Exhibit 99.1

 

 

Energy Recovery REPORTS Third QUARTER 2015 results

 

THIRD QUARTER HIGHLIGHTS:

 

Revenue increased 127% to $12.1 million in the current period, from $5.3 million in the third quarter of 2014 based on strengthening demand and sales in the global desalination market

Gross margin improved to 59% from 44%, an increase of 1,500 basis points year-over-year

Operating expenses of $7.4 million, down 5% year-over-year

Net loss of $(0.3) million, or $(0.01) per share, in the current period, compared to net loss of $(5.5) million, or $(0.11) per share in prior year period

 

 

 

SAN LEANDRO, Calif., November 5, 2015-- Energy Recovery Inc. (NASDAQ:ERII), the leader in pressure energy technology for industrial fluid flows, today announced the results for the third quarter ended September 30, 2015.

 

Management Commentary

 

Joel Gay, President and Chief Executive Officer, remarked, “We achieved record quarterly revenue and meaningful margin expansion which reflects strengthening demand in the global desalination market and demonstrates the success of the sharp execution of our reloaded strategy. During the quarter we continued to bolster our portfolio of large-scale projects supported by our PX® Pressure Exchanger® technology including mega-project awards totaling $3.8 million which contributed to our year-over-year revenue growth and improved margins. We continued to execute on key initiatives during the quarter driven by our cost rationalization program. These actions bring us closer to our goal of a return to profitability.

 

Mr. Gay continued, “Looking ahead, Energy Recovery has a bright future. Along with encouraging third quarter results, we also recently signed a 15-year licensing agreement with Schlumberger Technology, for the use of our VorTeq™ hydraulic pumping system, which highlights the successful application of our proven technologies to other industries. We remain sharply focused on fully commercializing and customizing the VorTeq design for seamless integration into Schlumberger’s best-in-class operations, thereby realizing the full potential of this disruptive technology. This transformative transaction validates our strategic vision to broaden and diversify our product portfolio, and underscores the success of our reloaded strategy. Overall, we have great confidence in our business and the strategy we are executing to create shareholder value.”

 

 

Revenue


The Company generated net revenue of $12.1 million in the third quarter of 2015, reflecting an increase of 127% when compared to the third quarter of 2014. The increase in revenue was primarily due to a mega-project shipment totaling $3.8 million and higher OEM and AM shipments of $1.7 million and $1.5 million, respectively. The Company’s revenue increased sequentially, by $1.6 million or 15%, from $10.5 million in the second quarter of 2015 as a result of favorable performance across OEM and AM channels.

 

 
 

 

 

Gross Margin


Higher sales volume attributable to a mega-project shipment was the primary driver to a gross profit margin increase to 59% in the third quarter of 2015 from 44% in the prior-year quarter. Other contributing factors also include a favorable shift in both price and mix. The Company’s gross profit margin also increased sequentially from 54% in the second quarter of 2015 mainly due to a shift in channel and better pricing.

 

Operating Expense

 

Operating expenses decreased to $7.4 million during the third quarter of 2015 from $7.8 million in the third quarter of 2014. The decrease was primarily due to austerity measures initiated in the first quarter of 2015. Operating expenses decreased sequentially by $1.5 million or 17% from $8.9 million chiefly due to non-recurring expenses related to CEO transition expenses and higher legal expenses.

 

Bottom Line Summary

 

To summarize financial performance for the third quarter of 2015, the Company reported a net loss of $(0.3) million, or $(0.01) per share, primarily due to higher volume and favorable mix. Comparatively, the Company reported a net loss of $(5.5) million, or $(0.11) per share, in the third quarter of 2014. Year-to-date, the Company reported a net loss of $(12.0) million, or $(0.23) per share.

 

Cash Flow Highlights


For the nine months ended September 30, 2015, the Company generated net cash flow of $6.0 million.

 

The net loss of $(12.0) million included non-cash expenses of $6.7 million, the largest portion of which were share-based compensation expenses of $3.5 million, and depreciation and amortization expenses of $2.9 million.

 

Cash used by operating activities was $(7.7) million; favorably impacting cash from operating activities by $2.8 million was the monetization of receivables, chiefly offset by a $(0.6) million increase in inventory, a $(3.6) million decrease in accrued expenses and liabilities, and a $(1.7) million litigation settlement.

 

Cash generated from investing activities was $13.1 million; favorably impacting cash from investing activities by $11.8 million and $1.9 million were maturities of marketable securities and the release of restricted cash, respectively; offset by $0.6 million of capital expenditures. Cash generated from financing activities was $0.6 million attributed to the issuance of common stock related to option exercises.

 

 
 

 

 

Balance Sheet Highlights

 

The Company reported current and non-current restricted cash of $3.62 million, unrestricted cash of $21.50 million, and short-term investments of $1.34 million, all of which represent a combined total of $26.46 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 such as “confident,” “encouraging,” “reflect,” “validate,” 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 6, 2015 as well as other reports filed by the Company with the SEC from time to time.

 

 

CONFERENCE CALL TO DISCUSS THIRD QUARTER RESULTS FOR 2015

 

Live Conference Call:

 
Thursday, November 5, 2015, 5:30 pm ET / 2:30pm PT
 
Listen-only, Toll-free: 888-632-3383
Listen-only, Local: 785-424-1676
Conference ID: 555478
   
Conference Call Replay:

 

 
Toll-free: 888-203-1112
Local: 719-457-0820
Access code: 555478
Expiration: November 19, 2015
   

 

Investors may also access the live call or the replay online at www.streetevents.com or at the Investors section of the Company’s website at www.energyrecovery.com. The replay will be available approximately three hours after the live call concludes.

 

 
 

 

 

ABOUT ENERGY RECOVERY, INC

 

Energy Recovery (NASDAQ:ERII) recycles and converts wasted pressure energy into a usable asset and preserves 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 $1.5 billion (USD) annually. Headquartered in the Bay Area, Energy Recovery has offices in Ireland, Shanghai, and Dubai. For more information about the Company, please visit our website at www.energyrecovery.com.

 

 

Contact:

Chris Gannon

Chief Financial Officer

510-483-7370

cgannon@energyrecovery.com

 

 
 

 

  

Unaudited Consolidated Financial Results 

 

ENERGY RECOVERY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited) 

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
    2015     2014     2015     2014  

Net revenue

  $ 12,112     $ 5,342     $ 28,460     $ 15,646  

Cost of revenue

    4,948       3,007       12,315       7,991  

Gross profit

    7,164       2,335       16,145       7,655  

Operating expenses:

                               

General and administrative

    3,590       3,078       15,230       8,112  

Sales and marketing

    2,195       2,351       6,622       7,548  

Research and development

    1,474       2,131       5,417       5,089  

Amortization of intangible assets

    159       216       476       646  

Total operating expenses

    7,418       7,776       27,745       21,395  

Loss from operations

    (254 )     (5,441 )     (11,600 )     (13,740 )

Interest expense

                (40 )      

Other non-operating (expense) income

    (48 )     (2 )     (130 )     127  

Loss before income taxes

    (302 )     (5,443 )     (11,770 )     (13,613 )

Provision for income taxes

    38       63       180       187  

Net loss

  $ (340 )   $ (5,506 )   $ (11,950 )   $ (13,800 )
                                 

Basic and diluted net loss per share

  $ (0.01 )   $ (0.11 )   $ (0.23 )   $ (0.27 )
                                 

Shares used in basic and diluted per share calculation

    52,237       51,861       52,071       51,626  

 

 
 

 

  

ENERGY RECOVERY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

   

September 30,

2015

   

December 31,

2014

 
ASSETS  

Current assets:

               

Cash and cash equivalents

  $ 21,498     $ 15,501  

Restricted cash

    1,385       2,623  

Short-term investments

    1,344       13,072  

  Accounts receivable, net of allowance for doubtful accounts of $164 and $155 at September 30, 2015 and December 31, 2014, respectively

    8,060       10,941  

Unbilled receivables, current

    828       1,343  

Inventories

    8,893       8,204  

Income taxes receivable

    5        

Deferred tax assets, net

    240       240  

Prepaid expenses and other current assets

    1,506       1,317  

Total current assets

    43,759       53,241  

Restricted cash, non-current

    2,232       2,850  

Unbilled receivables, non-current

    420       414  

Long-term investments

          267  

  Property and equipment, net of accumulated depreciation of $17,556 and $15,143 at September 30, 2015 and December 31, 2014, respectively

    11,346       13,211  

Goodwill

    12,790       12,790  

Other intangible assets, net

    2,690       3,166  

Other assets, non-current

    2       2  

Total assets

  $ 73,239     $ 85,941  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY  

Current liabilities:

               

Accounts payable

  $ 1,683     $ 1,817  

Accrued expenses and other current liabilities

    4,835       8,427  

Income taxes payable

          4  

Accrued warranty reserve

    600       755  

Deferred revenue

    948       519  

Current portion of long-term debt

    11        

Total current liabilities

    8,077       11,522  

Long-term debt, net of current portion

    39        

Deferred tax liabilities, non-current, net

    2,160       1,989  

Deferred revenue, non-current

    79       59  

Other non-current liabilities

    764       2,453  

Total liabilities

    11,119       16,023  

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; 54,736,742 shares issued and 52,257,286 shares outstanding at September 30, 2015, and 54,398,421 shares issued and 51,918,965 shares outstanding at December 31, 2014

    55       54  

Additional paid-in capital

    128,566       124,440  

Accumulated other comprehensive loss

    (48 )     (73 )

Treasury stock, at cost 2,479,456 shares repurchased at both September 30, 2015 and December 31, 2014

    (6,835 )     (6,835 )

Accumulated deficit

    (59,618 )     (47,668 )

Total stockholders’ equity

    62,120       69,918  

Total liabilities and stockholders’ equity

  $ 73,239     $ 85,941  

 

 
 

 

 

ENERGY RECOVERY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

   

Nine Months Ended

September 30

 
   

2015

   

2014

 

Cash Flows From Operating Activities

               

Net loss

  $ (11,950 )   $ (13,800 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Share-based compensation

    3,549       1,628  

Depreciation and amortization

    2,897       3,025  

Deferred income taxes

    172       169  

Amortization of premiums/discounts on investments

    154       348  

Provision for warranty claims

    91       87  

Provision for doubtful accounts

    88       293  

Loss on fair value remeasurement of hedge option

    55        

Loss on foreign currency transactions

    54       (10 )

Other non-cash adjustments

    11       (179 )

Valuation adjustments for excess or obsolete inventory

    (126 )     212  

Reversal of accruals related to expired warranties

    (213 )      

Gain on fair value remeasurement of contingent consideration

          (149 )

Changes in operating assets and liabilities:

               

Accounts receivable

    2,810       10,935  

Unbilled receivables

    509       5,698  

Deferred revenue

    449       203  

Income taxes payable

    (10 )     (7 )

Accounts payable

    (134 )     64  

Prepaid and other assets

    (242 )     (1,045 )

Inventories

    (563 )     (5,484 )

Litigation settlement

    (1,700 )      

Accrued expenses and other liabilities

    (3,602 )     (2,256 )

Net cash used in operating activities

    (7,701 )     (268 )

Cash Flows From Investing Activities

               

Maturities of marketable securities

    11,845       4,355  

Restricted cash

    1,856       3,338  

Purchase of marketable securities

          (273 )

Capital expenditures

    (557 )     (2,301 )

Net cash provided by investing activities

    13,144       5,119  

Cash Flows From Financing Activities

               

Net proceeds from issuance of common stock

    558       1,165  

Proceeds from borrowings

    55        

Repayment of long-term debt

    (5 )      

Payment of contingent consideration

          (1,375 )

Repurchase of common stock for treasury

          (1,633 )

Net cash provided by (used in) financing activities

    608       (1,843 )

Effect of exchange rate differences on cash and cash equivalents

    (54 )     44  

Net change in cash and cash equivalents

    5,997       3,052  

Cash and cash equivalents, beginning of period

    15,501       14,371  

Cash and cash equivalents, end of period

  $ 21,498     $ 17,423