Exhibit 99.1



erilogoh.jpg
Energy Recovery Reports First Quarter 2018 Financial Results

SAN LEANDRO, Calif., May 3, 2018 - Energy Recovery Inc. (NASDAQ: ERII) (“Energy Recovery” or the “Company”), the leader in pressure energy technology for industrial fluid flows, today announced its financial results for the first quarter ended on March 31, 2018.

First Quarter Summary:
Total revenue of $13.8 million
Product gross margin of 70%
Total gross margin(1) of 76%
Net loss of $0.7 million, or ($0.01) per share
Adjusted net income(1) of $0.3 million, or $0.01 per share

President and CEO Chris Gannon remarked, “Q1 was a solid quarter for our company. Despite softness at the top line as a result of a decrease in Oil & Gas revenue associated with our IsoBoost® shipment, we demonstrated growth in our core Water business and we were able to generate record results in both product and total gross margin(1). Furthermore, with the elimination of non-recurring CEO transition expenses, we generated positive Adjusted Net Income(1) of $0.3 million.”

Mr. Gannon added, “Our core Water business remains robust. Through the dedicated efforts of our Water team, we achieved year-over-year growth in not only the top line, but also growth in product gross margins of 370 basis points as compared to the first quarter of 2017. We expect the strength of our Water business to continue throughout the balance of 2018 and into 2019.”

Mr. Gannon continued, “We are keenly focused on our near-term strategy of: 1) the commercialization of VorTeq™, 2) the continued growth and reinvestment in our Water business, and 3) the further development of MTeq™. We believe our focus on these key objectives will maximize our ability to deliver value to our Shareholders.”

Mr. Gannon concluded, “Our Engineering and Operations teams continue to make substantial progress on the development of both the VorTeq and MTeq technologies. We are focused on driving the VorTeq to commercialization as well as achieving success in the upcoming milestone test. We will provide an update during our conference call on May 3rd 2018.”

Revenues
For the first quarter ended March 31, 2018, the Company generated total revenue of $13.8 million. Total revenue for the first quarter ended March 31, 2018 decreased by $0.7 million, or (5%), from $14.5 million in the first quarter ended March 31, 2017. Of the $0.7 million decrease in total revenue, $1.0 million was attributable to lower Oil & Gas segment revenue, offset by a $0.3 million increase in the Water segment revenue.

The Water segment generated total product revenue of $11.0 million for the first quarter ended March 31, 2018, compared to $10.7 million for the first quarter ended March 31, 2017, an increase of $0.3 million, or 3%. This increase was due to higher original equipment manufacturer (“OEM”) and aftermarket (“AM”) shipments offset by lower mega-project (“MPD”) shipments.

The Oil & Gas segment generated total revenue of $2.8 million for the first quarter ended March 31, 2018, compared to $3.8 million for the first quarter ended March 31, 2017, a decrease of $1.0 million or (27%). This decrease was due to lower cost-to-total cost (previously known as percentage of completion (“PoC”)) revenue recognition associated with the sale of multiple IsoBoost systems, offset by an increase in license and development revenue. The increase in license and development revenue was primarily due to higher costs incurred according to input measures, based on changes required due to the adoption of the new revenues standard in Q1.






Gross Margin
For the first quarter ended March 31, 2018, product gross margin was 70.0%. Product gross margin increased by 770 basis points from 62.3% in the first quarter ended March 31, 2017. This increase was largely driven by favorable price and product mix. Including license and development revenue, total gross margin(1) was 76.0% for the first quarter ended March 31, 2018. Total gross margin(1) increased by 780 basis points from 68.2% in the first quarter ended March 31, 2017.

The Water segment generated product gross margin of 70.8% for the first quarter ended March 31, 2018. Water segment product gross margin increased by 370 basis points, compared to 67.1% in the first quarter ended March 31, 2017. This increase was largely driven by favorable price and manufacturing efficiencies.

The Oil & Gas segment generated product gross margin of (760.0%) for the first quarter ended March 31, 2018, compared to 28.8% in the first quarter ended March 31, 2017. This decrease was attributable to higher project costs and revenue adjustments. Including license and development revenue, the Oil & Gas segment total gross margin(1) for the first quarter ended March 31, 2018 was 96.9%.

Operating Expenses
For the first quarter ended March 31, 2018, operating expenses were $11.8 million, an increase of $2.3 million from $9.5 million for the first quarter ended March 31, 2017. This increase in operating expenses was primarily due to increases in Oil & Gas segment and corporate expenses.

The Water segment operating expenses for the first quarter ended March 31, 2018 were $2.2 million, $0.1 million lower than the first quarter ended March 31, 2017.

The Oil & Gas segment operating expenses for the first quarter ended March 31, 2018 were $4.7 million, $1.4 million higher than the first quarter ended March 31, 2017. This increase was driven by the Company’s continued investment in research and development activities.

The Corporate operating expenses for the first quarter ended March 31, 2018 were $5.0 million, $1.0 million higher than the first quarter ended March 31, 2017. This increase was chiefly driven by non-recurring expenses related to equity award modifications and recruiting fees associated with the Company’s CEO transition.

Bottom Line Summary
To summarize the Company’s financial performance, on a quarterly basis, the Company reported a net loss of $0.7 million, or ($0.01) per diluted share for the first quarter ended March 31, 2018, compared to a net income of $0.4 million, or $0.01 per diluted share for the first quarter ended March 31, 2017.  On an adjusted basis, the Company reported an adjusted net income(1) of $0.3 million or $0.01 per diluted share for the first quarter ended March 31, 2018.

Cash Flow Highlights
The Company finished the first quarter ended March 31, 2018 with cash and cash equivalents of $32.2 million, restricted cash of $1.3 million, and short-term investments of $58.1 million, all of which represent a combined total of $91.6 million. In the quarter ended March 31, 2018, 409,850 shares of the Company’s common stock were repurchased for $3.5 million under the stock repurchase program authorized by the Company’s Board of Directors on March 7, 2018.

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’s Water business will remain robust throughout the balance of 2018 and into 2019; the Company’s belief that focusing on the 1) the commercialization of VorTeq, 2) continued growth and reinvestment in our Water business, and 3) the further development of MTeq, will maximize the Company’s ability to deliver value to our Shareholders, the Company’s belief that we may achieve success in the upcoming VorTeq milestone test. 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 the Company’s ability to achieve the milestones under the VorTeq license agreement, 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, 2017 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 total gross margin. 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.

(1) 
“Total gross margin” and “Adjusted net income” are non-GAAP financial measures. Please refer to the discussion under headings “Use of Non-GAAP Financial Measures” and “Reconciliations of Non-GAAP Financial Measures.”

Conference Call to Discuss First Quarter 2018 Financial Results
LIVE CONFERENCE CALL:
Thursday, May 3, 2018, 3:00 PM PDT / 6:00 PM EDT
Listen-only, US / Canada Toll-free: +1 877-709-8150
Listen-only, Local / International Toll: +1 201-689-8354
Access code: 13679038
CONFERENCE CALL REPLAY:
Expiration: Sunday, June 3, 2018
US / Canada Toll-free: +1 877-660-6853
Local / International Toll: +1 201-612-7415
Access code: 13679038

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 Inc.
Energy Recovery, Inc. (ERII) is an energy solutions provider to industrial fluid flow markets worldwide. Energy Recovery solutions recycle and convert wasted pressure energy into a usable asset and preserve pumps that are subject to hostile processing environments. With award-winning technology, Energy Recovery simplifies complex industrial systems while improving productivity, profitability, and efficiency within the oil & gas, chemical processing, and water industries. Energy Recovery products save clients more than $1.8 billion (USD) annually. Headquartered in the Bay Area, Energy Recovery has offices in Houston, Ireland, Shanghai, and Dubai. For more information about the Company, please visit www.energyrecovery.com.

Contact
Emily Smith
esmith@energyrecovery.com
(510) 697-3105






ENERGY RECOVERY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data and par value)
(Unaudited)
 
March 31,
2018
 
December 31,
 2017*
 
(In thousands, except share data and par value)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
32,153

 
$
27,780

Restricted cash
1,205

 
2,664

Short-term investments
58,108

 
70,020

Accounts receivable, net of allowance for doubtful accounts of $77 and $103 at March 31, 2018 and December 31, 2017, respectively
12,754

 
12,465

Contract assets
4,948

 
6,278

Inventories
7,328

 
5,514

Prepaid expenses and other current assets
1,545

 
1,342

Total current assets
118,041

 
126,063

Restricted cash, non-current
85

 
182

Deferred tax assets, non-current
8,309

 
7,933

Property and equipment, net
12,742

 
13,393

Operating lease, right of use asset
2,511

 
2,843

Goodwill
12,790

 
12,790

Other intangible assets, net
1,112

 
1,269

Other assets, non-current
267

 
12

Total assets
$
155,857

 
$
164,485

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
2,341

 
$
4,091

Accrued expenses and other current liabilities
3,990

 
7,948

Lease liabilities
1,641

 
1,603

Income taxes payable
429

 
432

Accrued warranty reserve
359

 
366

Contract liabilities
16,831

 
15,909

Current portion of long-term debt
12

 
11

Total current liabilities
25,603

 
30,360

Long-term debt, less current portion
13

 
16

Lease liabilities, non-current
1,273

 
1,698

Contract liabilities, non-current
37,239

 
40,517

Other non-current liabilities
255

 

Total liabilities
64,383

 
72,591

Commitments and Contingencies (Note 9)

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at March 31, 2018 and December 31, 2017

 

Common stock, $0.001 par value; 200,000,000 shares authorized; 58,699,997 shares issued and 54,027,314 shares outstanding at March 31, 2018 and 58,168,433 shares issued and 53,905,600 shares outstanding at December 31, 2017
59

 
58

Additional paid-in capital
152,850

 
149,006

Accumulated comprehensive loss
(168
)
 
(125
)
Treasury stock, at cost, 4,672,683 shares repurchased at March 31, 2018 and 4,262,833 shares repurchased at December 31, 2017
(23,981
)
 
(20,486
)
Accumulated deficit
(37,286
)
 
(36,559
)
Total stockholders’ equity
91,474

 
91,894

Total liabilities and stockholders’ equity
$
155,857

 
$
164,485

*Prior-period information has been retrospectively adjusted due to our adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and ASU No. 2016-02, Leases (Topic 842) on January 1, 2018.






ENERGY RECOVERY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017*
 
(In thousands, except per share data)
Product revenue
$
11,058

 
$
12,245

Product cost of revenue
3,314

 
4,612

Product gross profit
7,744

 
7,633

 
 
 
 
License and development revenue
2,749

 
2,248

 
 
 
 
Operating expenses:
 
 
 
General and administrative
5,837

 
4,408

Sales and marketing
1,912

 
2,453

Research and development
3,917

 
2,509

Amortization of intangible assets
158

 
158

Total operating expenses
11,824

 
9,528

(Loss) income from operations
(1,331
)
 
353

 
 
 
 
Other income (expense):
 
 
 
Interest income
301

 
171

Interest expense

 
(1
)
Other non-operating expense, net
(53
)
 
(53
)
Total other income, net
248

 
117

(Loss) income before income taxes
(1,083
)
 
470

(Benefit from) provision for income taxes
(357
)
 
48

Net (loss) income
$
(726
)
 
$
422

 
 
 
 
(Loss) income per share:
 
 
 
Basic
$
(0.01
)
 
$
0.01

Diluted
$
(0.01
)
 
$
0.01

 
 
 
 
Number of shares used in per share calculations:
 
 
 
Basic
53,987

 
53,825

Diluted
53,987

 
56,056

*Prior-period information has been retrospectively adjusted due to our adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) on January 1, 2018.






ENERGY RECOVERY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017*
 
(In thousands)
Cash Flows From Operating Activities:
 
 
 
Net (loss) income
$
(726
)
 
$
422

Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
Stock-based compensation
2,242

 
1,113

Depreciation and amortization
1,124

 
881

Amortization of premiums on investments
90

 
113

Provision for warranty claims
48

 
55

Reversal of accruals related to expired warranties
(50
)
 
(63
)
Unrealized loss (gain) on foreign currency translation
113

 
(15
)
Provision for doubtful accounts
8

 
4

Adjustments for excess or obsolete inventory
4

 
71

Deferred income taxes
(376
)
 
(93
)
Loss on disposal of fixed assets
21

 

Other non-cash adjustments
3

 
(31
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(297
)
 
2,581

Contract assets
1,330

 
(3,556
)
Inventories
(1,824
)
 
(343
)
Prepaid and other assets
(127
)
 
(553
)
Accounts payable
(1,467
)
 
189

Accrued expenses and other liabilities
(4,092
)
 
(3,566
)
Income taxes payable
(3
)
 
124

Contract liabilities
(2,354
)
 
(2,157
)
Net cash used in operating activities
(6,333
)
 
(4,824
)
Cash Flows From Investing Activities:
 
 
 
Maturities of marketable securities
25,623

 
9,646

Purchases of marketable securities
(13,935
)
 
(9,355
)
Capital expenditures
(626
)
 
(532
)
Net cash provided by (used in) investing activities
11,062

 
(241
)
Cash Flows From Financing Activities:
 
 
 
Net proceeds from issuance of common stock
1,636

 
2,992

Tax payment for employee shares withheld
(37
)
 
(153
)
Repayment of long-term debt
(2
)
 
(2
)
Repurchase of common stock
(3,495
)
 

Net cash (used in) provided by financing activities
(1,898
)
 
2,837

Effect of exchange rate differences on cash and cash equivalents
(14
)
 
15

Net change in cash, cash equivalents and restricted cash
2,817

 
(2,213
)
Cash, cash equivalents and restricted cash, beginning of year
30,626

 
65,748

Cash, cash equivalents and restricted cash, end of period
$
33,443

 
$
63,535

*Prior-period information has been retrospectively adjusted due to our adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and ASU No. 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) on January 1, 2018.







ENERGY RECOVERY, INC.
FINANCIAL INFORMATION BY SEGMENT
(In thousands)
(Unaudited)
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017*
 
Water
 
Oil & Gas
 
Total
 
Water
 
Oil & Gas
 
Total
 
(In thousands)
Product revenue
$
11,048

 
$
10

 
$
11,058

 
$
10,716

 
$
1,529

 
$
12,245

Product cost of revenue
3,228

 
86

 
3,314

 
3,524

 
1,088

 
4,612

Product gross profit
7,820

 
(76
)
 
7,744

 
7,192

 
441

 
7,633

 
 
 
 
 
 
 
 
 
 
 
 
License and development revenue

 
2,749

 
2,749

 

 
2,248

 
2,248

 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
General and administrative
305

 
651

 
956

 
318

 
349

 
667

Sales and marketing
1,445

 
344

 
1,789

 
1,499

 
641

 
2,140

Research and development
244

 
3,665

 
3,909

 
262

 
2,246

 
2,508

Amortization of intangibles
158

 

 
158

 
158

 

 
158

Operating expenses
2,152

 
4,660

 
6,812

 
2,237

 
3,236

 
5,473

 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
$
5,668

 
$
(1,987
)
 
3,681

 
$
4,955

 
$
(547
)
 
4,408


 
 
 
 
 
 
 
 
 
 
 
Less: Corporate operating expenses
 

 
 

 
5,012

 
 
 
 
 
4,055

Consolidated operating loss
 

 
 

 
(1,331
)
 
 
 
 
 
353

Non-operating income
 

 
 

 
248

 
 
 
 
 
117

Loss before income taxes
 

 
 

 
$
(1,083
)
 
 
 
 
 
$
470

*Prior-period information has been retrospectively adjusted due to our adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) on January 1, 2018.






ENERGY RECOVERY, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)


This press release includes non-GAAP financial information because we plan and manage our business using such information. Our non-GAAP Total Gross Margin is determined by adding back the license and development revenue associated with the amortization of the VorTeq exclusivity fee. Our non-GAAP Adjusted Net Income or Loss is determined by adding back non-recurring operating expenses.

 
Three Months Ended March 31,
 
2018
 
2017*
Product revenue
$
11,058

 
$
12,245

License and development revenue
2,749

 
2,248

Total revenue
$
13,807

 
$
14,493

 
 
 
 
Product gross profit
$
7,744

 
$
7,633

License and development revenue
2,749

 
2,248

Total gross profit (non-GAAP)
$
10,493

 
$
9,881

 
 
 
 
Product gross margin
70.0
%
 
62.3
%
Total gross margin (non-GAAP)
76.0
%
 
68.2
%
 
 
 
 
Net (loss) income
$
(726
)
 
$
422

Reversal of non-recurring expense (benefit)
1,011

 

Adjusted net income (loss) (non-GAAP)
$
285

 
$
422

 
 
 
 
(Loss) income per share:
 
 
 
Diluted
$
(0.01
)
 
$
0.01

Diluted (non-GAAP)
$
0.01

 
$
0.01

 
 
 
 
Number of diluted shares used in per share calculations
 
 
 
Diluted shares
53,987

 
56,056

Diluted shares (non-GAAP)
55,675

 
56,056

*Prior-period information has been retrospectively adjusted due to our adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) on January 1, 2018.