Exhibit 99.1

erilogoh4c.jpg
Energy Recovery Reports Third Quarter Financial Results

San Leandro, Calif., October 29, 2020 - Energy Recovery Inc. (Nasdaq: ERII) (“Energy Recovery,” “we,” “our,” or the “Company”), a leader in pressure energy technology for industrial fluid flows, today announced its financial results for the third quarter ended September 30, 2020.

Third Quarter 2020 Highlights:
•
Product revenue of $27.4 million, an all-time quarterly record and an increase of 26% year-over-year
•
Product gross margin of 71.5%, a decrease of 360 basis points year-over-year and in-line with expectations for the year
•
Net income of $5.4 million, or diluted earnings per share of $0.10, an increase of $0.01 year-over-year

Year-to-Date 2020 Highlights:
•
Product revenue of $65.7 million, an increase of 15% year-over-year
•
Total revenue of $92.6 million, an increase of 37% year-over-year, of which $24.4 million is related to accelerated revenue recognition from the termination of the license agreement between the Company and Schlumberger
•
Product gross margin of 69.5%, a decrease of 270 basis points year-over-year, of which 230 basis points are due to COVID-19 temporary reductions in manufacturing
•
Net income of $22.9 million, or diluted earnings per share of $0.41, an increase of $0.20 year-over-year in part related to accelerated revenue recognition from the termination of the license agreement between the Company and Schlumberger

“We surpassed our previous year’s quarterly product revenue record by 26 percent this quarter, which is a testament to our singular focus on meeting customer demand while keeping our employees safe. We remain on pace to achieve 25 percent year-over-year revenue growth in our water division this year, and we are preparing for further growth in 2021 and beyond. The desalination industry remains robust despite global economic uncertainty because affordable desalination is critical to meet growing water demand for people around the world. We are proud of the impact our technology has in making desalination more energy efficient and sustainable and believe the time has come to introduce pressure exchanger technology to other industries where we can drive efficiency improvements,” said Bob Mao, Chairman of the Board, President and Chief Executive Officer of Energy Recovery.

Mr. Mao continued, “Today we are advancing new products built on our pressure exchanger technology platform: the VorTeq, as well as incubation initiatives including a solution to improve the energy efficiency of wastewater treatment. We did not have an opportunity to go to a live well with the VorTeq last quarter, but we are ready to deploy and continue to pursue live well opportunities. While we remain confident in our ability to clear the hurdles that remain before full commercial deployment of the VorTeq, we have not lost sight of the need to produce results or stop investing. This same principle holds for all of our incubation initiatives, and I believe this disciplined approach will allow us to more rapidly achieve our profit and ROI objectives and deliver shareholder value.”





COVID-19 Pandemic
The Company’s production remained strong during the third quarter, with minimal impacts on production outputs due to the COVID-19 pandemic (“COVID-19”). COVID-19 has similarly had a limited effect on Energy Recovery’s financials; however, the Company’s gross margin for the nine months of 2020 was negatively affected due to reduced production output while its San Leandro facility was underutilized due to temporary suspension of manufacturing activities at the beginning of the COVID-19 pandemic. Enhanced safety measures for employees remain in effect today in the Company’s facilities, including staggered shifts to ensure social distancing between workers, personal safety equipment for each worker, including masks and gloves, cleanings and disinfections between and during shifts, and, starting in July 2020, weekly COVID-19 testing of employees working on-site.

The Company successfully overcame challenges posed by COVID-19 to commission its Tracy, California production facility in July 2020, which further strengthens the Company’s ability to fulfill its strong backlog of orders through the remainder of fiscal year 2020 and beyond.

Third Quarter 2020
Revenues
For the third quarter ended September 30, 2020, the Water segment generated total product revenue of $27.4 million, an all-time quarterly record, and an increase of $5.7 million, or 26%, compared to $21.8 million in the third quarter ended September 30, 2019. This increase was due primarily to higher Mega-Project Development (“MPD”) shipments, offset by lower Original Equipment Manufacturer (“OEM”) and Aftermarket (“AM”) shipments.

For the third quarter ended September 30, 2020, there was no license and development revenue recognized as a result of the termination of the license agreement between the Company and Schlumberger.

Product Gross Margin
For the third quarter ended September 30, 2020, product gross margin was 71.5%, a decrease of 360 basis points from 75.1% in the third quarter ended September 30, 2019. The decrease in gross margin was due primarily to lower average selling prices due to higher MPD channel mix and costs related to reduced utilization of our manufacturing facilities related to COVID-19, partially offset by product mix.

Operating Expenses
For the third quarter ended September 30, 2020, operating expenses were $13.5 million, a decrease of $1.3 million, or (9%), compared to $14.9 million for the third quarter ended September 30, 2019. This decrease was due primarily to lower Oil & Gas testing expenditures as we reduce VorTeq related testing activities, lower depreciation expense related to long-lived assets, and lower travel expenses, partially offset by higher personnel-related costs and other R&D costs to support our incubation initiatives.

COVID-19 did not have a material effect on operating expenditures during the three months ended September 30, 2020.

Bottom Line Summary
To summarize the Company’s financial performance, on a quarterly basis, the Company reported a net income of $5.4 million, or $0.10 per diluted share for the third quarter ended September 30, 2020, compared to a net income of $5.1 million, or $0.09 per diluted share for the third quarter ended September 30, 2019.

Cash Flow Highlights
The Company finished the third quarter ended September 30, 2020 with cash and cash equivalents of $80.1 million, and short-term and long-term investments of $25.8 million, which represents a combined total of $105.9 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 will achieve 25 percent year-over-year revenue growth in its water division in 2020; that the Company will achieve further growth in 2021 and beyond; and that the Company will be able to clear the hurdles that remain before full commercial deployment of the VorTeq. 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, 2019 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 Third Quarter 2020 Financial Results
LIVE CONFERENCE CALL:
Thursday, October 29, 2020, 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: 13710080

CONFERENCE CALL REPLAY:
Expiration: Sunday, November 29, 2020
US / Canada Toll-Free: +1 (877) 660-6853
Local / International Toll: +1 (201) 612-7415
Access code: 13710080

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.
For more than 20 years, Energy Recovery, Inc. (NASDAQ: ERII) has created technologies that solve complex challenges in industrial fluid-flow markets. We design and manufacture solutions that reduce waste, improve operational efficiencies, and lower the production costs of clean water and oil and gas. What began as a game-changing invention for water desalination has grown into a global business delivering solutions that enable more affordable access to these critical resources. Headquartered in the San Francisco Bay Area, Energy Recovery has manufacturing, research and development facilities across California and Texas. In addition, our worldwide sales and technical service organization provides on-site support for our line of water solutions. For more information, please visit www.energyrecovery.com.

Contact
Investor Relations
ir@energyrecovery.com
(281) 962-8105





ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
2020
 
December 31,
2019
 
(In thousands)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
80,149

 
$
26,387

Short-term investments
24,373

 
58,736

Accounts receivable, net
11,055

 
12,979

Inventories, net
10,662

 
10,317

Prepaid expenses and other current assets
4,959

 
4,548

Total current assets
131,198

 
112,967

Long-term investments
1,418

 
15,419

Deferred tax assets, non-current
11,454

 
16,897

Property and equipment, net
20,535

 
18,843

Operating lease, right of use asset
16,444

 
11,195

Goodwill
12,790

 
12,790

Other intangible assets, net
53

 
65

Other assets, non-current
645

 
598

Total assets
$
194,537

 
$
188,774

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,951

 
$
1,192

Accrued expenses and other current liabilities
8,654

 
9,869

Lease liabilities
1,209

 
1,023

Contract liabilities
1,160

 
15,746

Total current liabilities
12,974

 
27,830

Lease liabilities, non-current
16,802

 
11,533

Contract liabilities, non-current
104

 
13,120

Other non-current liabilities
672

 
278

Total liabilities
30,552

 
52,761

 

 

Stockholders’ equity:
 
 
 
Common stock
61

 
61

Additional paid-in capital
174,929

 
170,028

Accumulated other comprehensive income (loss)
100

 
(37
)
Treasury stock
(30,486
)
 
(30,486
)
Accumulated earnings (deficit)
19,381

 
(3,553
)
Total stockholders’ equity
163,985

 
136,013

Total liabilities and stockholders’ equity
$
194,537

 
$
188,774







ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2020
 
2019
 
2020
 
2019
 
(In thousands, except per share data)
Product revenue
$
27,408

 
$
21,752

 
$
65,665

 
$
57,050

Product cost of revenue
7,816

 
5,425

 
20,049

 
15,843

Product gross profit
19,592

 
16,327

 
45,616

 
41,207

 
 
 
 
 
 
 
 
License and development revenue
—

 
3,098

 
26,895

 
10,391

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
General and administrative
6,271

 
5,711

 
18,751

 
16,790

Sales and marketing
2,141

 
2,367

 
5,776

 
6,710

Research and development
5,098

 
6,620

 
18,159

 
16,354

Amortization of intangible assets
4

 
156

 
12

 
469

Impairment of long-lived assets
—

 
—

 
2,332

 
—

Total operating expenses
13,514

 
14,854

 
45,030

 
40,323

Income from operations
6,078

 
4,571

 
27,481

 
11,275

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest income
134

 
500

 
809

 
1,551

Other non-operating expense, net
(29
)
 
(5
)
 
(59
)
 
(77
)
Total other income, net
105

 
495

 
750

 
1,474

Income before income taxes
6,183

 
5,066

 
28,231

 
12,749

Provision for (benefit from) income taxes
796

 
(83
)
 
5,297

 
1,227

Net income
$
5,387

 
$
5,149

 
$
22,934

 
$
11,522

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.10

 
$
0.09

 
$
0.41

 
$
0.21

Diluted
$
0.10

 
$
0.09

 
$
0.41

 
$
0.21

 
 
 
 
 
 
 
 
Number of shares used in per share calculations:
 
 
 
 
 
 
 
Basic
55,692

 
54,975

 
55,573

 
54,594

Diluted
56,471

 
56,384

 
56,443

 
55,971







ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
 
2020
 
2019
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income
$
22,934

 
$
11,522

Adjustments to reconcile net income to cash provided by operating activities
 
 
 
Stock-based compensation
3,672

 
4,425

Depreciation and amortization
3,963

 
3,440

Amortization (accretion) of premiums and discounts on investments
311

 
(37
)
Deferred income taxes
5,443

 
1,198

Provision for warranty claims
316

 
339

Impairment of long-lived assets
2,332

 
—

Other non-cash adjustments
—

 
197

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
1,862

 
(10,617
)
Contract assets
(747
)
 
2,993

Inventories, net
(506
)
 
(1,885
)
Prepaid and other assets
295

 
383

Accounts payable
656

 
(94
)
Accrued expenses and other liabilities
(2,561
)
 
(1,264
)
Income taxes
(18
)
 
30

Contract liabilities
(27,602
)
 
(10,127
)
Net cash provided by operating activities
10,350

 
503

Cash flows from investing activities:
 
 
 
Sales of marketable securities
10,573

 
3,535

Maturities of marketable securities
50,467

 
70,040

Purchases of marketable securities
(12,855
)
 
(66,253
)
Capital expenditures
(6,019
)
 
(5,501
)
Net cash provided by investing activities
42,166

 
1,821

Cash flows from financing activities:
 
 
 
Net proceeds from issuance of common stock
1,260

 
5,424

Tax payment for employee shares withheld
(23
)
 
(89
)
Net cash provided by financing activities
1,237

 
5,335

Effect of exchange rate differences on cash and cash equivalents
11

 
—

Net change in cash, cash equivalents and restricted cash
53,764

 
7,659

Cash, cash equivalents and restricted cash, beginning of year
26,488

 
22,138

Cash, cash equivalents and restricted cash, end of period
$
80,252

 
$
29,797







ENERGY RECOVERY, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)
 
Three Months Ended September 30, 2020
 
Three Months Ended September 30, 2019
 
Water
 
Oil & Gas
 
Corporate
 
Total
 
Water
 
Oil & Gas
 
Corporate
 
Total
 
(In thousands)
Product revenue
$
27,408

 
$
—

 
$
—

 
$
27,408

 
$
21,752

 
$
—

 
$
—

 
$
21,752

Product cost of revenue
7,816

 
—

 
—

 
7,816

 
5,425

 
—

 
—

 
5,425

Product gross profit
19,592

 
—

 
—

 
19,592

 
16,327

 
—

 
—

 
16,327

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
License and development revenue
—

 
—

 
—

 
—

 
—

 
3,098

 
—

 
3,098

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative
606

 
439

 
5,226

 
6,271

 
359

 
431

 
4,921

 
5,711

Sales and marketing
1,507

 
30

 
604

 
2,141

 
1,850

 
92

 
425

 
2,367

Research and development
723

 
2,956

 
1,419

 
5,098

 
886

 
5,667

 
67

 
6,620

Amortization of intangible assets
4

 
—

 
—

 
4

 
156

 
—

 
—

 
156

Total operating expenses
2,840

 
3,425

 
7,249

 
13,514

 
3,251

 
6,190

 
5,413

 
14,854

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
$
16,752

 
$
(3,425
)
 
$
(7,249
)
 
6,078

 
$
13,076

 
$
(3,092
)
 
$
(5,413
)
 
4,571

Other income, net
 
 
 
 
 
 
105

 
 
 
 
 
 
 
495

Income before income taxes
 
 
 
 
 
 
$
6,183

 
 
 
 
 
 
 
$
5,066


 
Nine Months Ended September 30, 2020
 
Nine Months Ended September 30, 2019
 
Water
 
Oil & Gas
 
Corporate
 
Total
 
Water
 
Oil & Gas
 
Corporate
 
Total
 
(In thousands)
Product revenue
$
65,665

 
$
—

 
$
—

 
$
65,665

 
$
56,946

 
$
104

 
$
—

 
$
57,050

Product cost of revenue
20,049

 
—

 
—

 
20,049

 
15,655

 
188

 
—

 
15,843

Product gross profit (loss)
45,616

 
—

 
—

 
45,616

 
41,291

 
(84
)
 
—

 
41,207

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
License and development revenue
—

 
26,895

 
—

 
26,895

 
—

 
10,391

 
—

 
10,391

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative
1,467

 
1,601

 
15,683

 
18,751

 
1,456

 
1,207

 
14,127

 
16,790

Sales and marketing
4,307

 
106

 
1,363

 
5,776

 
5,058

 
674

 
978

 
6,710

Research and development
2,585

 
12,720

 
2,854

 
18,159

 
2,794

 
13,335

 
225

 
16,354

Amortization of intangible assets
12

 
—

 
—

 
12

 
469

 
—

 
—

 
469

Impairment of long-lived assets
—

 
2,332

 
—

 
2,332

 
—

 
—

 
—

 
—

Total operating expenses
8,371

 
16,759

 
19,900

 
45,030

 
9,777

 
15,216

 
15,330

 
40,323

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
$
37,245

 
$
10,136

 
$
(19,900
)
 
27,481

 
$
31,514

 
$
(4,909
)
 
$
(15,330
)
 
11,275

Other income, net
 
 
 
 
 
 
750

 
 
 
 
 
 
 
1,474

Income before income taxes
 
 
 
 
 
 
$
28,231

 
 
 
 
 
 
 
$
12,749