Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil Hydroworld Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries Energy Recovery Achieves 22% Year-on-Year Quarterly Revenue Growth, Beating Guidance By: Energy Recovery, Inc. via Business Wire November 01, 2023 at 16:05 PM EDT Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the third quarter and nine months ended September 30, 2023. Third Quarter Highlights Revenue of $37.0 million, exceeding the upper end of our guidance which was attributed to an increase in megaproject revenues. Gross margin of 69.9%, higher than our estimates due to a change in product mix coupled with an increase in sales of our PX®. Operating expenses of $16.7 million, in line with prior quarters. Income from operations of $9.1 million. Net income of $9.7 million and adjusted EBITDA(1) of $12.0 million Cash and investments of $105.9 million, which include cash, cash equivalents, and short-term and long-term investments. Issued our annual Sustainability Report, which includes our commitment to reduce our emissions in relation to revenue by 65% by 2026. The full Sustainability Report can be found on our Sustainability page at energyrecovery.com. David Moon, Interim Chief Executive Officer, commented on the financial results, “We delivered strong third quarter results, beating the upper end of our guidance for the quarter and we remain well-positioned to deliver on our overall Water guidance for the full year. As we look to 2024, we see growth in desalination for the 10th consecutive year despite a challenging macroeconomic environment and project to potentially double wastewater revenue in 2024. Further, we continue to see a path to our 2026 water revenue targets.” Mr. Moon added, “In our CO2 business, we have a number of new installations of our PX G1300 planned for the fourth quarter, have received repeat orders for additional deployments from current end-users, and are currently in advanced talks with a number of national, and multi-national, supermarket chains in Europe and the United States. We were also awarded the Refrigeration Innovation of the Year for the XTE by RAC Cooling Industry Awards, together with our partner Epta, for Epta’s next-generation commercial CO2 refrigeration system, which utilizes the PX G1300. This award provides further third-party validation of our technology. It’s an exciting time to join the Energy Recovery team as the Interim President and CEO, and I look forward to working with the management team to help ensure we make substantial progress in 2024.” Financial Highlights Quarter-to-Date Year-to-Date Q3’2023 Q3’2022 vs. Q3’2022 2023 2022 2023 vs. 2022 (In millions, except net income per share, percentages and basis points) Revenue $37.0 $30.5 up 22% $71.2 $83.3 down 15% Gross margin 69.9% 69.1% up 80 bps 66.9% 69.0% down 210 bps Operating margin 24.7% 16.1% up 860 bps (2.2%) 12.3% NM Net income $9.7 $4.8 up 102% $1.7 $10.3 down 84% Net income per share $0.17 $0.08 up 113% $0.03 $0.18 down 83% Effective tax rate (114.2%) 3.5% Cash provided by (used for) operations $7.7 ($1.2) $12.3 $6.3 Non-GAAP Financial Highlights (1) Quarter-to-Date Year-to-Date Q3’2023 Q3’2022 vs. Q3’2022 2023 2022 2023 vs. 2022 (In millions, except adjusted net income per share, percentages and basis points) Adjusted operating margin 29.5% 22.4% up 710 bps 6.0% 20.3% NM Adjusted net income $11.4 $6.5 up 76% $6.8 $15.8 down 57% Adjusted net income per share $0.20 $0.12 up 67% $0.12 $0.28 down 57% Adjusted effective tax rate (3.5%) 9.1% Adjusted EBITDA $12.0 $7.7 $7.3 $19.8 Free cash flow $7.4 ($1.6) $11.1 $3.3 _______________ NM Not material (1) Refer to the sections “Use of Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” for definition of adjustment to GAAP presentation. 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 belief that the Company is well positioned to deliver on full year water guidance; our belief that desalination revenue may grow in 2024; our belief that wastewater revenue may potentially double in 2024; and our belief that a path to 2026 water revenue targets exist. 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, 2022, as supplemented by the risks discussed under “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 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 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 Third Quarter Financial Results Adjusted operating margin is a non-GAAP financial measure that the Company defines as income (loss) from operations which excludes i) share-based compensation; and ii) non-core operational costs, such as VorTeq-related severance costs and accelerated depreciation, divided by revenues. Adjusted net income is a non-GAAP financial measure that the Company defines as net income which excludes i) share-based compensation; ii) non-core operational costs, such as VorTeq-related severance costs and accelerated depreciation; and iii) the applicable tax effect of the excluded items including the share-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) share-based compensation; ii) non-core operational costs, such as VorTeq-related severance costs and accelerated depreciation; 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 share-based compensation discrete tax item, share-based compensation, and VorTeq-related severance costs and accelerated depreciation. Adjusted EBITDA is a non-GAAP financial measure that the Company defines as net income which excludes i) depreciation and amortization; ii) share-based compensation; iii) non-core operational costs, such as VorTeq-related severance costs; iv) other income, net, such as interest income and other non-operating expense, net; and v) provision for (benefit from) income taxes. Free cash flow is a non-GAAP financial measure that the Company defines as net cash provided by (used in) operating activities less capital expenditures. Conference Call to Discuss Third Quarter 2023 Financial Results LIVE CONFERENCE CALL: Wednesday, November 1, 2023, 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: December 1, 2023 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13741003 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 our pressure exchanger technology platform, we design and manufacture reliable, high-performance solutions that generate cost savings and increase energy efficiency across several industries. With a strong foundation in the desalination industry, Energy Recovery has delivered transformative solutions that optimize operations and deliver positive environmental impact to our customers worldwide for more than 30 years. Headquartered in the San Francisco Bay Area, Energy Recovery 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) September 30, 2023 December 31, 2022 (In thousands) ASSETS Cash, cash equivalents and investments $ 105,929 $ 92,891 Accounts receivable and contract assets 23,337 35,782 Inventories, net 33,888 28,366 Prepaid expenses and other assets 4,508 3,886 Property, equipment and operating leases 30,639 32,695 Goodwill 12,790 12,790 Deferred tax assets and other assets 11,570 10,629 TOTAL ASSETS $ 222,661 $ 217,039 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Accounts payable and accrued expenses $ 13,211 $ 15,507 Contract liabilities and other liabilities, non-current 1,689 1,316 Lease liabilities 13,732 14,878 Total liabilities 28,632 31,701 Stockholders’ equity 194,029 185,338 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 222,661 $ 217,039 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (In thousands, except per share data) Revenue $ 37,036 $ 30,462 $ 71,160 $ 83,300 Cost of revenue 11,154 9,417 23,580 25,835 Gross profit 25,882 21,045 47,580 57,465 Operating expenses General and administrative 7,369 7,608 21,704 21,155 Sales and marketing 5,411 4,703 15,397 11,916 Research and development 3,969 3,828 12,043 14,170 Total operating expenses 16,749 16,139 49,144 47,241 Income (loss) from operations 9,133 4,906 (1,564 ) 10,224 Other income, net 1,045 254 2,357 477 Income before income taxes 10,178 5,160 793 10,701 Provision for (benefit from) income taxes 518 371 (906 ) 377 Net income $ 9,660 $ 4,789 $ 1,699 $ 10,324 Net income per share Basic $ 0.17 $ 0.09 $ 0.03 $ 0.18 Diluted $ 0.17 $ 0.08 $ 0.03 $ 0.18 Number of shares used in per share calculations Basic 56,443 55,881 56,346 56,291 Diluted 57,969 57,372 57,761 57,708 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 2023 2022 (In thousands) Cash flows from operating activities: Net income $ 1,699 $ 10,324 Non-cash adjustments 8,817 11,136 Net cash provided by (used in) operating assets and liabilities 1,756 (15,192 ) Net cash provided by operating activities 12,272 6,268 Cash flows from investing activities: Net investment in marketable securities (17,278 ) (1,857 ) Capital expenditures (1,179 ) (2,999 ) Proceeds from sales of fixed assets 82 734 Net cash used in investing activities (18,375 ) (4,122 ) Cash flows from financing activities: Net proceeds from issuance of common stock 1,184 2,244 Repurchase of common stock — (26,654 ) Net cash provided by (used in) financing activities 1,184 (24,410 ) Effect of exchange rate differences 27 38 Net change in cash, cash equivalents and restricted cash $ (4,892 ) $ (22,226 ) Cash, cash equivalents and restricted cash, end of period $ 51,566 $ 52,235 ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Channel Revenue Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 vs. 2022 2023 2022 vs. 2022 (In thousands, except percentages) Megaproject $ 26,829 $ 17,347 up 55% $ 42,283 $ 51,257 down 18% Original equipment manufacturer 5,307 9,032 down 41% 16,845 21,392 down 21% Aftermarket 4,900 4,083 up 20% 12,032 10,651 up 13% Total revenue $ 37,036 $ 30,462 up 22% $ 71,160 $ 83,300 down 15% Segment Activity Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 36,812 $ 224 $ — $ 37,036 $ 30,462 $ — $ — $ 30,462 Cost of revenue 11,114 40 — 11,154 9,417 — — 9,417 Gross profit 25,698 184 — 25,882 21,045 — — 21,045 Operating expenses General and administrative 2,039 1,061 4,269 7,369 1,911 878 4,819 7,608 Sales and marketing 3,272 1,560 579 5,411 3,242 960 501 4,703 Research and development 1,098 2,871 — 3,969 1,216 2,612 — 3,828 Total operating expenses 6,409 5,492 4,848 16,749 6,369 4,450 5,320 16,139 Operating income (loss) $ 19,289 $ (5,308 ) $ (4,848 ) $ 9,133 $ 14,676 $ (4,450 ) $ (5,320 ) $ 4,906 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 70,622 $ 538 $ — $ 71,160 $ 83,191 $ 109 $ — $ 83,300 Cost of revenue 23,136 444 — 23,580 25,817 18 — 25,835 Gross profit 47,486 94 — 47,580 57,374 91 — 57,465 Operating expenses General and administrative 5,837 2,976 12,891 21,704 4,909 3,140 13,106 21,155 Sales and marketing 9,567 4,171 1,659 15,397 8,197 2,120 1,599 11,916 Research and development 3,121 8,922 — 12,043 3,159 11,011 — 14,170 Total operating expenses 18,525 16,069 14,550 49,144 16,265 16,271 14,705 47,241 Operating income (loss) $ 28,961 $ (15,975 ) $ (14,550 ) $ (1,564 ) $ 41,109 $ (16,180 ) $ (14,705 ) $ 10,224 Share-based Compensation Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (In thousands) Stock-based compensation expense charged to: Cost of revenue $ 158 $ 124 $ 555 $ 370 General and administrative 905 743 2,628 2,735 Sales and marketing 436 426 1,684 1,232 Research and development 292 205 944 767 Total stock-based compensation expense $ 1,791 $ 1,498 $ 5,811 $ 5,104 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 Q3'2023 Q3'2022 Q3'2023 Q3'2022 (In millions, except shares, per share and percentages) Operating margin 24.7 % 16.1 % (2.2 %) 12.3 % Share-based compensation 4.8 4.9 8.2 6.1 Severance — — — 0.4 Accelerated depreciation — — — 1.0 Litigation charges — 1.4 — 0.5 Adjusted operating margin 29.5 % 22.4 % 6.0 % 20.3 % Net income $ 9.7 $ 4.8 $ 1.7 $ 10.3 Share-based compensation (2) 1.8 1.5 5.8 5.1 Severance (2) — — — 0.3 Accelerated depreciation (2) — — — 0.7 Litigation charges (2) — 0.4 — 0.4 Other (2) — — — — Share-based compensation discrete tax item (0.1 ) (0.2 ) (0.7 ) (1.0 ) Adjusted net income $ 11.4 $ 6.5 $ 6.8 $ 15.8 Net income per share $ 0.17 $ 0.08 $ 0.03 $ 0.18 Adjustments to net income per share (3) 0.03 0.04 0.09 0.10 Adjusted net income per share $ 0.20 $ 0.12 $ 0.12 $ 0.28 Effective tax rate (114.2 %) 3.5 % Adjustments to effective tax rate (3) 110.7 5.6 Adjusted effective tax rate (3.5 %) 9.1 % Net income $ 9.7 $ 4.8 $ 1.7 $ 10.3 Share-based compensation 1.8 1.5 5.8 5.1 Severance — — — 0.3 Depreciation and amortization 1.1 0.9 3.1 3.8 Litigation charges — 0.4 — 0.4 Other — — — — Other income, net (1.0 ) (0.3 ) (2.4 ) (0.5 ) Provision for (benefit from) income taxes 0.5 0.4 (0.9 ) 0.4 Adjusted EBITDA $ 12.0 $ 7.7 $ 7.3 $ 19.8 Free cash flow Net cash provided by (used in) operating activities $ 7.7 $ (1.2 ) $ 12.3 $ 6.3 Capital expenditures (0.3 ) (0.4 ) (1.2 ) (3.0 ) Free cash flow $ 7.4 $ (1.6 ) $ 11.1 $ 3.3 _______________ (1) Amounts may not total due to rounding. (2) Amount 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/20231101635811/en/Contacts Investor Relations ir@energyrecovery.com +1 (346) 382-6927 Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. By accessing this page, you agree to the following Privacy Policy and Terms and Conditions.
Energy Recovery Achieves 22% Year-on-Year Quarterly Revenue Growth, Beating Guidance By: Energy Recovery, Inc. via Business Wire November 01, 2023 at 16:05 PM EDT Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the third quarter and nine months ended September 30, 2023. Third Quarter Highlights Revenue of $37.0 million, exceeding the upper end of our guidance which was attributed to an increase in megaproject revenues. Gross margin of 69.9%, higher than our estimates due to a change in product mix coupled with an increase in sales of our PX®. Operating expenses of $16.7 million, in line with prior quarters. Income from operations of $9.1 million. Net income of $9.7 million and adjusted EBITDA(1) of $12.0 million Cash and investments of $105.9 million, which include cash, cash equivalents, and short-term and long-term investments. Issued our annual Sustainability Report, which includes our commitment to reduce our emissions in relation to revenue by 65% by 2026. The full Sustainability Report can be found on our Sustainability page at energyrecovery.com. David Moon, Interim Chief Executive Officer, commented on the financial results, “We delivered strong third quarter results, beating the upper end of our guidance for the quarter and we remain well-positioned to deliver on our overall Water guidance for the full year. As we look to 2024, we see growth in desalination for the 10th consecutive year despite a challenging macroeconomic environment and project to potentially double wastewater revenue in 2024. Further, we continue to see a path to our 2026 water revenue targets.” Mr. Moon added, “In our CO2 business, we have a number of new installations of our PX G1300 planned for the fourth quarter, have received repeat orders for additional deployments from current end-users, and are currently in advanced talks with a number of national, and multi-national, supermarket chains in Europe and the United States. We were also awarded the Refrigeration Innovation of the Year for the XTE by RAC Cooling Industry Awards, together with our partner Epta, for Epta’s next-generation commercial CO2 refrigeration system, which utilizes the PX G1300. This award provides further third-party validation of our technology. It’s an exciting time to join the Energy Recovery team as the Interim President and CEO, and I look forward to working with the management team to help ensure we make substantial progress in 2024.” Financial Highlights Quarter-to-Date Year-to-Date Q3’2023 Q3’2022 vs. Q3’2022 2023 2022 2023 vs. 2022 (In millions, except net income per share, percentages and basis points) Revenue $37.0 $30.5 up 22% $71.2 $83.3 down 15% Gross margin 69.9% 69.1% up 80 bps 66.9% 69.0% down 210 bps Operating margin 24.7% 16.1% up 860 bps (2.2%) 12.3% NM Net income $9.7 $4.8 up 102% $1.7 $10.3 down 84% Net income per share $0.17 $0.08 up 113% $0.03 $0.18 down 83% Effective tax rate (114.2%) 3.5% Cash provided by (used for) operations $7.7 ($1.2) $12.3 $6.3 Non-GAAP Financial Highlights (1) Quarter-to-Date Year-to-Date Q3’2023 Q3’2022 vs. Q3’2022 2023 2022 2023 vs. 2022 (In millions, except adjusted net income per share, percentages and basis points) Adjusted operating margin 29.5% 22.4% up 710 bps 6.0% 20.3% NM Adjusted net income $11.4 $6.5 up 76% $6.8 $15.8 down 57% Adjusted net income per share $0.20 $0.12 up 67% $0.12 $0.28 down 57% Adjusted effective tax rate (3.5%) 9.1% Adjusted EBITDA $12.0 $7.7 $7.3 $19.8 Free cash flow $7.4 ($1.6) $11.1 $3.3 _______________ NM Not material (1) Refer to the sections “Use of Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” for definition of adjustment to GAAP presentation. 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 belief that the Company is well positioned to deliver on full year water guidance; our belief that desalination revenue may grow in 2024; our belief that wastewater revenue may potentially double in 2024; and our belief that a path to 2026 water revenue targets exist. 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, 2022, as supplemented by the risks discussed under “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 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 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 Third Quarter Financial Results Adjusted operating margin is a non-GAAP financial measure that the Company defines as income (loss) from operations which excludes i) share-based compensation; and ii) non-core operational costs, such as VorTeq-related severance costs and accelerated depreciation, divided by revenues. Adjusted net income is a non-GAAP financial measure that the Company defines as net income which excludes i) share-based compensation; ii) non-core operational costs, such as VorTeq-related severance costs and accelerated depreciation; and iii) the applicable tax effect of the excluded items including the share-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) share-based compensation; ii) non-core operational costs, such as VorTeq-related severance costs and accelerated depreciation; 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 share-based compensation discrete tax item, share-based compensation, and VorTeq-related severance costs and accelerated depreciation. Adjusted EBITDA is a non-GAAP financial measure that the Company defines as net income which excludes i) depreciation and amortization; ii) share-based compensation; iii) non-core operational costs, such as VorTeq-related severance costs; iv) other income, net, such as interest income and other non-operating expense, net; and v) provision for (benefit from) income taxes. Free cash flow is a non-GAAP financial measure that the Company defines as net cash provided by (used in) operating activities less capital expenditures. Conference Call to Discuss Third Quarter 2023 Financial Results LIVE CONFERENCE CALL: Wednesday, November 1, 2023, 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: December 1, 2023 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13741003 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 our pressure exchanger technology platform, we design and manufacture reliable, high-performance solutions that generate cost savings and increase energy efficiency across several industries. With a strong foundation in the desalination industry, Energy Recovery has delivered transformative solutions that optimize operations and deliver positive environmental impact to our customers worldwide for more than 30 years. Headquartered in the San Francisco Bay Area, Energy Recovery 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) September 30, 2023 December 31, 2022 (In thousands) ASSETS Cash, cash equivalents and investments $ 105,929 $ 92,891 Accounts receivable and contract assets 23,337 35,782 Inventories, net 33,888 28,366 Prepaid expenses and other assets 4,508 3,886 Property, equipment and operating leases 30,639 32,695 Goodwill 12,790 12,790 Deferred tax assets and other assets 11,570 10,629 TOTAL ASSETS $ 222,661 $ 217,039 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Accounts payable and accrued expenses $ 13,211 $ 15,507 Contract liabilities and other liabilities, non-current 1,689 1,316 Lease liabilities 13,732 14,878 Total liabilities 28,632 31,701 Stockholders’ equity 194,029 185,338 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 222,661 $ 217,039 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (In thousands, except per share data) Revenue $ 37,036 $ 30,462 $ 71,160 $ 83,300 Cost of revenue 11,154 9,417 23,580 25,835 Gross profit 25,882 21,045 47,580 57,465 Operating expenses General and administrative 7,369 7,608 21,704 21,155 Sales and marketing 5,411 4,703 15,397 11,916 Research and development 3,969 3,828 12,043 14,170 Total operating expenses 16,749 16,139 49,144 47,241 Income (loss) from operations 9,133 4,906 (1,564 ) 10,224 Other income, net 1,045 254 2,357 477 Income before income taxes 10,178 5,160 793 10,701 Provision for (benefit from) income taxes 518 371 (906 ) 377 Net income $ 9,660 $ 4,789 $ 1,699 $ 10,324 Net income per share Basic $ 0.17 $ 0.09 $ 0.03 $ 0.18 Diluted $ 0.17 $ 0.08 $ 0.03 $ 0.18 Number of shares used in per share calculations Basic 56,443 55,881 56,346 56,291 Diluted 57,969 57,372 57,761 57,708 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 2023 2022 (In thousands) Cash flows from operating activities: Net income $ 1,699 $ 10,324 Non-cash adjustments 8,817 11,136 Net cash provided by (used in) operating assets and liabilities 1,756 (15,192 ) Net cash provided by operating activities 12,272 6,268 Cash flows from investing activities: Net investment in marketable securities (17,278 ) (1,857 ) Capital expenditures (1,179 ) (2,999 ) Proceeds from sales of fixed assets 82 734 Net cash used in investing activities (18,375 ) (4,122 ) Cash flows from financing activities: Net proceeds from issuance of common stock 1,184 2,244 Repurchase of common stock — (26,654 ) Net cash provided by (used in) financing activities 1,184 (24,410 ) Effect of exchange rate differences 27 38 Net change in cash, cash equivalents and restricted cash $ (4,892 ) $ (22,226 ) Cash, cash equivalents and restricted cash, end of period $ 51,566 $ 52,235 ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Channel Revenue Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 vs. 2022 2023 2022 vs. 2022 (In thousands, except percentages) Megaproject $ 26,829 $ 17,347 up 55% $ 42,283 $ 51,257 down 18% Original equipment manufacturer 5,307 9,032 down 41% 16,845 21,392 down 21% Aftermarket 4,900 4,083 up 20% 12,032 10,651 up 13% Total revenue $ 37,036 $ 30,462 up 22% $ 71,160 $ 83,300 down 15% Segment Activity Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 36,812 $ 224 $ — $ 37,036 $ 30,462 $ — $ — $ 30,462 Cost of revenue 11,114 40 — 11,154 9,417 — — 9,417 Gross profit 25,698 184 — 25,882 21,045 — — 21,045 Operating expenses General and administrative 2,039 1,061 4,269 7,369 1,911 878 4,819 7,608 Sales and marketing 3,272 1,560 579 5,411 3,242 960 501 4,703 Research and development 1,098 2,871 — 3,969 1,216 2,612 — 3,828 Total operating expenses 6,409 5,492 4,848 16,749 6,369 4,450 5,320 16,139 Operating income (loss) $ 19,289 $ (5,308 ) $ (4,848 ) $ 9,133 $ 14,676 $ (4,450 ) $ (5,320 ) $ 4,906 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 70,622 $ 538 $ — $ 71,160 $ 83,191 $ 109 $ — $ 83,300 Cost of revenue 23,136 444 — 23,580 25,817 18 — 25,835 Gross profit 47,486 94 — 47,580 57,374 91 — 57,465 Operating expenses General and administrative 5,837 2,976 12,891 21,704 4,909 3,140 13,106 21,155 Sales and marketing 9,567 4,171 1,659 15,397 8,197 2,120 1,599 11,916 Research and development 3,121 8,922 — 12,043 3,159 11,011 — 14,170 Total operating expenses 18,525 16,069 14,550 49,144 16,265 16,271 14,705 47,241 Operating income (loss) $ 28,961 $ (15,975 ) $ (14,550 ) $ (1,564 ) $ 41,109 $ (16,180 ) $ (14,705 ) $ 10,224 Share-based Compensation Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (In thousands) Stock-based compensation expense charged to: Cost of revenue $ 158 $ 124 $ 555 $ 370 General and administrative 905 743 2,628 2,735 Sales and marketing 436 426 1,684 1,232 Research and development 292 205 944 767 Total stock-based compensation expense $ 1,791 $ 1,498 $ 5,811 $ 5,104 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 Q3'2023 Q3'2022 Q3'2023 Q3'2022 (In millions, except shares, per share and percentages) Operating margin 24.7 % 16.1 % (2.2 %) 12.3 % Share-based compensation 4.8 4.9 8.2 6.1 Severance — — — 0.4 Accelerated depreciation — — — 1.0 Litigation charges — 1.4 — 0.5 Adjusted operating margin 29.5 % 22.4 % 6.0 % 20.3 % Net income $ 9.7 $ 4.8 $ 1.7 $ 10.3 Share-based compensation (2) 1.8 1.5 5.8 5.1 Severance (2) — — — 0.3 Accelerated depreciation (2) — — — 0.7 Litigation charges (2) — 0.4 — 0.4 Other (2) — — — — Share-based compensation discrete tax item (0.1 ) (0.2 ) (0.7 ) (1.0 ) Adjusted net income $ 11.4 $ 6.5 $ 6.8 $ 15.8 Net income per share $ 0.17 $ 0.08 $ 0.03 $ 0.18 Adjustments to net income per share (3) 0.03 0.04 0.09 0.10 Adjusted net income per share $ 0.20 $ 0.12 $ 0.12 $ 0.28 Effective tax rate (114.2 %) 3.5 % Adjustments to effective tax rate (3) 110.7 5.6 Adjusted effective tax rate (3.5 %) 9.1 % Net income $ 9.7 $ 4.8 $ 1.7 $ 10.3 Share-based compensation 1.8 1.5 5.8 5.1 Severance — — — 0.3 Depreciation and amortization 1.1 0.9 3.1 3.8 Litigation charges — 0.4 — 0.4 Other — — — — Other income, net (1.0 ) (0.3 ) (2.4 ) (0.5 ) Provision for (benefit from) income taxes 0.5 0.4 (0.9 ) 0.4 Adjusted EBITDA $ 12.0 $ 7.7 $ 7.3 $ 19.8 Free cash flow Net cash provided by (used in) operating activities $ 7.7 $ (1.2 ) $ 12.3 $ 6.3 Capital expenditures (0.3 ) (0.4 ) (1.2 ) (3.0 ) Free cash flow $ 7.4 $ (1.6 ) $ 11.1 $ 3.3 _______________ (1) Amounts may not total due to rounding. (2) Amount 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/20231101635811/en/Contacts Investor Relations ir@energyrecovery.com +1 (346) 382-6927
Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the third quarter and nine months ended September 30, 2023. Third Quarter Highlights Revenue of $37.0 million, exceeding the upper end of our guidance which was attributed to an increase in megaproject revenues. Gross margin of 69.9%, higher than our estimates due to a change in product mix coupled with an increase in sales of our PX®. Operating expenses of $16.7 million, in line with prior quarters. Income from operations of $9.1 million. Net income of $9.7 million and adjusted EBITDA(1) of $12.0 million Cash and investments of $105.9 million, which include cash, cash equivalents, and short-term and long-term investments. Issued our annual Sustainability Report, which includes our commitment to reduce our emissions in relation to revenue by 65% by 2026. The full Sustainability Report can be found on our Sustainability page at energyrecovery.com. David Moon, Interim Chief Executive Officer, commented on the financial results, “We delivered strong third quarter results, beating the upper end of our guidance for the quarter and we remain well-positioned to deliver on our overall Water guidance for the full year. As we look to 2024, we see growth in desalination for the 10th consecutive year despite a challenging macroeconomic environment and project to potentially double wastewater revenue in 2024. Further, we continue to see a path to our 2026 water revenue targets.” Mr. Moon added, “In our CO2 business, we have a number of new installations of our PX G1300 planned for the fourth quarter, have received repeat orders for additional deployments from current end-users, and are currently in advanced talks with a number of national, and multi-national, supermarket chains in Europe and the United States. We were also awarded the Refrigeration Innovation of the Year for the XTE by RAC Cooling Industry Awards, together with our partner Epta, for Epta’s next-generation commercial CO2 refrigeration system, which utilizes the PX G1300. This award provides further third-party validation of our technology. It’s an exciting time to join the Energy Recovery team as the Interim President and CEO, and I look forward to working with the management team to help ensure we make substantial progress in 2024.” Financial Highlights Quarter-to-Date Year-to-Date Q3’2023 Q3’2022 vs. Q3’2022 2023 2022 2023 vs. 2022 (In millions, except net income per share, percentages and basis points) Revenue $37.0 $30.5 up 22% $71.2 $83.3 down 15% Gross margin 69.9% 69.1% up 80 bps 66.9% 69.0% down 210 bps Operating margin 24.7% 16.1% up 860 bps (2.2%) 12.3% NM Net income $9.7 $4.8 up 102% $1.7 $10.3 down 84% Net income per share $0.17 $0.08 up 113% $0.03 $0.18 down 83% Effective tax rate (114.2%) 3.5% Cash provided by (used for) operations $7.7 ($1.2) $12.3 $6.3 Non-GAAP Financial Highlights (1) Quarter-to-Date Year-to-Date Q3’2023 Q3’2022 vs. Q3’2022 2023 2022 2023 vs. 2022 (In millions, except adjusted net income per share, percentages and basis points) Adjusted operating margin 29.5% 22.4% up 710 bps 6.0% 20.3% NM Adjusted net income $11.4 $6.5 up 76% $6.8 $15.8 down 57% Adjusted net income per share $0.20 $0.12 up 67% $0.12 $0.28 down 57% Adjusted effective tax rate (3.5%) 9.1% Adjusted EBITDA $12.0 $7.7 $7.3 $19.8 Free cash flow $7.4 ($1.6) $11.1 $3.3 _______________ NM Not material (1) Refer to the sections “Use of Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” for definition of adjustment to GAAP presentation. 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 belief that the Company is well positioned to deliver on full year water guidance; our belief that desalination revenue may grow in 2024; our belief that wastewater revenue may potentially double in 2024; and our belief that a path to 2026 water revenue targets exist. 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, 2022, as supplemented by the risks discussed under “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 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 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 Third Quarter Financial Results Adjusted operating margin is a non-GAAP financial measure that the Company defines as income (loss) from operations which excludes i) share-based compensation; and ii) non-core operational costs, such as VorTeq-related severance costs and accelerated depreciation, divided by revenues. Adjusted net income is a non-GAAP financial measure that the Company defines as net income which excludes i) share-based compensation; ii) non-core operational costs, such as VorTeq-related severance costs and accelerated depreciation; and iii) the applicable tax effect of the excluded items including the share-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) share-based compensation; ii) non-core operational costs, such as VorTeq-related severance costs and accelerated depreciation; 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 share-based compensation discrete tax item, share-based compensation, and VorTeq-related severance costs and accelerated depreciation. Adjusted EBITDA is a non-GAAP financial measure that the Company defines as net income which excludes i) depreciation and amortization; ii) share-based compensation; iii) non-core operational costs, such as VorTeq-related severance costs; iv) other income, net, such as interest income and other non-operating expense, net; and v) provision for (benefit from) income taxes. Free cash flow is a non-GAAP financial measure that the Company defines as net cash provided by (used in) operating activities less capital expenditures. Conference Call to Discuss Third Quarter 2023 Financial Results LIVE CONFERENCE CALL: Wednesday, November 1, 2023, 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: December 1, 2023 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13741003 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 our pressure exchanger technology platform, we design and manufacture reliable, high-performance solutions that generate cost savings and increase energy efficiency across several industries. With a strong foundation in the desalination industry, Energy Recovery has delivered transformative solutions that optimize operations and deliver positive environmental impact to our customers worldwide for more than 30 years. Headquartered in the San Francisco Bay Area, Energy Recovery 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) September 30, 2023 December 31, 2022 (In thousands) ASSETS Cash, cash equivalents and investments $ 105,929 $ 92,891 Accounts receivable and contract assets 23,337 35,782 Inventories, net 33,888 28,366 Prepaid expenses and other assets 4,508 3,886 Property, equipment and operating leases 30,639 32,695 Goodwill 12,790 12,790 Deferred tax assets and other assets 11,570 10,629 TOTAL ASSETS $ 222,661 $ 217,039 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Accounts payable and accrued expenses $ 13,211 $ 15,507 Contract liabilities and other liabilities, non-current 1,689 1,316 Lease liabilities 13,732 14,878 Total liabilities 28,632 31,701 Stockholders’ equity 194,029 185,338 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 222,661 $ 217,039 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (In thousands, except per share data) Revenue $ 37,036 $ 30,462 $ 71,160 $ 83,300 Cost of revenue 11,154 9,417 23,580 25,835 Gross profit 25,882 21,045 47,580 57,465 Operating expenses General and administrative 7,369 7,608 21,704 21,155 Sales and marketing 5,411 4,703 15,397 11,916 Research and development 3,969 3,828 12,043 14,170 Total operating expenses 16,749 16,139 49,144 47,241 Income (loss) from operations 9,133 4,906 (1,564 ) 10,224 Other income, net 1,045 254 2,357 477 Income before income taxes 10,178 5,160 793 10,701 Provision for (benefit from) income taxes 518 371 (906 ) 377 Net income $ 9,660 $ 4,789 $ 1,699 $ 10,324 Net income per share Basic $ 0.17 $ 0.09 $ 0.03 $ 0.18 Diluted $ 0.17 $ 0.08 $ 0.03 $ 0.18 Number of shares used in per share calculations Basic 56,443 55,881 56,346 56,291 Diluted 57,969 57,372 57,761 57,708 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 2023 2022 (In thousands) Cash flows from operating activities: Net income $ 1,699 $ 10,324 Non-cash adjustments 8,817 11,136 Net cash provided by (used in) operating assets and liabilities 1,756 (15,192 ) Net cash provided by operating activities 12,272 6,268 Cash flows from investing activities: Net investment in marketable securities (17,278 ) (1,857 ) Capital expenditures (1,179 ) (2,999 ) Proceeds from sales of fixed assets 82 734 Net cash used in investing activities (18,375 ) (4,122 ) Cash flows from financing activities: Net proceeds from issuance of common stock 1,184 2,244 Repurchase of common stock — (26,654 ) Net cash provided by (used in) financing activities 1,184 (24,410 ) Effect of exchange rate differences 27 38 Net change in cash, cash equivalents and restricted cash $ (4,892 ) $ (22,226 ) Cash, cash equivalents and restricted cash, end of period $ 51,566 $ 52,235 ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Channel Revenue Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 vs. 2022 2023 2022 vs. 2022 (In thousands, except percentages) Megaproject $ 26,829 $ 17,347 up 55% $ 42,283 $ 51,257 down 18% Original equipment manufacturer 5,307 9,032 down 41% 16,845 21,392 down 21% Aftermarket 4,900 4,083 up 20% 12,032 10,651 up 13% Total revenue $ 37,036 $ 30,462 up 22% $ 71,160 $ 83,300 down 15% Segment Activity Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 36,812 $ 224 $ — $ 37,036 $ 30,462 $ — $ — $ 30,462 Cost of revenue 11,114 40 — 11,154 9,417 — — 9,417 Gross profit 25,698 184 — 25,882 21,045 — — 21,045 Operating expenses General and administrative 2,039 1,061 4,269 7,369 1,911 878 4,819 7,608 Sales and marketing 3,272 1,560 579 5,411 3,242 960 501 4,703 Research and development 1,098 2,871 — 3,969 1,216 2,612 — 3,828 Total operating expenses 6,409 5,492 4,848 16,749 6,369 4,450 5,320 16,139 Operating income (loss) $ 19,289 $ (5,308 ) $ (4,848 ) $ 9,133 $ 14,676 $ (4,450 ) $ (5,320 ) $ 4,906 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 70,622 $ 538 $ — $ 71,160 $ 83,191 $ 109 $ — $ 83,300 Cost of revenue 23,136 444 — 23,580 25,817 18 — 25,835 Gross profit 47,486 94 — 47,580 57,374 91 — 57,465 Operating expenses General and administrative 5,837 2,976 12,891 21,704 4,909 3,140 13,106 21,155 Sales and marketing 9,567 4,171 1,659 15,397 8,197 2,120 1,599 11,916 Research and development 3,121 8,922 — 12,043 3,159 11,011 — 14,170 Total operating expenses 18,525 16,069 14,550 49,144 16,265 16,271 14,705 47,241 Operating income (loss) $ 28,961 $ (15,975 ) $ (14,550 ) $ (1,564 ) $ 41,109 $ (16,180 ) $ (14,705 ) $ 10,224 Share-based Compensation Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (In thousands) Stock-based compensation expense charged to: Cost of revenue $ 158 $ 124 $ 555 $ 370 General and administrative 905 743 2,628 2,735 Sales and marketing 436 426 1,684 1,232 Research and development 292 205 944 767 Total stock-based compensation expense $ 1,791 $ 1,498 $ 5,811 $ 5,104 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 Q3'2023 Q3'2022 Q3'2023 Q3'2022 (In millions, except shares, per share and percentages) Operating margin 24.7 % 16.1 % (2.2 %) 12.3 % Share-based compensation 4.8 4.9 8.2 6.1 Severance — — — 0.4 Accelerated depreciation — — — 1.0 Litigation charges — 1.4 — 0.5 Adjusted operating margin 29.5 % 22.4 % 6.0 % 20.3 % Net income $ 9.7 $ 4.8 $ 1.7 $ 10.3 Share-based compensation (2) 1.8 1.5 5.8 5.1 Severance (2) — — — 0.3 Accelerated depreciation (2) — — — 0.7 Litigation charges (2) — 0.4 — 0.4 Other (2) — — — — Share-based compensation discrete tax item (0.1 ) (0.2 ) (0.7 ) (1.0 ) Adjusted net income $ 11.4 $ 6.5 $ 6.8 $ 15.8 Net income per share $ 0.17 $ 0.08 $ 0.03 $ 0.18 Adjustments to net income per share (3) 0.03 0.04 0.09 0.10 Adjusted net income per share $ 0.20 $ 0.12 $ 0.12 $ 0.28 Effective tax rate (114.2 %) 3.5 % Adjustments to effective tax rate (3) 110.7 5.6 Adjusted effective tax rate (3.5 %) 9.1 % Net income $ 9.7 $ 4.8 $ 1.7 $ 10.3 Share-based compensation 1.8 1.5 5.8 5.1 Severance — — — 0.3 Depreciation and amortization 1.1 0.9 3.1 3.8 Litigation charges — 0.4 — 0.4 Other — — — — Other income, net (1.0 ) (0.3 ) (2.4 ) (0.5 ) Provision for (benefit from) income taxes 0.5 0.4 (0.9 ) 0.4 Adjusted EBITDA $ 12.0 $ 7.7 $ 7.3 $ 19.8 Free cash flow Net cash provided by (used in) operating activities $ 7.7 $ (1.2 ) $ 12.3 $ 6.3 Capital expenditures (0.3 ) (0.4 ) (1.2 ) (3.0 ) Free cash flow $ 7.4 $ (1.6 ) $ 11.1 $ 3.3 _______________ (1) Amounts may not total due to rounding. (2) Amount 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/20231101635811/en/