0001421517-20-000038 8-K 16 20200430 2.02 9.01 20200430 20200430 Energy Recovery, Inc. 0001421517 3559 010616867 DE 1231 8-K 34 001-34112 20835696 1717 DOOLITTLE DRIVE SAN LEANDRO CA 94577 (510) 483-7370 1717 DOOLITTLE DRIVE SAN LEANDRO CA 94577 8-K 1 a8-k2020xq1earningsrel.htm FORM 8-K - EARNINGS RELEASE (Q1'2020) Document false0001421517 0001421517 2020-04-30 2020-04-30 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): April 30, 2020 [[Image Removed: erilogoh4c.jpg]] Energy Recovery, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 001-34112 01-0616867 (State or Other (Commission File Number) (I.R.S. Employer Jurisdiction of Identification No.) Incorporation) 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 ERII The Nasdaq Stock Market LLC value 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 April 30, 2020, Energy Recovery, Inc. issued an earnings press release announcing its financial results for the first quarter ended March 31, 2020. 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 April 30, 2020, to report its financial results for the first quarter ended March 31, 2020. 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: April 30, 2020 Energy Recovery, Inc. By: /s/ William Yeung William Yeung General Counsel EX-99.1 2 ex991earningsrelease20.htm EXHIBIT 99.1 - Q1'2020 EARNINGS RELEASE Exhibit Exhibit 99.1 [[Image Removed: erilogoh4c.jpg]] Energy Recovery Reports First Quarter Financial Results San Leandro, Calif., April 30, 2020 - Energy Recovery Inc. (Nasdaq: ERII) (“Energy Recovery,” “we,” “our,” or the “Company”), a leader in pressure energy technology for industrial fluid flows, today announced its financial results for the first quarter ended March 31, 2020. First Quarter 2020 Highlights: • Total product revenue of $19.0 million, an increase of 18% year-over-year • Total revenue of $21.5 million, an increase of 9% year-over-year • Product gross margin of 70.1%, an increase of 80 basis points year-over-year • Net income of $0.6 million, or diluted earnings per share of $0.01, a decrease of $0.04 year-over-year Chairman and Interim President and Chief Executive Officer Robert Mao remarked, “We came into the first quarter confident in our confirmed order backlog and successfully navigated the COVID-19 pandemic challenges late in the quarter. We delivered a strong Q1 in which we fulfilled all of our contractual shipments and achieved year-over-year quarterly revenue growth.” Mr. Mao continued, “These results are a testament to the talent, flexibility and hard work of our global team. Thanks to their calm and determined execution, we have been able to safely continue limited manufacturing operations in our San Leandro and Katy facilities and progress our newest manufacturing facility in Tracy, California in accordance with government guidance. Moreover, we have continued to close contracts since California’s shelter-in-place order came into effect in mid-March, including large orders from China and Egypt. We cannot anticipate what events may transpire over the coming months, but we can say with certainty that we are as prepared as we can be, with a strong financial position, flexible balance sheet, a solid order backlog and a smart team with deep knowledge of our markets.” -------------------------------------------------------------------------------- COVID-19 Pandemic In response to measures taken in mid-March by the State of California and local governments in the State of California to fight the COVID-19 pandemic, we elected to temporarily suspend our manufacturing activities to assess the impact of these measures, and to implement health and safety actions recommended by government and health officials to better protect employees who are required to be present at our facilities. In addition, the majority of our office employees have been working remotely since that time. In early April, we commenced limited manufacturing and have continued shipping customer orders from our facilities in accordance with federal, state and local regulations and guidance. While we cannot accurately predict COVID-19’s long-term impact on our financial condition, result of operations, liquidity, and cash flows due to uncertainties, our compliance with these measures did not have a material adverse impact on our financial results for the first quarter of fiscal year 2020. However, to mitigate potential adverse impacts to our business and to conserve cash, we are managing our resources conservatively by reducing and/or deferring capital expenditures and operating expenses. Based on our current projections, which are subject to numerous uncertainties, including the duration and severity of the pandemic and containment measures, and the effect of these on the industries in which we compete, we believe our cash on hand and marketable securities, as well as ongoing cash generated from our operations, should be sufficient to cover our capital requirements for the next 12 months. We believe our gross margins, which were negatively affected in the first quarter, will likely continue to be impacted until such time that we can operate our manufacturing facilities as originally planned. Our available product inventory combined with our current rate of production leads us to believe that we can fulfill most, if not all, of our existing delivery obligations in fiscal year 2020. We are also closely monitoring the pandemic’s impact on the industries in which we compete. While we believe the desalination industry appears to be showing some stability in fiscal year 2020, it is possible that future COVID-19 restrictions could cause reduced demand for our products if they result in a global recessionary economic environment or impact the construction of large desalination projects. For a discussion of the key trends and uncertainties that have affected our revenues, income and liquidity, see Part II, Item 1A, “Risk Factors,” of our Q1’2020 Form 10-Q and Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10­K for the year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission on March 6, 2020. First Quarter 2020 Revenues For the first quarter ended March 31, 2020, the Company generated total revenue of $21.5 million, an increase of $1.7 million, or 9%, compared to $19.8 million in the first quarter ended March 31, 2019. The Water segment generated total product revenue of $19.0 million for the first quarter ended March 31, 2020, an increase of $3.0 million, or 19%, compared to $16.0 million for the first quarter ended March 31, 2019. This increase was due primarily to higher Mega-Project Development (“MPD”) shipments. Government measures to fight COVID-19 did not have a material effect on our revenues in the first quarter. The Oil & Gas segment generated total revenue of $2.5 million for the first quarter ended March 31, 2020, a decrease of $1.3 million, or (34%), compared to $3.8 million for the first quarter ended March 31, 2019. Oil & Gas revenue in the first quarter consisted only of license and development revenue, which is calculated as a percentage of cost to total cost. There was a decrease in expenditures in the first quarter due to the reallocation of resources to VorTeq related activities unrelated to the recognition of this license and development revenue, which subsequently reduced revenue recognition for the quarter. Product Gross Margin For the first quarter ended March 31, 2020, product gross margin was 70.1%, an increase of 80 basis points from 69.3% in the first quarter ended March 31, 2019. Despite an increase of $0.5 million, or 3%, in cost of product revenue related to the reduced utilization of our manufacturing facility in the last two weeks of the quarter due to our temporary manufacturing suspension in response to COVID-19-related government measures, product gross margin increased largely driven by favorable product mix. Operating Expenses For the first quarter ended March 31, 2020, GAAP operating expenses were $15.7 million, an increase of $3.6 million, or 29%, compared to $12.2 million for the first quarter ended March 31, 2019. This increase was due primarily to our continued investment in research and development in Oil & Gas and Water segments, Incubation initiatives, as well as growth in headcount and personnel-related costs. COVID-19 did not have a material effect on operating expenditures during the three months ended March 31, 2020. -------------------------------------------------------------------------------- Bottom Line Summary To summarize our financial performance, on a quarterly basis, we reported a GAAP net income of $0.6 million, or $0.01 per diluted share for the first quarter ended March 31, 2020, compared to a net income of $2.7 million, or $0.05 per diluted share for the first quarter ended March 31, 2019. Cash Flow Highlights We finished the three months ended March 31, 2020 with cash and cash equivalents of $32.8 million, and short-term and long-term investments of $60.4 million, which represents a combined total of $93.2 million. 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 the Company’s belief that the Company’s cash on hand, marketable securities and ongoing cash generated from operations should be sufficient to cover the Company’s capital requirements for the next 12 months; our belief that our gross margins will continue to be negatively affected until we are able to operate our manufacturing facilities as originally planned prior to the COVID-19 pandemic; and our belief that we will be able to fulfill most, if not all, of our existing delivery obligations in fiscal year 2020. 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 the Company’s ability to achieve the milestones under the VorTeq license agreement, 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, 2019 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 Total gross profit and Total gross margin. 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. Conference Call to Discuss First Quarter 2020 Financial Results LIVE CONFERENCE CALL: Thursday, April 30, 2020, 2:00 PM PDT / 5:00 PM EDT Listen-only, US / Canada Toll-Free: +1 (877) 709-8150 Listen-only, Local / International Toll: +1 (201) 689-8354 Access code: 13700231 CONFERENCE CALL REPLAY: Expiration: Saturday, May 30, 2020 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13700231 Investors may also access the live call or the replay over the internet at ir.energyrecovery.com. The replay will be available approximately three hours after the live call concludes. -------------------------------------------------------------------------------- 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 Inc. For more than 20 years, Energy Recovery, Inc. (NASDAQ: ERII) has created technologies that solve complex challenges in industrial fluid-flow markets. We design and manufacture solutions that reduce waste, improve operational efficiencies, and lower the production costs of clean water and oil and gas. What began as a game-changing invention for water desalination has grown into a global business delivering solutions that enable more affordable access to these critical resources. Both our headquarters in San Leandro, California, and our Commercial Development Center in Katy, Texas house on-site research, development and manufacturing facilities. In addition, our worldwide sales and technical service organization provides on-site support for our line of water solutions. For more information, please visit www.energyrecovery.com. Contact Investor Relations ir@energyrecovery.com (281) 962-8105 -------------------------------------------------------------------------------- ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, December 31, 2020 2019 (In thousands, except share data and par value) ASSETS Current assets: Cash and cash equivalents $ 32,842 $ 26,387 Short-term investments 40,995 58,736 Accounts receivable, net 13,841 12,979 Inventories, net 10,938 10,317 Prepaid expenses and other current assets 5,187 4,548 Total current assets 103,803 112,967 Long-term investments 19,361 15,419 Deferred tax assets, non-current 16,932 16,897 Property and equipment, net 19,780 18,843 Operating lease, right of use asset 17,253 11,195 Goodwill 12,790 12,790 Other intangible assets, net 61 65 Other assets, non-current 632 598 Total assets $ 190,612 $ 188,774 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,868 $ 1,192 Accrued expenses and other current liabilities 6,156 9,869 Lease liabilities 1,209 1,023 Contract liabilities 16,509 15,746 Total current liabilities 25,742 27,830 Lease liabilities, non-current 17,523 11,533 Contract liabilities, non-current 8,805 13,120 Other non-current liabilities 277 278 Total liabilities 52,347 52,761 Commitments and contingencies (Note 8) Stockholders’ equity: Common stock 61 61 Additional paid-in capital 171,954 170,028 Accumulated other comprehensive loss (332 ) (37 ) Treasury stock (30,486 ) (30,486 ) Accumulated deficit (2,932 ) (3,553 ) Total stockholders’ equity 138,265 136,013 Total liabilities and stockholders’ equity $ 190,612 $ 188,774 -------------------------------------------------------------------------------- ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 2020 2019 (In thousands, except per share data) Product revenue $ 19,001 $ 16,072 Product cost of revenue 5,684 4,935 Product gross profit 13,317 11,137 License and development revenue 2,543 3,723 Operating expenses: General and administrative 6,881 5,579 Sales and marketing 2,138 2,162 Research and development 6,709 4,254 Amortization of intangible assets 4 156 Total operating expenses 15,732 12,151 Income from operations 128 2,709 Other income (expense): Interest income 420 523 Other non-operating expense, net (12 ) (24 ) Total other income, net 408 499 Income before income taxes 536 3,208 (Benefit from) provision for income taxes (85 ) 554 Net income $ 621 $ 2,654 Earnings per share: Basic $ 0.01 $ 0.05 Diluted $ 0.01 $ 0.05 Number of shares used in per share calculations: Basic 55,412 54,116 Diluted 56,542 55,368 -------------------------------------------------------------------------------- ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 2020 2019 (In thousands) Cash flows from operating activities: Net income $ 621 $ 2,654 Adjustments to reconcile net income to cash used in operating activities Stock-based compensation 1,503 1,678 Depreciation and amortization 1,258 900 Amortization (accretion) of premiums and discounts on investments 220 (26 ) Deferred income taxes (35 ) 549 Provision for warranty claims 98 152 Other non-cash adjustments 47 (68 ) Changes in operating assets and liabilities: Accounts receivable, net (902 ) (7,162 ) Contract assets (244 ) 2,977 Inventories, net (692 ) (218 ) Prepaid and other assets (428 ) (140 ) Accounts payable 745 18 Accrued expenses and other liabilities (4,514 ) (3,353 ) Income taxes 3 10 Contract liabilities (3,552 ) (3,922 ) Net cash used in operating activities (5,872 ) (5,951 ) Cash flows from investing activities: Sales of marketable securities 4,974 — Maturities of marketable securities 21,195 19,599 Purchases of marketable securities (12,855 ) (19,198 ) Capital expenditures (1,380 ) (1,566 ) Net cash provided by (used in) investing activities 11,934 (1,165 ) Cash flows from financing activities: Net proceeds from issuance of common stock 440 2,191 Tax payment for employee shares withheld (22 ) (34 ) Net cash provided by financing activities 418 2,157 Effect of exchange rate differences on cash and cash equivalents (25 ) (4 ) Net change in cash, cash equivalents and restricted cash 6,455 (4,963 ) Cash, cash equivalents and restricted cash, beginning of year 26,488 22,138 Cash, cash equivalents and restricted cash, end of period $ 32,943 $ 17,175 -------------------------------------------------------------------------------- ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 Water Oil & Gas Corporate Total Water Oil & Gas Corporate Total (In thousands) Product revenue $ 19,001 $ — $ — $ 19,001 $ 15,968 $ 104 $ — $ 16,072 Product cost of revenue 5,684 — — 5,684 4,747 188 — 4,935 Product gross profit (loss) 13,317 — — 13,317 11,221 (84 ) — 11,137 License and development revenue — 2,543 — 2,543 — 3,723 — 3,723 Operating expenses General and administrative 405 741 5,735 6,881 535 364 4,680 5,579 Sales and marketing 1,676 58 404 2,138 1,649 263 250 2,162 Research and development 902 5,247 560 6,709 804 3,363 87 4,254 Amortization of intangibles 4 — — 4 156 — — 156 Total operating expenses 2,987 6,046 6,699 15,732 3,144 3,990 5,017 12,151 Operating income (loss) $ 10,330 $ (3,503 ) $ (6,699 ) 128 $ 8,077 $ (351 ) $ (5,017 ) 2,709 Other income, net 408 499 Income before income taxes $ 536 $ 3,208 -------------------------------------------------------------------------------- ENERGY RECOVERY, INC. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited) This press release includes non-GAAP financial information because we plan and manage our business using such information. Our non-GAAP Total Gross Margin is determined by adding back the license and development revenue associated with the amortization of the VorTeq exclusivity fee. Three Months Ended March 31, 2020 2019 (In thousands, except per share data) Product revenue $ 19,001 $ 16,072 License and development revenue 2,543 3,723 Total revenue $ 21,544 $ 19,795 Product gross profit $ 13,317 $ 11,137 License and development revenue 2,543 3,723 Total gross profit (non-GAAP) $ 15,860 $ 14,860 Product gross margin 70.1 % 69.3 % Total gross margin (non-GAAP) 73.6 % 75.1 %