07/05/2021 - ERI - Energy Recovery Inc.: 2021 Q1 Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

• QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

• TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to __________
  Commission File Number: 001-34112

Energy Recovery, Inc.

(Exact Name of Registrant as Specified in its Charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☑ Smaller reporting company ☑ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☑ As of April 30, 2021, there were 57,522,631 shares of the registrant's common stock outstanding.

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ENERGY RECOVERY, INC.

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Energy Recovery, Inc. | Q1'2021 Form 10-Q

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Forward Looking Information

This Quarterly Report on Form 10-Q for the three months ended March 31, 2021 including Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" (the "MD&A"), and certain information incorporated by reference, contain forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this report include, but are not limited to, statements about our expectations, objectives, anticipations, plans, hopes, beliefs, intentions or strategies regarding the future.

Forward-looking statements represent our current expectations about future events, are based on assumptions, and involve risks and uncertainties. If the risks or uncertainties occur or the assumptions prove incorrect, then our results may differ materially from those set forth or implied by the forward- looking statements. Our forward-looking statements are not guarantees of future performance or events.

Words such as "expects," "anticipates," "aims," "projects," "intends," "plans," "believes," "estimates," "seeks," variations of such words and similar expressions are also intended to identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict; therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Readers are directed to risks and uncertainties identified under Part II, Item 1A, "Risk Factors," and elsewhere in this report for factors that may cause actual results to be different from those expressed in these forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Forward-looking statements in this report include, without limitation, statements about the following:

• our belief that the pressure exchanger is the industry standard for energy recovery in the seawater reverse osmosis ("SWRO") industry;
• our belief that pressure exchanger technology can provide benefits to our customers, including the reduction of capital expenditures and energy use;
• our belief that we will be able to identify new ways to solve and develop new solutions for solving challenges for critical industries;
• our belief that the integration of Environmental, Social and Governance ("ESG") principles into our corporate and risk management strategies can strengthen our existing business as well as our efforts to develop new applications of pressure exchanger technology for high-pressurefluid-flow environments;
• our belief that our enhanced safety measures will allow us to help contain the spread of coronavirus ("COVID-19");
• our belief that our pressure exchanger technology can address inefficiencies and waste within industrial systems and processes that involve high-pressure and low-pressure fluid flows;
• our belief that our PX® Pressure Exchanger® ("PX") has helped make SWRO desalination an economically viable and more sustainable option in the production of potable water;
• our belief that our hydraulic turbochargers ("Turbochargers") deliver substantial savings and ease of integration into desalination systems;
• our belief that markets not traditionally associated with desalination, including the United States of America ("U.S.") will inevitably develop and provide further revenue growth opportunities;
• our belief that, as the existing thermal technology is replaced with reverse osmosis ("RO") technology, demand for our products will be created;
• our belief that ongoing operating costs rather than capital expenditures is the key factor in the selection of an energy recovery device ("ERD") solution for megaproject ("MPD") customers;
• our belief that our PX offers market-leading efficiency and reduction of total lifecycle cost to the end client;
• our estimate that MPD customer projects represent revenue opportunities from approximately $1 million to $18 million;
• our belief that initial capital expenditure rather than future ongoing operating costs is the key factor in selection of an ERD solution for original equipment manufacturer ("OEM") projects;
• our estimate that OEM customer projects represent revenue opportunities up to $1 million;
• our belief that our solutions offer a competitive advantage compared to our competitors' solutions because our ERDs provide the lowest life- cycle cost and are, therefore, the most cost-effective ERD solutions for RO desalination applications;

Energy Recovery, Inc. | Q1'2021 Form 10-Q | FLS 1

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• our belief that our PX has a competitive advantage, as compared to the Flowserve Corporation's ("Flowserve") DWEER product, because our devices are made with highly durable and corrosion-resistant aluminum oxide ("alumina") ceramic parts that are designed for a life of more than 25 years, are warrantied for high efficiencies, and cause minimal unplanned downtime, resulting in lower lifecycle costs;
• our belief that our PX has a distinct competitive advantage over Fluid Equipment Development Company's ("FEDCO") turbochargers and Danfoss Group's ("Danfoss") iSave ERD because our devices provide up to 98% efficiency, have lower lifecycle maintenance costs, and are made of highly durable and corrosion-resistant alumina ceramic parts;
• our belief that our Turbochargers compete favorably with FEDCO's turbochargers based on efficiency, price, and because our Turbochargers have design advantages that enhance efficiency, operational flexibility and serviceability;
• our belief that our pump solutions are competitive with our competitors because our pumps are developed specifically for RO desalination, are highly efficient, feature product-lubricated bearings, and are often purchased with our ERDs in small to medium-sized plants;
• our belief that the VorTeq™ can allow site operators to reduce repair and maintenance costs, reduce capital costs by extending hydraulic fracturing pump's life expectancy, and eliminate redundant capital equipment;
• our belief that the Ultra PX™ can address the key challenges associated with treating industrial wastewater in ultra high-pressure reverse osmosis ("UHPRO") applications;
• our belief that the Ultra PX can help make UHPRO the preferred treatment option to achieve zero liquid discharge ("ZLD") and minimal liquid discharge ("MLD") requirements by enhancing UHPRO's affordability and efficiency compared to thermal treatment options;
• our objective of finding new applications for our technology and developing new products for use outside of desalination;
• our belief that our current facilities will be adequate for the foreseeable future;
• our belief that by investing in research and development, the Company will be well positioned to continue to execute on our product strategy;
• our belief that our CO2 refrigeration technology will be able to achieve efficiencies across a wider range of temperatures that exceed incumbent CO2 refrigeration technologies, helping customers reduce the operating cost of a natural gas refrigeration system;
• the timing of our development and commercialization of our CO2 refrigeration technology;
• our expectation that sales outside of the U.S. will remain a significant portion of our revenue;
• the timing of our receipt of payment for products or services from our customers;
• our belief that our existing cash and cash equivalents, our short-term investments, and the ongoing cash generated from our operations, will be sufficient to meet our anticipated liquidity needs for the foreseeable future, with the exception of a decision to enter into an acquisition and/or fund investments in our latest technology arising from rapid market adoption that could require us to seek additional equity or debt financing;
• our expectation that, as we expand our international sales, a portion of our revenue could be denominated in foreign currencies and the impact of changes in exchange rates on our cash and operating results;
• our expectation that we will be able to enforce our intellectual property ("IP") rights;
• our expectation that the adoption of new accounting standards will not have a material impact on our financial position or results of operations;
• our share repurchase program will result in repurchases of our common stock or enhance long term stockholder value;
• the outcome of proceedings, lawsuits, disputes and claims;
• the impact of losses due to indemnification obligations;
• the impact of changes in internal control over financial reporting;
• the development of major public health concerns, including the COVID-19 outbreak or other pandemics arising globally, and the future impact of such major public health concerns, and specifically in the short-term the COVID-19 pandemic, on our business and operations; and
• other factors disclosed under the MD&A and Item 3, "Quantitative and Qualitative Disclosures about Market Risk," and elsewhere in this Form 10-Q.

Energy Recovery, Inc. | Q1'2021 Form 10-Q | FLS 2

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You should not place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date of the filing of this Quarterly Report on Form 10-Q. All forward-looking statements included in this document are subject to additional risks and uncertainties further discussed under Part II, Item 1A, "Risk Factors," and are based on information available to us as of May 7, 2021. We assume no obligation to update any such forward-looking statements, certain risks and uncertainties which could cause actual results to differ materially from those projected in the forward- looking statements, as disclosed from time to time in our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q and Current Reports on Form 8‑K filed with or furnished to the Securities and Exchange Commission ("SEC"), as well as in Part II, Item 1A, "Risk Factors," within this Quarterly Report on Form 10-Q. It is important to note that our actual results could differ materially from the results set forth or implied by our forward-looking statements. The factors that could cause our actual results to differ from those included in such forward-looking statements are set forth under the heading Item 1A, "Risk Factors," in our Quarterly Reports on Form 10-Q, and in our Annual Reports on Form 10-K, and from time-to-time, in our results disclosed on our Current Reports on Form 8-K.

We provide our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, Proxy Statements, Forms 3, 4 and 5 filed by or on behalf of directors, executive officers and certain large shareholders, and any amendments to those documents filed or furnished pursuant to the Securities Exchange Act of 1934, free of charge on the Investor Relations section of our website, www.energyrecovery.com. These filings will become available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. From time to time, we may use our website as a channel of distribution of material company information.

We also make available in the Investor Relations section of our website our corporate governance documents including our code of business conduct and ethics and the charters of the audit, compensation and nominating and governance committees. These documents, as well as the information on the website, are not intended to be part of this Quarterly Report on Form 10-Q. We use the Investor Relations section of our website as a means of complying with our disclosure obligations under Regulation FD. Accordingly, you should monitor the Investor Relations section of our website in addition to following our press releases, SEC filings and public conference calls and webcasts.

Energy Recovery, Inc. | Q1'2021 Form 10-Q | FLS 3

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