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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
D
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 ((s)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
D
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 25, 2024
, there were
57,330,153
shares of the registrant's common stock outstanding.
ENERGY RECOVERY, INC.
TABLE OF CONTENTS
Page No.
PART I
FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets 1
- March 31, 2024 and December 31, 2023
Condensed Consolidated Statements of Operations 2
- Three Months Ended March 31, 2024 and 2023
Condensed Consolidated Statements of Comprehensive 3
Loss
- Three Months Ended March 31, 2024 and 2023
Condensed Consolidated Statements of Stockholders' 4
Equity
- Three Months Ended March 31, 2024 and 2023
Condensed Consolidated Statements of Cash Flows 5
- Three Months Ended March 31, 2024 and 2023
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of 18
Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative 25
Disclosures About Market Risk
Item 4 Controls and Procedures 26
PART II
OTHER INFORMATION
Item 1 Legal Proceedings 27
Item 1A Risk Factors 27
Item 2 Unregistered Sales of Equity 27
Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities 27
Item 4 Mine Safety Disclosures 27
Item 5 Other Information 28
Item 6 Exhibits 28
Signatures 29
Table of Contents
Energy Recovery, Inc. | Q1'2024 Form 10-Q
Forward-Looking Information
This
Quarterly
Report on Form
10-Q
for the
three months
ended
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
PX
offers 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
CO
2
-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
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 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 our
Annual Reports on Form 10K,
Quarterly Reports on Form 10Q and Current Reports on Form 8K filed with, or
furnished to, the Securities and Exchange Commission (the "SEC"), as well as in
Part II, Item 1A, "Risk Factors,"
within this
Quarterly
Report
on Form
10-Q
.
Table of Contents
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 10K, Quarterly Reports on Form 10Q,
Current Reports on Form 8K, 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
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.
Table of Contents
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, December 31,
2024 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
Table of Contents
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 ( 35
53
)
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
Table of Contents
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 ( 95
44
)
Total other comprehensive income (loss), net of tax ( 78
16
)
Comprehensive loss $ $
( (
8,276 6,218
) )
See Accompanying Notes to Condensed Consolidated Financial Statements
Table of Contents
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 ( 95
44
)
Total other comprehensive (loss) income, net ( 78
16
)
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
Table of Contents
Energy Recovery, Inc. | Q1'2024 Form 10-Q
| 4
ENERGY
RECOVERY, 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 ( 187
545
)
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 ( 1,167
4,986
)
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 ( 8
19
)
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
Table of Contents
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 f
or 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
and
the 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 CO
2
-based refrigeration systems, under the trademarks
ERI
(R)
,
PX
(R)
,
Pressure Exchanger
(R)
,
PX
(R)
Pressure Exchanger
(R)
("PX"),
Ultra PX
"
,
PX G
"
,
PX G1300
"
,
PX PowerTrain
"
,
AT
"
, and
Aquabold
"
. 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
The
Condensed
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 accompanying
Condensed
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, 2023
Condensed
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, 2024
unaudited
Condensed
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, 2023
included 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 of
Condensed
Consolidated Financial Statements, in conformity with
GAAP
, requires the Company's management to
make judgments, assumptions and estimates that affect the amounts reported in
the
Condensed
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
Quarterly
Report 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
Quarterly
Report on Form
10-Q
, except as required by law.
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO
CONDENSED
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 accounting
pronouncements that have not yet been adopted during the
three months ended
March 31,
2024
that 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
.
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q
| 7
Note
2
-
Revenue
Disaggregation of Revenue
The following table
present
s
the disaggregated revenues by segment, and within each segment, by
geographical market
based on the
customer "shipped to" address, and by
channel
customers. 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 Total Water Emerging Total
Technologies Technologies
(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, December 31,
2024 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, December 31,
2024 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
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q
| 8
Remaining
Performance Obligations
As of
March 31, 2024
, t
he 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
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q
| 9
Note
3
-
Net Loss Per Share
Net loss
for 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 presents
the 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 presents
the equity awards that are excluded from diluted
net loss
per 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
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q
| 10
N
ote
4
-
Other Financial Information
Cash, Cash Equivalents and Restricted Cash
The
Condensed
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 the
Condensed
Consolidated Balance
Sheets and the
Condensed
Consolidated Statements of Cash Flows that sum to the total of such amounts.
March 31, December 31, March 31,
2024 2023 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, December 31,
2024 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, December 31,
2024 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, December 31,
2024 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
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO
CONDENSED
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
no
Level 3 financial assets.
March 31, 2024 December 31, 2023
Pricing Amortized Gross Gross Fair Amortized Gross Gross Fair
Category Cost Unrealized Unrealized Value Cost Unrealized Unrealized Value
Gains Losses Gains Losses
(In thousands)
Cash equivalents
Money market Level 1 $ $ $ $ $ $ $ $
securities 25,233 - - 25,233 18,767 - - 18,767
Short-term investments
U.S. treasury Level 2 6,406 - ( 6,403 4,900 1 ( 4,900
securities 3 1
) )
Corporate notes and Level 2 33,246 1 ( 33,207 25,674 11 ( 25,667
bonds 40 18
) )
Municipal and agency Level 2 6,971 - ( 6,967 9,887 - ( 9,878
notes and bonds 4 9
) )
Total short-term investments 46,623 1 ( 46,577 40,461 12 ( 40,445
47 28
) )
Long-term investments
Corporate notes and Level 2 8,048 2 ( 8,045 9,229 28 ( 9,254
bonds 5 3
) )
Municipal and agency Level 2 4,098 - ( 4,092 4,585 - ( 4,578
notes and bonds 6 7
) )
Total long-term investments 12,146 2 ( 12,137 13,814 28 ( 13,832
11 10
) )
Total short and long-term 58,769 3 ( 58,714 54,275 40 ( 54,277
investments 58 38
) )
Total $ $ $ $ $ $ $ $
84,002 3 ( 83,947 73,042 40 ( 73,044
58 38
) )
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 Gross Fair Gross
Value Unrealized Value Unrealized
Losses Losses
(In thousands)
U.S. treasury securities $ $ $ $
5,406 ( 2,931 (
3 1
) )
Corporate notes and bonds 37,568 ( 15,276 (
45 21
) )
Municipal and agency notes and bonds 9,060 ( 12,956 (
10 16
) )
Total available-for-sale investments with unrealized loss positions $ $ $ $
52,034 ( 31,163 (
58 38
) )
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO
CONDENSED
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
million
and includes both a revolving loan and a letters of credit ("
LCs
") component.
Under the
Credit Agreement
, as of
March 31, 2024
, there were
no
revolving loans outstanding. In addition, under the
LCs
component, the Company utilized
$
20.3
million
of 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
LCs
and SBLCs issued by the Company to its customers related to
product
warranty and performance guarantees
.
March 31, December 31,
2024 2023
(In thousands)
Outstanding letters of credit $ $
18,293 19,945
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO
CONDENSED
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.
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO
CONDENSED
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 of
its
annual effective tax rate, adjusted
for discrete items, if any, that arise during the period
.
Each quarter,
the Company
update
s 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 of
its
annual effective tax rate are subject to variation due to several factors,
including variability in accurately
predicting
its
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 how
the 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
i
ncluded benefits
related to the U.S. federal
foreign-derived intangible income ("FDII")
and
federal
research 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
.
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO
CONDENSED
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
continue
s to
monitor and
review
its
segment reporting structure in accordance with authoritative guidance to
determine whether any changes have occurred that would
impact
its
reportable segments
.
The following
table presents
a summary of the Company's financial information by segment and corporate
operating expenses.
Three Months Ended March 31,
2024 2023
Water Emerging Total Water Emerging Total
Technologies Technologies
(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 ( 8,155
40
)
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 ( 5,708 1,902 ( 3,402
6,076 ) 5,304 )
) )
Less: Corporate operating expenses 5,226 4,709
Loss from operations $ $
( (
10,934 8,111
) )
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Recovery, Inc. | Q1'2024 Form 10-Q
| 16
Note
10
-
Concentrations
Customer Revenue Concentration
The following
table presents
the customers that account for 10% or more of the Company's
revenue
and their related segment for
each of the periods presented. Although certain customers might account for
greater than 10% of the Company's
revenue
at any one point in
time, the concentration of
revenue
between 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
revenue
for 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%.
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO
CONDENSED
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
and
we are
committed to developing solutions that drive
long-term value - both financial and environmental
.
The original product application of our technology, the
PX
(R)
Pressure Exchanger
(R)
("
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 technology
is being applied to the
wastewater
filtration 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
(R)
for use in the CO
2
market.
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 device
s.
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
continue
to
monitor and review
our
segment reporting structure in accordance with authoritative guidance to
determine whether any changes have occurred that would impact
our
reportable segments
.
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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 % of Change
Revenue Revenue
(In thousands, except percentages)
Aftermarket $ 38% $ 25% $ 40%
4,644 3,322 1,322
Megaproject 4,100 34% 3,243 24% 857 26%
Original equipment manufacturer 3,346 28% 6,836 51% (3,490) (51%)
Total revenue $ 100% $ 100% $ (10%)
12,090 13,401 (1,311)
Revenue Attributable to Primary Geographical Markets by Segments.
Three Months Ended March 31,
2024 2023
Water Emerging Total Water Emerging Total
Technologies Technologies
(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 the
Middle 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 t
he
Asia
marke
t
.
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 million
was due primarily to shipments to customers in the
Middle East, Asia and the Americas
markets
.
Table of Contents
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 Gross Profit Gross Change in Gross Profit
Margin % Margin %
(In thousands, except percentages)
Gross profit and gross margin $ 59.0% $ 60.9% $ (12.5%)
7,135 8,155 (1,020)
The
decrease
in 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
decrease
in gross margin during the
three months ended
March 31, 2024
, as
compared to the prior year, was due primarily t
o higher manufacturing costs and an increase in
inventory scrap,
partially offset by lower cost
of product sold related to product mix
.
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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 the
prior year, are discussed within the following
segment and corporate operating
expenses
discussions below.
Three Months Ended March 31,
2024 2023
Water Emerging Corporate Total Water Emerging Corporate Total
Technologies Technologies
(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 1,100 3,251 - 4,351 1,180 3,126 - 4,306
development
Total operating $ $ $ $ $ $ $ $
expenses 6,767 6,076 5,226 18,069 6,293 5,264 4,709 16,266
Overall operating expenditures
increase
d 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
headcoun
t,
executive transition costs
, a
nd an increase in travel costs. Other non-employee costs included:
.
G&A
:
lower
consultant 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.
Water
Segment.
Water segment operating expenses
increase
d by
$0.5 million
, or
7.5%
, in the
three months ended
March 31, 2024
,
as compared to the prior year. This
increase
was 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 Technologies
Segment.
Emerging Technologies
operating expenses
increase
d by
$0.8 million
, or
15.4%
, in the
three
months ended
March 31, 2024
, as compared to the prior year. This
increase
was due primarily to higher employee costs and share-based
compensation expense, related to an increase in headcount in G&A, S&M and
R&D.
Corporate Operating Expenses
.
Corporate operating expenses
increase
d by
$0.5 million
, or
11.0%
, in the
three months ended
March 31, 2024
, as compared to the prior year. This
increase
was 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
expenses
were
lower due primarily to
a decrease in consultant costs and
professional
fees.
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
increase
in "
Total other income, net
"
in the
three months ended
March 31, 2024
, as compared to the prior year, was due primarily
to an increase in
interest yields and
investments
.
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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 of
our
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 of
our
annual effective
tax rate are subject to variation due to several factors, including
variability in accurately predicting
our
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 how
we 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 benefits
related 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.
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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 instruments
of
$58.7 million
that 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 million
held 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 the
underlying 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 million
and
includes both a revolving loan and a letters of credit ("
LCs
") component.
T
he maximum allowable
LCs
under the credit line component of
the
Credit Agreement
is
$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
no
revolving loans outstanding. In addition, as of
March 31, 2024
,
under the
LCs
component, we utilized
$20.3 million
of 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 million
of
outstanding LCs. These LCs had a weighted average remaining life of
approximately
14 months
.
See
Note
6
, "
Lines of Credit
," of the
Notes
for further discussion related to the
Credit Agreement
.
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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 activities
is 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
lower
net cash
provided by
operating assets and liabilities for the
three months ended
March 31, 2024
, as compared to the prior
year, was due primarily to the following factors:
.
a
decrease 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 inventory
for projects in
2024 and 2025
;
and
.
lower
cash used for accounts payable
related to the timing of vendor invoices and payments.
Cash Flows from Investing Activities
Net cash (used in) provided by investing activities
primarily relates to
maturities and purchases
of 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
increase
of
$6.2 million
in net cash
used in
investing activities in the
three months ended
March 31, 2024
, as compared to the prior
year, was primarily driven by a
$5.6 million
increase in net cash
used for
investments in marketable debt instruments
and a
$0.5 million
increase in cash used for capital expenditures
.
Cash Flows from Financing Activities
Net cash provided by financing activities
primarily 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.
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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 in
investment-grade short-term and long-term marketable debt instruments
that 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 as
either
short-term and/or long-
term investments
on our
Condensed
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
.
A
s
of
March 31, 2024
, a hypothetical 1% increase in interest rates would have resulted in
a less than
$0.3 million
decrease
in the fair value of
our investments in marketable debt instruments as of such date.
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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.
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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.
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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 Status Plan Type
Termination (2)
(1)
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
12,500
shares of our common stock and was scheduled to expire on
September 13, 2024
or upon
the completion of all sales thereunder.
(4)
The trading arrangement covered the sale of up to
76,000
shares of our common stock and was scheduled to expire on
March 15, 2024
or 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 Exhibit Description Incorporated by Reference
Number
Form File No. Exhibit Filing Date
10.1 Offer of Employment with Energy Recovery, Inc., 8-K/A 001-34112 10.1 1/31/2024
as President and Chief Executive Officer.
31.1 Certification of Principal Executive Officer,
* pursuant to Exchange Act Rule 13a-14(a) or
15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer,
* pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a),
as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer and
** Principal Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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 32.1
is 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.
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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)
Table of Contents
Energy Recovery, Inc. | Q1'2024 Form 10-Q
| 29
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR 15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David W. Moon, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Energy Recovery, Inc.
for the period ended March 31, 2024;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
I have disclosed, based on my most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of
the registrant's Board of Directors (or persons performing the equivalent
functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 1, 2024 /s/ DAVID W. MOON
Name: David W. Moon
Title: President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR 15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joshua Ballard, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Energy Recovery, Inc.
for the period ended March 31, 2024;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
I have disclosed, based on my most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of
the registrant's Board of Directors (or persons performing the equivalent
functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 1, 2024 /s/ JOSHUA BALLARD
Name: Joshua Ballard
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER,
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002*
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), and Section 1350 of
Chapter 63 of Title 18 of the United States Code, David W. Moon, President and
Chief Executive Officer of Energy Recovery, Inc., and Joshua Ballard, Chief
Financial Officer of Energy Recovery, Inc., each hereby certify that, to the
best of his knowledge:
1. The Company's Quarterly Report on Form 10-Q for the period ended March
31, 2024, to which this Certification is attached as Exhibit 32.1 (the
"Quarterly Report"), fully complies with the requirements of Section 13(a) or
Section 15(d) of the Exchange Act, and
2. The information contained in the Quarterly Report fairly presents, in
all material respects, the financial condition of the Company at the end of
the period covered by the Quarterly Report and results of operations of the
Company for the period covered by the Quarterly Report.
IN WITNESS WHEREOF, the undersigned has set his hand hereto:
Date: May 1, 2024 /s/ DAVID W. MOON
David W. Moon
President and Chief Executive Officer
Date: May 1, 2024 /s/ JOSHUA BALLARD
Joshua Ballard
Chief Financial Officer
* This certification accompanies the Form 10-Q to which it relates, is not
deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Energy Recovery, Inc. under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended (whether made before or after the date of the Form 10-Q), irrespective
of any general incorporation language contained in such filing.
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