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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
erii-20221102_g1.jpg
Energy Recovery, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware001-34112
01-0616867
(State or Other Jurisdiction of Incorporation)(Commission File Number)
(I.R.S. Employer Identification 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 classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 par value per shareERIIThe Nasdaq Stock Market LLC

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
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



Exhibit 99.1
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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 G1300fully 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$20.8up 47%$30.5$20.8up 47%
Gross margin69.1%70.6%down 150 bps69.5%71.1%down 160 bps
Operating margin16.1%6.9%up 920 bps22.4%12.8%up 960 bps
Net income$4.8$1.1up 347%$6.5$2.3up 182%
Net income per share$0.08$0.02up 300%$0.12$0.04up 200%
Effective tax rate7.2%26.8%8.7%14.9%
Adjusted EBITDA$7.7$3.7up 109%
Free cash flow($1.6)($6.7)

Fiscal Year (Year to Date)
GAAP
Non-GAAP(1)
202220212022 vs. 2021202220212022 vs. 2021
(In millions, except net income per share, percentages and basis points)
Revenue$83.3$70.3up 18%$83.3$70.3up 18%
Gross margin69.0%68.4%up 60 bps69.4%68.8%up 60 bps
Operating margin12.3%11.2%up 110 bps20.3%17.7%up 260 bps
Net income$10.3$9.0up 15%$15.8$11.2up 41%
Net income per share$0.18$0.15up 20%$0.28$0.20up 40%
Effective tax rate3.5%(12.4%)9.1%11.0%
Adjusted EBITDA$19.8$15.5up 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,
2022
December 31,
2021
(In thousands)
ASSETS
Cash, cash equivalents and investments$86,558 $107,988 
Accounts receivable and contract assets19,313 21,108 
Inventories, net32,132 20,383 
Prepaid expenses and other assets5,486 4,582 
Property, equipment and operating leases32,234 35,014 
Goodwill and other intangible assets12,819 12,827 
Deferred tax assets and other assets11,579 11,788 
TOTAL ASSETS$200,121 $213,690 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Accounts payable and accrued expenses$13,250 $14,903 
Contract liabilities2,209 3,406 
Lease liabilities15,284 16,443 
Other liabilities, non-current75 159 
Total liabilities30,818 34,911 
Stockholders’ equity169,303 178,779 
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,
 2022202120222021
 (In thousands, except per share data)
Revenue$30,462 $20,781 $83,300 $70,328 
Cost of revenue9,417 6,089 25,835 22,251 
Gross profit21,045 14,692 57,465 48,077 
Operating expenses
General and administrative7,608 5,853 21,155 18,641 
Sales and marketing4,703 2,996 11,916 8,236 
Research and development3,828 4,416 14,170 13,342 
Total operating expenses16,139 13,265 47,241 40,219 
Income from operations4,906 1,427 10,224 7,858 
Other income, net254 37 477 158 
Income before income taxes5,160 1,464 10,701 8,016 
Provision for (benefit from) income taxes371 393 377 (990)
Net income$4,789 $1,071 $10,324 $9,006 
Net income per share
Basic0.09 0.02 0.18 0.16 
Diluted0.08 0.02 0.18 0.15 
Number of shares used in per share calculations
Basic55,881 57,026 56,291 57,053 
Diluted57,372 58,709 57,708 58,785 





ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
20222021
(In thousands)
Cash flows from operating activities:
Net income$10,324 $9,006 
Non-cash adjustments11,136 8,153 
Net cash used in operating assets and liabilities(15,192)(9,865)
Net cash provided by operating activities6,268 7,294 
Cash flows from investing activities:
Net investment in marketable securities(1,857)(22,653)
Capital expenditures, net(2,265)(4,894)
Net cash used in investing activities(4,122)(27,547)
Cash flows from financing activities:
Net proceeds from issuance of common stock2,244 8,939 
Repurchase of common stock(26,654)(17,156)
Net cash used in financing activities(24,410)(8,217)
Effect of exchange rate differences38 (40)
Net change in cash, cash equivalents and restricted cash$(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,
20222021vs. 202120222021vs. 2021
(In thousands, except percentages)
Megaproject$17,347$13,275up 31%$51,257$50,307up 2%
Original equipment manufacturer9,0324,844up 86%21,39211,909up 80%
Aftermarket4,0832,662up 53%10,6518,112up 31%
Total Revenues$30,462$20,781up 47%$83,300$70,328up 18%


Segment Activity
Three Months Ended September 30, 2022Three Months Ended September 30, 2021
WaterEmerging TechnologiesCorporateTotalWaterEmerging TechnologiesCorporateTotal
(In thousands)
Revenue$30,462 $ $ $30,462 $20,767 $14 $ $20,781 
Cost of revenue9,417 — — 9,417 6,089 — — 6,089 
Gross profit21,045   21,045 14,678 14  14,692 
Operating expenses
General and administrative1,911 878 4,819 7,608 1,437 1,373 3,043 5,853 
Sales and marketing3,242 960 501 4,703 2,250 327 419 2,996 
Research and development1,216 2,612 — 3,828 762 3,654 — 4,416 
Total operating expenses6,369 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, 2022Nine Months Ended September 30, 2021
WaterEmerging TechnologiesCorporateTotalWaterEmerging TechnologiesCorporateTotal
(In thousands)
Revenue$83,191 $109 $ $83,300 $70,275 $53 $ $70,328 
Cost of revenue25,817 18 — 25,835 22,251 — — 22,251 
Gross profit57,374 91  57,465 48,024 53  48,077 
Operating expenses
General and administrative4,909 3,140 13,106 21,155 4,777 3,854 10,010 18,641 
Sales and marketing8,197 2,120 1,599 11,916 6,535 735 966 8,236 
Research and development3,159 11,011 — 14,170 1,858 11,484 — 13,342 
Total operating expenses16,265 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,
 2022202120222021
(In thousands)
Stock-based compensation expense charged to:
Cost of revenue$124 $86 $370 $314 
General and administrative743 628 2,735 2,235 
Sales and marketing426 271 1,232 1,048 
Research and development205 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-DateYear-to-Date
Q3'2022Q3'202120222021
(In millions, except shares, per share and percentages)
Gross margin (GAAP)
69.1%70.6%69.0%68.4%
Share-based compensation0.4%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 compensation1.5 1.2 5.1 4.6 
Severance— — 0.3 — 
Accelerated depreciation— — 0.9 — 
Litigation charges0.4 — 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 compensation4.9 %5.9 %6.1 %6.5 %
Severance— %— %0.4 %— %
Accelerated depreciation— %— %1.0 %— %
Litigation charges1.4 %— %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)57,37258,70957,70858,785
Less: Dilutive equity awards1,4911,6831,4171,732
Diluted shares (non-GAAP)55,88157,02656,29157,053
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 compensation1.51.25.14.6
Severance0.3
Depreciation and amortization0.91.03.83.1
Litigation charges0.40.4
Other income, net(0.3)(0.5)(0.2)
Provision for (benefit from) income taxes0.40.40.4(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.