0001421517-22-000149 8-K 15 20221102 2.02 9.01 20221102 20221102 Energy Recovery, Inc. 0001421517 3559 010616867 DE 1231 8-K 34 001-34112 221354488 1717 DOOLITTLE DRIVE SAN LEANDRO CA 94577 (510) 483-7370 1717 DOOLITTLE DRIVE SAN LEANDRO CA 94577 8-K 1 erii-20221102.htm FORM 8-K - EARNINGS RELEASE (Q3'2022) 0001421517false00014215172022-08-032022-08-03 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): November 2, 2022 [[Image Removed: erii-20221102_g1.jpg]] Energy Recovery, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 001-34112 01-0616867 (State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer Identification Incorporation) No.) 1717 Doolittle Dr., San Leandro, CA 94577 (Address of Principal Executive Offices) (Zip Code) 510-483-7370 (Registrant’s telephone number, including area code) Not applicable (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: ? Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) ? Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) ? Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) ? Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol Name of each exchange on which registered Common Stock, $0.001 par value ERII The Nasdaq Stock Market LLC per share Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934. Emerging growth company ? If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ -------------------------------------------------------------------------------- Item 2.02 Results of Operations and Financial Condition On November 2, 2022, Energy Recovery, Inc. issued an earnings press release announcing its financial results for the third quarter and nine months ended September 30, 2022. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety. The information in this report (including Exhibit 99.1) is being furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act. Item 9.01 Financial Statements and Exhibits (d) Exhibits Exhibit Number Description 99.1 Press release of Energy Recovery, Inc., dated November 2, 2022, to report its financial results for the third quarter and nine months ended September 30, 2022. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: November 2, 2022 Energy Recovery, Inc. By: /s/ William Yeung William Yeung Chief Legal Officer EX-99.1 2 ex991earningsrelease2022-q3.htm EXHIBIT 99.1 - Q3'2022 EARNINGS RELEASE Exhibit 99.1 [[Image Removed: erilogoh4c.jpg]] Energy Recovery Reports 47% Quarterly Product Revenue Growth in Third Quarter SAN LEANDRO, Calif. - November 2, 2022 - Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the third quarter ended September 30, 2022. Third Quarter Highlights: •Revenue of $30.5 million. Full year revenue guidance of $121–$125 million, or 16%–20% year-on-year growth, within gross margin expectations guided last year. •Income from operations of $4.9 million and adjusted income from operations(1) of $6.8 million. •Net income of $4.8 million, or $0.08 per share, and adjusted net income per share(1) of $0.12. •Adjusted EBITDA(1) of $7.7 million. •Cash and investments of $86.6 million, which include cash, cash equivalents, and short-term and long-term investments. •We successfully installed and commissioned our PX G1300™ fully integrated with the CO2 refrigeration rack for Vallarta Supermarkets in California. •We released our third annual Environmental, Social, and Governance (“ESG”) report which can be found on our website and using this link: https://ir.energyrecovery.com/websites/energyrecover/English/6500/esg-at-energy-recovery.html#. Robert Mao, Chairman, President and CEO, commented on the financial results, “We continue to make important strides in all three of our businesses, and believe we have the right products and strategy to deliver on our goals despite the challenging macro-economic environment. In our CO2 refrigeration business, we have gone live with the installation of our PX G1300 with Vallarta Supermarkets in California. This is the second installation in a grocery store for the PX G1300, and we are collecting valuable data and proving the efficiency gains the PX G1300 delivers in CO2 refrigeration racks.” Mr. Mao added, “In addition, the reference designs published on our website have piqued the interest of additional commercial and industrial refrigeration manufacturers. As a result of this, we will be shipping PX G1300 units to various customers for installation in the later part of this year, or early 2023. These units will be used for initial deployments in both commercial and industrial refrigeration applications.” “Sales in our industrial wastewater business continue to grow and we should exceed our full-year guidance of $3.0 million. In our water business we launched the PX Q400 pressure exchanger, which is the next evolution of our PX® Pressure Exchanger® technology. This new addition to our PX offering is our most efficient PX available for use in both SWRO and industrial wastewater applications.” -------------------------------------------------------------------------------- Financial Highlights Third Quarter (Quarter to Date) GAAP Non-GAAP(1) Q3 2022 Q3 2021 vs. Q3 2021 Q3 2022 Q3 2021 vs. Q3 2021 (In millions except for percentages, basis points and per share amounts) Revenue $30.5 $20.8 up 47% $30.5 $20.8 up 47% Gross margin 69.1% 70.6% down 150 bps 69.5% 71.1% down 160 bps Operating margin 16.1% 6.9% up 920 bps 22.4% 12.8% up 960 bps Net income $4.8 $1.1 up 347% $6.5 $2.3 up 182% Net income per share $0.08 $0.02 up 300% $0.12 $0.04 up 200% Effective tax rate 7.2% 26.8% 8.7% 14.9% Adjusted EBITDA $7.7 $3.7 up 109% Free cash flow ($1.6) ($6.7) Fiscal Year (Year to Date) GAAP Non-GAAP(1) 2022 2021 2022 vs. 2021 2022 2021 2022 vs. 2021 (In millions, except net income per share, percentages and basis points) Revenue $83.3 $70.3 up 18% $83.3 $70.3 up 18% Gross margin 69.0% 68.4% up 60 bps 69.4% 68.8% up 60 bps Operating margin 12.3% 11.2% up 110 bps 20.3% 17.7% up 260 bps Net income $10.3 $9.0 up 15% $15.8 $11.2 up 41% Net income per share $0.18 $0.15 up 20% $0.28 $0.20 up 40% Effective tax rate 3.5% (12.4%) 9.1% 11.0% Adjusted EBITDA $19.8 $15.5 up 28% Free cash flow $3.3 $2.4 (1)“Adjusted income from operations,” “Adjusted net income per share,” “Free cash flow” and “Adjusted EBITDA” are non-GAAP financial measures. Refer to the sections “Use of Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures.” 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 expectations on full year revenue and gross margin guidance; our belief that the PX Q400 is the highest performing PX available for SWRO and industrial wastewater facilities; and our belief that the Company has the right products and strategy to survive the macro-economic environment and our goals. 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, 2021, 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 income from operations, adjusted net income per share, 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 and Year to Date 2022 Financial Results •Adjusted income from operations is a non-GAAP financial measure that the Company defines as income from operations which excludes i) share-based compensation; and ii) non-recurring costs, such as severance costs and accelerated depreciation. •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-recurring costs, such as 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 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-recurring costs, such as severance costs; iv) other income, net, such as interest income and other non-operating (expense) income, 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 2022 Financial Results LIVE CONFERENCE CALL: Wednesday, November 2, 2022, 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: Friday, December 2, 2022 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13732700 Investors may access the live call and the replay (approximately three hours after the live call concludes) over the internet at: ir.energyrecovery.com/websites/energyrecover/English/2200/calendar.html -------------------------------------------------------------------------------- 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, Inc., creates technologies that solve complex challenges for commercial and industrial fluid-flow markets worldwide. Building on an innovative pressure exchanger technology platform, they design and manufacture solutions that make commercial and industrial processes more efficient and sustainable. What began as a game-changing invention for desalination has grown into a global business accelerating the environmental sustainability of customers’ operations in multiple industries. 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 (281) 962-8105 -------------------------------------------------------------------------------- ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, 2022 2021 (In thousands) ASSETS Cash, cash equivalents and investments $ 86,558 $ 107,988 Accounts receivable and contract assets 19,313 21,108 Inventories, net 32,132 20,383 Prepaid expenses and other assets 5,486 4,582 Property, equipment and operating leases 32,234 35,014 Goodwill and other intangible assets 12,819 12,827 Deferred tax assets and other assets 11,579 11,788 TOTAL ASSETS $ 200,121 $ 213,690 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Accounts payable and accrued expenses $ 13,250 $ 14,903 Contract liabilities 2,209 3,406 Lease liabilities 15,284 16,443 Other liabilities, non-current 75 159 Total liabilities 30,818 34,911 Stockholders’ equity 169,303 178,779 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 200,121 $ 213,690 -------------------------------------------------------------------------------- ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In thousands, except per share data) Revenue $ 30,462 $ 20,781 $ 83,300 $ 70,328 Cost of revenue 9,417 6,089 25,835 22,251 Gross profit 21,045 14,692 57,465 48,077 Operating expenses General and administrative 7,608 5,853 21,155 18,641 Sales and marketing 4,703 2,996 11,916 8,236 Research and development 3,828 4,416 14,170 13,342 Total operating expenses 16,139 13,265 47,241 40,219 Income from operations 4,906 1,427 10,224 7,858 Other income, net 254 37 477 158 Income before income taxes 5,160 1,464 10,701 8,016 Provision for (benefit from) income taxes 371 393 377 (990) Net income $ 4,789 $ 1,071 $ 10,324 $ 9,006 Net income per share Basic $ 0.09 $ 0.02 $ 0.18 $ 0.16 Diluted $ 0.08 $ 0.02 $ 0.18 $ 0.15 Number of shares used in per share calculations Basic 55,881 57,026 56,291 57,053 Diluted 57,372 58,709 57,708 58,785 -------------------------------------------------------------------------------- ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 2022 2021 (In thousands) Cash flows from operating activities: Net income $ 10,324 $ 9,006 Non-cash adjustments 11,136 8,153 Net cash used in operating assets and liabilities (15,192) (9,865) Net cash provided by operating activities 6,268 7,294 Cash flows from investing activities: Net investment in marketable securities (1,857) (22,653) Capital expenditures, net (2,265) (4,894) Net cash used in investing activities (4,122) (27,547) Cash flows from financing activities: Net proceeds from issuance of common stock 2,244 8,939 Repurchase of common stock (26,654) (17,156) Net cash used in financing activities (24,410) (8,217) Effect of exchange rate differences 38 (40) Net change in cash, cash equivalents and restricted cash $ (22,226) $ (28,510) Cash, cash equivalents and restricted cash, end of period $ 52,235 $ 65,848 -------------------------------------------------------------------------------- ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Channel Revenue Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 vs. 2021 2022 2021 vs. 2021 (In thousands, except percentages) Megaproject $ 17,347 $ 13,275 up 31% $ 51,257 $ 50,307 up 2% Original equipment manufacturer 9,032 4,844 up 86% 21,392 11,909 up 80% Aftermarket 4,083 2,662 up 53% 10,651 8,112 up 31% Total Revenues $ 30,462 $ 20,781 up 47% $ 83,300 $ 70,328 up 18% Segment Activity Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 Emerging Emerging Water Technologies Corporate Total Water Technologies Corporate Total (In thousands) Revenue $ 30,462 $ — $ — $ 30,462 $ 20,767 $ 14 $ — $ 20,781 Cost of revenue 9,417 — — 9,417 6,089 — — 6,089 Gross profit 21,045 — — 21,045 14,678 14 — 14,692 Operating expenses General and administrative 1,911 878 4,819 7,608 1,437 1,373 3,043 5,853 Sales and marketing 3,242 960 501 4,703 2,250 327 419 2,996 Research and development 1,216 2,612 — 3,828 762 3,654 — 4,416 Total operating expenses 6,369 4,450 5,320 16,139 4,449 5,354 3,462 13,265 Operating income (loss) $ 14,676 $ (4,450) $ (5,320) $ 4,906 $ 10,229 $ (5,340) $ (3,462) $ 1,427 Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Emerging Emerging Water Technologies Corporate Total Water Technologies Corporate Total (In thousands) Revenue $ 83,191 $ 109 $ — $ 83,300 $ 70,275 $ 53 $ — $ 70,328 Cost of revenue 25,817 18 — 25,835 22,251 — — 22,251 Gross profit 57,374 91 — 57,465 48,024 53 — 48,077 Operating expenses General and administrative 4,909 3,140 13,106 21,155 4,777 3,854 10,010 18,641 Sales and marketing 8,197 2,120 1,599 11,916 6,535 735 966 8,236 Research and development 3,159 11,011 — 14,170 1,858 11,484 — 13,342 Total operating expenses 16,265 16,271 14,705 47,241 13,170 16,073 10,976 40,219 Operating income (loss) $ 41,109 $ (16,180) $ (14,705) $ 10,224 $ 34,854 $ (16,020) $ (10,976) $ 7,858 -------------------------------------------------------------------------------- Share-based Compensation Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In thousands) Stock-based compensation expense charged to: Cost of revenue $ 124 $ 86 $ 370 $ 314 General and administrative 743 628 2,735 2,235 Sales and marketing 426 271 1,232 1,048 Research and development 205 248 767 979 Total stock-based compensation expense $ 1,498 $ 1,233 $ 5,104 $ 4,576 -------------------------------------------------------------------------------- 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-Date Year-to-Date Q3'2022 Q3'2021 2022 2021 (In millions, except shares, per share and percentages) Gross margin (GAAP) 69.1% 70.6% 69.0% 68.4% Share-based compensation 0.4% 0.5% 0.4% 0.4% Adjusted gross margin (non-GAAP) 69.5% 71.1% 69.4% 68.8% Income from operations (GAAP) $ 4.9 $ 1.4 $ 10.2 $ 7.9 Share-based compensation 1.5 1.2 5.1 4.6 Severance — — 0.3 — Accelerated depreciation — — 0.9 — Litigation charges 0.4 — 0.4 — Adjusted income from operations (non-GAAP) $ 6.8 $ 2.7 $ 16.9 $ 12.4 Operating margin (GAAP) 16.1 % 6.9 % 12.3 % 11.2 % Share-based compensation 4.9 % 5.9 % 6.1 % 6.5 % Severance — % — % 0.4 % — % Accelerated depreciation — % — % 1.0 % — % Litigation charges 1.4 % — % 0.5 % — % Adjusted operating margin (non-GAAP) 22.4 % 12.8 % 20.3 % 17.7 % Net income (GAAP) $ 4.8 $ 1.1 $ 10.3 $ 9.0 Share-based compensation (2) 1.5 1.2 5.1 4.6 Severance (2) — — 0.3 — Accelerated depreciation (2) — — 0.7 — Litigation charges (2) 0.4 — 0.4 — Share-based compensation discrete tax item (0.2) — (1.0) (2.4) Adjusted net income (non-GAAP) $ 6.5 $ 2.3 $ 15.8 $ 11.2 Net income per share (GAAP) $ 0.08 $ 0.02 $ 0.18 $ 0.15 Adjustments to net income per share (3) 0.04 0.02 0.10 0.05 Adjusted net income per share (non-GAAP) $ 0.12 $ 0.04 $ 0.28 $ 0.20 Shares used in calculating adjusted net income per share (in thousands) Diluted shares (GAAP) 57,372 58,709 57,708 58,785 Less: Dilutive equity awards 1,491 1,683 1,417 1,732 Diluted shares (non-GAAP) 55,881 57,026 56,291 57,053 Effective tax rate (GAAP) 7.2% 26.8% 3.5% (12.4%) Adjustments to effective tax rate (4) 1.5% (11.9%) 5.6% 23.3% Adjusted effective tax rate (non-GAAP) 8.7% 14.9% 9.1% 11.0% Net income (GAAP) $ 4.8 $ 1.1 $ 10.3 $ 9.0 Share-based compensation 1.5 1.2 5.1 4.6 Severance — — 0.3 — Depreciation and amortization 0.9 1.0 3.8 3.1 Litigation charges 0.4 — 0.4 — Other income, net (0.3) — (0.5) (0.2) Provision for (benefit from) income taxes 0.4 0.4 0.4 (1.0) Adjusted EBITDA (non-GAAP) $ 7.7 $ 3.7 $ 19.8 $ 15.5 Free cash flow Net cash provided by (used in) operating activities $ (1.2) $ (4.2) $ 6.3 $ 7.3 Capital expenditures (0.4) (2.5) (3.0) (4.9) Free cash flow (non-GAAP) $ (1.6) $ (6.7) $ 3.3 $ 2.4 (1)Amounts may not total due to rounding. (2)Amount presented are net of tax. (3)Adjustments to net income per share reflects the adjustments for share-based compensation discrete tax item, and share-based compensation, severance costs and accelerated depreciation, net of taxes, on a per share basis. (4)Adjustments to effective tax rate reflects adjustments for share-based compensation discrete tax item, share-based compensation, severance costs and accelerated depreciation.