Energy Recovery Reports Record Q4 Revenue, 75% Annual Earnings Per Share Growth

San Leandro, 02/22/2023 / 16:06, EST/EDT - EQS Newswire - Energy Recovery SAN LEANDRO, CA / ACCESSWIRE / February 22, 2023 / Energy Recovery, Inc. (NASDAQ:ERII) ("Energy Recovery" or the "Company") today announced its financial results for the fourth quarter ended December 31, 2022. Fiscal Year 2022 Highlights Revenue growth of 21% over the prior year and within the November 2022 guidance. Achieved the highest revenue quarter in the company's history during the fourth quarter of fiscal year 2022 of $42.3 million. Growth was driven by our core desalination business and industrial wastewater growth. Gross margin of 69.6%, up 100 basis points compared to the prior year, due to increased pricing and product mix. Operating expenditures grew 9% over the prior year, which included VorTeq-related costs and litigation expenses that comprised 3% of the growth. Net income of $24.0 million, a growth of 69% over the prior year, and adjusted EBITDA of $36.8 million, up 50% over the prior year. Profitability increased on the basis of increased gross margin and a reduction of operating expenditures as a percent of revenue, which in turn drove earnings per share up nearly 75% to $0.42. Operating cash flow for the year was 7% below 2021 largely due to the timing of customer collections for shipments that occurred late in the fourth quarter. Robert Mao, Chairman, President and CEO, commented on the financial results: "Despite the macro-economic headwinds we are all experiencing globally, we achieved 21% annual revenue growth in 2022. Our core desalination business has never been stronger, and our new PX Q400 will help us maintain a competitive advantage in the coming years. Additionally, we exceeded our industrial wastewater 2022 guidance by nearly 30%, our annual operating income nearly doubled, and earnings per share grew 75%. All of these metrics show that our focus on thoughtful organic growth is having a real and positive impact on the business." Mr. Mao added, "In our CO2 refrigeration business, we are investing in additional resources to support the growth of this burgeoning business, including sales account managers for the U.S. and European markets, as well as field technicians. Our manufacturing partners are beginning to highlight our PX G1300 to their supermarket clients now that our PX technology has demonstrated its reliability and efficiency gains out in the field. We have received repeat orders for additional PX G1300 units to be deployed this year, and are in discussions with some partners for regional distribution agreements. We are confident that our clear and disciplined growth strategy is moving us to where we need to be in this high-quality and opportunity-rich market, which we believe will create significant value for our shareholders." Financial Highlights Quarter-to-Date Year-to-Date Q4 2022 Q4 2021 vs. Q4 2021 2022 2021 2022 vs. 2021 (In millions, except net income per share, percentages and basis points) Revenue $ 42.3 $ 33.6 up 26% $ 125.6 $ 103.9 up 21% Gross margin 70.7 % 68.9 % up 180 bps 69.6 % 68.6 % up 100 bps Operating margin 34.5 % 17.8 % up 1670 bps 19.8 % 13.3 % up 650 bps Net income $ 13.7 $ 5.3 up 161% $ 24.0 $ 14.3 up 69% Net income per share $ 0.24 $ 0.09 up 167% $ 0.42 $ 0.24 up 75% Effective tax rate 10.7 % 12.1 % 7.8 % (1.9 %) Cash provided by operations $ 6.4 $ 6.2 $ 12.6 $ 13.5 Cash and investments $ 92.9 $ 108.0 Non-GAAP Financial Highlights Quarter-to-Date Year-to-Date Q4'2022 Q4'2021 vs. Q4'2021 2022 2021 2022 vs. 2021 (In millions, except net income per share, percentages and basis points) Adjusted operating margin 37.9 % 22.8 % up 1510 bps 26.2 % 19.3 % up 690 bps Adjusted net income $ 14.7 $ 6.4 up 130% $ 30.5 $ 17.6 up 73% Adjusted net income per share $ 0.26 $ 0.11 up 136% $ 0.54 $ 0.31 up 74% Adjusted effective tax rate 12.2 % 16.0 % 10.6 % 12.9 % Adjusted EBITDA $ 17.0 $ 9.1 up 87% $ 36.8 $ 24.6 up 50% Free cash flow $ 5.1 $ 4.4 up 15% $ 8.4 $ 6.8 up 23% Refer to the sections "Use of Non-GAAP Financial Measures" and "Reconciliation of Non-GAAP Financial Measures" for definition of adjustment to GAAP presentation. Forward-Looking Statements Certain matters discussed in this press release and on the conference call are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including our expectations on full year revenue and gross margin guidance; our belief that the Company's core desalination business has never been stronger; the timing of any new hires to support our CO2 business; the timing of any CO2 deployments; our ability to finalize and enter into any regional distribution agreements; and our belief that the Company's CO2 business will create significant value for our shareholders. 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 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, 2021, 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 gross margin, 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 Year to Date 2022 Financial Results Adjusted operating expense is a non-GAAP financial measure that the Company defines as operating expense which excludes non-core operational costs, such as VorTeq-related severance costs, litigation charges and accelerated depreciation. 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, litigation charges 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, litigation charges 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, litigation charges 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, severance costs, litigation charges 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 and litigation charges; iv) other income, net, such as interest income and other non-operating income (expense), net; and v) provision for (benefit from) income taxes. Free cash flow is a non-GAAP financial measure that the Company defines as net cash provided by operating activities less capital expenditures. Conference Call to Discuss Fourth Quarter and Year to Date 2022 Financial Results LIVE CONFERENCE CALL: Wednesday, February 22, 2023, 2:00 PM PT / 5:00 PM ET Listen-only, US / Canada Toll-Free: +1 (877) 709-8150 Listen-only, Local / International Toll: +1 (201) 689-8354 CONFERENCE CALL REPLAY: Expiration: Wednesday, March 22, 2023 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13735467 Investors may access the live call and the replay (approximately three hours after the live call concludes) over the internet at: ir.energyrecovery.com/websites/energyrecover/English/2200/calendar.html 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, Inc., creates technologies that solve complex challenges for commercial and industrial fluid-flow markets worldwide. Building on an innovative pressure exchanger technology platform, they design and manufacture solutions that make commercial and industrial processes more efficient and sustainable. What began as a game-changing invention for desalination has grown into a global business accelerating the environmental sustainability of customers' operations in multiple industries. 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/ Contact Investor Relations ir@energyrecovery.com +1 (281) 962-8105 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) 2022 2021 (In thousands) ASSETS Cash, cash equivalents and investments $ 92,891 $ 107,988 Accounts receivable and contract assets 35,782 21,108 Inventories, net 28,366 20,383 Prepaid expenses and other assets 3,886 4,582 Property, equipment and operating leases 32,695 35,014 Goodwill and other intangible assets 12,790 12,827 Deferred tax assets and other assets 10,629 11,788 TOTAL ASSETS $ 217,039 $ 213,690 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable and accrued expenses $ 15,507 $ 14,903 Contract liabilities and other liabilities, non-current 1,316 3,565 Lease liabilities 14,878 16,443 Total liabilities 31,701 34,911 Stockholders' equity 185,338 178,779 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 217,039 $ 213,690 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 (In thousands, except per share data) Product revenue $ 42,291 $ 33,576 $ 125,591 $ 103,904 Cost of product revenue 12,400 10,419 38,235 32,670 Gross profit 29,891 23,157 87,356 71,234 Operating expenses General and administrative 7,186 6,533 28,341 25,174 Sales and marketing 4,361 3,924 16,277 12,160 Research and development 3,739 6,727 17,909 20,069 Total operating expenses 15,286 17,184 62,527 57,403 Income from operations 14,605 5,973 24,829 13,831 Other income, net 765 15 1,242 173 Income before income taxes 15,370 5,988 26,071 14,004 Provision for (benefit from) income taxes 1,645 725 2,022 (265 ) Net income $ 13,725 $ 5,263 $ 24,049 $ 14,269 Net income per share Basic $ 0.25 $ 0.09 $ 0.43 $ 0.25 Diluted $ 0.24 $ 0.09 $ 0.42 $ 0.24 Number of shares used in per share calculations Basic 56,014 56,818 56,221 56,993 Diluted 57,433 58,502 57,641 58,723 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Years Ended December 31, 2022 2021 (In thousands) Cash flows from operating activities: Net income $ 24,049 $ 14,269 Non-cash adjustments 14,447 13,126 Net cash used in operating assets and liabilities (25,865 ) (13,869 ) Net cash provided by operating activities 12,631 13,526 Cash flows from investing activities: Net investment in marketable securities (3,816 ) (13,884 ) Capital expenditures, net (3,130 ) (6,679 ) Net cash used in investing activities (6,946 ) (20,563 ) Cash flows from financing activities: Net proceeds from issuance of common stock 2,986 10,554 Repurchase of common stock (26,654 ) (23,346 ) Net cash used in financing activities (23,668 ) (12,792 ) Effect of exchange rate differences (20 ) (68 ) Net change in cash, cash equivalents and restricted cash $ (18,003 ) $ (19,897 ) Cash, cash equivalents and restricted cash, end of year $ 56,458 $ 74,461 ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Channel Revenue Three Months Ended December 31, Years Ended December 31, 2022 2021 vs. 2021 2022 2021 vs. 2021 (In thousands, except percentages) Megaproject $ 30,631 $ 25,084 up 22% $ 81,888 $ 75,391 up 9% Original equipment manufacturer 7,466 5,695 up 31% 28,858 17,604 up 64% Aftermarket 4,194 2,797 up 50% 14,845 10,909 up 36% Total Revenues $ 42,291 $ 33,576 up 26% $ 125,591 $ 103,904 up 21% Segment Activity Three Months Ended December 31, 2022 Three Months Ended December 31, 2021 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Product revenue $ 42,237 $ 54 $ - $ 42,291 $ 33,576 $ - $ - $ 33,576 Product cost of revenue 12,341 59 - 12,400 10,419 - - 10,419 Gross profit (loss) 29,896 (5 ) - 29,891 23,157 - - 23,157 Operating expenses General and administrative 2,027 964 4,195 7,186 1,565 1,308 3,660 6,533 Sales and marketing 2,868 927 566 4,361 3,024 202 698 3,924 Research and development 992 2,747 - 3,739 731 5,996 - 6,727 Total operating expenses 5,887 4,638 4,761 15,286 5,320 7,506 4,358 17,184 Operating income (loss) $ 24,009 $ (4,643 ) $ (4,761 ) $ 14,605 $ 17,837 $ (7,506 ) $ (4,358 ) $ 5,973 Year Ended December 31, 2022 Year Ended December 31, 2021 Water Emerging Technologies Corporate Total Water Emerging Technologies Corporate Total (In thousands) Product revenue $ 125,428 $ 163 $ - $ 125,591 $ 103,851 $ 53 $ - $ 103,904 Product cost of revenue 38,158 77 - 38,235 32,670 - - 32,670 Gross profit 87,270 86 - 87,356 71,181 53 - 71,234 Operating expenses General and administrative 6,936 4,104 17,301 28,341 6,342 5,162 13,670 25,174 Sales and marketing 11,065 3,047 2,165 16,277 9,559 937 1,664 12,160 Research and development 4,151 13,758 - 17,909 2,589 17,480 - 20,069 Total operating expenses 22,152 20,909 19,466 62,527 18,490 23,579 15,334 57,403 Operating income (loss) $ 65,118 $ (20,823 ) $ (19,466 ) $ 24,829 $ 52,691 $ (23,526 ) $ (15,334 ) $ 13,831 Share-based Compensation Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 (In thousands) Stock-based compensation expense charged to: Cost of revenue $ 136 $ 100 $ 506 $ 414 General and administrative 701 682 3,436 2,917 Sales and marketing 360 435 1,592 1,483 Research and development 210 263 977 1,242 Total stock-based compensation expense $ 1,407 $ 1,480 $ 6,511 $ 6,056 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-do-Date Year-to-Date Q4' 2022 Q4' 2021 2022 2021 (In millions, except shares, per share and percentage) Operating expense $ 15.3 $ 17.2 $ 62.5 $ 57.4 Severance - (0.2 ) (0.3 ) (0.2 ) Accelerated depreciation - - (0.9 ) - Litigation charges - - (0.4 ) - Adjusted operating expense $ 15.3 $ 17.0 $ 60.9 $ 57.2 Operating margin 34.5 % 17.8 % 19.8 % 13.3 % Share-based compensation 3.3 % 4.4 % 5.2 % 5.8 % Severance - % 0.6 % 0.2 % 0.2 % Accelerated depreciation - % - % 0.7 % - % Litigation charges - % - % 0.3 % - % Adjusted operating margin 37.9 % 22.8 % 26.2 % 19.3 % Net income $ 13.7 $ 5.3 $ 24.0 $ 14.3 Share-based compensation (2) 1.4 1.5 6.5 6.1 Severance (2) - 0.2 0.3 0.2 Accelerated depreciation (2) - - 0.7 - Litigation charges (2) - - 0.4 - Share-based compensation discrete tax item (0.4 ) (0.5 ) (1.4 ) (2.9 ) Adjusted net income $ 14.7 $ 6.4 $ 30.5 $ 17.6 Net income per share $ 0.24 $ 0.09 $ 0.42 $ 0.24 Adjustments to net income per share (3) 0.02 0.02 0.12 0.07 Adjusted net income per share $ 0.26 $ 0.11 $ 0.54 $ 0.31 Effective tax rate 10.7 % 12.1 % 7.8 % (1.9 %) Adjustments to effective tax rate (3) 1.5 % 3.9 % 2.9 % 14.8 % Adjusted effective tax rate 12.2 % 16.0 % 10.6 % 12.9 % Net income $ 13.7 $ 5.3 $ 24.0 $ 14.3 Share-based compensation 1.4 1.5 6.5 6.1 Severance - 0.2 0.3 0.2 Depreciation and amortization 1.0 1.4 4.8 4.5 Litigation charges - - 0.4 - Other income, net (0.8 ) - (1.2 ) (0.2 ) Provision for (benefit from) income taxes 1.6 0.7 2.0 (0.3 ) Adjusted EBITDA $ 17.0 $ 9.1 $ 36.8 $ 24.6 Free cash flow Net cash provided by operating activities $ 6.4 $ 6.2 $ 12.6 $ 13.5 Capital expenditures (1.2 ) (1.8 ) (4.2 ) (6.7 ) Free cash flow $ 5.1 $ 4.4 $ 8.4 $ 6.8 Amounts may not total due to rounding. Amount presented are net of tax. Refer to the sections "Use of Non-GAAP Financial Measures" for description of items included in adjustments. SOURCE: Energy Recovery 02/22/2023 EQS Newswire / EQS Group AG

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