erii-20240331
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, 2024
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)
|
Delaware
|
01-0616867
|
|
(State or Other Jurisdiction of Incorporation)
|
(I.R.S. Employer Identification No.)
|
1717 Doolittle Drive, San Leandro, California 94577
(Address of Principal Executive Offices) (Zip Code)
(510) 483-7370
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Trading Symbol
|
Name of each exchange on which registered
|
|
Common Stock, $0.001 par value
|
ERII
|
The Nasdaq Stock Market LLC
|
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 â˜
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 25, 2024, there were 57,330,153shares of the registrant's common stock outstanding.
ENERGY RECOVERY, INC.
TABLE OF CONTENTS
|
Page No.
|
||
|
Condensed Consolidated Balance Sheets - March 31, 2024 and December 31, 2023
|
||
|
Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2024 and 2023
|
||
|
Condensed Consolidated Statements of Stockholders' Equity- Three Months Ended March 31, 2024 and 2023
|
||
|
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2024 and 2023
|
||
Energy Recovery, Inc. | Q1'2024 Form 10-Q
Forward-Looking Information
This QuarterlyReport on Form 10-Qfor the three monthsended March 31, 2024, including Part I, Item 2, "Management's Discussion
and Analysis of Financial Condition and Results of Operations"(the "MD&A"), contains 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," "continue," "could,"
"may," "potential," "should," "will," "would," 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 statement. 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 statement for any reason.
Forward-looking statements in this report include, without limitation, statements about the following:
|
•our belief that our PXoffers market-leading value with the highest technological and economic benefit;
|
|
•our belief that leveraging our pressure exchanger technology will unlock new commercial opportunities in the future;
|
|
•our belief that our PX G1300™can contribute to help make CO2-based refrigeration economically viable in a broader range of
climates;
|
|
•our belief that our technology helps our customer achieve environmentally sustainable operations;
|
|
•our expectation that sales outside of the U.S.will remain a significant portion of our revenue;
|
|
•the scale of the environmental impact from the use of our solutions;
|
|
•our belief that our sustainability goals are highly influential to our business success;
|
|
•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 and/or long-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 expectations relating to the amount and timing of recognized revenue from our projects;
|
|
•our expectations relating to expenses;
|
|
•our expectation that we will continue to receive a tax benefit related to U.S. federal foreign-derived intangible income and
California research and development tax credit;
|
|
•the outcome of proceedings, lawsuits, disputes and claims;
|
|
•the impact of losses due to indemnification obligations;
|
|
•other factors disclosed under the MD&A and Part I, Item 3, "Quantitative and Qualitative Disclosures about Market Risk," and
elsewhere in this Form 10-Q.
|
You should not place undue reliance on these forward-looking statements. These forward-looking statements reflect management's
opinions only as of the date of the filing of this QuarterlyReport 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 1, 2024. We assume no obligation to update any such forward-looking statements. Certain risks and uncertainties could cause
actual results to differ materially from those projected in the forward-looking statements. These forward-looking statements are disclosed
from time to time in ourAnnual 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 (the "SEC"), as well as in Part II, Item 1A, "Risk Factors,"within this QuarterlyReport
on Form 10-Q.
Energy Recovery, Inc. | Q1'2024 Form 10-Q| FLS 1
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, in our Annual Reports on Form 10-K, and from time-to-
time, in our results disclosed in our Current Reports on Form 8-K. In addition, when preparing the MD&A below, we presume the readers
have access to and have read the MD&A in our Annual Report on Form 10-K, pursuant to Instruction 2 to paragraph (b) of Item 303 of
Regulation S-K.
We provide our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on
Schedule 14A, 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 QuarterlyReport 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. | Q1'2024 Form 10-Q| FLS 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
March 31,
2024
|
December 31,
2023
|
|
|
(In thousands)
|
||
|
ASSETS
|
||
|
Current assets:
|
||
|
Cash and cash equivalents
|
$70,781
|
$68,098
|
|
Short-term investments
|
46,577
|
40,445
|
|
Accounts receivable, net
|
25,055
|
46,937
|
|
Inventories, net
|
31,671
|
26,149
|
|
Prepaid expenses and other assets
|
4,288
|
3,843
|
|
Total current assets
|
178,372
|
185,472
|
|
Long-term investments
|
12,137
|
13,832
|
|
Deferred tax assets, net
|
11,652
|
10,324
|
|
Property and equipment, net
|
17,889
|
18,699
|
|
Operating lease, right of use asset
|
11,038
|
11,469
|
|
Goodwill
|
12,790
|
12,790
|
|
Other assets, non-current
|
387
|
388
|
|
Total assets
|
$244,265
|
$252,974
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||
|
Current liabilities:
|
||
|
Accounts payable
|
$3,492
|
$3,000
|
|
Accrued expenses and other liabilities
|
8,342
|
15,583
|
|
Lease liabilities
|
1,854
|
1,791
|
|
Contract liabilities
|
3,449
|
1,097
|
|
Total current liabilities
|
17,137
|
21,471
|
|
Lease liabilities, non-current
|
10,959
|
11,488
|
|
Other liabilities, non-current
|
132
|
207
|
|
Total liabilities
|
28,228
|
33,166
|
|
Commitments and contingencies (Note 7)
|
||
|
Stockholders' equity:
|
||
|
Common stock
|
65
|
65
|
|
Additional paid-in capital
|
222,122
|
217,617
|
|
Accumulated other comprehensive loss
|
(60)
|
(44)
|
|
Treasury stock
|
(80,486)
|
(80,486)
|
|
Retained earnings
|
74,396
|
82,656
|
|
Total stockholders' equity
|
216,037
|
219,808
|
|
Total liabilities and stockholders' equity
|
$244,265
|
$252,974
|
See Accompanying Notes to Condensed Consolidated Financial Statements
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 1
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
Three Months Ended March 31,
|
||
|
2024
|
2023
|
|
|
(In thousands, except per share data)
|
||
|
Revenue
|
$12,090
|
$13,401
|
|
Cost of revenue
|
4,955
|
5,246
|
|
Gross profit
|
7,135
|
8,155
|
|
Operating expenses:
|
||
|
General and administrative
|
7,566
|
7,066
|
|
Sales and marketing
|
6,152
|
4,894
|
|
Research and development
|
4,351
|
4,306
|
|
Total operating expenses
|
18,069
|
16,266
|
|
Loss from operations
|
(10,934)
|
(8,111)
|
|
Other income (expense):
|
||
|
Interest income
|
1,442
|
621
|
|
Other non-operating income (expense), net
|
(53)
|
35
|
|
Total other income, net
|
1,389
|
656
|
|
Loss before income taxes
|
(9,545)
|
(7,455)
|
|
Benefit from income taxes
|
(1,285)
|
(1,159)
|
|
Net loss
|
$(8,260)
|
$(6,296)
|
|
Net loss per share:
|
||
|
Basic
|
$ (0.14)
|
$ (0.11)
|
|
Diluted
|
$ (0.14)
|
$ (0.11)
|
|
Number of shares used in per share calculations:
|
||
|
Basic
|
57,102
|
56,228
|
|
Diluted
|
57,102
|
56,228
|
See Accompanying Notes to Condensed Consolidated Financial Statements
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 2
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
Three Months Ended March 31,
|
||
|
2024
|
2023
|
|
|
(In thousands)
|
||
|
Net loss
|
$(8,260)
|
$(6,296)
|
|
Other comprehensive income (loss), net of tax
|
||
|
Foreign currency translation adjustments
|
28
|
(17)
|
|
Unrealized gain (loss) on investments
|
(44)
|
95
|
|
Total other comprehensive income (loss), net of tax
|
(16)
|
78
|
|
Comprehensive loss
|
$(8,276)
|
$(6,218)
|
See Accompanying Notes to Condensed Consolidated Financial Statements
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 3
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
Three Months Ended March 31,
|
|
|
|
2024
|
2023
|
|
(In thousands, except shares)
|
||
|
Common stock
|
||
|
Beginning and ending balance
|
$65
|
$64
|
|
Additional paid-in capital
|
||
|
Beginning balance
|
217,617
|
204,957
|
|
Issuance of common stock, net
|
1,190
|
165
|
|
Stock-based compensation
|
3,315
|
2,218
|
|
Ending balance
|
222,122
|
207,340
|
|
Accumulated other comprehensive loss
|
||
|
Beginning balance
|
(44)
|
(349)
|
|
Other comprehensive (loss) income
|
||
|
Foreign currency translation adjustments
|
28
|
(17)
|
|
Unrealized (loss) gain on investments
|
(44)
|
95
|
|
Total other comprehensive (loss) income, net
|
(16)
|
78
|
|
Ending balance
|
(60)
|
(271)
|
|
Treasury stock
|
||
|
Beginning and ending balance
|
(80,486)
|
(80,486)
|
|
Retained earnings
|
||
|
Beginning balance
|
82,656
|
61,152
|
|
Net loss
|
(8,260)
|
(6,296)
|
|
Ending balance
|
74,396
|
54,856
|
|
Total stockholders' equity
|
$216,037
|
$181,503
|
|
Common stock issued (shares)
|
||
|
Beginning balance
|
65,029,459
|
64,225,391
|
|
Issuance of common stock, net
|
448,455
|
265,993
|
|
Ending balance
|
65,477,914
|
64,491,384
|
|
Treasury stock (shares)
|
||
|
Beginning and ending balance
|
8,148,512
|
8,148,512
|
|
Total common stock outstanding (shares)
|
57,329,402
|
56,342,872
|
See Accompanying Notes to Condensed Consolidated Financial Statements
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 4
ENERGYRECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Three Months Ended March 31,
|
||
|
2024
|
2023
|
|
|
(In thousands)
|
||
|
Cash flows from operating activities:
|
||
|
Net loss
|
$(8,260)
|
$(6,296)
|
|
Adjustments to reconcile net loss to cash provided by operating activities
|
||
|
Stock-based compensation
|
3,283
|
2,302
|
|
Depreciation and amortization
|
1,029
|
983
|
|
Right of use asset amortization
|
431
|
402
|
|
Accretion (amortization) of discounts (premiums) on investments
|
(231)
|
(89)
|
|
Deferred income taxes
|
(1,328)
|
(1,152)
|
|
Other non-cash adjustments
|
116
|
93
|
|
Changes in operating assets and liabilities:
|
||
|
Accounts receivable, net
|
21,882
|
22,509
|
|
Contract assets
|
-
|
593
|
|
Inventories, net
|
(5,723)
|
(4,855)
|
|
Prepaid and other assets
|
(545)
|
187
|
|
Accounts payable
|
1,140
|
920
|
|
Accrued expenses and other liabilities
|
(7,589)
|
(7,156)
|
|
Contract liabilities
|
2,292
|
216
|
|
Net cash provided by operating activities
|
6,497
|
8,657
|
|
Cash flows from investing activities:
|
||
|
Maturities of marketable securities
|
16,534
|
15,250
|
|
Purchases of marketable securities
|
(20,783)
|
(13,886)
|
|
Capital expenditures
|
(824)
|
(279)
|
|
Proceeds from sales of fixed assets
|
87
|
82
|
|
Net cash (used in) provided by investing activities
|
(4,986)
|
1,167
|
|
Cash flows from financing activities:
|
||
|
Net proceeds from issuance of common stock
|
1,190
|
165
|
|
Net cash provided by financing activities
|
1,190
|
165
|
|
Effect of exchange rate differences on cash and cash equivalents
|
(19)
|
8
|
|
Net change in cash, cash equivalents and restricted cash
|
2,682
|
9,997
|
|
Cash, cash equivalents and restricted cash, beginning of year
|
68,225
|
56,458
|
|
Cash, cash equivalents and restricted cash, end of period
|
$70,907
|
$66,455
|
See Accompanying Notes to Condensed Consolidated Financial Statements
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 5
Note 1- Description of Business and Significant Accounting Policies
Energy Recovery, Inc. and its wholly-owned subsidiaries (the "Company" or "Energy Recovery") designs and manufactures reliable,
high-performance solutions that provide cost savings through improved energy efficiency in commercial and industrial processes, with
applications across several industries. Leveraging the Company's pressure exchanger technology, which generates little to no emissions
when operating,the Company believes its solutions lower costs, save energy, reduce waste, and minimize emissions for companies across a
variety of commercial and industrial processes. As the world coalesces around the urgent need to address climate change and its impacts,
the Company is helping companies reduce their energy consumption in their industrial processes, which in turn, reduces their carbon
footprint.The Company believes that its customers do not have to sacrifice quality and cost savings for sustainability andthe Company is
committed to developing solutions that drive long-term value - both financial and environmental. The Company's solutions are marketed,
sold in, and developed for, the fluid-flow and gas markets, such as seawater and wastewater desalination, natural gas, chemical processing
and CO2-based refrigeration systems, under the trademarks ERI®, PX®, Pressure Exchanger®, PX®Pressure Exchanger®("PX"), Ultra PX™,
PX Gâ„¢, PX G1300â„¢, PX PowerTrainâ„¢, ATâ„¢, and Aquaboldâ„¢. The Company owns, manufactures and/or develops its solutions, in whole or in
part, in the United States of America (the "U.S.").
Basis of Presentation
TheCondensed Consolidated Financial Statements include the accounts of Energy Recovery, Inc. and its wholly-owned subsidiaries.
All intercompany accounts and transactions have been eliminated in consolidation.
The accompanyingCondensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in the financial statements
prepared in accordance with U.S. generally accepted accounting principles("GAAP") have been condensed or omitted pursuant to such rules
and regulations.The December 31, 2023Condensed Consolidated Balance Sheet was derived from audited financial statements and may
not include all disclosures required by GAAP; however, the Company believes that the disclosures are adequate to make the information
presented not misleading.
The March 31, 2024unauditedCondensed Consolidated Financial Statements should be read in conjunction with the audited
Consolidated Financial Statements and the notes thereto for the fiscal year ended December 31, 2023included in the Company's Annual
Report on Form 10-K filed with the SEC on February 21, 2024(the "2023 Annual Report").
All adjustments consisting of normal recurring adjustments that are necessary to present fairly the financial position, results of
operations and cash flows for the interim periods have been made. The results of operations for the interim periods are not necessarily
indicative of the operating results for the full fiscal year or any future periods.
Use of Estimates
The preparation ofCondensed Consolidated Financial Statements, in conformity with GAAP, requires the Company's management to
make judgments, assumptions and estimates that affect the amounts reported in theCondensed Consolidated Financial Statements and
accompanying notes.
The accounting policies that reflect the Company's significant estimates and judgments and that the Company believes are the most
critical to aid in fully understanding and evaluating its reported financial results are revenue recognition; granted equity award valuations;
equipment useful life and valuation; goodwill valuation and impairment; deferred taxes and valuation allowances on deferred tax assets; and
evaluation and measurement of contingencies. Those estimates could change, and as a result, actual results could differ materially from
those estimates.
The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a
revision of the carrying value of its assets or liabilities as of May 1, 2024, the date of issuance of this QuarterlyReport on Form 10-Q. These
estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these
estimates under different assumptions or conditions. The Company undertakes no obligation to publicly update these estimates for any
reason after the date of this QuarterlyReport on Form 10-Q, except as required by law.
ENERGY RECOVERY, INC.
NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 6
Significant Accounting Policies
There have been no material changes to the Company's significant accounting policies in Note 1, "Description of Business and
Significant Accounting Policies- Significant Accounting Policies," of the 2023 Annual Report.
Recently Issued Accounting Pronouncement Not Yet Adopted
There have been no issued accountingpronouncements that have not yet been adopted during the three months ended March 31,
2024that apply to the Company other than the pronouncements disclosed in Note 1, "Description of Business and Significant Accounting
Policies- Recently Issued Accounting Pronouncement Not Yet Adopted," of the 2023 Annual Report.
ENERGY RECOVERY, INC.
NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 7
Note 2- Revenue
Disaggregation of Revenue
The following table presents the disaggregated revenues by segment, and within each segment, by geographical marketbased on the
customer "shipped to" address, and by channelcustomers. Sales and usage-based taxes are excluded from revenues. See Note 9,
"Segment Reporting," for further discussion related to the Company's segments.
|
Three Months Ended March 31, 2024
|
Three Months Ended March 31, 2023
|
|||||
|
Water
|
Emerging
Technologies
|
Total
|
Water
|
Emerging
Technologies
|
Total
|
|
|
(In thousands)
|
||||||
|
Geographical market
|
||||||
|
Middle East and Africa
|
$4,785
|
$1
|
$4,786
|
$2,739
|
$-
|
$2,739
|
|
Americas
|
3,939
|
-
|
3,939
|
3,208
|
30
|
3,238
|
|
Asia
|
1,979
|
-
|
1,979
|
6,114
|
-
|
6,114
|
|
Europe
|
1,386
|
-
|
1,386
|
1,235
|
75
|
1,310
|
|
Total revenue
|
$12,089
|
$1
|
$12,090
|
$13,296
|
$105
|
$13,401
|
|
Channel
|
||||||
|
Aftermarket
|
$4,643
|
$1
|
$4,644
|
$3,322
|
$-
|
$3,322
|
|
Megaproject
|
4,100
|
-
|
4,100
|
3,243
|
-
|
3,243
|
|
Original equipment manufacturer
|
3,346
|
-
|
3,346
|
6,731
|
105
|
6,836
|
|
Total revenue
|
$12,089
|
$1
|
$12,090
|
$13,296
|
$105
|
$13,401
|
Contract Balances
The following table presents contract balances by category.
|
March 31,
2024
|
December 31,
2023
|
|
|
(In thousands)
|
||
|
Accounts receivable, net
|
$25,055
|
$46,937
|
|
Contract assets, current (included in prepaid expenses and other assets)
|
592
|
592
|
|
Contract liabilities:
|
||
|
Contract liabilities, current
|
$3,449
|
$1,097
|
|
Contract liabilities, non-current (included in other liabilities, non-current)
|
30
|
90
|
|
Total contract liabilities
|
$3,479
|
$1,187
|
Contract Liabilities
The Company records contract liabilities, which consist of customer deposits and deferred revenue, when cash payments are
received in advance of the Company's performance. The following table presents significant changes in contract liabilities during the period.
|
March 31,
2024
|
December 31,
2023
|
|
|
(In thousands)
|
||
|
Contract liabilities, beginning of year
|
$1,187
|
$1,316
|
|
Revenue recognized
|
(1,038)
|
(1,254)
|
|
Cash received, excluding amounts recognized as revenue during the period
|
3,330
|
1,125
|
|
Contract liabilities, end of period
|
$3,479
|
$1,187
|
ENERGY RECOVERY, INC.
NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 8
RemainingPerformance Obligations
As of March 31, 2024, the following table presents the revenue that is expected to be recognized related to performance obligations
that are unsatisfied or partially unsatisfied.
|
Period
|
Remaining
Performance
Obligations
|
|
(In thousands)
|
|
|
2024 (remaining nine months)
|
$6,021
|
|
2025
|
840
|
ENERGY RECOVERY, INC.
NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 9
Note 3- Net Loss Per Share
Net lossfor the reported period is divided by the weighted average number of basic and diluted common shares outstanding during
the reported period to calculate the basic and diluted net loss per common share, respectively.
The following table presentsthe computation of basic and diluted net loss per common share.
|
Three Months Ended March 31,
|
||
|
2024
|
2023
|
|
|
(In thousands, except per share amounts)
|
||
|
Numerator
|
||
|
Net loss
|
$(8,260)
|
$(6,296)
|
|
Denominator (weighted average shares)
|
||
|
Basic and dilutive common shares outstanding
|
57,102
|
56,228
|
|
Net loss per share
|
||
|
Basic
|
$ (0.14)
|
$ (0.11)
|
|
Diluted
|
$ (0.14)
|
$ (0.11)
|
The following table presentsthe equity awards that are excluded from diluted net lossper share because their effect would have been
anti-dilutive.
|
|
Three Months Ended March 31,
|
|
|
|
2024
|
2023
|
|
(In thousands)
|
||
|
Anti-dilutive equity award shares
|
3,286
|
2,652
|
ENERGY RECOVERY, INC.
NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 10
Note 4- Other Financial Information
Cash, Cash Equivalents and Restricted Cash
TheCondensed Consolidated Statements of Cash Flows explain the changes in the total of cash, cash equivalents and restricted
cash, such as cash amounts deposited in restricted cash accounts in connection with the Company's credit cards. The following table
presents a reconciliation of cash, cash equivalents and restricted cash, reported for each period within theCondensed Consolidated Balance
Sheets and theCondensed Consolidated Statements of Cash Flows that sum to the total of such amounts.
|
March 31,
2024
|
December 31,
2023
|
March 31,
2023
|
|
|
(In thousands)
|
|||
|
Cash and cash equivalents
|
$70,781
|
$68,098
|
$66,332
|
|
Restricted cash, non-current (included in other assets, non-current)
|
126
|
127
|
123
|
|
Total cash, cash equivalents and restricted cash
|
$70,907
|
$68,225
|
$66,455
|
Accounts Receivable, net
|
|
March 31,
2024
|
December 31,
2023
|
|
(In thousands)
|
||
|
Accounts receivable, gross
|
$25,193
|
$47,075
|
|
Allowance for doubtful accounts
|
(138)
|
(138)
|
|
Accounts receivable, net
|
$25,055
|
$46,937
|
Inventories, net
Inventory amounts are stated at the lower of cost or net realizable value, using the first-in, first-out method.
|
|
March 31,
2024
|
December 31,
2023
|
|
(In thousands)
|
||
|
Raw materials
|
$8,883
|
$8,752
|
|
Work in process
|
7,507
|
5,234
|
|
Finished goods
|
16,579
|
13,319
|
|
Inventories, gross
|
32,969
|
27,305
|
|
Valuation adjustments for excess and obsolete inventory
|
(1,298)
|
(1,156)
|
|
Inventories, net
|
$31,671
|
$26,149
|
Accrued Expenses and Other Liabilities
|
|
March 31,
2024
|
December 31,
2023
|
|
(In thousands)
|
||
|
Current
|
||
|
Payroll, incentives and commissions payable
|
$4,577
|
$11,037
|
|
Warranty reserve
|
989
|
1,057
|
|
Income taxes payable
|
1,083
|
1,077
|
|
Other accrued expenses and other liabilities
|
1,693
|
2,412
|
|
Total accrued expenses and other liabilities
|
8,342
|
15,583
|
|
Other liabilities, non-current
|
132
|
207
|
|
Total accrued expenses, and current and non-current other liabilities
|
$8,474
|
$15,790
|
ENERGY RECOVERY, INC.
NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 11
Note 5- Investments and Fair Value Measurements
Fair Value of Financial Instruments
The following table presents the Company's financial assets measured on a recurring basis by contractual maturity, including pricing
category, amortized cost, gross unrealized gains and losses, and fair value. As of the dates reported in the table, the Company had no
financial liabilities and noLevel 3 financial assets.
|
March 31, 2024
|
December 31, 2023
|
||||||||
|
Pricing
Category
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|
|
(In thousands)
|
|||||||||
|
Cash equivalents
|
|||||||||
|
Money market
securities
|
Level 1
|
$25,233
|
$-
|
$-
|
$25,233
|
$18,767
|
$-
|
$-
|
$18,767
|
|
Short-term investments
|
|||||||||
|
U.S. treasury
securities
|
Level 2
|
6,406
|
-
|
(3)
|
6,403
|
4,900
|
1
|
(1)
|
4,900
|
|
Corporate notes and
bonds
|
Level 2
|
33,246
|
1
|
(40)
|
33,207
|
25,674
|
11
|
(18)
|
25,667
|
|
Municipal and agency
notes and bonds
|
Level 2
|
6,971
|
-
|
(4)
|
6,967
|
9,887
|
-
|
(9)
|
9,878
|
|
Total short-term investments
|
46,623
|
1
|
(47)
|
46,577
|
40,461
|
12
|
(28)
|
40,445
|
|
|
Long-term investments
|
|||||||||
|
Corporate notes and
bonds
|
Level 2
|
8,048
|
2
|
(5)
|
8,045
|
9,229
|
28
|
(3)
|
9,254
|
|
Municipal and agency
notes and bonds
|
Level 2
|
4,098
|
-
|
(6)
|
4,092
|
4,585
|
-
|
(7)
|
4,578
|
|
Total long-term investments
|
12,146
|
2
|
(11)
|
12,137
|
13,814
|
28
|
(10)
|
13,832
|
|
|
Total short and long-term
investments
|
58,769
|
3
|
(58)
|
58,714
|
54,275
|
40
|
(38)
|
54,277
|
|
|
Total
|
$84,002
|
$3
|
$(58)
|
$83,947
|
$73,042
|
$40
|
$(38)
|
$73,044
|
The following table presents a summary of the fair value and gross unrealized losses on the available-for-sale securities that have
been in a continuous unrealized loss position, aggregated by type of investment instrument. The available-for-sale securities that were in an
unrealized gain position have been excluded from the table.
|
|
March 31, 2024
|
December 31, 2023
|
||
|
|
Fair
Value
|
Gross
Unrealized
Losses
|
Fair
Value
|
Gross
Unrealized
Losses
|
|
(In thousands)
|
||||
|
U.S. treasury securities
|
$5,406
|
$(3)
|
$2,931
|
$(1)
|
|
Corporate notes and bonds
|
37,568
|
(45)
|
15,276
|
(21)
|
|
Municipal and agency notes and bonds
|
9,060
|
(10)
|
12,956
|
(16)
|
|
Total available-for-sale investments with unrealized loss positions
|
$52,034
|
$(58)
|
$31,163
|
$(38)
|
ENERGY RECOVERY, INC.
NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 12
Note 6- Lines of Credit
Credit Agreement
The Company entered into a credit agreement with JPMorgan Chase Bank, N.A.("JPMC") on December 22, 2021(as amended, the
"Credit Agreement"). The Credit Agreement, which will expire on December 21, 2026, provides a committed revolving credit line of
$50.0 millionand includes both a revolving loan and a letters of credit ("LCs") component.
Under the Credit Agreement, as of March 31, 2024, there were norevolving loans outstanding. In addition, under the LCs
component, the Company utilized $20.3 millionof the maximum allowable credit line of $30.0 million, which includes newly issued LCs, and
previously issued and unexpired stand-by letters of credit ("SBLCs") and certain non-expired commitments under the Company's previous
Loan and Pledge Agreement with Citibank, N.A. which are guaranteed under the Credit Agreement.
Letters of Credit
The following table presents the total outstanding LCsand SBLCs issued by the Company to its customers related to product
warranty and performance guarantees.
|
March 31,
2024
|
December 31,
2023
|
|
|
(In thousands)
|
||
|
Outstanding letters of credit
|
$18,293
|
$19,945
|
ENERGY RECOVERY, INC.
NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 13
Note 7- Commitments and Contingencies
Litigation
From time-to-time, the Company has been named in and subject to various proceedings and claims in connection with its business.
The Company may in the future become involved in litigation in the ordinary course of business, including litigation that could be material to
its business. The Company considers all claims, if any, on a quarterly basis and, based on known facts, assesses whether potential losses
are considered reasonably possible, probable and estimable. Based upon this assessment, the Company then evaluates disclosure
requirements and whether to accrue for such claims in its consolidated financial statements. The Company records a provision for a liability
when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are
reviewed at least quarterly and are adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other
information and events pertaining to a particular case. As of March 31, 2024, the Company was not involved in any lawsuits, legal
proceedings or claims that would have a material effect on the Company's financial position, results of operations, or cash flows. Therefore,
there were no material losses which were probable or reasonably possible.
ENERGY RECOVERY, INC.
NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 14
Note 8- Income Taxes
|
|
Three Months Ended March 31,
|
|
|
|
2024
|
2023
|
|
(In thousands, except percentages)
|
||
|
Benefit from income taxes
|
$(1,285)
|
$(1,159)
|
|
Discrete items
|
76
|
488
|
|
Benefit from income taxes, excluding discrete items
|
$(1,209)
|
$(671)
|
|
Effective tax rate
|
13.5%
|
15.5%
|
|
Effective tax rate, excluding discrete items
|
12.7%
|
9.0%
|
The Company's interim period tax benefit from income taxes is determined using an estimate ofits annual effective tax rate, adjusted
for discrete items, if any, that arise during the period. Each quarter,the Company updates its estimate of the annual effective tax rate, and if
the estimated annual effective tax rate changes,the Company makes a cumulative adjustment in such period. The Company's quarterly tax
provision and estimate ofits annual effective tax rate are subject to variation due to several factors, including variability in accurately
predictingits pre-tax income or loss and the mix of jurisdictions to which they relate, intercompany transactions, the applicability of special tax
regimes, and changes in howthe Company does business.
For the three months ended March 31, 2024,the recognized benefit from income taxes resulted from the loss for the quarter and
included benefitsrelated to the U.S. federal foreign-derived intangible income ("FDII")and federalresearch and development ("R&D") tax
credit, partially offset by certain permanent differences, such as share-based compensation.
For the three months ended March 31, 2023, the recognized benefit from income tax resulted from the loss for the quarter and
included benefits related to the U.S. FDII and federal R&D tax credit, along with a discrete tax benefit due primarily to share-based
compensation windfalls.
The effective tax rate excluding discrete items for the three months ended March 31, 2024, as compared to the prior year, differed
primarily due to lower projected U.S. FDII and federal R&D tax credits and higher book income, as well as non-deductible officer share-based
compensation and certain foreign-based employee share-based compensation.
ENERGY RECOVERY, INC.
NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 15
Note 9- Segment Reporting
The Company's Chief Operating Decision-Maker ("CODM") is its chief executive officer. The Company continues to monitor and
reviewits segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would
impactits reportable segments.
The following table presentsa summary of the Company's financial information by segment and corporate operating expenses.
|
Three Months Ended March 31,
|
||||||
|
2024
|
2023
|
|||||
|
Water
|
Emerging
Technologies
|
Total
|
Water
|
Emerging
Technologies
|
Total
|
|
|
(In thousands)
|
||||||
|
Revenue
|
$12,089
|
$1
|
$12,090
|
$13,296
|
$105
|
$13,401
|
|
Cost of revenue
|
4,954
|
1
|
4,955
|
5,101
|
145
|
5,246
|
|
Gross profit (loss)
|
7,135
|
-
|
7,135
|
8,195
|
(40)
|
8,155
|
|
Operating expenses
|
||||||
|
General and administrative
|
1,922
|
1,018
|
2,940
|
1,938
|
968
|
2,906
|
|
Sales and marketing
|
3,745
|
1,807
|
5,552
|
3,175
|
1,170
|
4,345
|
|
Research and development
|
1,100
|
3,251
|
4,351
|
1,180
|
3,126
|
4,306
|
|
Total operating expenses
|
6,767
|
6,076
|
12,843
|
6,293
|
5,264
|
11,557
|
|
Operating income (loss)
|
$368
|
$(6,076)
|
(5,708)
|
$1,902
|
$(5,304)
|
(3,402)
|
|
Less: Corporate operating expenses
|
5,226
|
4,709
|
||||
|
Loss from operations
|
$(10,934)
|
$(8,111)
|
ENERGY RECOVERY, INC.
NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 16
Note 10- Concentrations
Customer Revenue Concentration
The following table presentsthe customers that account for 10% or more of the Company's revenueand their related segment for
each of the periods presented. Although certain customers might account for greater than 10% of the Company's revenueat any one point in
time, the concentration of revenuebetween a limited number of customers shifts regularly, depending on when revenue is recognized. The
percentages by customer reflect specific relationships or contracts that would concentrate revenuefor the periods presented and do not
indicate a trend specific to any one customer.
|
Three Months Ended March 31,
|
|||
|
|
Segment
|
2024
|
2023
|
|
Customer A
|
Water
|
**
|
27%
|
|
Customer B
|
Water
|
18%
|
**
|
|
Customer C
|
Water
|
13%
|
**
|
|
Customer D
|
Water
|
**
|
11%
|
**Zero or less than 10%.
ENERGY RECOVERY, INC.
NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 17
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Energy Recovery, Inc. (the "Company", "Energy Recovery", "we", "our" and "us") designs and manufactures solutions that make
industrial processes more efficient and sustainable. Leveraging our pressure exchanger technology, which generates little to no emissions
when operating, we believe our solutions lower costs, save energy, reduce waste, and minimize emissions for companies across a variety of
commercial and industrial processes. As the world coalesces around the urgent need to address climate change and its impacts,we are
helping companies reduce their energy consumption in their industrial processes, which in turn, reduces their carbon footprint.We believe
that our customers do not have to sacrifice quality and cost savings for sustainability andwe are committed to developing solutions that drive
long-term value - both financial and environmental.
The original product application of our technology, the PX®Pressure Exchanger®("PX") energy recovery device, was a major
contributor to the advancement of seawater reverse osmosis desalination("SWRO"), significantly lowering the energy intensity and cost of
water production globally from SWRO. Our pressure exchanger technologyis being applied to the wastewaterfiltration market, such as
battery manufacturers, mining operations, municipalities, and other manufacturing plants that discharge wastewater with significant levels of
metals and pollutants, and has also been applied to the development of our PX G1300®for use in the CO2market.
Engineering, and research and development("R&D"), have been, and remain, an essential part of our history, culture and corporate
strategy. Since our formation, we have developed leading technology and engineering expertise through the continual evolution of our
pressure exchanger technology, which can enhance environmental sustainability and improve productivity by reducing waste and energy
consumption in high-pressure industrial fluid-flow systems. This versatile technology works as a platform to build product applications and is
at the heart of many of our products. In addition, we have engineered and developed ancillary devices, such as our hydraulic turbochargers
and circulation "booster" pumps, that complement our energy recovery devices.
Segments
Our reportable operating segments consist of the water and emerging technologies segments. These segments are based on the
industries in which the technology solutions are sold, the type of energy recovery device or other technology sold and the related solution and
service or, in the case of emerging technologies, where revenues from new and/or potential devices utilizing our pressure exchanger
technology can be brought to market. Other factors for determining the reportable operating segments include the manner in which
management evaluates our performance combined with the nature of the individual business activities. In addition, our corporate operating
expenses include expenditures in support of the water and emerging technologies segments. We continueto monitor and reviewour
segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact
our reportable segments.
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 18
Results of Operations
A discussion regarding our financial condition and results of operations for the three months ended March 31, 2024, compared to the
three months ended March 31, 2023, is presented below.
Revenue
Variability in revenue from quarter to quarter is typical, therefore year-on-year comparisons are not necessarily indicative of the trend
for the full year due to these variations. There is no specific seasonality in our revenues to highlight that occurs throughout a calendar year.
Revenue by Channel Customers
|
Three Months Ended March 31,
|
||||||
|
2024
|
2023
|
|||||
|
Revenue
|
% of
Revenue
|
Revenue
|
% of
Revenue
|
Change
|
||
|
(In thousands, except percentages)
|
||||||
|
Aftermarket
|
$4,644
|
38%
|
$3,322
|
25%
|
$1,322
|
40%
|
|
Megaproject
|
4,100
|
34%
|
3,243
|
24%
|
857
|
26%
|
|
Original equipment manufacturer
|
3,346
|
28%
|
6,836
|
51%
|
(3,490)
|
(51%)
|
|
Total revenue
|
$12,090
|
100%
|
$13,401
|
100%
|
$(1,311)
|
(10%)
|
Revenue Attributable to Primary Geographical Markets by Segments.
|
Three Months Ended March 31,
|
||||||
|
2024
|
2023
|
|||||
|
Water
|
Emerging
Technologies
|
Total
|
Water
|
Emerging
Technologies
|
Total
|
|
|
(In thousands)
|
||||||
|
Middle East and Africa
|
$4,785
|
$1
|
$4,786
|
$2,739
|
$-
|
$2,739
|
|
Americas
|
3,939
|
-
|
3,939
|
3,208
|
30
|
3,238
|
|
Asia
|
1,979
|
-
|
1,979
|
6,114
|
-
|
6,114
|
|
Europe
|
1,386
|
-
|
1,386
|
1,235
|
75
|
1,310
|
|
Total revenue
|
$12,089
|
$1
|
$12,090
|
$13,296
|
$105
|
$13,401
|
The Megaproject ("MPD") channel has been the main driver of our long-term growth as revenue from this channel benefits from a
growing number of projects as well as an increase in the capacity of these projects in some cases. The change in revenue for the three
months ended March 31, 2024, as compared to the prior year, was due primarily to customers' project timing, and execution of these
projects, specifically in theMiddle Eastern and Africa ("MEA") and Americas markets.
The Original Equipment Manufacturer ("OEM") channel, where we sell into a wide variety of industries in the desalination, wastewater,
and the refrigeration markets, contains projects smaller in size and of shorter duration compared to those projects in the MPD channel.
•Desalination:The decrease in revenue in the three months ended March 31, 2024, as compared to the prior year, by $2.3 million
was due primarily to timing of project shipments in the Asia and MEA markets.
•Wastewater: The decrease in revenue in the three months ended March 31, 2024, as compared to the prior year, by $1.1 million,
was due primarily to timing of project shipments in the Asiamarket.
The Aftermarket ("AM") channel revenue generally fluctuates from year-to-year depending on support and services rendered to our
installed customer base. AM revenue is also dependent on our customers' timing of product upgrades, and replenishment of spare parts and
supplies. Generally, the AM channel revenue has been increasing over time. The increase in revenue in the three months ended March 31,
2024, as compared to the prior year, by $1.3 millionwas due primarily to shipments to customers in the Middle East, Asia and the Americas
markets.
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 19
Concentration of Revenue
See Note 10, "Concentrations- Revenue by Geographic Location and Country," of the Notes to Condensed Consolidated Financial
Statements in Part I, Item 1, "Financial Statements (unaudited)," of this Quarterly Report on Form 10-Q(the "Notes") for further discussion
regarding our concentration of revenue.
Gross Profit and Gross Margin
Gross profit represents revenue less cost of revenue. Cost of revenue consists primarily of raw materials, personnel costs (including
share-based compensation), manufacturing overhead, warranty costs, depreciation expense and other manufactured components.
|
|
Three Months Ended March 31,
|
|||||
|
|
2024
|
2023
|
||||
|
Gross Profit
|
Gross
Margin %
|
Gross Profit
|
Gross
Margin %
|
Change in Gross Profit
|
||
|
(In thousands, except percentages)
|
||||||
|
Gross profit and gross margin
|
$7,135
|
59.0%
|
$8,155
|
60.9%
|
$(1,020)
|
(12.5%)
|
The decreasein gross profit for the three months ended March 31, 2024, as compared to the prior year, was due primarily to a
decrease in revenue and a slightly lower gross margin. The decreasein gross margin during the three months ended March 31, 2024, as
compared to the prior year, was due primarily to higher manufacturing costs and an increase ininventory scrap,partially offset by lower cost
of product sold related to product mix.
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 20
Operating Expenses
The total material changes of general and administrative ("G&A"), sales and marketing ("S&M") and research and development
("R&D") operating expenses for the three months ended March 31, 2024, as compared to theprior year, are discussed within the following
segment and corporate operating expensesdiscussions below.
|
Three Months Ended March 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Water
|
Emerging
Technologies
|
Corporate
|
Total
|
Water
|
Emerging
Technologies
|
Corporate
|
Total
|
|
|
(In thousands)
|
||||||||
|
General and
administrative
|
$1,922
|
$1,018
|
$4,626
|
$7,566
|
$1,938
|
$968
|
$4,160
|
$7,066
|
|
Sales and marketing
|
3,745
|
1,807
|
600
|
6,152
|
3,175
|
1,170
|
549
|
4,894
|
|
Research and
development
|
1,100
|
3,251
|
-
|
4,351
|
1,180
|
3,126
|
-
|
4,306
|
|
Total operating
expenses
|
$6,767
|
$6,076
|
$5,226
|
$18,069
|
$6,293
|
$5,264
|
$4,709
|
$16,266
|
Overall operating expenditures increased by $1.8 million, or 11.1%, in the three months ended March 31, 2024, as compared to the
prior year. This increase was due primarily to higher compensation costs, share-based compensation expense related to additional
headcount, executive transition costs, and an increase in travel costs. Other non-employee costs included:
•G&A: lowerconsultant costs and professional fees;
•S&M: higher consulting and commission costs, partially offset by lower marketing expenses; and
•R&D:lower facility and other costs.
WaterSegment. Water segment operating expenses increased by $0.5 million, or 7.5%, in the three months ended March 31, 2024,
as compared to the prior year. This increasewas due primarily to higher employee costs, including share-based compensation expense, in
G&A, S&M and R&D to support our existing desalination operations and our growth in wastewater. In addition, non-employee operating
expenses were higher due primarily to an increase in consultant and commission costs to support our growth in wastewater, partially offset by
lower R&D costs.
Emerging TechnologiesSegment. Emerging Technologiesoperating expenses increased by $0.8 million, or 15.4%, in the three
months ended March 31, 2024, as compared to the prior year. This increasewas due primarily to higher employee costs and share-based
compensation expense, related to an increase in headcount in G&A, S&M andR&D.
Corporate Operating Expenses. Corporate operating expenses increased by $0.5 million, or 11.0%, in the three months ended
March 31, 2024, as compared to the prior year. This increasewas due primarily to higher employee costs and share-based compensation
expense, related to an increase in headcount in G&A and S&M, and an increase in travel costs. In addition, non-employee operating
expenseswerelower due primarily toa decrease in consultant costs and professionalfees.
Other Income, Net
|
|
Three Months Ended March 31,
|
|
|
|
2024
|
2023
|
|
(In thousands)
|
||
|
Interest income
|
$1,442
|
$621
|
|
Other non-operating (expense) income, net
|
(53)
|
35
|
|
Total other income, net
|
$1,389
|
$656
|
The increasein "Total other income, net"in the three months ended March 31, 2024, as compared to the prior year, was due primarily
to an increase ininterest yields andinvestments.
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 21
Income Taxes
|
|
Three Months Ended March 31,
|
|
|
|
2024
|
2023
|
|
(In thousands, except percentages)
|
||
|
Benefit from income taxes
|
$(1,285)
|
$(1,159)
|
|
Discrete items
|
76
|
488
|
|
Benefit from income taxes, excluding discrete items
|
$(1,209)
|
$(671)
|
|
Effective tax rate
|
13.5%
|
15.5%
|
|
Effective tax rate, excluding discrete items
|
12.7%
|
9.0%
|
The interim period tax benefit from income taxes is determined using an estimate ofour annual effective tax rate, adjusted for discrete
items, if any, that arise during the period. Each quarter,we update our estimate of the annual effective tax rate, and if the estimated annual
effective tax rate changes,we make a cumulative adjustment in such period. The quarterly tax provision and estimate ofour annual effective
tax rate are subject to variation due to several factors, including variability in accurately predictingour pre-tax income or loss and the mix of
jurisdictions to which they relate, intercompany transactions, the applicability of special tax regimes, and changes in howwe do business.
For the three months ended March 31, 2024, the recognized benefit from income taxes resulted from the loss for the quarter and
included benefitsrelated to the U.S. federal foreign-derived intangible income ("FDII")and federal R&D tax credit, partially offset by certain
permanent differences, such as share-based compensation.
For the three months ended March 31, 2023, the recognized benefit from income tax resulted from the loss for the quarter and
included benefits related to the U.S. FDII and federal R&D tax credit, along with a discrete tax benefit due primarily to share-based
compensation windfalls.
The effective tax rate excluding discrete items for the three months ended March 31, 2024, as compared to the prior year, differed
primarily due to lower projected U.S. FDII and federal R&D tax credits and higher book income, as well as non-deductible officer share-based
compensation and certain foreign-based employee share-based compensation.
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 22
Liquidity and Capital Resources
Overview
From time-to-time, management and our Board of Directors review our liquidity and future cash needs and may make a decision to
(1) return capital to our shareholders through a share repurchase program or dividend payout; or (2) seek additional debt or equity financing.
As of March 31, 2024, our principal sources of liquidity consisted of (i) unrestricted cash and cash equivalents of $70.8 million; (ii)investment-
grade short-term and long-term marketable debt instrumentsof $58.7 millionthat are primarily invested in U.S. treasury securities, corporate
notes and bonds, and municipal and agency notes and bonds; and (iii) accounts receivable, net of allowances, of $25.1 million. As of
March 31, 2024, there was unrestricted cash of $1.0 millionheld outside the U.S.We invest cash not needed for current operations
predominantly in investment-grade, marketable debt instruments with the intent to make such funds available for future operating purposes,
as needed. Although these securities are available for sale, we generally hold these securities to maturity, and therefore, do not currently see
a need to trade these securities in order to support our liquidity needs in the foreseeable future. We believe the risk of this portfolio to us is in
the ability of theunderlying companies or government agencies to cover their obligations at maturity, not in our ability to trade these securities
at a profit. Based on current projections, we believe existing cash balances and future cash inflows from this portfolio will meet our liquidity
needs for at least the next 12 months.
Credit Agreement
We entered into a credit agreement with JPMorgan Chase Bank, N.A.("JPMC") on December 22, 2021 (as amended, the "Credit
Agreement"). The Credit Agreement, which will expire on December 21, 2026, provides a committed revolving credit line of $50.0 millionand
includes both a revolving loan and a letters of credit ("LCs") component. The maximum allowable LCsunder the credit line component ofthe
Credit Agreementis $30.0 million. As of March 31, 2024, we were in compliance with all covenants under the Credit Agreement.
Under the Credit Agreement, as of March 31, 2024, there were norevolving loans outstanding. In addition, as of March 31, 2024,
under the LCscomponent, we utilized $20.3 millionof the maximum allowable credit line of $30.0 million, which included newly issued LCs,
and previously issued and unexpired stand-by letters of credits ("SBLCs") and certain non-expired commitments under the previous Loan and
Pledge Agreement with Citibank, N.A., which are guaranteed under the Credit Agreement. As of March 31, 2024, there was $18.3 millionof
outstanding LCs. These LCs had a weighted average remaining life of approximately 14 months.
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 23
Cash Flows
|
Three Months Ended March 31,
|
|||
|
2024
|
2023
|
Change
|
|
|
|
(In thousands)
|
||
|
Net cash provided by operating activities
|
$6,497
|
$8,657
|
$(2,160)
|
|
Net cash (used in) provided by investing activities
|
(4,986)
|
1,167
|
(6,153)
|
|
Net cash provided by financing activities
|
1,190
|
165
|
1,025
|
|
Effect of exchange rate differences on cash and cash equivalents
|
(19)
|
8
|
(27)
|
|
Net change in cash, cash equivalents and restricted cash
|
$2,682
|
$9,997
|
$(7,315)
|
Cash Flows from Operating Activities
Net cash provided by operating activitiesis subject to the project driven, non-cyclical nature of our business. Operating cash flow can
fluctuate significantly from year to year, due to the timing of receipts of large project orders. Operating cash flow may be negative in one year
and significantly positive in the next, consequently individual quarterly results and comparisons may not necessarily indicate a significant
trend, either positive or negative.
The lowernet cash provided byoperating assets and liabilities for the three months ended March 31, 2024, as compared to the prior
year, was due primarily to the following factors:
•adecrease in cash provided by accounts receivables related to lower revenues and the timing of collections on the account
receivable balances;
•an increase in cash used for inventoryfor projects in 2024 and 2025; and
•lower cash used for accounts payablerelated to the timing of vendor invoices and payments.
Cash Flows from Investing Activities
Net cash (used in) provided by investing activitiesprimarily relates to maturities and purchasesof investment-grade marketable debt
instruments, such as corporate notes and bonds, and capital expenditures supporting our growth. We believe our investments in marketable
debt instruments are structured to preserve principal and liquidity while at the same time maximizing yields without significantly increasing
risk. The increaseof $6.2 millionin net cash used ininvesting activities in the three months ended March 31, 2024, as compared to the prior
year, was primarily driven by a $5.6 millionincrease in net cashused for investments in marketable debt instrumentsand a $0.5 million
increase in cash used for capital expenditures.
Cash Flows from Financing Activities
Net cash provided by financing activitiesprimarily for the three months ended March 31, 2024, as compared to the cash provided by
financing activities in the prior year, was due primarily to higher cash from issuance of equity from our equity incentive plans.
Liquidity and Capital Resource Requirements
We believe that our existing resources and cash generated from our operations will be sufficient to meet our anticipated capital
requirements for at least the next 12 months. However, we may need to raise additional capital or incur additional indebtedness to continue
to fund our operations or to support acquisitions in the future and/or to fund investments in our latest technology arising from rapid market
adoption. These needs could require us to seek additional equity or debt financing. Our future capital requirements will depend on many
factors including the continuing market acceptance of our products, our rate of revenue growth, the timing of new product introductions, the
expansion of our R&D, manufacturing and S&M activities, and the timing and extent of our expansion into new geographic territories. In
addition, we may enter into potential material investments in, or acquisitions of, complementary businesses, services or technologies in the
future which could also require us to seek additional equity or debt financing. Should we need additional liquidity or capital funds, these funds
may not be available to us on favorable terms, or at all.
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 24
Recent Accounting Pronouncements
Refer to Note 1, "Description of Business and Significant Accounting Policies- Significant Accounting Policies," of the Notes to
Condensed Consolidated Financial Statements in Part I, Item 1, "Financial Statements (unaudited)," of this Quarterly Report on Form 10-Q.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk may be found primarily in two areas, foreign currency and interest rates.
Foreign Currency Risk
Our foreign currency exposures are due to fluctuations in exchange rates for the U.S.dollar ("USD") versus the British pound, Saudi
riyal, Emirati dirham, European euro, Chinese yuan, Indian rupee and Canadian dollar. Changes in currency exchange rates could adversely
affect our consolidated operating results or financial position.
Our revenue contracts have been denominated in the USD. At times, our international customers may have difficulty in obtaining
the USD to pay our receivables, thus increasing collection risk and potential bad debt expense. To the extent we expand our international
sales, a larger portion of our revenue could be denominated in foreign currencies. As a result, our cash and operating results could be
increasingly affected by changes in exchange rates.
In addition, we pay many vendors in foreign currency and, therefore, are subject to changes in foreign currency exchange rates. Our
international sales and service operations incur expense that is denominated in foreign currencies. This expense could be materially affected
by currency fluctuations. Our international sales and services operations also maintain cash balances denominated in foreign currencies. To
decrease the inherent risk associated with translation of foreign cash balances into our reporting currency, we do not maintain excess cash
balances in foreign currencies.
We have not hedged our exposure to changes in foreign currency exchange rates because expenses in foreign currencies have been
insignificant to date and exchange rate fluctuations have had little impact on our operating results and cash flows. In addition, we do not
have any exposure to the Russian ruble.
Interest Rate and Credit Risks
The primary objective of our investment activities is to preserve principal and liquidity while at the same time maximizing yields without
significantly increasing risk. We invest primarily ininvestment-grade short-term and long-term marketable debt instrumentsthat are subject
to counter-party credit risk. To minimize this risk, we invest pursuant to an investment policy approved by our Board of Directors. The policy
mandates high credit rating requirements and restricts our exposure to any single corporate issuer by imposing concentration limits.
As of March 31, 2024, our investment portfolio of $58.7 million, in investment-grade marketable debt instruments, such as U.S.
treasury securities, corporate notes and bonds, and municipal and agency notes and bonds, are classified aseither short-term and/or long-
term investmentson ourCondensed Consolidated Balance Sheets. These investments are subject to interest rate fluctuations and decrease
in market value to the extent interest rates increase, which occurred during the three months ended March 31, 2024. To minimize the
exposure due to adverse shifts in interest rates, we maintain investments with a weighted average maturity of approximately nine months. As
of March 31, 2024, a hypothetical 1% increase in interest rates would have resulted in a less than $0.3 million decreasein the fair value of
our investments in marketable debt instruments as of such date.
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 25
Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our President and Chief Executive Officer and our Chief Financial Officer, have evaluated
the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as of the
end of the period covered by this report.
Based on that evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of
March 31, 2024, our disclosure controls and procedures were effective.
Changes in Internal Controls
There were no changes in our internal control over financial reporting during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 26
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
We have been, and may be from time to time, involved in legal proceedings or subject to claims incident to the ordinary course of
business. We are not presently a party to any legal proceedings that we believe are likely to have a material adverse effect on our business,
financial condition, or operating results. Regardless of the outcome, such proceedings or claims can have an adverse impact on us because
of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be
obtained.
Item 1A - Risk Factors
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, "Risk Factors," in the 2023 Annual
Report.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Mine Safety Disclosures
Not applicable.
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 27
Item 5 - Other Information
As set forth below, during the three months ended March 31, 2024, one director and one officer(within the meaning of Rule 16a-1(f)
under the Securities Exchange Act of 1934, as amended) has adopted or terminated any Rule 10b5-1 trading arrangement and/or any non-
Rule 10b5-1 trading arrangement (as defined in Item 408 of Regulation S-K).
|
Name
|
Title
|
Date of Adoption or
Termination (1)
|
Status (2)
|
Plan Type
|
|
Joshua Ballard
|
Chief Financial Officer
|
January 3, 2024
|
Termination
|
Rule 10b5-1 trading arrangement (3)
|
|
Arve Hanstveit
|
Director
|
March 15, 2024
|
Termination
|
Rule 10b5-1 trading arrangement (4)
|
(1)Effective (a) date of adoption; or (b) date of termination, of registrant's Rule 10b5-1 trading arrangement.
(2)Activity related to registrant's Rule 10b5-1 trading arrangement.
(3)The trading arrangement covered the sale of up to 12,500shares of our common stock and was scheduled to expire on September 13, 2024or upon
the completion of all sales thereunder.
(4)The trading arrangement covered the sale of up to 76,000shares of our common stock and was scheduled to expire on March 15, 2024or upon the
completion of all sales thereunder.
Item 6 - Exhibits
A list of exhibits filed or furnished with this report or incorporated herein by reference is found in the Exhibit Index below.
|
Exhibit
Number
|
Exhibit Description
|
Incorporated by Reference
|
|||
|
Form
|
File No.
|
Exhibit
|
Filing Date
|
||
|
8-K/A
|
001-34112
|
10.1
|
1/31/2024
|
||
|
31.1*
|
|||||
|
31.2*
|
|||||
|
32.1**
|
|||||
|
101
|
Inline XBRL Document Set for the consolidated financial statements and accompanying notes in
Part I, "Financial Information" of this Quarterly Report on Form 10-Q.
|
||||
|
104
|
Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101
Inline XBRL Document Set.
|
*Filed herewith.
**The certification furnished in Exhibit 32.1is not deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that
section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
|
ENERGY RECOVERY, INC.
|
|||
|
|
|||
|
Date:
|
May 1, 2024
|
By:
|
/s/ DAVID W. MOON
|
|
David W. Moon
|
|||
|
President and Chief Executive Officer
|
|||
|
(Principal Executive Officer)
|
|||
|
Date:
|
May 1, 2024
|
By:
|
/s/ JOSHUA BALLARD
|
|
Joshua Ballard
|
|||
|
Chief Financial Officer
|
|||
|
(Principal Financial and Accounting Officer)
|
Energy Recovery, Inc. | Q1'2024 Form 10-Q| 29
Attachments
Disclaimer
ERI - Energy Recovery Inc. published this content on 01 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 02 May 2024 10:25:21 UTC.
