Energy Recovery Posts Strong Quarterly Product Revenue Growth in Second Quarter

SAN LEANDRO, CA / ACCESSWIRE / August 5, 2021 / Energy Recovery, Inc. (Nasdaq: ERII) today announced its financial results for the second quarter ended June 30, 2021, achieving seven percent growth in product revenue, compared to the second quarter of 2020.

"Our desalination business continues to thrive, driven in part by returning demand in segments and regions hard-hit by COVID-19," said Robert Mao, Chairman of the Board, President and Chief Executive Officer of Energy Recovery.

Mr. Mao continued, "We continue to make material progress in diversification efforts of our pressure exchanger technology. We have been awarded projects in the chemical manufacturing, landfill leachate and lithium-ion battery manufacturing facilities in China for our new Ultra PX™ energy recovery device, a testament to our efforts to educate the industrial wastewater treatment market on the Ultra PX's energy-saving benefits. Furthermore, our confidence in our PX G1300™ energy recovery device for CO2 refrigeration has grown stronger through successful tests that underscore the significant financial and sustainability benefits we can bring end customers such as supermarkets. We are already seeking our first commercial deployment and believe our technology can make the transition from climate-damaging hydrofluorocarbons to sustainable natural refrigeration alternatives attractive for retailers. We are excited by these new opportunities and believe our strategy of pressure exchanger diversification will continue to drive long-term value creation for Energy Recovery shareholders."

Financial Results





Three Months Ended June 30, Six Months Ended June 30,




2021 2020 Variance 2021 2020 Variance




(In millions, except net income per share, percentages and basis points)
Product revenue
$ 20.6 $ 19.3 7 % $ 49.5 $ 38.3 30 %
License and development revenue (1)
- 24.4 (100 %) - 26.9 (100 %)
Total revenue
$ 20.6 $ 43.6 (53 %) $ 49.5 $ 65.2 (24 %)
Product gross profit
$ 13.4 $ 12.7 6 % $ 33.4 $ 26.0 28 %
Product gross margin
65.1 % 66.0 % (90) bps 67.4 % 68.0 % (60) bps
Operating expense
$ 13.1 $ 15.8 (17 %) $ 27.0 $ 31.5 (14 %)
Operating income
$ 0.3 $ 21.3 (99 %) $ 6.4 $ 21.4 (70 %)
Net income
$ 1.1 $ 16.9 (94 %) $ 7.9 $ 17.5 (55 %)
Diluted net income per share
$ 0.02 $ 0.30 $ (0.28 ) $ 0.13 $ 0.31 $ (0.18 )
Operating cash flow
$ 11.5 $ 5.6 $ 5.9 $ 11.5 $ (0.3 ) $ 11.8
Cash and investments
$ 120.7 $ 96.9 25 % $ 120.7 $ 96.9 25 %
(1)

In June 2020, the Company terminated the VorTeq License Agreement with Schlumberger Technology Corporation. As there were no future performance obligations to be recognized under the VorTeq License Agreement after the effective date, the Company recognized in full the remaining deferred revenue balance of $24.4 million in the second quarter of fiscal year 2020. In addition, no future license and development revenue was recognized under the VorTeq License Agreement after the second quarter of fiscal year 2020.

Product Channel Revenue




Three Months Ended June 30, Six Months Ended June 30,



2021 2020 Variance 2021 2020 Variance



(In millions, except percentages)
Megaproject
$ 13.3 $ 12.0 11 % $ 37.0 $ 26.4 40 %
Original equipment manufacturer
4.3 4.1 6 % 7.1 7.6 (7 %)
Aftermarket
3.0 3.2 (6 %) 5.4 4.3 29 %
Total product revenue
$ 20.6 $ 19.3 7 % $ 49.5 $ 38.3 30 %

"We experienced another solid financial quarter at Energy Recovery," said Joshua Ballard, Chief Financial Officer of Energy Recovery. "Growth remains steady and stable across all sales channels despite a slight temporary decline in aftermarket sales this quarter. Importantly, our year-to-date operating expenditures, excluding impairment charges, remain 8% below 2020 as we continue to manage this growth prudently. The notable year-to-date 44% increase in sales and marketing spend reflects investments in support of this growth, offset entirely by reduced R&D spend largely due to VorTeq™. Finally, despite nearly $12 million in share buybacks and increased investments in inventory, our cash and security balances remain at historic highs following record sales in the first quarter."

Second Quarter 2021 Business Highlights

Water Segment

  1. Steady product revenue growth in the second quarter was driven by megaproject ("MPD") and original equipment manufacturer ("OEM") channels, with year-to-date sales representing growth of 30% across all channels, compared to the same period in 2020. The MPD channel continues to drive stable growth from large scale SWRO projects, while the OEM channel is beginning to rebound. This upward trend within the OEM channel is being driven primarily by large greenfield plant installations and brownfield retrofits, which include upgrades to existing operations leveraging our pressure exchanger technology and ancillary equipment.
  2. Our continued focus on manufacturing efficiencies, cost discipline and mix normalization is expected to improve the product gross margin profile from the low margin observed in second quarter. Gross margin was lower this quarter largely due to product mix as we sold a higher mix of non-PX products during the quarter from our growth in OEM sales.

Emerging Technologies Segment

  1. Testing of our PX G1300 energy recovery device for CO2 refrigeration continues to affirm expected energy savings and system efficiency gains we can achieve for CO2 refrigeration systems. We are seeking our first commercial deployment of the PX G1300.
  2. We are continuing our live well field trials of the VorTeq. The next scheduled field trial will test our efforts to extend the service life of the VorTeq cartridges.
  3. Excluding 2020 impairment costs, operating expenses in this segment decreased year-over-year, due primarily to reduced development expenditures related to the VorTeq which were partially offset by a shift of R&D investment to our commercial refrigeration efforts.

Bottom Line Summary

On a quarterly basis, we reported a net income of $1.1 million, or $0.02 per diluted share, for the second quarter ended June 30, 2021, compared to a net income of $16.9 million, or $0.30 per diluted share, for the second quarter ended June 30, 2020, which included $17.2 million, net of tax, related to the termination of the VorTeq License Agreement and the impairment of related long-lived assets.

Cash Flow Highlights

The Company finished the first quarter ended June 30, 2021 with cash and cash equivalents of $103.3 million, and short-term investments of $17.4 million, which represents a combined total of $120.7 million.

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 Company's belief that the company is embarking on a path of sustainable, disciplined and diversified growth; our ability to develop pressure exchanged-based solutions for new industries; our belief that our carbon dioxide commercial refrigeration solution excels in warmer climates as compared to the market-leading technology; our belief that the Company's future is bright; our belief that the Company can work towards a more diversified revenue stream for the future; and our belief that the Company is making significant progress in our emerging technology projects. 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. Potential risks and uncertainties include 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, 2020, 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.

Conference Call to Discuss Second Quarter 2021 Financial Results

LIVE CONFERENCE CALL:

Thursday, August 5, 2021, 2:00 PM PDT / 5:00 PM EDT

Listen-only, US / Canada Toll-Free: +1 (877) 709-8150

Listen-only, Local / International Toll: +1 (201) 689-8354

Access code: 13720677

CONFERENCE CALL REPLAY:

Expiration: Sunday, September 5, 2021

US / Canada Toll-Free: +1 (877) 660-6853

Local / International Toll: +1 (201) 612-7415

Access code: 13720677

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

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 creates technologies that solve complex challenges for industrial fluid-flow markets worldwide. Building on our pressure exchanger technology platform, we design and manufacture solutions that make industrial processes more efficient and sustainable. What began as a game-changing invention for desalination has grown into a global business accelerating the environmental sustainability of customers' operations in multiple industries. Headquartered in the San Francisco Bay Area, Energy Recovery has manufacturing, research and development facilities across California and Texas with sales and on-site technical support available globally. For more information, please visit www.energyrecovery.com.

CONTACT:
Investor Relations
ir@energyrecovery.com
+1 (281) 962-8105

ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

June 30,2021

December 31,2020

(In thousands)

ASSETS

Current assets:
Cash and cash equivalents
$ 103,302 $ 94,255
Short-term investments
17,394 20,446
Accounts receivable, net
7,599 11,792
Inventories, net
15,289 11,748
Prepaid expenses and other assets, current
4,265 4,950
Total current assets
147,849 143,191
Deferred tax assets, net
12,471 11,030
Property and equipment, net
20,443 20,176
Operating lease, right of use asset
15,383 16,090
Goodwill and other intangible assets
12,833 12,839
Other assets, non-current
365 988
Total assets
$ 209,344 $ 204,314
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$ 2,278 $ 1,118
Accrued expenses and other liabilities, current
8,397 11,816
Lease liabilities, current
1,473 1,243
Contract liabilities, current
1,117 1,552
Total current liabilities
13,265 15,729
Lease liabilities, non-current
15,682 16,443
Other liabilities, non-current
571 518
Total liabilities
29,518 32,690
Stockholders' equity:
Common stock
63 62
Additional paid-in capital
191,087 179,161
Accumulated other comprehensive (loss) income
(53 ) 53
Treasury stock
(42,040 ) (30,486 )
Retained earnings
30,769 22,834
Total stockholders' equity
179,826 171,624
Total liabilities and stockholders' equity
$ 209,344 $ 204,314

ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)



Three Months Ended June 30, Six Months Ended June 30,


2021 2020 2021 2020


(In thousands, except per share data)
Product revenue
$ 20,607 $ 19,256 $ 49,547 $ 38,257
Product cost of revenue
7,181 6,549 16,162 12,233
Product gross profit
13,426 12,707 33,385 26,024
License and development revenue
- 24,352 - 26,895
Operating expenses:
General and administrative
6,175 5,599 12,781 12,480
Sales and marketing
2,537 1,497 5,240 3,635
Research and development
4,424 6,352 8,926 13,061
Amortization of intangible assets
3 4 7 8
Impairment of long-lived assets
- 2,332 - 2,332
Total operating expenses
13,139 15,784 26,954 31,516
Income from operations
287 21,275 6,431 21,403
Other income (expense):
Interest income
51 255 143 675
Other non-operating expense, net
(12 ) (18 ) (22 ) (30 )
Total other income, net
39 237 121 645
Income before income taxes
326 21,512 6,552 22,048
(Benefit from) provision for income taxes
(743 ) 4,586 (1,383 ) 4,501
Net income
$ 1,069 $ 16,926 $ 7,935 $ 17,547
Net income per share:
Basic
$ 0.02 $ 0.30 $ 0.14 $ 0.32
Diluted
$ 0.02 $ 0.30 $ 0.13 $ 0.31
Number of shares used in per share calculations:
Basic
57,253 55,614 57,066 55,513
Diluted
58,999 56,371 58,822 56,438

ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)



Six Months Ended June 30,


2021 2020


(In thousands)
Cash flows from operating activities:




Net income
$ 7,935 $ 17,547
Adjustments to reconcile net income to cash provided by (used in) operating activities
Stock-based compensation
3,341 2,595
Depreciation and amortization
2,733 2,751
Amortization of premiums and discounts on investments
139 215
Deferred income taxes
(1,441 ) 4,666
Impairment of long-lived assets
- 2,332
Other non-cash adjustments
149 228
Changes in operating assets and liabilities:
Accounts receivable, net
4,193 101
Contract assets
1,356 (198 )
Inventories, net
(3,621 ) 260
Prepaid and other assets
(47 ) (278 )
Accounts payable
1,237 1,285
Accrued expenses and other liabilities
(3,999 ) (4,009 )
Contract liabilities
(434 ) (27,789 )
Net cash provided by (used in) operating activities
11,541 (294 )
Cash flows from investing activities:
Sales of marketable securities
- 9,767
Maturities of marketable securities
14,861 43,286
Purchases of marketable securities
(12,034 ) (12,855 )
Capital expenditures
(2,449 ) (4,410 )
Other
5 -
Net cash provided by investing activities
383 35,788
Cash flows from financing activities:
Net proceeds from issuance of common stock
8,697 1,128
Tax payment for employee shares withheld
- (23 )
Repurchase of common stock
(11,554 ) -
Net cash (used in) provided by financing activities
(2,857 ) 1,105
Effect of exchange rate differences on cash and cash equivalents
(20 ) (15 )
Net change in cash, cash equivalents and restricted cash
9,047 36,584
Cash, cash equivalents and restricted cash, beginning of year
94,358 26,488
Cash, cash equivalents and restricted cash, end of period
$ 103,405 $ 63,072

ENERGY RECOVERY, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)





Three Months Ended June 30, 2021 Three Months Ended June 30, 2020 (Recast)




Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total




(In thousands)
Product revenue
$ 20,568 $ 39 $ - $ 20,607 $ 19,256 $ - $ - $ 19,256
Product cost of revenue
7,181 - - 7,181 6,549 - - 6,549
Product gross profit
13,387 39 - 13,426 12,707 - - 12,707

License and development revenue
- - - - - 24,352 - 24,352

Operating expenses
General and administrative
1,776 1,315 3,084 6,175 1,967 1,150 2,482 5,599
Sales and marketing
2,121 229 187 2,537 1,124 262 111 1,497
Research and development
595 3,829 - 4,424 960 5,392 - 6,352
Amortization of intangible assets
3 - - 3 4 - - 4
Impairment of long-lived assets
- - - - - 2,332 - 2,332
Total operating expenses
4,495 5,373 3,271 13,139 4,055 9,136 2,593 15,784
Operating income (loss)
$ 8,892 $ (5,334 ) $ (3,271 ) 287 $ 8,652 $ 15,216 $ (2,593 ) 21,275
Other income, net
39 237
Income before income taxes
$ 326 $ 21,512


Six Months Ended June 30, 2021 Six Months Ended June 30, 2020 (Recast)


Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total


(In thousands)
Product revenue
$ 49,508 $ 39 $ - $ 49,547 $ 38,257 $ - $ - $ 38,257
Product cost of revenue
16,162 - - 16,162 12,233 - - 12,233
Product gross profit
33,346 39 - 33,385 26,024 - - 26,024
License and development revenue
- - - - - 26,895 - 26,895
Operating expenses
General and administrative
3,333 2,481 6,967 12,781 4,046 2,642 5,792 12,480
Sales and marketing
4,285 408 547 5,240 2,800 574 261 3,635
Research and development
1,096 7,830 - 8,926 1,862 11,199 - 13,061
Amortization of intangible assets
7 - - 7 8 - - 8
Impairment of long-lived assets
- - - - - 2,332 - 2,332
Total operating expenses
8,721 10,719 7,514 26,954 8,716 16,747 6,053 31,516
Operating income (loss)
$ 24,625 $ (10,680 ) $ (7,514 ) 6,431 $ 17,308 $ 10,148 $ (6,053 ) 21,403
Other income, net
121 645
Income before income taxes
$ 6,552 $ 22,048
SOURCE: Energy Recovery


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