Energy Recovery Reports its First Quarter 2024 Financial Results

Rhea-AI Summary

Energy Recovery, Inc. (ERII) reported its Q1 2024 financial results, with revenue of $12.1 million in line with guidance. The company saw a decrease in gross margin due to higher manufacturing costs and increased operating expenses. Loss from operations was $10.9 million, with a net loss of $8.3 million and adjusted EBITDA loss of $6.2 million. Cash and investments stood at $129.5 million. CEO David Moon highlighted signed contracts representing 60% of full-year revenue guidance and progress in the CO2 business.

Positive

• Revenue in Q1 was in line with guidance, and the company has signed contracts equal to 60% of its full-year revenue guidance, showing potential for revenue growth.

Negative

• The company experienced a decrease in gross margin due to higher manufacturing costs and an increase in inventory scrap, leading to a loss from operations of $10.9 million.

Insights

Financial Analyst

Energy Recovery's reported revenue aligns with their projections, though it reflects a 10% decrease from the previous year. A 11% hike in operating expenses, notably in sales and marketing, indicates a strategic shift to amplify market presence, which could hint at future revenue growth if successful. The reported net loss widened by 31%, a concerning metric for investors, suggesting operational challenges. However, a robust cash and investments position of $129.5 million provides a cushion and strategic flexibility. Stabilizing this cash reserve while ensuring operational efficiency will be critical in their path to profitability.

Market Research Analyst

The company's pivot into the CO2 business, with field tests and the planned commercial adoption of the PX G1300, suggests a diversification strategy. Such moves could potentially open new revenue streams in the environmental technology sector. Although the upfront costs are reflected in the current financials, investors should monitor the adoption rate post-commercialization. The success of these deployments can set a precedent for future product lines and contribute to long-term growth.

Investment Analyst

Comparing year-on-year financials, the slight increase in adjusted net loss per share is not as significant as the nominal net loss. This discrepancy underscores the importance of the non-GAAP measures, which provide a granular view of operational performance excluding one-off expenses. The preserved adjusted net loss per share indicates some operational stability amid a challenging quarter. For retail investors, the key takeaway would be to assess the company's trajectory, given the reaffirmed full-year revenue guidance against the backdrop of heightened operating expenses and strategic investments.

SAN LEANDRO, Calif.--(BUSINESS WIRE)-- Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the first quarter ended March 31, 2024.

First Quarter Highlights

• Revenue of $12.1 million, which is in-line with our February 2024 guidance.
• Gross margin of 59.0%, a decrease of 190 bps, as compared to Q1’2023, due primarily to higher manufacturing costs and an increase in inventory scrap.
• Operating expenses of $18.1 million, an increase of 11%, as compared to Q1’2023, due primarily to increased investments within sales and marketing and Executive transition costs.
• Loss from operations of $10.9 million, mainly due to lower revenues and gross margin as previously guided.
• Net loss of $8.3 million and adjusted EBITDA⁽¹⁾ loss of $6.2 million.
• Cash and investments of $129.5 million, which include cash, cash equivalents, and short- and long-term investments.

David Moon, President and CEO, commented on the financial results: “The first quarter was a busy one for us and played out as we expected. Q1 revenue of $12.1 million was in line with our guidance of $10-$13 million, and based on the visibility we have today, we expect to be in-line with our full year revenue guidance of $140-$150 million. As of today, we have signed contracts with potential revenue opportunity equal to 60% of the mid-point of our 2024 guidance, which represents an increase of 26% over the same period in 2023.”

Mr. Moon added, “In our CO₂ business, we completed a successful 30-day field test in Europe of our next generation PX G1300, as well as successful testing of our latest system architecture with Vallarta, our partner in California. We are now in the process of commissioning multiple new deployments at existing and new customer sites for this summer, which will provide the key uninterrupted summer runtime data that is vital for us to begin significant commercial adoption of the PX G1300. As we look out to the remainder of the year, my top priority is to execute on the goals and milestones laid out for this year.”

Financial Highlights

	Year-to-Date
	2024		2023		2024 vs. 2023
	(In millions, except net loss per share, percentages and basis points)
Revenue	$12.1		$13.4		down 10%
Gross margin	59.0%		60.9%		down 190 bps
Operating margin	(90.4%)		(60.5%)		NM
Net loss	($8.3)		($6.3)		down 31%
Net loss per share	($0.14)		($0.11)		down 27%
Effective tax rate	13.5%		15.5%
Cash provided by operations	$6.5		$8.7

Non-GAAP Financial Highlights ⁽¹⁾

	Year-to-Date
	2024		2023		2024 vs. 2023
	(In millions, except adjusted net loss per share, percentages and basis points)
Adjusted operating margin	(59.4%)		(43.3%)		NM
Adjusted net loss	($4.6)		($4.5)		down 4%
Adjusted net loss per share	($0.08)		($0.08)		no change
Adjusted effective tax rate	19.8%		13.0%
Adjusted EBITDA	($6.2)		($4.8)
Free cash flow	$5.7		$8.4

___________________
(1)			Refer to the sections “Use of Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” for definitions of our non-GAAP financial measures and reconciliations of GAAP to non-GAAP amounts, respectively.
NM			Not Material

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 expectations regarding revenue guidance for the year and potential new deployments. These forward-looking statements are based on information currently available to the Company 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 the Company’s 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, 2023, 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 operating margin, adjusted net loss, adjusted net loss per share, adjusted effective tax rate, 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 Financial Results

• Adjusted operating margin is a non-GAAP financial measure that the Company defines as loss from operations which excludes i) share-based compensation; and ii) executive transition costs, divided by revenues.
• Adjusted net loss is a non-GAAP financial measure that the Company defines as net income which excludes i) share-based compensation; ii) executive transition costs; and iii) the applicable tax effect of the excluded items including the share-based compensation discrete tax item.
• Adjusted net loss per share is a non-GAAP financial measure that the Company defines as net loss, which excludes i) share-based compensation; ii) executive transition costs and iii) the applicable tax effect of the excluded items including the share-based compensation discrete tax item, divided by basic shares outstanding.
• Adjusted effective tax rate reflects adjustments for i) share-based compensation discrete tax item; ii) share-based compensation; and iii) executive transition costs.
• Adjusted EBITDA is a non-GAAP financial measure that the Company defines as net loss which excludes i) depreciation and amortization; ii) share-based compensation; iii) executive transition costs; iv) other income, net, such as interest income and other non-operating income (expense), net; and v) benefit from income taxes.
• 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 First Quarter 2024 Financial Results

LIVE CONFERENCE CALL:
Wednesday, May 1, 2024, 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, May 31, 2024
US / Canada Toll-Free: +1 (877) 660-6853
Local / International Toll: +1 (201) 612-7415
Access code: 13745736

Investors may access the live call and the replay (approximately three hours after the live call concludes) over the internet on the “Events” page at: https://ir.energyrecovery.com/news-events/ir-calendar.

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 (Nasdaq: ERII) is a trusted global leader in energy efficiency technology. Building on the Company’s pressure exchanger technology platform, the Company designs and manufactures reliable, high-performance solutions that generate cost savings and increase energy efficiency across several industries. With a strong foundation in the desalination industry, the Company has delivered transformative solutions that optimize operations and deliver positive environmental impact to its customers worldwide for more than 30 years. Headquartered in the San Francisco Bay Area, the Company 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/.

ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
	March 31, 2024			December 31, 2023
	(In thousands)
ASSETS
Cash, cash equivalents and investments	$	129,495		$	122,375
Accounts receivable and contract assets		25,647			47,529
Inventories, net		31,671			26,149
Prepaid expenses and other assets		3,696			3,251
Property, equipment and operating leases		28,927			30,168
Goodwill		12,790			12,790
Deferred tax assets and other assets		12,039			10,712
TOTAL ASSETS	$	244,265		$	252,974
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Accounts payable and accrued expenses	$	11,834		$	18,583
Contract liabilities and other liabilities, non-current		3,581			1,304
Lease liabilities		12,813			13,279
Total liabilities		28,228			33,166
Stockholders’ equity		216,037			219,808
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	244,265		$	252,974

ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three Months Ended March 31,
		2024				2023
	(In thousands, except per share data)
Revenue	$	12,090			$	13,401
Cost of revenue		4,955				5,246
Gross profit		7,135				8,155
Operating expenses
General and administrative		7,566				7,066
Sales and marketing		6,152				4,894
Research and development		4,351				4,306
Total operating expenses		18,069				16,266
Loss from operations		(10,934	)			(8,111	)
Other income, net		1,389				656
Loss before income taxes		(9,545	)			(7,455	)
Benefit from income taxes		(1,285	)			(1,159	)
Net loss	$	(8,260	)		$	(6,296	)
Net loss per share
Basic	$	(0.14	)		$	(0.11	)
Diluted	$	(0.14	)		$	(0.11	)
Number of shares used in per share calculations
Basic		57,102				56,228
Diluted		57,102				56,228

ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Three Months Ended March 31,
		2024				2023
	(In thousands)
Cash flows from operating activities:
Net loss	$	(8,260	)		$	(6,296	)
Non-cash adjustments		3,300				2,539
Net cash provided by operating assets and liabilities		11,457				12,414
Net cash provided by operating activities		6,497				8,657
Cash flows from investing activities:
Net investment in marketable securities		(4,249	)			1,364
Capital expenditures		(824	)			(279	)
Proceeds from sales of fixed assets		87				82
Net cash (used in) provided by investing activities		(4,986	)			1,167
Cash flows from financing activities:
Net proceeds from issuance of common stock		1,190				165
Net cash provided by financing activities		1,190				165
Effect of exchange rate differences		(19	)			8
Net change in cash, cash equivalents and restricted cash	$	2,682			$	9,997
Cash, cash equivalents and restricted cash, end of period	$	70,907			$	66,455

ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited)
Channel Revenue
	Three Months Ended March 31,
		2024			2023		vs. 2023
	(In thousands, except percentages)
Aftermarket	$	4,644		$	3,322		up 40%
Megaproject		4,100			3,243		up 26%
Original equipment manufacturer		3,346			6,836		down 50%
Total revenue	$	12,090		$	13,401		down 9%

Segment Activity
	Three Months Ended March 31, 2024															Three Months Ended March 31, 2023
	Water			Emerging Technologies				Corporate				Total				Water			Emerging Technologies				Corporate				Total
	(In thousands)
Revenue	$	12,089		$	1			$	—			$	12,090			$	13,296		$	105			$	—			$	13,401
Cost of revenue		4,954			1				—				4,955				5,101			145				—				5,246
Gross profit (loss)		7,135			—				—				7,135				8,195			(40	)			—				8,155
Operating expenses
General and administrative		1,922			1,018				4,626				7,566				1,938			968				4,160				7,066
Sales and marketing		3,745			1,807				600				6,152				3,175			1,170				549				4,894
Research and development		1,100			3,251				—				4,351				1,180			3,126				—				4,306
Total operating expenses		6,767			6,076				5,226				18,069				6,293			5,264				4,709				16,266
Operating income (loss)	$	368		$	(6,076	)		$	(5,226	)		$	(10,934	)		$	1,902		$	(5,304	)		$	(4,709	)		$	(8,111	)

Share-based Compensation
	Three Months Ended March 31,
		2024			2023
	(In thousands)
Stock-based compensation expense charged to:
Cost of revenue	$	343		$	249
General and administrative		1,407			960
Sales and marketing		1,010			698
Research and development		523			397
Total stock-based compensation expense	$	3,283		$	2,304

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.
	Year-to-Date
	Q1'2024				Q1'2023
	(In millions, except shares, per share and percentages)
Operating margin		(90.4	%)			(60.5	%)
Share-based compensation		27.2				17.2
Executive transition costs		3.9				—
Adjusted operating margin		(59.4	%)			(43.3	%)
Net loss	$	(8.3	)		$	(6.3	)
Share-based compensation (2)		3.3				2.3
Executive transition costs (2)		0.4				—
Share-based compensation discrete tax item		(0.1	)			(0.5	)
Adjusted net loss	$	(4.6	)		$	(4.5	)
Net loss per share	$	(0.14	)		$	(0.11	)
Adjustments to net loss per share (3)		0.06				0.03
Adjusted net loss per share	$	(0.08	)		$	(0.08	)
Effective tax rate		13.5	%			15.5	%
Adjustments to effective tax rate (3)		6.4				(2.5	)
Adjusted effective tax rate		19.8	%			13.0	%
Net loss	$	(8.3	)		$	(6.3	)
Share-based compensation		3.3				2.3
Depreciation and amortization		1.0				1.0
Executive transition costs		0.5				—
Other income, net		(1.4	)			(0.7	)
Benefit from income taxes		(1.3	)			(1.2	)
Adjusted EBITDA	$	(6.2	)		$	(4.8	)
Free cash flow
Net cash provided by operating activities	$	6.5			$	8.7
Capital expenditures		(0.8	)			(0.3	)
Free cash flow	$	5.7			$	8.4

_______________________
(1)		Amounts may not total due to rounding.
(2)		Amounts presented are net of tax.
(3)		Refer to the sections “Use of Non-GAAP Financial Measures” for description of items included in adjustments.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240501610391/en/

Investor Relations

ir@energyrecovery.com

+1 (346) 382-6927

Source: Energy Recovery, Inc.

FAQ

What were Energy Recovery's Q1 2024 revenue and gross margin?

Energy Recovery reported revenue of $12.1 million with a gross margin of 59.0%.

What were the operating expenses for Energy Recovery in Q1 2024?

Operating expenses were $18.1 million, an 11% increase compared to the same period in 2023.

What was the net loss for Energy Recovery in Q1 2024?

The net loss for Energy Recovery was $8.3 million.

What is Energy Recovery's cash and investments position as of Q1 2024?

Energy Recovery had $129.5 million in cash and investments, including cash, cash equivalents, and short- and long-term investments.

What did David Moon, the President and CEO of Energy Recovery, comment on the financial results for Q1 2024?

David Moon mentioned that Q1 revenue was in line with guidance, with signed contracts representing 60% of the full-year revenue guidance.

What progress did Energy Recovery make in its CO2 business in Q1 2024?

Energy Recovery completed successful testing and field trials for its next-generation products, with plans for new deployments at customer sites.

What was the year-to-date revenue comparison for Energy Recovery in 2024 and 2023?

Energy Recovery's revenue for 2024 was $12.1 million, down 10% compared to 2023.

How did Energy Recovery's gross margin in Q1 2024 compare to the same period in 2023?

Energy Recovery's gross margin was 59.0%, a decrease of 190 basis points from Q1 2023.

What was the net loss per share for Energy Recovery in Q1 2024?

Energy Recovery reported a net loss per share of $0.14 in Q1 2024.

What was the adjusted EBITDA for Energy Recovery in Q1 2024?

Energy Recovery reported an adjusted EBITDA loss of $6.2 million in Q1 2024.