Exhibit 99.1
erilogoh4ca.jpg

Energy Recovery Achieves 22% Year-on-Year Quarterly Revenue Growth, Beating Guidance


SAN LEANDRO, Calif. - November 1, 2023 – Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the third quarter and nine months ended September 30, 2023.


Third Quarter Highlights
•Revenue of $37.0 million, exceeding the upper end of our guidance which was attributed to an increase in megaproject revenues.
•Gross margin of 69.9%, higher than our estimates due to a change in product mix coupled with an increase in sales of our PX®.
•Operating expenses of $16.7 million, in line with prior quarters.
•Income from operations of $9.1 million.
•Net income of $9.7 million and adjusted EBITDA(1) of $12.0 million
•Cash and investments of $105.9 million, which include cash, cash equivalents, and short-term and long-term investments.
•Issued our annual Sustainability Report, which includes our commitment to reduce our emissions in relation to revenue by 65% by 2026. The full Sustainability Report can be found on our Sustainability page at energyrecovery.com.


David Moon, Interim Chief Executive Officer, commented on the financial results, “We delivered strong third quarter results, beating the upper end of our guidance for the quarter and we remain well-positioned to deliver on our overall Water guidance for the full year. As we look to 2024, we see growth in desalination for the 10th consecutive year despite a challenging macroeconomic environment and project to potentially double wastewater revenue in 2024. Further, we continue to see a path to our 2026 water revenue targets.”

Mr. Moon added, “In our CO2 business, we have a number of new installations of our PX G1300 planned for the fourth quarter, have received repeat orders for additional deployments from current end-users, and are currently in advanced talks with a number of national, and multi-national, supermarket chains in Europe and the United States. We were also awarded the Refrigeration Innovation of the Year for the XTE by RAC Cooling Industry Awards, together with our partner Epta, for Epta’s next-generation commercial CO2 refrigeration system, which utilizes the PX G1300. This award provides further third-party validation of our technology. It’s an exciting time to join the Energy Recovery team as the Interim President and CEO, and I look forward to working with the management team to help ensure we make substantial progress in 2024.”


Financial Highlights
Quarter-to-DateYear-to-Date
Q3’2023
Q3’2022
vs. Q3’2022202320222023 vs. 2022
(In millions, except net income per share, percentages and basis points)
Revenue$37.0$30.5up 22%$71.2$83.3down 15%
Gross margin69.9%69.1%up 80 bps66.9%69.0%down 210 bps
Operating margin24.7%16.1%up 860 bps(2.2%)12.3%NM
Net income$9.7$4.8up 102%$1.7$10.3down 84%
Net income per share$0.17$0.08up 113%$0.03$0.18down 83%
Effective tax rate(114.2%)3.5%
Cash provided by (used for) operations$7.7($1.2)$12.3$6.3


Non-GAAP Financial Highlights (1)
Quarter-to-DateYear-to-Date
Q3’2023
Q3’2022
vs. Q3’2022202320222023 vs. 2022
(In millions, except adjusted net income per share, percentages and basis points)
Adjusted operating margin29.5%22.4%up 710 bps6.0%20.3%NM
Adjusted net income$11.4$6.5up 76%$6.8$15.8down 57%
Adjusted net income per share$0.20$0.12up 67%$0.12$0.28down 57%
Adjusted effective tax rate(3.5%)9.1%
Adjusted EBITDA$12.0$7.7$7.3$19.8
Free cash flow$7.4($1.6)$11.1$3.3
NM    Not material
(1)Refer to the sections “Use of Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” for definition of adjustment to GAAP presentation.


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 our belief that the Company is well positioned to deliver on full year water guidance; our belief that desalination revenue may grow in 2024; our belief that wastewater revenue may potentially double in 2024; and our belief that a path to 2026 water revenue targets exist. 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 risks relating to the future demand for our products, risks relating to performance by our customers and third-party partners, risks relating to the timing of revenue, and 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, 2022, as supplemented by the risks discussed under “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, 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 adjusted operating margin, adjusted net income, adjusted net income per share, adjusted effective tax rate, adjusted EBITDA and free cash flow. 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.


Notes to the Third Quarter Financial Results
•Adjusted operating margin is a non-GAAP financial measure that the Company defines as income (loss) from operations which excludes i) share-based compensation; and ii) non-core operational costs, such as VorTeq-related severance costs and accelerated depreciation, divided by revenues.
•Adjusted net income is a non-GAAP financial measure that the Company defines as net income which excludes i) share-based compensation; ii) non-core operational costs, such as VorTeq-related severance costs and accelerated depreciation; and iii) the applicable tax effect of the excluded items including the share-based compensation discrete tax item.
•Adjusted net income per share is a non-GAAP financial measure that the Company defines as net income, which excludes i) share-based compensation; and ii) non-core operational costs, such as VorTeq-related severance costs and accelerated depreciation; and iii) the applicable tax effect of the excluded items including the share-based compensation discrete tax item, divided by basic shares outstanding.
•Adjusted effective tax rate reflects adjustments for share-based compensation discrete tax item, share-based compensation, and VorTeq-related severance costs and accelerated depreciation.
•Adjusted EBITDA is a non-GAAP financial measure that the Company defines as net income which excludes i) depreciation and amortization; ii) share-based compensation; iii) non-core operational costs, such as VorTeq-related severance costs; iv) other income, net, such as interest income and other non-operating expense, net; and v) provision for (benefit from) income taxes.
•Free cash flow is a non-GAAP financial measure that the Company defines as net cash provided by (used in) operating activities less capital expenditures.




Conference Call to Discuss Third Quarter 2023 Financial Results
LIVE CONFERENCE CALL:
Wednesday, November 1, 2023, 2:00 PM PT / 5:00 PM ET
Listen-only, US / Canada Toll-Free: +1 (877) 709-8150
Listen-only, Local / International Toll: +1 (201) 689-8354

CONFERENCE CALL REPLAY:
Expiration: December 1, 2023
US / Canada Toll-Free: +1 (877) 660-6853
Local / International Toll: +1 (201) 612-7415
Access code: 13741003

Investors may access the live call and the replay (approximately three hours after the live call concludes) over the internet on the “Events” page at: https://ir.energyrecovery.com/news-events/ir-calendar.


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 (Nasdaq: ERII) is a trusted global leader in energy efficiency technology. Building on our pressure exchanger technology platform, we design and manufacture reliable, high-performance solutions that generate cost savings and increase energy efficiency across several industries. With a strong foundation in the desalination industry, Energy Recovery has delivered transformative solutions that optimize operations and deliver positive environmental impact to our customers worldwide for more than 30 years. Headquartered in the San Francisco Bay Area, Energy Recovery has manufacturing and research and development facilities across California and Texas with sales and on-site technical support available globally. To learn more, visit https://energyrecovery.com/.


Contact
Investor Relations
ir@energyrecovery.com
+1 (346) 382-6927



ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
2023		December 31,
2022
(In thousands)
ASSETS
Cash, cash equivalents and investments$105,929 $92,891 
Accounts receivable and contract assets23,337 35,782 
Inventories, net33,888 28,366 
Prepaid expenses and other assets4,508 3,886 
Property, equipment and operating leases30,639 32,695 
Goodwill12,790 12,790 
Deferred tax assets and other assets11,570 10,629 
TOTAL ASSETS$222,661 $217,039 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Accounts payable and accrued expenses$13,211 $15,507 
Contract liabilities and other liabilities, non-current1,689 1,316 
Lease liabilities13,732 14,878 
Total liabilities28,632 31,701 
Stockholders’ equity194,029 185,338 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$222,661 $217,039 




ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
 (In thousands, except per share data)
Revenue$37,036 $30,462 $71,160 $83,300 
Cost of revenue11,154 9,417 23,580 25,835 
Gross profit25,882 21,045 47,580 57,465 
Operating expenses
General and administrative7,369 7,608 21,704 21,155 
Sales and marketing5,411 4,703 15,397 11,916 
Research and development3,969 3,828 12,043 14,170 
Total operating expenses16,749 16,139 49,144 47,241 
Income (loss) from operations9,133 4,906 (1,564)10,224 
Other income, net1,045 254 2,357 477 
Income before income taxes10,178 5,160 793 10,701 
Provision for (benefit from) income taxes518 371 (906)377 
Net income$9,660 $4,789 $1,699 $10,324 
Net income per share
Basic$ 0.17 $ 0.09 $ 0.03 $ 0.18 
Diluted$ 0.17 $ 0.08 $ 0.03 $ 0.18 
Number of shares used in per share calculations
Basic56,443 55,881 56,346 56,291 
Diluted57,969 57,372 57,761 57,708 




ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
20232022
(In thousands)
Cash flows from operating activities:
Net income$1,699 $10,324 
Non-cash adjustments8,817 11,136 
Net cash provided by (used in) operating assets and liabilities1,756 (15,192)
Net cash provided by operating activities12,272 6,268 
Cash flows from investing activities:
Net investment in marketable securities(17,278)(1,857)
Capital expenditures(1,179)(2,999)
Proceeds from sales of fixed assets82 734 
Net cash used in investing activities(18,375)(4,122)
Cash flows from financing activities:
Net proceeds from issuance of common stock1,184 2,244 
Repurchase of common stock— (26,654)
Net cash provided by (used in) financing activities1,184 (24,410)
Effect of exchange rate differences27 38 
Net change in cash, cash equivalents and restricted cash$(4,892)$(22,226)
Cash, cash equivalents and restricted cash, end of period$51,566 $52,235 



ENERGY RECOVERY, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)

Channel Revenue
Three Months Ended September 30,Nine Months Ended September 30,
20232022vs. 202220232022vs. 2022
(In thousands, except percentages)
Megaproject$26,829$17,347up 55%$42,283$51,257down 18%
Original equipment manufacturer5,3079,032down 41%16,84521,392down 21%
Aftermarket4,9004,083up 20%12,03210,651up 13%
Total revenue$37,036$30,462up 22%$71,160$83,300down 15%


Segment Activity
Three Months Ended September 30, 2023Three Months Ended September 30, 2022
WaterEmerging TechnologiesCorporateTotalWaterEmerging TechnologiesCorporateTotal
(In thousands)
Revenue$36,812 $224 $— $37,036 $30,462 $— $— $30,462 
Cost of revenue11,114 40 — 11,154 9,417 — — 9,417 
Gross profit25,698 184 — 25,882 21,045 — — 21,045 
Operating expenses
General and administrative2,039 1,061 4,269 7,369 1,911 878 4,819 7,608 
Sales and marketing3,272 1,560 579 5,411 3,242 960 501 4,703 
Research and development1,098 2,871 — 3,969 1,216 2,612 — 3,828 
Total operating expenses6,409 5,492 4,848 16,749 6,369 4,450 5,320 16,139 
Operating income (loss)$19,289 $(5,308)$(4,848)$9,133 $14,676 $(4,450)$(5,320)$4,906 


Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
WaterEmerging TechnologiesCorporateTotalWaterEmerging TechnologiesCorporateTotal
(In thousands)
Revenue$70,622 $538 $— $71,160 $83,191 $109 $— $83,300 
Cost of revenue23,136 444 — 23,580 25,817 18 — 25,835 
Gross profit47,486 94 — 47,580 57,374 91 — 57,465 
Operating expenses
General and administrative5,837 2,976 12,891 21,704 4,909 3,140 13,106 21,155 
Sales and marketing9,567 4,171 1,659 15,397 8,197 2,120 1,599 11,916 
Research and development3,121 8,922 — 12,043 3,159 11,011 — 14,170 
Total operating expenses18,525 16,069 14,550 49,144 16,265 16,271 14,705 47,241 
Operating income (loss)$28,961 $(15,975)$(14,550)$(1,564)$41,109 $(16,180)$(14,705)$10,224 


Share-based Compensation
 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
(In thousands)
Stock-based compensation expense charged to:
Cost of revenue$158 $124 $555 $370 
General and administrative905 743 2,628 2,735 
Sales and marketing436 426 1,684 1,232 
Research and development292 205 944 767 
Total stock-based compensation expense$1,791 $1,498 $5,811 $5,104 




ENERGY RECOVERY, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (1)
(Unaudited)

This press release includes certain non-GAAP financial information because we plan and manage our business using such information. The following table reconciles the GAAP financial information to the non-GAAP financial information.

Quarter-to-DateYear-to-Date
Q3'2023Q3'2022Q3'2023Q3'2022
(In millions, except shares, per share and percentages)
Operating margin
24.7 %16.1 %(2.2 %)12.3 %
Share-based compensation4.8 4.9 8.2 6.1 
Severance— — — 0.4 
Accelerated depreciation— — — 1.0 
Litigation charges— 1.4 — 0.5 
Adjusted operating margin
29.5 %22.4 %6.0 %20.3 %
Net income
$9.7 $4.8 $1.7 $10.3 
Share-based compensation (2)
1.8 1.5 5.8 5.1 
Severance (2)
— — — 0.3 
Accelerated depreciation (2)
— — — 0.7 
Litigation charges (2)
— 0.4 — 0.4 
Other (2)
— — — — 
Share-based compensation discrete tax item(0.1)(0.2)(0.7)(1.0)
Adjusted net income
$11.4 $6.5 $6.8 $15.8 
Net income per share
$0.17 $0.08 $0.03 $0.18 
Adjustments to net income per share (3)
0.03 0.04 0.09 0.10 
Adjusted net income per share
$0.20 $0.12 $0.12 $0.28 
Effective tax rate
(114.2%)3.5%
Adjustments to effective tax rate (3)
110.75.6
Adjusted effective tax rate
(3.5%)9.1%
Net income
$9.7 $4.8 $1.7 $10.3 
Share-based compensation1.8 1.5 5.8 5.1 
Severance— — — 0.3 
Depreciation and amortization1.1 0.9 3.1 3.8 
Litigation charges— 0.4 — 0.4 
Other— — — — 
Other income, net
(1.0)(0.3)(2.4)(0.5)
Provision for (benefit from) income taxes0.5 0.4 (0.9)0.4 
Adjusted EBITDA
$12.0 $7.7 $7.3 $19.8 
Free cash flow
Net cash provided by (used in) operating activities$7.7 $(1.2)$12.3 $6.3 
Capital expenditures(0.3)(0.4)(1.2)(3.0)
Free cash flow$7.4 $(1.6)$11.1 $3.3 
(1)Amounts may not total due to rounding.
(2)Amount presented are net of tax.
(3)Refer to the sections “Use of Non-GAAP Financial Measures” for description of items included in adjustments.