Energy Recovery Reports its Fourth Quarter 2024 Financial Results

Rhea-AI Summary

Energy Recovery (ERII) has reported strong Q4 2024 financial results, with revenue reaching $67.1 million, marking a 17% increase compared to Q4'2023. The company achieved a gross margin of 70.2%, up 110 basis points year-over-year, primarily due to manufacturing transformation benefits.

Operating expenses increased 13.9% to $21.5 million, including $2.5 million in restructuring costs related to workforce reduction and executive transition. Income from operations grew 24.3% to $25.6 million, driven by higher revenue and improved gross margin. The company reported net income of $23.5 million and adjusted EBITDA of $31.3 million. The company's cash and investments position stood at $99.9 million.

Positive

• Revenue grew 17% YoY to $67.1M
• Gross margin improved 110bps to 70.2%
• Operating income increased 24.3% to $25.6M
• Strong net income of $23.5M
• Healthy cash position of $99.9M

Negative

• Operating expenses increased 13.9% to $21.5M
• Incurred $2.5M in restructuring and transition costs
• Implemented workforce reduction

Insights

Financial Analyst

Energy Recovery delivered impressive Q4 2024 results with $67.1 million in revenue, representing 17% year-over-year growth and hitting the midpoint of their full-year guidance. The company's gross margin expanded to 70.2%, a 110 basis point improvement, showcasing the tangible benefits of their manufacturing transformation initiatives.

The profitability metrics are particularly strong, with operating income increasing 24.3% to $25.6 million and adjusted EBITDA reaching $31.3 million. This performance demonstrates effective operational leverage, as revenue growth is outpacing the increase in operating expenses (excluding one-time costs). The $2.5 million in restructuring and executive transition costs signals organizational changes that, while creating short-term expenses, position the company for potentially improved efficiency.

Energy Recovery maintains a robust balance sheet with $99.9 million in cash and investments, providing significant financial flexibility for R&D investments, potential acquisitions, or shareholder returns. The company's ability to simultaneously implement workforce reductions while growing revenue by double digits suggests management is making strategic decisions to optimize operational structure rather than responding to business contraction.

Looking ahead to 2025, investors should monitor whether the margin improvements from manufacturing transformation initiatives continue to yield benefits and how the organizational restructuring impacts operational efficiency. The strong Q4 performance provides momentum, but sustainability of this growth rate will be a key question as the company navigates through 2025.

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

Fourth Quarter Highlights

• Revenue of $67.1 million, an increase of 17% as compared to Q4’2023 and resulting in full-year revenue at the midpoint of guidance.
• Gross margin of 70.2%, an increase of 110 bps, as compared to Q4’2023, due primarily to benefits from our manufacturing transformation.
• Operating expenses of $21.5 million, an increase of 13.9%, as compared to Q4’2023, due primarily to $2.5 million of restructuring costs related to our announced workforce reduction and executive transition costs.
• Income from operations of $25.6 million, an increase of 24.3%, as compared to Q4’2023, mainly due to higher revenue and higher gross margin.
• Net income of $23.5 million and adjusted EBITDA⁽¹⁾ of $31.3 million.
• Cash and investments of $99.9 million, which includes cash, cash equivalents, and short- and long-term investments.

In conjunction with these financial results, management has released a letter to shareholders reviewing business and financial updates from the fourth quarter and discussing our outlook for 2025. This letter is located under “Financial Info” in the “Investors” section on the Energy Recovery website (https://ir.energyrecovery.com/financial-information).

Financial Highlights

	Quarter-to-Date							Year to Date
	Q4’2024		Q4’2023		vs. Q4’2023			2024		2023		2024 vs. 2023
	(In millions, except net income per share, percentages and basis points)
Revenue	$67.1		$57.2		up 17%			$144.9		$128.3		up 13%
Gross margin	70.2%		69.1%		up 110 bps			66.9%		67.8%		down 90 bps
Operating margin	38.2%		36.0%		up 220 bps			13.6%		14.8%		down 120 bps
Net income	$23.5		$19.8		up 19%			$23.1		$21.5		up 7%
Net income per share	$0.41		$0.34		up $0.07			$0.40		$0.37		up $0.03
Effective tax rate								10.4%		5.3%
Cash provided by operations	$9.0		$13.8					$20.5		$26.1

Non-GAAP Financial Highlights ⁽¹⁾

	Quarter-to-Date							Year to Date
	Q4’2024		Q4’2023		vs. Q4’2023			2024		2023		2024 vs. 2023
	(In millions, except adjusted net income per share, percentages and basis points)
Adjusted operating margin	45.2%		39.9%		up 530 bps			26.2%		21.1%		up 510 bps
Adjusted net income	$28.3		$22.0		up 29%			$40.7		$28.9		up 41%
Adjusted net income per share	$0.50		$0.39		up $0.11			$0.71		$0.51		up $0.20
Adjusted EBITDA	$31.3		$23.9					$42.0		$31.2
Free cash flow	$8.9		$12.4					$19.2		$23.5

_______________
(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.

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. 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 income, 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 Financial Results

• Adjusted operating margin is a non-GAAP financial measure that the Company defines as income from operations which excludes i) stock-based compensation; ii) executive transition costs, such as executive search costs, retention costs, one-time severance costs and one-time corporate growth strategy costs; and iii) restructuring charges, divided by revenues.
• Adjusted net income is a non-GAAP financial measure that the Company defines as net income which excludes i) stock-based compensation; ii) executive transition costs; iii) restructuring charges; and iv) the applicable tax effect of the excluded items including the stock-based compensation discrete tax item.
• Adjusted net income per share is a non-GAAP financial measure that the Company defines as net income, which excludes i) stock-based compensation; ii) executive transition costs; iii) restructuring charges; and iv) the applicable tax effect of the excluded items including the stock-based compensation discrete tax item, divided by basic shares outstanding.
• Adjusted EBITDA is a non-GAAP financial measure that the Company defines as net income which excludes i) depreciation and amortization; ii) stock-based compensation; iii) executive transition costs; iv) restructuring charges; v) other income, net, such as interest income and other non-operating income (expense), net; and vi) provision for 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 Financial Results

LIVE CONFERENCE Q&A CALL:
Wednesday, February 26, 2025, 2:00 PM PT / 5:00 PM ET
US / Canada Toll-Free: +1 (866) 682-6100
Local / International Toll: +1 (862) 298-0702

CONFERENCE Q&A CALL REPLAY:
Available approximately three hours after conclusion of the live call.
Expiration: Tuesday, March 25, 2025
US / Canada Toll-Free: +1 (877) 660-6853
Local / International Toll: +1 (201) 612-7415
Access code: 13749222

Investors may also access the live call and the replay over the internet on the “Events” page of the Company’s website located 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 with sales and on-site technical support available globally. To learn more, visit https://energyrecovery.com/.

ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
	December 31, 2024				December 31, 2023
	(In thousands)
ASSETS
Cash, cash equivalents and investments	$	99,851			$	122,375
Accounts receivable and contract assets		66,842				47,529
Inventories, net		24,906				26,149
Prepaid expenses and other assets		3,889				3,251
Property, equipment and operating leases		25,119				30,168
Goodwill		12,790				12,790
Deferred tax assets and other assets		9,395				10,712
TOTAL ASSETS	$	242,792			$	252,974
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Accounts payable, accrued expenses, and other liabilities, current	$	20,837			$	18,583
Contract liabilities and other liabilities, non-current		628				1,304
Lease liabilities		11,317				13,279
Total liabilities		32,782				33,166
Stockholders’ equity		210,010				219,808
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	242,792			$	252,974

ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
		Three Months Ended December 31,								Years Ended December 31,
		2024				2023				2024				2023
		(In thousands, except per share data)
Revenue		$	67,075			$	57,189			$	144,948			$	128,349
Cost of revenue			19,955				17,690				48,015				41,270
Gross profit			47,120				39,499				96,933				87,079
Operating expenses
General and administrative			8,303				7,160				33,074				28,864
Sales and marketing			6,754				6,767				25,423				22,164
Research and development			3,972				4,958				16,236				17,001
Restructuring charges			2,476				—				2,476				—
Total operating expenses			21,505				18,885				77,209				68,029
Income from operations			25,615				20,614				19,724				19,050
Other income, net			1,240				1,298				6,011				3,655
Income before income taxes			26,855				21,912				25,735				22,705
Provision for income taxes			3,384				2,107				2,685				1,201
Net income		$	23,471			$	19,805			$	23,050			$	21,504
Net income per share
Basic		$	0.41			$	0.35			$	0.40			$	0.38
Diluted		$	0.41			$	0.34			$	0.40			$	0.37
Number of shares used in per share calculations
Basic			56,629				56,735				57,213				56,444
Diluted			57,236				57,671				57,822				57,740

ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
		Years Ended December 31,
		2024				2023
		(In thousands)
Cash flows from operating activities:
Net income		$	23,050			$	21,504
Non-cash adjustments			16,214				13,889
Net cash used in operating assets and liabilities			(18,742	)			(9,339	)
Net cash provided by operating activities			20,522				26,054
Cash flows from investing activities:
Net investment in marketable securities			(14,489	)			(16,634	)
Capital expenditures			(1,298	)			(2,567	)
Proceeds from sales of fixed assets			133				87
Net cash used in investing activities			(15,654	)			(19,114	)
Cash flows from financing activities:
Net proceeds from issuance of common stock			7,100				4,794
Repurchase of common stock			(50,384	)			—
Net cash (used in) provided by financing activities			(43,284	)			4,794
Effect of exchange rate differences			(52	)			33
Net change in cash, cash equivalents and restricted cash		$	(38,468	)		$	11,767
Cash, cash equivalents and restricted cash, end of year		$	29,757			$	68,225

ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited)
Channel Revenue
	Three Months Ended December 31,										Years Ended December 31,
	2024				2023				vs. 2023		2024				2023				vs. 2023
	(In thousands, except percentages)
Megaproject	$	46,475			$	41,382			up 12%		$	95,399			$	83,665			up 14%
Original equipment manufacturer		16,315				9,150			up 78%			31,525				25,995			up 21%
Aftermarket		4,285				6,657			down 36%			18,024				18,689			down 4%
Total revenue	$	67,075			$	57,189			up 17%		$	144,948			$	128,349			up 13%

Segment Activity
		Three Months Ended December 31,
		2024																2023
		Water				Emerging Technologies				Corporate				Total				Water				Emerging Technologies				Corporate				Total
		(In thousands)
Revenue		$	66,959			$	116			$	—			$	67,075			$	57,103			$	86			$	—			$	57,189
Cost of revenue			19,756				199				—				19,955				17,154				536				—				17,690
Gross profit (loss)			47,203				(83	)			—				47,120				39,949				(450	)			—				39,499
Operating expenses
General and administrative			2,490				913				4,900				8,303				1,914				951				4,295				7,160
Sales and marketing			4,324				1,856				574				6,754				4,124				1,882				761				6,767
Research and development			1,205				2,767				—				3,972				1,130				3,828				—				4,958
Restructuring charges			1,147				832				497				2,476				—				—				—				—
Total operating expenses			9,166				6,368				5,971				21,505				7,168				6,661				5,056				18,885
Operating income (loss)		$	38,037			$	(6,451	)		$	(5,971	)			25,615			$	32,781			$	(7,111	)		$	(5,056	)			20,614
Other income, net															1,240																1,298
Income before income taxes														$	26,855															$	21,912
		Years Ended December 31,
		2024																2023
		Water				Emerging Technologies				Corporate				Total				Water				Emerging Technologies				Corporate				Total
		(In thousands)
Revenue		$	144,310			$	638			$	—			$	144,948			$	127,725			$	624			$	—			$	128,349
Cost of revenue			47,389				626				—				48,015				40,290				980				—				41,270
Gross profit (loss)			96,921				12				—				96,933				87,435				(356	)			—				87,079
Operating expenses
General and administrative			8,127				3,821				21,126				33,074				7,751				3,927				17,186				28,864
Sales and marketing			15,683				7,340				2,400				25,423				13,691				6,053				2,420				22,164
Research and development			4,523				11,713				—				16,236				4,251				12,750				—				17,001
Restructuring charges			1,147				832				497				2,476				—				—				—				—
Total operating expenses			29,480				23,706				24,023				77,209				25,693				22,730				19,606				68,029
Operating income (loss)		$	67,441			$	(23,694	)		$	(24,023	)			19,724			$	61,742			$	(23,086	)		$	(19,606	)			19,050
Other income, net															6,011																3,655
Income before income taxes														$	25,735															$	22,705

Stock-based Compensation
	Three Months Ended December 31,								Years Ended December 31,
	2024				2023				2024				2023
	(In thousands)
Stock-based compensation expense charged to:
Cost of revenue	$	96			$	164			$	1,076			$	719
General and administrative		641				1,033				4,013				3,661
Sales and marketing		722				649				3,489				2,333
Research and development		351				381				1,744				1,325
Total stock-based compensation expense	$	1,810			$	2,227			$	10,322			$	8,038

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
	Q4'2024				Q4'2023				2024				2023
	(In millions, except shares, per share and percentages)
Operating margin		38.2	%			36.0	%			13.6	%			14.8	%
Stock-based compensation		2.7				3.9				7.1				6.3
Executive transition costs		0.7				—				3.7				—
Restructuring charges		3.7				—				1.7				—
Adjusted operating margin		45.2	%			39.9	%			26.2	%			21.1	%
Net income	$	23.5			$	19.8			$	23.1			$	21.5
Stock-based compensation		1.8				2.2				10.3				8.0
Executive transition costs (2)		0.4				—				4.8				—
Restructuring charges (2)		2.2				—				2.2				—
Stock-based compensation discrete tax item		0.4				—				0.3				(0.7	)
Adjusted net income	$	28.3			$	22.0			$	40.7			$	28.9
Net income per share	$	0.41			$	0.34			$	0.40			$	0.37
Adjustments to net income per share (3)		0.09				0.05				0.31				0.14
Adjusted net income per share	$	0.50			$	0.39			$	0.71			$	0.51
Net income	$	23.5			$	19.8			$	23.1			$	21.5
Stock-based compensation		1.8				2.2				10.3				8.0
Depreciation and amortization		1.0				1.0				4.0				4.1
Executive transition costs		0.4				—				5.4				—
Restructuring charges		2.5				—				2.5				—
Other income, net		(1.2	)			(1.3	)			(6.0	)			(3.7	)
Provision for income taxes		3.4				2.1				2.7				1.2
Adjusted EBITDA	$	31.3			$	23.9			$	42.0			$	31.2
Free cash flow
Net cash provided by operating activities	$	9.0			$	13.8			$	20.5			$	26.1
Capital expenditures		(0.1	)			(1.4	)			(1.3	)			(2.6	)
Free cash flow	$	8.9			$	12.4			$	19.2			$	23.5

_______________
(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/20250226400707/en/

Investor Relations

ir@energyrecovery.com

Source: Energy Recovery, Inc.

FAQ

What was Energy Recovery's (ERII) revenue growth in Q4 2024?

ERII's Q4 2024 revenue grew 17% year-over-year to $67.1 million.

How much did ERII's operating income increase in Q4 2024?

Operating income increased 24.3% to $25.6 million compared to Q4 2023.

What restructuring costs did Energy Recovery (ERII) incur in Q4 2024?

ERII incurred $2.5 million in restructuring costs related to workforce reduction and executive transition.

What was Energy Recovery's (ERII) gross margin in Q4 2024?

ERII achieved a gross margin of 70.2%, an increase of 110 basis points compared to Q4 2023.

How much cash and investments did ERII have at the end of Q4 2024?

ERII reported $99.9 million in cash and investments, including cash equivalents and short- and long-term investments.