Energy Recovery Announces New Share Repurchase Program

Rhea-AI Summary

Energy Recovery (ERII) has announced a new $30 million share repurchase program starting February 2025, following the completion of its previous $50 million buyback program in Q4 2024. Under the completed program, the company repurchased 3.2 million shares at an average price of $15.39 per share.

The new 12-month buyback program will be executed through open market trades, block trades, and private transactions. The company's President and CEO David Moon emphasized their confidence in growth strategy, margin improvement, and cost reduction initiatives. Management expects to continue generating cash flow exceeding capital expenditures and growth requirements in 2025, maintaining their track record of recent years.

Positive

• Completed $50M share buyback program in Q4 2024
• New $30M share repurchase program announced
• Strong cash flow generation exceeding capital requirements
• Ongoing margin improvement and cost reduction initiatives

Negative

• No commitment to purchase specific number of shares
• Program can be discontinued without notice

Insights

Financial Analyst

Energy Recovery's announcement of a new $30 million share repurchase program, following the recently completed $50 million program, represents a significant capital allocation decision for this $856 million market cap company. The new authorization could retire approximately 3.5% of outstanding shares at current prices, following the 5.5% reduction from the previous program.

This sequential buyback strategy reveals several important insights:

• Capital allocation priorities: In the water energy recovery sector where long-term infrastructure investments and R&D typically drive growth, this substantial buyback signals management may see high-return growth opportunities in their immediate pipeline.
• Financial strength indicators: The company's ability to return $80 million to shareholders within a short timeframe demonstrates exceptional free cash flow generation relative to its size. This cash conversion efficiency distinguishes Energy Recovery from many peers in the industrial equipment space.
• EPS accretion: The repurchases should provide meaningful earnings per share support, potentially boosting EPS by 8-10% cumulatively if fully executed at current price levels.

Investors should note that while management expresses confidence in margin improvement and cost reduction initiatives, the aggressive buyback pace could indicate challenges in finding attractive organic growth investments. The company's decision to prioritize shareholder returns over accelerated R&D or acquisitions suggests they may be transitioning from a pure growth story to a more balanced growth and value proposition.

The timing also appears opportunistic, with the stock trading below the previous repurchase average price of $15.39, indicating management potentially sees current valuation as compelling.

Corporate Finance Strategist

Energy Recovery's sequential share repurchase programs – $50 million completed in Q4 2024 followed immediately by this new $30 million authorization – represents a decisive shift in capital allocation strategy that warrants investor attention. This $80 million commitment to buybacks over roughly a 15-month period is substantial for a company of this size, representing approximately 9% of market capitalization.

The financial implications are significant:

• Balance sheet utilization: Rather than letting cash accumulate, management is actively deploying capital while maintaining operational flexibility.
• EPS enhancement: The share count reduction should drive meaningful EPS accretion, potentially 8-10% cumulatively if both programs are fully executed.
• Return on invested capital signals: The aggressive buyback pace suggests management sees high-return internal investment opportunities that would exceed the implied return from repurchases.

This capital return strategy reveals important strategic positioning. Energy Recovery operates in the water energy recovery sector where capital-intensive projects typically drive growth. Their willingness to return substantial cash rather than accelerate R&D or pursue acquisitions suggests they've reached a more mature phase in their product lifecycle.

The timing appears opportunistic with shares trading below the previous $15.39 average repurchase price. However, investors should consider whether this signals confidence or potentially masks growth challenges. The emphasis on margin improvement and cost reduction initiatives suggests management is focusing on operational efficiency rather than top-line expansion.

This approach diverges from many peers in the industrial equipment space who typically prioritize reinvestment during periods of technological transition, potentially positioning Energy Recovery as a more value-oriented investment within their sector.

• New $30 million program follows Q4 2024 completion of share repurchase announced in November 2024
• Board authorization underscores balance sheet strength and free cash flow generation as company executes growth strategy
• Continued cost management and margin improvement initiatives driving confidence in long-term strategic operating plan

SAN LEANDRO, Calif.--(BUSINESS WIRE)-- Energy Recovery, Inc. (Nasdaq: ERII) today announced its Board of Directors approved a share repurchase program to purchase up to $30 million of the company’s outstanding common stock over the next 12 months, beginning in February 2025.

The new program is in addition to a $50 million share repurchase program announced in November and completed in Q4 2024. Under the previous program, the company repurchased 3.2 million shares for an average price of $15.39 per share.

“With strong confidence in our growth strategy and ability to improve margins while reducing costs, we are pleased to continue returning excess cash to shareholders,” said David Moon, Energy Recovery President and CEO. “We expect to continue generating cash flow above capital expenditures and growth capital requirements in 2025 as we have for the last several years.”

Under the newly authorized repurchase program, purchases of shares of common stock may be made from time to time through open market trades, block trades and/or privately negotiated transactions, in compliance with applicable state and federal securities laws. The timing and amounts of any purchases will be at management’s discretion and depend on a variety of factors, including business, economic, and market conditions, regulatory requirements, prevailing stock prices, and other considerations. The share repurchase program does not obligate the company to acquire any specific number of shares in any period, and may be expanded, extended, modified, or discontinued at any time without prior notice.

Forward-Looking Statements

Certain matters discussed in this press release 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 belief that we can improve margins while reducing costs and our expectation that we continue generating cash flow above capital expenditures and growth capital requirements in 2025. 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 risks relating to the future demand for our products, risks relating to performance by our customers and third-party partners, risks relating to the timing of revenue, and 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, 2024, 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.

About Energy Recovery

Energy Recovery is a trusted global leader in energy efficiency technology. Building on our pressure exchanger technology platform, we design and manufacture reliable, high-performance solutions that generate cost savings, increase energy efficiency, and reduce carbon emissions across several industries. With a strong foundation in the desalination industry, Energy Recovery has delivered transformative solutions that increase operational efficiency and environmental sustainability to our customers worldwide for more than 30 years. Headquartered in the San Francisco Bay Area, Energy Recovery has manufacturing and R&D facilities in California, with sales and on-site technical support available globally. For more information, please visit www.energyrecovery.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250226761317/en/

Press Inquiries

pr@energyrecovery.com

Investor Inquiries

ir@energyrecovery.com

Source: Energy Recovery, Inc.

FAQ

How much is Energy Recovery's new share buyback program worth and when does it start?

Energy Recovery's new share buyback program is worth $30 million and begins in February 2025, running for 12 months.

How many shares did ERII repurchase in their previous buyback program?

ERII repurchased 3.2 million shares at an average price of $15.39 per share, completing the $50 million program in Q4 2024.

What are the methods ERII will use to execute the new share repurchase?

ERII will execute the buyback through open market trades, block trades, and privately negotiated transactions.

Is Energy Recovery (ERII) committed to buying the full $30 million in shares?

No, the program doesn't obligate ERII to acquire any specific number of shares and can be modified or discontinued without notice.