Exhibit 99.1

 

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-- 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

 

LIVE CONFERENCE CALL WEBCAST:
Thursday, March 5, 2015, 2:30pm PST

Listen-only, Toll-free: 888-455-2263

Listen-only, Int’l Toll: 719-325-2469

Conference ID: 8618195

CONFERENCE CALL REPLAY:

Expiration: March 19, 2015


Toll-free: 888-203-1112

Int’l Toll: 719-457-0820

Access code: 8618195

 

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

 

 

 
 

 

 

Unaudited Consolidated Financial Results 

 

ENERGY RECOVERY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

   

Three Months Ended

December 31,

   

Year Ended

December 31,

 
   

2014

   

2013

   

2014

   

2013

 

Net revenue

  $ 14,780     $ 23,235     $ 30,426     $ 43,045  

Cost of revenue

    5,722       8,708       13,713       17,323  

Gross profit

    9,058       14,527       16,713       25,722  

Operating expenses:

                               

General and administrative

    6,027       4,071       14,139       15,192  

Sales and marketing

    2,977       2,345       10,525       7,952  

Research and development

    4,601       1,115       9,690       4,361  

Amortization of intangible assets

    196       230       842       921  

Restructuring charges

                      184  

Total operating expenses

    13,801       7,761       35,196       28,610  

(Loss) income from operations

    (4,743 )     6,766       (18,483 )     (2,888 )

Other income (expense):

                               

Other non-operating income

    (58 )     30       69       109  

(Loss) income before income taxes

    (4,801 )     6,796       (18,414 )     (2,779 )

Provision for income taxes

    104       69       291       327  

Net (loss) income

  $ (4,905 )   $ 6,727     $ (18,705 )   $ (3,106 )

(Loss) income per share:

                               

Basic

  $ (0.09 )   $ 0.13     $ (0.36 )   $ (0.06 )

Diluted

  $ (0.09 )   $ 0.13     $ (0.36 )   $ (0.06 )

Number of shares used in per share calculations:

                               

Basic Shares

    51,822       51,200       51,675       51,066  

Diluted Shares

    51,822       53,305       51,675       51,006  

 

 

 
 

 

  

ENERGY RECOVERY, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

   

December 31,

 
   

2014

   

2013

 
   

(In thousands,

except share data and par value)

 
ASSETS                

Current assets:

               

Cash and cash equivalents

  $ 15,501     $ 14,371  

Restricted cash

    2,623       4,311  

Short-term investments

    13,072       5,856  

Accounts receivable, net of allowance for doubtful accounts of $155 and $241 at December 31, 2014 and 2013

    10,941       15,222  

Unbilled receivables, current

    1,343       5,442  

Inventories

    8,204       4,955  

Deferred tax assets, net

    240       698  

Prepaid expenses and other current assets

    1,317       1,018  

Total current assets

    53,241       51,873  

Restricted cash, non-current

    2,850       4,468  

Unbilled receivables, non-current

    414       1,197  

Long-term investments

    267       13,694  

Property and equipment, net

    13,211       13,903  

Goodwill

    12,790       12,790  

Other intangible assets, net

    3,166       4,008  

Other assets, non-current

    2       2  

Total assets

  $ 85,941     $ 101,935  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                

Current liabilities:

               

Accounts payable

  $ 1,817     $ 1,209  

Accrued expenses and other current liabilities

    8,427       7,963  

Income taxes payable

    4       22  

Accrued warranty reserve

    755       709  

Deferred revenue

    519       779  

Total current liabilities

    11,522       10,682  

Deferred tax liabilities, non-current, net

    1,989       2,131  

Deferred revenue, non-current

    59       130  

Other non-current liabilities

    2,453       2,077  

Total liabilities

    16,023       15,020  

Commitments and Contingencies

               

Stockholders’ equity:

               

Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding

           

Common stock, $0.001 par value; 200,000,000 shares authorized; 54,398,421 shares issued and 51,918,965 shares outstanding at December 31, 2014 and 53,136,704 shares issued and 51,354,101 shares outstanding at December 31, 2013

    54       53  

Additional paid-in capital

    124,440       119,932  

Accumulated other comprehensive loss

    (73 )     (107 )

Treasury stock, at cost 2,479,456 shares repurchased at December 31, 2014 and 1,782,603 shares repurchased at December 31, 2013

    (6,835 )     (4,000 )

Accumulated deficit

    (47,668 )     (28,963 )

Total stockholders’ equity

    69,918       86,915  

Total liabilities and stockholders’ equity

  $ 85,941     $ 101,935  

 

 

 
 

 

 

ENERGY RECOVERY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

   

Years Ended December 31,

 
   

2014

   

2013

   

2012

 
   

(In thousands)

 

Cash Flows From Operating Activities

                       

Net loss

  $ (18,705 )   $ (3,106 )   $ (8,254 )

Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:

                       

Depreciation and amortization

    4,028       3,797       3,802  

Stock-based compensation

    2,104       2,177       2,615  

Amortization of premiums on investments

    453       409       507  

Valuation adjustments for excess or obsolete inventory

    320       297       857  

Deferred income taxes

    315       227       150  

Provision for doubtful accounts

    299       69       6  

Provision for warranty claims

    156       126       601  

Loss on disposal of fixed assets

    38       71       49  

Gain on fair value remeasurement of contingent consideration

    (149 )            

Gain on foreign currency transactions

    (111 )     (27 )     (5 )

Tax benefit on other comprehensive income

    (42 )            

Non-cash restructuring charges

          184       314  

Impairment of intangible assets

                1,020  

Interest accrued on notes receivables from stockholders

                (1 )

Reversal of accruals related to expired warranties

          (340 )      

Other non-cash adjustments

    375       (123 )     113  

Changes in operating assets and liabilities:

                       

Unbilled receivables

    4,882       (751 )     (4,830 )

Accounts receivable

    4,002       (2,042 )     (6,779 )

Accrued expenses and other liabilities

    1,864       (686 )     2,068  

Accounts payable

    628       (866 )     583  

Inventories

    (3,569 )     (117 )     1,832  

Deferred revenue

    (331 )     (420 )     209  

Prepaid and other assets

    (254 )     3,227       692  

Income taxes payable

    (18 )     (18 )     19  

Net cash (used in) provided by operating activities

    (3,715 )     2,088       (4,432 )
                         

Cash Flows From Investing Activities

                       

Maturities of marketable securities

    6,027       9,573       13,116  

Restricted cash

    3,306       822       1,318  

Capital expenditures

    (2,562 )     (1,132 )     (2,810 )

Purchases of marketable securities

    (273 )     (15,278 )     (4,961 )

Proceeds from sale of capitalized assets

          1,163        

Net cash provided by (used in) investing activities

    6,498       (4,852 )     6,663  
                         

Cash Flows From Financing Activities

                       

Net proceeds from issuance of common stock

    2,405       504       30  

Repurchase of common stock

    (2,835 )           (4,000 )

Payment of contingent consideration

    (1,375 )            

Repayment of long-term debt

                (85 )

Repayment of capital lease obligation

          (18 )     (82 )

Repayment of notes receivable from stockholders

                24  

Net cash (used in) provided by financing activities

    (1,805 )     486       (4,113 )

Effect of exchange rate differences on cash and cash equivalents

    152       7       17  

Net change in cash and cash equivalents

    1,130       (2,271 )     (1,865 )

Cash and cash equivalents, beginning of year

    14,371       16,642       18,507  

Cash and cash equivalents, end of year

  $ 15,501     $ 14,371     $ 16,642  

Supplemental disclosure of cash flow information:

                       

Cash paid for interest

  $     $ 1     $ 6  

Cash received for income tax refunds

  $ 1     $ 3,123     $ 442  

Cash paid for income taxes

  $ 35     $ 22     $ 23  

Supplemental disclosure of non-cash transactions:

                       

Purchases of property and equipment in trade accounts payable and accrued expenses and other liabilities

  $ 1     $ 31     $ 279