Energy Recovery Announces Second Quarter 2022 Financial Results and Commissioning of the First PX G1300(TM) for CO2 Refrigeration

Rhea-AI Summary

Energy Recovery (NASDAQ:ERII) reported its Q2 2022 financial results, revealing revenues of $20.3 million, which aligns with prior guidance but marks a 2% decline year-over-year. The company reaffirmed its full-year revenue guidance of $130 million, projecting 25% growth. A net loss per share of $0.04 was noted, alongside adjusted EBITDA of $1.0 million. Cash reserves totaled $86.5 million. Notably, Energy Recovery has achieved a significant milestone in its CO2 business and has advanced OEM desalination sales, expecting notable sales growth in the latter half of 2022.

Positive

• Full-year revenue guidance reaffirmed at $130 million, projecting 25% year-over-year growth.
• Successful commissioning of PX G1300 in a supermarket, indicating strong performance.
• Resurgence in OEM desalination sales with anticipated significant increases in the second half of 2022.

Negative

• Net loss from operations of $2.9 million, with a net loss per share of $0.04.
• Decline in revenue year-over-year by 2% for the quarter.
• Adjusted EBITDA decreased by 64% from the previous year.

SAN LEANDRO, CA / ACCESSWIRE / 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 CO ₂ 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 share		$	(0.04	)		$	0.02		down 300%		$	0.00			$	0.03		down 100%
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, 2022				December 31, 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
		Water				Emerging Technologies				Corporate				Total				Water				Emerging 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
		Water				Emerging Technologies				Corporate				Total				Water				Emerging 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.

SOURCE: Energy Recovery, Inc.

View source version on accesswire.com:
https://www.accesswire.com/710711/Energy-Recovery-Announces-Second-Quarter-2022-Financial-Results-and-Commissioning-of-the-First-PX-G1300TM-for-CO2-Refrigeration

FAQ

What were Energy Recovery's Q2 2022 revenue results?

Energy Recovery reported revenue of $20.3 million for Q2 2022, reflecting a 2% decline compared to the previous year.

What is Energy Recovery's revenue guidance for the full year 2022?

Energy Recovery has reaffirmed its full-year revenue guidance of $130 million, which indicates a projected growth of 25% year-over-year.

What was the net loss per share for Energy Recovery in Q2 2022?

The net loss per share for Energy Recovery in Q2 2022 was $0.04.

How did Energy Recovery's adjusted EBITDA perform in Q2 2022?

Energy Recovery reported adjusted EBITDA of $1.0 million for Q2 2022, a decrease of 64% from the prior year.

What are the recent developments in Energy Recovery's CO2 business?

Energy Recovery successfully commissioned its PX G1300 technology in a supermarket and entered into a second joint-development agreement with a U.S. refrigeration rack manufacturer.