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 Reports Record Full Year and Fourth Quarter Revenue for 2023 By: Energy Recovery, Inc. via Business Wire February 21, 2024 at 16:00 PM EST Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the fourth quarter and year ended December 31, 2023. Fiscal Year 2023 Highlights Record annual revenue of $128.3 million, which includes a 79% growth in wastewater and represents nine consecutive years of revenue growth. Record quarterly revenue of $57.2 million, representing a 35% year-on-year growth with strong performance in Energy Recovery’s primary desalination business and the continued rapid expansion of the company’s wastewater sector. Water revenue was below guidance due to the delayed shipment of a single project to be shipped in 2024. This project was highlighted as a potential risk in the Q3 earnings call. Gross margin of 67.8%, within Energy Recovery’s expectations and above guidance. Operating expenses of $68.0 million, in line with Energy Recovery’s expectations. Income from operations of $19.1 million. Net income of $21.5 million and adjusted EBITDA(1) of $31.2 million. Operating cash flow for the year more than doubled largely due to strong customer collections and strategic efforts to optimize raw inventory turnover rates. Cash and investments of $122.4 million, which include cash, cash equivalents, and short-term and long-term investments. “We achieved record annual and fourth quarter revenue in 2023, which represents our ninth consecutive year of revenue growth despite a shift of $8 million revenue associated with a single project that was pushed from the fourth quarter into 2024,” commented David Moon, President and CEO. “Our core desalination business is healthy, our wastewater business continues to grow rapidly, and we are making progress in our CO2 refrigeration business. This year, we expect to see our newest and most efficient product, the PX Q400, achieve roughly 50% of sales in our megaproject channel. Wastewater could reach up to 10% of our Water revenue in just three years and we are pushing hard to get our PX G1300 in multiple supermarket chains in the U.S. and Europe.” Mr. Moon added, “Our focus in 2024, and beyond, is rebuilding shareholder value and trust within the market. We remain committed to our growth strategy of diversification into new markets, which is key to Energy Recovery’s future. In 2024, we will continue to defend our leadership position in our core desalination business, and invest in new market opportunities in CO2 and wastewater, while managing both expenses and cash with discipline and a focus on investing in the highest and best use of shareholder capital. I am excited by the long-term growth prospects and believe we are well-positioned to continue to grow.” Financial Highlights Quarter-to-Date Year-to-Date Q4’2023 Q4’2022 vs. Q4’2022 2023 2022 2023 vs. 2022 (In millions, except net income per share, percentages and basis points) Revenue $57.2 $42.3 up 35% $128.3 $125.6 up 2% Gross margin 69.1% 70.7% down 160 bps 67.8% 69.6% down 180 bps Operating margin 36.0% 34.5% up 150 bps 14.8% 19.8% down 500 bps Net income $19.8 $13.7 up 44% $21.5 $24.0 down 11% Net income per share $0.34 $0.24 up 42% $0.37 $0.42 down 12% Effective tax rate 5.3% 7.8% Cash provided by operations $13.8 $6.4 $26.1 $12.6 Non-GAAP Financial Highlights (1) Quarter-to-Date Year-to-Date Q4’2023 Q4’2022 vs. Q4’2022 2023 2022 2023 vs. 2022 (In millions, except adjusted net income per share, percentages and basis points) Adjusted operating margin 39.9% 37.9% up 200 bps 21.1% 26.2% down 510 bps Adjusted net income $22.0 $14.7 up 50% $28.9 $30.5 down 5% Adjusted net income per share $0.39 $0.26 up 50% $0.51 $0.54 down 6% Adjusted effective tax rate 6.1% 10.6% Adjusted EBITDA $23.9 $17.0 $31.2 $36.8 Free cash flow $12.4 $5.1 $23.5 $8.4 ___________ (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 expectations regarding the shipment of projects; our belief that our core desalination business remains strong; our expectations regarding the growth of our wastewater business; our belief we are making progress in our CO2 business; our belief that we can defend our position in seawater desalination; our ability to build shareholder value; and our belief that the Company is well positioned to continue to grow. 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 Fourth Quarter and Fiscal 2023 Financial Results Adjusted operating margin is a non-GAAP financial measure that the Company defines as income 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; and 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 income (expense), net; and v) 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 Fourth Quarter and Fiscal 2023 Financial Results LIVE CONFERENCE CALL: Wednesday, February 21, 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: March 22, 2024 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13743738 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) 2023 2022 (In thousands) ASSETS Cash, cash equivalents and investments $ 122,375 $ 92,891 Accounts receivable and contract assets 47,529 35,782 Inventories, net 26,149 28,366 Prepaid expenses and other assets 3,251 3,886 Property, equipment and operating leases 30,168 32,695 Goodwill 12,790 12,790 Deferred tax assets and other assets 10,712 10,629 TOTAL ASSETS $ 252,974 $ 217,039 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Accounts payable and accrued expenses $ 18,583 $ 15,507 Contract liabilities and other liabilities, non-current 1,304 1,316 Lease liabilities 13,279 14,878 Total liabilities 33,166 31,701 Stockholders’ equity 219,808 185,338 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 252,974 $ 217,039 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended December 31, Years Ended December 31, 2023 2022 2023 2022 (In thousands, except per share data) Revenue $ 57,189 $ 42,291 $ 128,349 $ 125,591 Cost of revenue 17,690 12,400 41,270 38,235 Gross profit 39,499 29,891 87,079 87,356 Operating expenses General and administrative 7,160 7,186 28,864 28,341 Sales and marketing 6,767 4,361 22,164 16,277 Research and development 4,958 3,739 17,001 17,909 Total operating expenses 18,885 15,286 68,029 62,527 Income from operations 20,614 14,605 19,050 24,829 Other income, net 1,298 765 3,655 1,242 Income before income taxes 21,912 15,370 22,705 26,071 Provision for income taxes 2,107 1,645 1,201 2,022 Net income $ 19,805 $ 13,725 $ 21,504 $ 24,049 Net income per share Basic $ 0.35 $ 0.25 $ 0.38 $ 0.43 Diluted $ 0.34 $ 0.24 $ 0.37 $ 0.42 Number of shares used in per share calculations Basic 56,735 56,014 56,444 56,221 Diluted 57,671 57,433 57,740 57,641 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Years Ended December 31, 2023 2022 (In thousands) Cash flows from operating activities: Net income $ 21,504 $ 24,049 Non-cash adjustments 13,889 14,447 Net cash used in operating assets and liabilities (9,339 ) (25,865 ) Net cash provided by operating activities 26,054 12,631 Cash flows from investing activities: Net investment in marketable securities (16,634 ) (3,816 ) Capital expenditures (2,567 ) (4,232 ) Proceeds from sales of fixed assets 87 1,102 Net cash used in investing activities (19,114 ) (6,946 ) Cash flows from financing activities: Net proceeds from issuance of common stock 4,794 2,986 Repurchase of common stock — (26,654 ) Net cash provided by (used in) financing activities 4,794 (23,668 ) Effect of exchange rate differences 33 (20 ) Net change in cash, cash equivalents and restricted cash $ 11,767 $ (18,003 ) Cash, cash equivalents and restricted cash, end of year $ 68,225 $ 56,458 ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Channel Revenue Three Months Ended December 31, Years Ended December 31, 2023 2022 vs. 2022 2023 2022 vs. 2022 (In thousands, except percentages) Megaproject $ 41,382 $ 30,631 up 35% $ 83,665 $ 81,888 up 2% Original equipment manufacturer 9,150 7,466 up 23% 25,995 28,858 down 10% Aftermarket 6,657 4,194 up 59% 18,689 14,845 up 26% Total revenue $ 57,189 $ 42,291 up 35% $ 128,349 $ 125,591 up 2% Segment Activity Three Months Ended December 31, 2023 Three Months Ended December 31, 2022 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 57,103 $ 86 $ — $ 57,189 $ 42,237 $ 54 $ — $ 42,291 Cost of revenue 17,154 536 — 17,690 12,341 59 — 12,400 Gross profit (loss) 39,949 (450 ) — 39,499 29,896 (5 ) — 29,891 Operating expenses General and administrative 1,914 951 4,295 7,160 2,027 964 4,195 7,186 Sales and marketing 4,124 1,882 761 6,767 2,868 927 566 4,361 Research and development 1,130 3,828 — 4,958 992 2,747 — 3,739 Total operating expenses 7,168 6,661 5,056 18,885 5,887 4,638 4,761 15,286 Operating income (loss) $ 32,781 $ (7,111 ) $ (5,056 ) $ 20,614 $ 24,009 $ (4,643 ) $ (4,761 ) $ 14,605 Year Ended December 31, 2023 Year Ended December 31, 2022 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 127,725 $ 624 $ — $ 128,349 $ 125,428 $ 163 $ — $ 125,591 Cost of revenue 40,290 980 — 41,270 38,158 77 — 38,235 Gross profit (loss) 87,435 (356 ) — 87,079 87,270 86 — 87,356 Operating expenses General and administrative 7,751 3,927 17,186 28,864 6,936 4,104 17,301 28,341 Sales and marketing 13,691 6,053 2,420 22,164 11,065 3,047 2,165 16,277 Research and development 4,251 12,750 — 17,001 4,151 13,758 — 17,909 Total operating expenses 25,693 22,730 19,606 68,029 22,152 20,909 19,466 62,527 Operating income (loss) $ 61,742 $ (23,086 ) $ (19,606 ) $ 19,050 $ 65,118 $ (20,823 ) $ (19,466 ) $ 24,829 Share-based Compensation Three Months Ended December 31, Years Ended December 31, 2023 2022 2023 2022 (In thousands) Stock-based compensation expense charged to: Cost of revenue $ 164 $ 136 $ 719 $ 506 General and administrative 1,033 701 3,661 3,436 Sales and marketing 649 360 2,333 1,592 Research and development 381 210 1,325 977 Total stock-based compensation expense $ 2,227 $ 1,407 $ 8,038 $ 6,511 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 Q4'2023 Q4'2022 2023 2022 (In millions, except shares, per share and percentages) Operating margin 36.0 % 34.5 % 14.8 % 19.8 % Share-based compensation 3.9 3.3 6.3 5.2 Severance — — — 0.2 Accelerated depreciation — — — 0.7 Litigation charges — — — 0.3 Adjusted operating margin 39.9 % 37.9 % 21.1 % 26.2 % Net income $ 19.8 $ 13.7 $ 21.5 $ 24.0 Share-based compensation (2) 2.2 1.4 8.0 6.5 Severance (2) — — — 0.3 Accelerated depreciation (2) — — — 0.7 Litigation charges (2) — — — 0.4 Share-based compensation discrete tax item — (0.4 ) (0.7 ) (1.4 ) Adjusted net income $ 22.0 $ 14.7 $ 28.9 $ 30.5 Net income per share $ 0.34 $ 0.24 $ 0.37 $ 0.42 Adjustments to net income per share (3) 0.05 0.02 0.14 0.12 Adjusted net income per share $ 0.39 $ 0.26 $ 0.51 $ 0.54 Effective tax rate 5.3 % 7.8 % Adjustments to effective tax rate (3) 0.8 2.9 Adjusted effective tax rate 6.1 % 10.6 % Net income $ 19.8 $ 13.7 $ 21.5 $ 24.0 Share-based compensation 2.2 1.4 8.0 6.5 Severance — — — 0.3 Depreciation and amortization 1.0 1.0 4.1 4.8 Litigation charges — — — 0.4 Other income, net (1.3 ) (0.8 ) (3.7 ) (1.2 ) Provision for income taxes 2.1 1.6 1.2 2.0 Adjusted EBITDA $ 23.9 $ 17.0 $ 31.2 $ 36.8 Free cash flow Net cash provided by operating activities $ 13.8 $ 6.4 $ 26.1 $ 12.6 Capital expenditures (1.4 ) (1.2 ) (2.6 ) (4.2 ) Free cash flow $ 12.4 $ 5.1 $ 23.5 $ 8.4 ___________ (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/20240221115867/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 Reports Record Full Year and Fourth Quarter Revenue for 2023 By: Energy Recovery, Inc. via Business Wire February 21, 2024 at 16:00 PM EST Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the fourth quarter and year ended December 31, 2023. Fiscal Year 2023 Highlights Record annual revenue of $128.3 million, which includes a 79% growth in wastewater and represents nine consecutive years of revenue growth. Record quarterly revenue of $57.2 million, representing a 35% year-on-year growth with strong performance in Energy Recovery’s primary desalination business and the continued rapid expansion of the company’s wastewater sector. Water revenue was below guidance due to the delayed shipment of a single project to be shipped in 2024. This project was highlighted as a potential risk in the Q3 earnings call. Gross margin of 67.8%, within Energy Recovery’s expectations and above guidance. Operating expenses of $68.0 million, in line with Energy Recovery’s expectations. Income from operations of $19.1 million. Net income of $21.5 million and adjusted EBITDA(1) of $31.2 million. Operating cash flow for the year more than doubled largely due to strong customer collections and strategic efforts to optimize raw inventory turnover rates. Cash and investments of $122.4 million, which include cash, cash equivalents, and short-term and long-term investments. “We achieved record annual and fourth quarter revenue in 2023, which represents our ninth consecutive year of revenue growth despite a shift of $8 million revenue associated with a single project that was pushed from the fourth quarter into 2024,” commented David Moon, President and CEO. “Our core desalination business is healthy, our wastewater business continues to grow rapidly, and we are making progress in our CO2 refrigeration business. This year, we expect to see our newest and most efficient product, the PX Q400, achieve roughly 50% of sales in our megaproject channel. Wastewater could reach up to 10% of our Water revenue in just three years and we are pushing hard to get our PX G1300 in multiple supermarket chains in the U.S. and Europe.” Mr. Moon added, “Our focus in 2024, and beyond, is rebuilding shareholder value and trust within the market. We remain committed to our growth strategy of diversification into new markets, which is key to Energy Recovery’s future. In 2024, we will continue to defend our leadership position in our core desalination business, and invest in new market opportunities in CO2 and wastewater, while managing both expenses and cash with discipline and a focus on investing in the highest and best use of shareholder capital. I am excited by the long-term growth prospects and believe we are well-positioned to continue to grow.” Financial Highlights Quarter-to-Date Year-to-Date Q4’2023 Q4’2022 vs. Q4’2022 2023 2022 2023 vs. 2022 (In millions, except net income per share, percentages and basis points) Revenue $57.2 $42.3 up 35% $128.3 $125.6 up 2% Gross margin 69.1% 70.7% down 160 bps 67.8% 69.6% down 180 bps Operating margin 36.0% 34.5% up 150 bps 14.8% 19.8% down 500 bps Net income $19.8 $13.7 up 44% $21.5 $24.0 down 11% Net income per share $0.34 $0.24 up 42% $0.37 $0.42 down 12% Effective tax rate 5.3% 7.8% Cash provided by operations $13.8 $6.4 $26.1 $12.6 Non-GAAP Financial Highlights (1) Quarter-to-Date Year-to-Date Q4’2023 Q4’2022 vs. Q4’2022 2023 2022 2023 vs. 2022 (In millions, except adjusted net income per share, percentages and basis points) Adjusted operating margin 39.9% 37.9% up 200 bps 21.1% 26.2% down 510 bps Adjusted net income $22.0 $14.7 up 50% $28.9 $30.5 down 5% Adjusted net income per share $0.39 $0.26 up 50% $0.51 $0.54 down 6% Adjusted effective tax rate 6.1% 10.6% Adjusted EBITDA $23.9 $17.0 $31.2 $36.8 Free cash flow $12.4 $5.1 $23.5 $8.4 ___________ (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 expectations regarding the shipment of projects; our belief that our core desalination business remains strong; our expectations regarding the growth of our wastewater business; our belief we are making progress in our CO2 business; our belief that we can defend our position in seawater desalination; our ability to build shareholder value; and our belief that the Company is well positioned to continue to grow. 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 Fourth Quarter and Fiscal 2023 Financial Results Adjusted operating margin is a non-GAAP financial measure that the Company defines as income 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; and 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 income (expense), net; and v) 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 Fourth Quarter and Fiscal 2023 Financial Results LIVE CONFERENCE CALL: Wednesday, February 21, 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: March 22, 2024 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13743738 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) 2023 2022 (In thousands) ASSETS Cash, cash equivalents and investments $ 122,375 $ 92,891 Accounts receivable and contract assets 47,529 35,782 Inventories, net 26,149 28,366 Prepaid expenses and other assets 3,251 3,886 Property, equipment and operating leases 30,168 32,695 Goodwill 12,790 12,790 Deferred tax assets and other assets 10,712 10,629 TOTAL ASSETS $ 252,974 $ 217,039 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Accounts payable and accrued expenses $ 18,583 $ 15,507 Contract liabilities and other liabilities, non-current 1,304 1,316 Lease liabilities 13,279 14,878 Total liabilities 33,166 31,701 Stockholders’ equity 219,808 185,338 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 252,974 $ 217,039 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended December 31, Years Ended December 31, 2023 2022 2023 2022 (In thousands, except per share data) Revenue $ 57,189 $ 42,291 $ 128,349 $ 125,591 Cost of revenue 17,690 12,400 41,270 38,235 Gross profit 39,499 29,891 87,079 87,356 Operating expenses General and administrative 7,160 7,186 28,864 28,341 Sales and marketing 6,767 4,361 22,164 16,277 Research and development 4,958 3,739 17,001 17,909 Total operating expenses 18,885 15,286 68,029 62,527 Income from operations 20,614 14,605 19,050 24,829 Other income, net 1,298 765 3,655 1,242 Income before income taxes 21,912 15,370 22,705 26,071 Provision for income taxes 2,107 1,645 1,201 2,022 Net income $ 19,805 $ 13,725 $ 21,504 $ 24,049 Net income per share Basic $ 0.35 $ 0.25 $ 0.38 $ 0.43 Diluted $ 0.34 $ 0.24 $ 0.37 $ 0.42 Number of shares used in per share calculations Basic 56,735 56,014 56,444 56,221 Diluted 57,671 57,433 57,740 57,641 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Years Ended December 31, 2023 2022 (In thousands) Cash flows from operating activities: Net income $ 21,504 $ 24,049 Non-cash adjustments 13,889 14,447 Net cash used in operating assets and liabilities (9,339 ) (25,865 ) Net cash provided by operating activities 26,054 12,631 Cash flows from investing activities: Net investment in marketable securities (16,634 ) (3,816 ) Capital expenditures (2,567 ) (4,232 ) Proceeds from sales of fixed assets 87 1,102 Net cash used in investing activities (19,114 ) (6,946 ) Cash flows from financing activities: Net proceeds from issuance of common stock 4,794 2,986 Repurchase of common stock — (26,654 ) Net cash provided by (used in) financing activities 4,794 (23,668 ) Effect of exchange rate differences 33 (20 ) Net change in cash, cash equivalents and restricted cash $ 11,767 $ (18,003 ) Cash, cash equivalents and restricted cash, end of year $ 68,225 $ 56,458 ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Channel Revenue Three Months Ended December 31, Years Ended December 31, 2023 2022 vs. 2022 2023 2022 vs. 2022 (In thousands, except percentages) Megaproject $ 41,382 $ 30,631 up 35% $ 83,665 $ 81,888 up 2% Original equipment manufacturer 9,150 7,466 up 23% 25,995 28,858 down 10% Aftermarket 6,657 4,194 up 59% 18,689 14,845 up 26% Total revenue $ 57,189 $ 42,291 up 35% $ 128,349 $ 125,591 up 2% Segment Activity Three Months Ended December 31, 2023 Three Months Ended December 31, 2022 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 57,103 $ 86 $ — $ 57,189 $ 42,237 $ 54 $ — $ 42,291 Cost of revenue 17,154 536 — 17,690 12,341 59 — 12,400 Gross profit (loss) 39,949 (450 ) — 39,499 29,896 (5 ) — 29,891 Operating expenses General and administrative 1,914 951 4,295 7,160 2,027 964 4,195 7,186 Sales and marketing 4,124 1,882 761 6,767 2,868 927 566 4,361 Research and development 1,130 3,828 — 4,958 992 2,747 — 3,739 Total operating expenses 7,168 6,661 5,056 18,885 5,887 4,638 4,761 15,286 Operating income (loss) $ 32,781 $ (7,111 ) $ (5,056 ) $ 20,614 $ 24,009 $ (4,643 ) $ (4,761 ) $ 14,605 Year Ended December 31, 2023 Year Ended December 31, 2022 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 127,725 $ 624 $ — $ 128,349 $ 125,428 $ 163 $ — $ 125,591 Cost of revenue 40,290 980 — 41,270 38,158 77 — 38,235 Gross profit (loss) 87,435 (356 ) — 87,079 87,270 86 — 87,356 Operating expenses General and administrative 7,751 3,927 17,186 28,864 6,936 4,104 17,301 28,341 Sales and marketing 13,691 6,053 2,420 22,164 11,065 3,047 2,165 16,277 Research and development 4,251 12,750 — 17,001 4,151 13,758 — 17,909 Total operating expenses 25,693 22,730 19,606 68,029 22,152 20,909 19,466 62,527 Operating income (loss) $ 61,742 $ (23,086 ) $ (19,606 ) $ 19,050 $ 65,118 $ (20,823 ) $ (19,466 ) $ 24,829 Share-based Compensation Three Months Ended December 31, Years Ended December 31, 2023 2022 2023 2022 (In thousands) Stock-based compensation expense charged to: Cost of revenue $ 164 $ 136 $ 719 $ 506 General and administrative 1,033 701 3,661 3,436 Sales and marketing 649 360 2,333 1,592 Research and development 381 210 1,325 977 Total stock-based compensation expense $ 2,227 $ 1,407 $ 8,038 $ 6,511 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 Q4'2023 Q4'2022 2023 2022 (In millions, except shares, per share and percentages) Operating margin 36.0 % 34.5 % 14.8 % 19.8 % Share-based compensation 3.9 3.3 6.3 5.2 Severance — — — 0.2 Accelerated depreciation — — — 0.7 Litigation charges — — — 0.3 Adjusted operating margin 39.9 % 37.9 % 21.1 % 26.2 % Net income $ 19.8 $ 13.7 $ 21.5 $ 24.0 Share-based compensation (2) 2.2 1.4 8.0 6.5 Severance (2) — — — 0.3 Accelerated depreciation (2) — — — 0.7 Litigation charges (2) — — — 0.4 Share-based compensation discrete tax item — (0.4 ) (0.7 ) (1.4 ) Adjusted net income $ 22.0 $ 14.7 $ 28.9 $ 30.5 Net income per share $ 0.34 $ 0.24 $ 0.37 $ 0.42 Adjustments to net income per share (3) 0.05 0.02 0.14 0.12 Adjusted net income per share $ 0.39 $ 0.26 $ 0.51 $ 0.54 Effective tax rate 5.3 % 7.8 % Adjustments to effective tax rate (3) 0.8 2.9 Adjusted effective tax rate 6.1 % 10.6 % Net income $ 19.8 $ 13.7 $ 21.5 $ 24.0 Share-based compensation 2.2 1.4 8.0 6.5 Severance — — — 0.3 Depreciation and amortization 1.0 1.0 4.1 4.8 Litigation charges — — — 0.4 Other income, net (1.3 ) (0.8 ) (3.7 ) (1.2 ) Provision for income taxes 2.1 1.6 1.2 2.0 Adjusted EBITDA $ 23.9 $ 17.0 $ 31.2 $ 36.8 Free cash flow Net cash provided by operating activities $ 13.8 $ 6.4 $ 26.1 $ 12.6 Capital expenditures (1.4 ) (1.2 ) (2.6 ) (4.2 ) Free cash flow $ 12.4 $ 5.1 $ 23.5 $ 8.4 ___________ (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/20240221115867/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 fourth quarter and year ended December 31, 2023. Fiscal Year 2023 Highlights Record annual revenue of $128.3 million, which includes a 79% growth in wastewater and represents nine consecutive years of revenue growth. Record quarterly revenue of $57.2 million, representing a 35% year-on-year growth with strong performance in Energy Recovery’s primary desalination business and the continued rapid expansion of the company’s wastewater sector. Water revenue was below guidance due to the delayed shipment of a single project to be shipped in 2024. This project was highlighted as a potential risk in the Q3 earnings call. Gross margin of 67.8%, within Energy Recovery’s expectations and above guidance. Operating expenses of $68.0 million, in line with Energy Recovery’s expectations. Income from operations of $19.1 million. Net income of $21.5 million and adjusted EBITDA(1) of $31.2 million. Operating cash flow for the year more than doubled largely due to strong customer collections and strategic efforts to optimize raw inventory turnover rates. Cash and investments of $122.4 million, which include cash, cash equivalents, and short-term and long-term investments. “We achieved record annual and fourth quarter revenue in 2023, which represents our ninth consecutive year of revenue growth despite a shift of $8 million revenue associated with a single project that was pushed from the fourth quarter into 2024,” commented David Moon, President and CEO. “Our core desalination business is healthy, our wastewater business continues to grow rapidly, and we are making progress in our CO2 refrigeration business. This year, we expect to see our newest and most efficient product, the PX Q400, achieve roughly 50% of sales in our megaproject channel. Wastewater could reach up to 10% of our Water revenue in just three years and we are pushing hard to get our PX G1300 in multiple supermarket chains in the U.S. and Europe.” Mr. Moon added, “Our focus in 2024, and beyond, is rebuilding shareholder value and trust within the market. We remain committed to our growth strategy of diversification into new markets, which is key to Energy Recovery’s future. In 2024, we will continue to defend our leadership position in our core desalination business, and invest in new market opportunities in CO2 and wastewater, while managing both expenses and cash with discipline and a focus on investing in the highest and best use of shareholder capital. I am excited by the long-term growth prospects and believe we are well-positioned to continue to grow.” Financial Highlights Quarter-to-Date Year-to-Date Q4’2023 Q4’2022 vs. Q4’2022 2023 2022 2023 vs. 2022 (In millions, except net income per share, percentages and basis points) Revenue $57.2 $42.3 up 35% $128.3 $125.6 up 2% Gross margin 69.1% 70.7% down 160 bps 67.8% 69.6% down 180 bps Operating margin 36.0% 34.5% up 150 bps 14.8% 19.8% down 500 bps Net income $19.8 $13.7 up 44% $21.5 $24.0 down 11% Net income per share $0.34 $0.24 up 42% $0.37 $0.42 down 12% Effective tax rate 5.3% 7.8% Cash provided by operations $13.8 $6.4 $26.1 $12.6 Non-GAAP Financial Highlights (1) Quarter-to-Date Year-to-Date Q4’2023 Q4’2022 vs. Q4’2022 2023 2022 2023 vs. 2022 (In millions, except adjusted net income per share, percentages and basis points) Adjusted operating margin 39.9% 37.9% up 200 bps 21.1% 26.2% down 510 bps Adjusted net income $22.0 $14.7 up 50% $28.9 $30.5 down 5% Adjusted net income per share $0.39 $0.26 up 50% $0.51 $0.54 down 6% Adjusted effective tax rate 6.1% 10.6% Adjusted EBITDA $23.9 $17.0 $31.2 $36.8 Free cash flow $12.4 $5.1 $23.5 $8.4 ___________ (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 expectations regarding the shipment of projects; our belief that our core desalination business remains strong; our expectations regarding the growth of our wastewater business; our belief we are making progress in our CO2 business; our belief that we can defend our position in seawater desalination; our ability to build shareholder value; and our belief that the Company is well positioned to continue to grow. 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 Fourth Quarter and Fiscal 2023 Financial Results Adjusted operating margin is a non-GAAP financial measure that the Company defines as income 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; and 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 income (expense), net; and v) 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 Fourth Quarter and Fiscal 2023 Financial Results LIVE CONFERENCE CALL: Wednesday, February 21, 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: March 22, 2024 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13743738 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) 2023 2022 (In thousands) ASSETS Cash, cash equivalents and investments $ 122,375 $ 92,891 Accounts receivable and contract assets 47,529 35,782 Inventories, net 26,149 28,366 Prepaid expenses and other assets 3,251 3,886 Property, equipment and operating leases 30,168 32,695 Goodwill 12,790 12,790 Deferred tax assets and other assets 10,712 10,629 TOTAL ASSETS $ 252,974 $ 217,039 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Accounts payable and accrued expenses $ 18,583 $ 15,507 Contract liabilities and other liabilities, non-current 1,304 1,316 Lease liabilities 13,279 14,878 Total liabilities 33,166 31,701 Stockholders’ equity 219,808 185,338 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 252,974 $ 217,039 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended December 31, Years Ended December 31, 2023 2022 2023 2022 (In thousands, except per share data) Revenue $ 57,189 $ 42,291 $ 128,349 $ 125,591 Cost of revenue 17,690 12,400 41,270 38,235 Gross profit 39,499 29,891 87,079 87,356 Operating expenses General and administrative 7,160 7,186 28,864 28,341 Sales and marketing 6,767 4,361 22,164 16,277 Research and development 4,958 3,739 17,001 17,909 Total operating expenses 18,885 15,286 68,029 62,527 Income from operations 20,614 14,605 19,050 24,829 Other income, net 1,298 765 3,655 1,242 Income before income taxes 21,912 15,370 22,705 26,071 Provision for income taxes 2,107 1,645 1,201 2,022 Net income $ 19,805 $ 13,725 $ 21,504 $ 24,049 Net income per share Basic $ 0.35 $ 0.25 $ 0.38 $ 0.43 Diluted $ 0.34 $ 0.24 $ 0.37 $ 0.42 Number of shares used in per share calculations Basic 56,735 56,014 56,444 56,221 Diluted 57,671 57,433 57,740 57,641 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Years Ended December 31, 2023 2022 (In thousands) Cash flows from operating activities: Net income $ 21,504 $ 24,049 Non-cash adjustments 13,889 14,447 Net cash used in operating assets and liabilities (9,339 ) (25,865 ) Net cash provided by operating activities 26,054 12,631 Cash flows from investing activities: Net investment in marketable securities (16,634 ) (3,816 ) Capital expenditures (2,567 ) (4,232 ) Proceeds from sales of fixed assets 87 1,102 Net cash used in investing activities (19,114 ) (6,946 ) Cash flows from financing activities: Net proceeds from issuance of common stock 4,794 2,986 Repurchase of common stock — (26,654 ) Net cash provided by (used in) financing activities 4,794 (23,668 ) Effect of exchange rate differences 33 (20 ) Net change in cash, cash equivalents and restricted cash $ 11,767 $ (18,003 ) Cash, cash equivalents and restricted cash, end of year $ 68,225 $ 56,458 ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Channel Revenue Three Months Ended December 31, Years Ended December 31, 2023 2022 vs. 2022 2023 2022 vs. 2022 (In thousands, except percentages) Megaproject $ 41,382 $ 30,631 up 35% $ 83,665 $ 81,888 up 2% Original equipment manufacturer 9,150 7,466 up 23% 25,995 28,858 down 10% Aftermarket 6,657 4,194 up 59% 18,689 14,845 up 26% Total revenue $ 57,189 $ 42,291 up 35% $ 128,349 $ 125,591 up 2% Segment Activity Three Months Ended December 31, 2023 Three Months Ended December 31, 2022 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 57,103 $ 86 $ — $ 57,189 $ 42,237 $ 54 $ — $ 42,291 Cost of revenue 17,154 536 — 17,690 12,341 59 — 12,400 Gross profit (loss) 39,949 (450 ) — 39,499 29,896 (5 ) — 29,891 Operating expenses General and administrative 1,914 951 4,295 7,160 2,027 964 4,195 7,186 Sales and marketing 4,124 1,882 761 6,767 2,868 927 566 4,361 Research and development 1,130 3,828 — 4,958 992 2,747 — 3,739 Total operating expenses 7,168 6,661 5,056 18,885 5,887 4,638 4,761 15,286 Operating income (loss) $ 32,781 $ (7,111 ) $ (5,056 ) $ 20,614 $ 24,009 $ (4,643 ) $ (4,761 ) $ 14,605 Year Ended December 31, 2023 Year Ended December 31, 2022 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Revenue $ 127,725 $ 624 $ — $ 128,349 $ 125,428 $ 163 $ — $ 125,591 Cost of revenue 40,290 980 — 41,270 38,158 77 — 38,235 Gross profit (loss) 87,435 (356 ) — 87,079 87,270 86 — 87,356 Operating expenses General and administrative 7,751 3,927 17,186 28,864 6,936 4,104 17,301 28,341 Sales and marketing 13,691 6,053 2,420 22,164 11,065 3,047 2,165 16,277 Research and development 4,251 12,750 — 17,001 4,151 13,758 — 17,909 Total operating expenses 25,693 22,730 19,606 68,029 22,152 20,909 19,466 62,527 Operating income (loss) $ 61,742 $ (23,086 ) $ (19,606 ) $ 19,050 $ 65,118 $ (20,823 ) $ (19,466 ) $ 24,829 Share-based Compensation Three Months Ended December 31, Years Ended December 31, 2023 2022 2023 2022 (In thousands) Stock-based compensation expense charged to: Cost of revenue $ 164 $ 136 $ 719 $ 506 General and administrative 1,033 701 3,661 3,436 Sales and marketing 649 360 2,333 1,592 Research and development 381 210 1,325 977 Total stock-based compensation expense $ 2,227 $ 1,407 $ 8,038 $ 6,511 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 Q4'2023 Q4'2022 2023 2022 (In millions, except shares, per share and percentages) Operating margin 36.0 % 34.5 % 14.8 % 19.8 % Share-based compensation 3.9 3.3 6.3 5.2 Severance — — — 0.2 Accelerated depreciation — — — 0.7 Litigation charges — — — 0.3 Adjusted operating margin 39.9 % 37.9 % 21.1 % 26.2 % Net income $ 19.8 $ 13.7 $ 21.5 $ 24.0 Share-based compensation (2) 2.2 1.4 8.0 6.5 Severance (2) — — — 0.3 Accelerated depreciation (2) — — — 0.7 Litigation charges (2) — — — 0.4 Share-based compensation discrete tax item — (0.4 ) (0.7 ) (1.4 ) Adjusted net income $ 22.0 $ 14.7 $ 28.9 $ 30.5 Net income per share $ 0.34 $ 0.24 $ 0.37 $ 0.42 Adjustments to net income per share (3) 0.05 0.02 0.14 0.12 Adjusted net income per share $ 0.39 $ 0.26 $ 0.51 $ 0.54 Effective tax rate 5.3 % 7.8 % Adjustments to effective tax rate (3) 0.8 2.9 Adjusted effective tax rate 6.1 % 10.6 % Net income $ 19.8 $ 13.7 $ 21.5 $ 24.0 Share-based compensation 2.2 1.4 8.0 6.5 Severance — — — 0.3 Depreciation and amortization 1.0 1.0 4.1 4.8 Litigation charges — — — 0.4 Other income, net (1.3 ) (0.8 ) (3.7 ) (1.2 ) Provision for income taxes 2.1 1.6 1.2 2.0 Adjusted EBITDA $ 23.9 $ 17.0 $ 31.2 $ 36.8 Free cash flow Net cash provided by operating activities $ 13.8 $ 6.4 $ 26.1 $ 12.6 Capital expenditures (1.4 ) (1.2 ) (2.6 ) (4.2 ) Free cash flow $ 12.4 $ 5.1 $ 23.5 $ 8.4 ___________ (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/20240221115867/en/