPhillips in December, our sales and marketing efforts fell short of expectations."

Mr. Gay continued, "Over the last three years, we have invested heavily to develop solutions that leverage our core competencies of fluid dynamics and advanced material science – solutions that can be deployed to untended markets across multiple industrial fluid flow applications. We are sensitive to and aware of the need to create value for our shareholders, and our performance in 2014 mandates change. Thus far in 2015, we have made substantive changes to our go-to-market strategy and supporting operational framework, as well as implemented austerity measures to right-size our cost structure. We will approach the coming year with an extreme execution bias, and are confident that Energy Recovery is well-positioned and capitalized to deliver long-term value to its shareholders."

REVENUES

The Company generated net revenue of $14.8 million in the fourth quarter of 2014, reflecting a decrease of 36% when compared to the same period of the prior year. From a sequential quarter perspective, net revenue increased by $9.4 million primarily due to the shipment of delayed projects.

For the year ended December 31, 2014, net revenue decreased by $12.6 million, or 29%, to $30.4 million from $43.0 million for the year ended December 31, 2013. The decrease in revenue was primarily due to significantly lower mega-project (MPD) shipments in the current year as compared to the previous year, and to a lesser extent lower OEM shipments. Of the $12.6 million decrease in revenue, $13.2 million and $1.9 million is related to MPD and OEM sales respectively; offset by $1.7 million of aftermarket sales, and by $784,000 of oil & gas revenue attributed to an operating lease and subsequent lease buy-out.

GROSS MARGIN

Decreased production was the primary driver to a gross profit margin decline from 63% in the prior-year quarter to 61% in the current period. A favorable shift in mix due to MPD shipments resulted in the Company's gross profit margin increase in sequential terms from 44% in the third quarter of 2014 to 61% in the current period.

For the year, gross profit margin decreased from 60% in 2013 to 55% in 2014 due to decreased production and to a lesser extent, a shift in mix.

OPERATING EXPENSES

Operating expenses for the quarter ended December 31, 2014 increased from $7.8 million in the fourth quarter of 2013 to $13.8 million in the fourth quarter of 2014. Contributing factors included significant investment in research & development and higher legal expenses. From a sequential quarter perspective, operating expenses increased by $6.0 million, also due to research & development and higher legal expenses.

For the fiscal year ended in 2014, operating expenses increased by $6.6 million, from $28.6 million in 2013 to $35.2 million. The increase in research & development and sales & marketing expenses is attributed to the Company's effort to identify and penetrate new markets.

To summarize financial performance on a full-year basis, the Company reported a net loss of $(18.7) million, or $(0.36) per share; largely due to lower volume, a shift in product mix, and continued sales & marketing and research & development investment in growth initiatives. Comparatively, the Company reported a net loss of $(3.1) million, or $(0.06) per share, in 2013.

CASHFLOW HIGHLIGHTS

For the fiscal year ended in 2014, the Company generated net cash flow of $1.1 million. The net loss of $(18.7) million included non-cash expenses of $7.8 million, the largest of which were depreciation and amortization of $4.0 million, and share-based compensation of $2.1 million.

Cash used by operating activities was $(3.7) million; favorably impacting cash from operating activities by $8.9 million was the monetization of receivables on depressed revenue as compared to the prior year, offset by $(3.6) million given an increase in inventory due to lower demand and project delays. Cash generated from investing activities was $6.5 million; favorably impacting cash from investing activities by $6.0 million and $3.3 million were maturities of marketable securities and the release of restricted cash respectively, offset by $2.6 million of capital expenditures. Cash used by financing activities was $(1.8) million; negatively impacting cash from financing activities by $2.8 million and $1.4 million were the repurchase of common stock and the payment of contingent consideration respectively, offset by $2.4 million of proceeds from issuance of common stock related to option and warrant exercises. The payment of contingent consideration relates to a settlement with the former shareholders of Pump Engineering, Inc.

Excluding current and non-current restricted cash of $5.5 million, the Company reported unrestricted cash of $15.5 million, short-term investments of $13.1 million, and long-term investments of $0.3 million, all of which represent a combined total of $28.9 million.

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. These forward-looking statements are based on information currently available to us and on management's beliefs, assumptions, estimates, or projections and are not guarantees of future events or results. When used in this document, the words "anticipate," "believe," "continue," "excited," "expect," "remain," "will," "probable" and similar expressions are intended to identify forward-looking statements, but are not exclusive means of identifying such statements. 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. In addition to any other factors that may have been discussed herein regarding the risks and uncertainties of our business, please see "Risk Factors" in our Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC") on March 5, 2015 as well as other reports filed by the Company with the SEC from time to time.

Conference Call to Discuss Fourth Quarter and Full Year Results for 2014

Investors may also access the live call or the replay over the internet at www.streetevents.com or www.energyrecovery.com. The replay will be available approximately three hours after the live call concludes.

About Energy Recovery Inc

Energy Recovery (Nasdaq:ERII) develops award-winning solutions to improve productivity, profitability, and energy efficiency within the oil & gas, chemical, and water industries. Our products simplify complex systems and protect vulnerable equipment. By recycling fluid pressure that would otherwise be lost in critical processes, we save clients more than $1.4 billion (USD) annually. Headquartered in the Bay Area, Energy Recovery has offices in Shanghai and Dubai.

CONTACT: Joel Gay
         Chief Financial Officer
         510-483-7370

Released March 5, 2015