0001421517-22-000120 8-K 15 20220803 2.02 9.01 20220803 20220803 Energy Recovery, Inc. 0001421517 3559 010616867 DE 1231 8-K 34 001-34112 221132764 1717 DOOLITTLE DRIVE SAN LEANDRO CA 94577 (510) 483-7370 1717 DOOLITTLE DRIVE SAN LEANDRO CA 94577 8-K 1 erii-20220803.htm FORM 8-K - EARNINGS RELEASE (Q2'2022) 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): August 3, 2022 [[Image Removed: erii-20220803_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 August 3, 2022, Energy Recovery, Inc. issued an earnings press release announcing its financial results for the second quarter and six months ended June 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 August 3 , 2022, to report its financial results for the second quarter ended June 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: August 3, 2022 Energy Recovery, Inc. By: /s/ William Yeung William Yeung Chief Legal Officer EX-99.1 2 ex991earningsrelease2022-q2.htm EXHIBIT 99.1 - Q2'2022 EARNINGS RELEASE Exhibit 99.1 [[Image Removed: erilogoh4c.jpg]] Energy Recovery Announces Second Quarter 2022 Financial Results and Commissioning of the First PX G1300™ for CO2 Refrigeration SAN LEANDRO, Calif. - August 3, 2022 - Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the second quarter ended June 30, 2022. Second Quarter Highlights: •Revenue of $20.3 million, as guided in the first quarter. Full year revenue guidance of $130 million, or 25% year-on-year growth, reaffirmed within gross margin expectations guided last year. •Loss from operations of $2.9 million and adjusted loss from operations(1) of $41 thousand driven by lower revenue during the quarter due to the expected timing of mega project shipments and one-time expenses of $1.3 million related to the cessation of the VorTeq™ commercialization efforts. •Adjusted EBITDA(1) of $1.0 million. •Net loss per share of $0.04, adjusted net income per share(1) of less than $0.01. •Share repurchases of $18.6 million, or 1.0 million shares, pursuant to the Company’s March 2021 share buyback program. The program was completed on July 1, 2022. •Cash and investments of $86.5 million, which include cash, cash equivalents, and short-term and long-term investments. •IR Magazine awarded Energy Recovery as the winner of the “Best ESG Reporting (small to mid-cap company)” and “Best ESG Communications” for our 2020 ESG Report and proactive and transparent investor engagement on the topic. •Our MSCI ESG rating was upgraded for the second year in a row to “AA” in April. “Our desalination and industrial wastewater businesses remain on track for the year, and in fact we are seeing a long-awaited resurgence in OEM desalination sales. We expect significant increases in sales in the second half of fiscal 2022 to achieve our target revenue of $130 million for the year,” said Robert Mao, Chairman, President and Chief Executive Officer of Energy Recovery. “In a key milestone for our CO2 business, we successfully commissioned our PX G1300 with our partner in a new supermarket in southern Europe in late June and are very encouraged by its strong initial performance. We also entered into a second joint-development agreement with a U.S. refrigeration rack manufacturer in early July and are continuing discussions with several others. This new partnership should lead to a second supermarket installation in the U.S. and is another important milestone as we prove the value of our PX technology to help the refrigeration industry transition to more climate-friendly, natural refrigerants.” -------------------------------------------------------------------------------- Financial Highlights Second Quarter (Quarter to Date) GAAP Non-GAAP(1) Q2 2022 Q2 2021 vs. Q2 2021 Q2 2022 Q2 2021 vs. Q2 2021 (In millions except for percentages, basis points and per share amounts) Revenue $20.3 $20.6 down 2% $20.3 $20.6 down 2% Gross margin 65.9% 65.1% up 75 bps 66.4% 65.6% up 80 bps Operating margin (14.3%) 1.4% down 1570 bps (0.2%) 8.3% down 853 bps Net (loss) income $(2.4) $1.1 down 321% $0.2 $1.8 down 88% Net (loss) income per $(0.04) $0.02 down 300% $0.00 $0.03 down 100% share Effective tax rate 15.7% (227.9%) (215.4%) (0.3%) Adjusted EBITDA $1.0 $2.7 down 64% Free cash flow $8.5 $9.7 down 12% 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 $52.8 $49.5 up 7% $52.8 $49.5 up 7% Gross margin 68.9% 67.4% up 155 bps 69.4% 67.8% up 155 bps Operating margin 10.1% 13.0% down 292 bps 19.0% 19.7% down 68 bps Net income $5.5 $7.9 down 30% $9.3 $8.9 up 4% Net income per share $0.10 $0.13 down 23% $0.16 $0.16 no change Effective tax rate 0.1% (21.1%) 14.6% 14.8% Adjusted EBITDA $12.1 $11.8 up 3% Free cash flow $4.9 $9.1 down 46% (1)“Adjusted loss 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 guidance, the resurgence of the OEM market, our expectation of significant increases in sales in the second half of fiscal 2022, our expectation of future PX G1300 supermarket installations, and the Company’s belief that our PX technology will help the refrigeration industry transition to more climate-friendly, natural refrigerants. 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 (loss) 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 Second Quarter and Year to Date 2022 Financial Results •Adjusted income (loss) from operations is a non-GAAP financial measure that the Company defines as income (loss) from operations which excludes share-based compensation, 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 adjusted net income, which excludes share-based compensation, non-recurring costs, such as severance costs, accelerated depreciation and the applicable tax effect, divided by basic shares outstanding. •Adjusted EBITDA is a non-GAAP financial measure that the Company defines as income (loss) from operations which excludes depreciation, amortization, share-based compensation, non-recurring costs, such as severance costs. •Free cash flow is a non-GAAP financial measure that the Company defines as net cash provided by operating activities less capital expenditures. Conference Call to Discuss Second Quarter 2022 Financial Results LIVE CONFERENCE CALL: Wednesday, August 3, 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: Saturday, September 3, 2022 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13731126 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 creates technologies that solve complex challenges for industrial fluid-flow markets worldwide. Building on our pressure exchanger technology platform, we design and manufacture solutions that make 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, research and development facilities across California and Texas with sales and on-site technical support available globally. For more information, please visit www.energyrecovery.com. -------------------------------------------------------------------------------- Contact Investor Relations ir@energyrecovery.com +1 (281) 962-8105 -------------------------------------------------------------------------------- ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 2022 2021 (In thousands) ASSETS Cash, cash equivalents and investments $ 86,511 $ 107,988 Accounts receivable and contract assets 14,225 21,108 Inventories, net 28,235 20,383 Prepaid expenses and other assets 4,914 4,582 Property, equipment and operating leases 32,856 35,014 Goodwill and other intangible assets 12,822 12,827 Deferred tax assets and other assets 11,913 11,788 TOTAL ASSETS $ 191,476 $ 213,690 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Accounts payable and accrued expenses $ 12,199 $ 14,903 Contract liabilities 1,560 3,406 Lease liabilities 15,682 16,443 Other liabilities, non-current 174 159 Total liabilities 29,615 34,911 Stockholders’ equity 161,861 178,779 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 191,476 $ 213,690 -------------------------------------------------------------------------------- ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In thousands, except per share data) Revenue $ 20,292 $ 20,607 $ 52,838 $ 49,547 Cost of revenue 6,920 7,181 16,418 16,162 Gross profit 13,372 13,426 36,420 33,385 Operating expenses General and administrative 6,996 6,178 13,547 12,788 Sales and marketing 3,849 2,537 7,213 5,240 Research and development 5,431 4,424 10,342 8,926 Total operating expenses 16,276 13,139 31,102 26,954 Income (loss) from operations (2,904) 287 5,318 6,431 Other income, net 106 39 223 121 Income (loss) before income taxes (2,798) 326 5,541 6,552 Provision for (benefit from) income taxes (439) (743) 6 (1,383) Net income (loss) $ (2,359) $ 1,069 $ 5,535 $ 7,935 Net income (loss) per share Basic $ (0.04) $ 0.02 $ 0.10 $ 0.14 Diluted $ (0.04) $ 0.02 $ 0.10 $ 0.13 Number of shares used in per share calculations Basic 56,218 57,253 56,499 57,066 Diluted 56,218 58,999 57,858 58,822 -------------------------------------------------------------------------------- ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 2022 2021 (In thousands) Cash flows from operating activities: Net income $ 5,535 $ 7,935 Non-cash adjustments 7,542 4,921 Net cash (used in) provided by operating assets and liabilities (5,598) (1,315) Net cash provided by operating activities 7,479 11,541 Cash flows from investing activities: Net investment in marketable securities (10,543) 2,827 Capital expenditures (2,436) (2,444) Net cash (used in) provided by investing activities (12,979) 383 Cash flows from financing activities: Net proceeds from issuance of common stock 985 8,697 Repurchase of common stock (26,623) (11,554) Net cash used in financing activities (25,638) (2,857) Effect of exchange rate differences 4 (20) Net change in cash, cash equivalents and restricted cash $ (31,134) $ 9,047 Cash, cash equivalents and restricted cash, end of period $ 43,327 $ 103,405 -------------------------------------------------------------------------------- ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Channel Revenue Three Months Ended June 30, Six Months Ended June 30, 2022 2021 vs. 2021 2022 2021 vs. 2021 (In thousands, except percentages) Megaproject $ 10,070 $ 13,275 down 24% $ 33,910 $ 37,032 down 8% Original equipment manufacturer 7,689 4,274 up 80% 12,360 7,065 up 75% Aftermarket 2,533 3,058 down 17% 6,568 5,450 up 21% Total Revenues $ 20,292 $ 20,607 down 2% $ 52,838 $ 49,547 up 7% Segment Activity Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 Emerging Emerging Water Technologies Corporate Total Water Technologies Corporate Total (In thousands) Revenue $ 20,213 $ 79 $ — $ 20,292 $ 20,568 $ 39 $ — $ 20,607 Cost of revenue 6,920 — — 6,920 7,181 — — 7,181 Gross profit 13,293 79 — 13,372 13,387 39 — 13,426 Operating expenses General and administrative 1,534 1,354 4,108 6,996 1,779 1,315 3,084 6,178 Sales and marketing 2,654 633 562 3,849 2,121 229 187 2,537 Research and development 1,143 4,288 — 5,431 595 3,829 — 4,424 Total operating expenses 5,331 6,275 4,670 16,276 4,495 5,373 3,271 13,139 Operating income (loss) $ 7,962 $ (6,196) $ (4,670) $ (2,904) $ 8,892 $ (5,334) $ (3,271) $ 287 Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 Emerging Emerging Water Technologies Corporate Total Water Technologies Corporate Total (In thousands) Revenue $ 52,729 $ 109 $ — $ 52,838 $ 49,508 $ 39 $ — $ 49,547 Cost of revenue 16,400 18 — 16,418 16,162 — — 16,162 Gross profit 36,329 91 — 36,420 33,346 39 — 33,385 Operating expenses General and administrative 2,998 2,262 8,287 13,547 3,340 2,481 6,967 12,788 Sales and marketing 4,955 1,160 1,098 7,213 4,285 408 547 5,240 Research and development 1,943 8,399 — 10,342 1,096 7,830 — 8,926 Total operating expenses 9,896 11,821 9,385 31,102 8,721 10,719 7,514 26,954 Operating income (loss) $ 26,433 $ (11,730) $ (9,385) $ 5,318 $ 24,625 $ (10,680) $ (7,514) $ 6,431 -------------------------------------------------------------------------------- Share-based Compensation Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In thousands) Stock-based compensation expense charged to: Cost of revenue $ 100 $ 90 $ 246 $ 228 General and administrative 1,024 711 1,992 1,607 Sales and marketing 373 333 806 777 Research and development 227 295 562 731 Total stock-based compensation expense $ 1,724 $ 1,429 $ 3,606 $ 3,343 -------------------------------------------------------------------------------- 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 Q2'2022 Q2'2021 2022 2021 (In millions, except shares, per share and percentages) Gross margin 65.9% 65.1% 68.9% 67.4% Share-based compensation as a percent of revenue 0.5% 0.5% 0.5% 0.5% Adjusted gross margin 66.4% 65.6% 69.4% 67.8% Income (loss) from operations $ (2.9) $ 0.3 $ 5.3 $ 6.4 Share-based compensation 1.7 1.4 3.6 3.3 Severance 0.3 — 0.3 — Accelerated depreciation 0.9 — 0.9 — Adjusted income (loss) from operations $ — $ 1.7 $ 10.1 $ 9.8 Operating margin (14.3 %) 1.4 % 25.3 % 21.2 % Share-based compensation as a percent of revenue 14.1 % 6.9 % 9.0 % 6.8 % Adjusted operating margin (0.2 %) 8.3 % 19.0 % 19.7 % Net income (loss) $ (2.4) $ 1.1 $ 5.5 $ 7.9 Share-based compensation 1.7 1.4 3.6 3.3 Severance 0.3 — 0.3 — Accelerated depreciation 0.8 — 0.7 — Share-based compensation discrete tax item (0.2) (0.7) (0.8) (2.4) Adjusted net income $ 0.2 $ 1.8 $ 9.3 $ 8.9 Net income (loss) per share $ (0.04) $ 0.02 $ 0.10 $ 0.13 Adjustments to net income (loss) per share (2) 0.04 0.01 0.06 0.03 Adjusted net income per share $ — $ 0.03 $ 0.16 $ 0.16 Diluted shares used in calculating adjusted net income per diluted share (in thousands) 56,218 57,253 56,499 57,066 Effective tax rate 15.7% (227.9%) 0.1% (21.1%) Adjustments to effective tax rate (3) (231.1%) 227.6% 9.4% 31.0% Adjusted effective tax rate (215.4%) (0.3%) 9.5% 9.9% Income (loss) from operations $ (2.9) $ 0.3 $ 5.3 $ 6.4 Share-based compensation 1.7 1.4 3.6 3.3 Severance 0.3 — 0.3 — Depreciation and amortization 1.9 1.0 2.9 2.0 Adjusted EBITDA $ 1.0 $ 2.7 $ 12.1 $ 11.8 Free cash flow Net cash provided by operating activities $ 9.1 $ 11.5 $ 7.5 $ 11.5 Capital expenditures (0.6) (1.8) (2.6) (2.4) Free cash flow (non-GAAP) $ 8.5 $ 9.7 $ 4.9 $ 9.1 (1)Amounts may not total due to rounding. (2)Adjustments to net income (loss) per share reflects the adjustments for share-based compensation, share-based compensation discrete tax item, and severance costs and accelerated depreciation, net of taxes, on a per share basis. (3)Adjustments to effective tax rate reflects adjustments for share-based compensation, share-based compensation discrete tax item, severance costs and accelerated depreciation.