8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 2, 2022

Energy Recovery, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	001-34112	01-0616867
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

1717 Doolittle Dr., San Leandro, CA 94577

(Address of Principal Executive Offices) (Zip Code)

510-483-7370

(Registrant’s telephone number, including area code)

Not applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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 per share	ERII	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.

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. ¨

Item 2.02    Results of Operations and Financial Condition

On November 2, 2022, Energy Recovery, Inc. issued an earnings press release announcing its financial results for the third quarter and nine months ended September 30, 2022. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety.

The information in this report (including Exhibit 99.1) is being furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.

Item 9.01    Financial Statements and Exhibits

(d)     Exhibits

Exhibit Number	Description
99.1	Press release of Energy Recovery, Inc., dated November 2, 2022, to report its financial results for the third quarter and nine months ended September 30, 2022.

SIGNATURE

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 hereunto duly authorized.

Date:    November 2, 2022

Energy Recovery, Inc.
By:	/s/ William Yeung
	William Yeung
	Chief Legal Officer

EX-99.1

Exhibit 99.1

Energy Recovery Reports 47% Quarterly Product Revenue Growth in Third Quarter

SAN LEANDRO, Calif. - November 2, 2022 - Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the third quarter ended September 30, 2022.

Third Quarter Highlights:

•Revenue of $30.5 million. Full year revenue guidance of $121–$125 million, or 16%–20% year-on-year growth, within gross margin expectations guided last year.

•Income from operations of $4.9 million and adjusted income from operations(1) of $6.8 million.

•Net income of $4.8 million, or $0.08 per share, and adjusted net income per share(1) of $0.12.

•Adjusted EBITDA(1) of $7.7 million.

•Cash and investments of $86.6 million, which include cash, cash equivalents, and short-term and long-term investments.

•We successfully installed and commissioned our PX G1300™ fully integrated with the CO2 refrigeration rack for Vallarta Supermarkets in California.

•We released our third annual Environmental, Social, and Governance (“ESG”) report which can be found on our website and using this link: https://ir.energyrecovery.com/websites/energyrecover/English/6500/esg-at-energy-recovery.html#.

Robert Mao, Chairman, President and CEO, commented on the financial results, “We continue to make important strides in all three of our businesses, and believe we have the right products and strategy to deliver on our goals despite the challenging macro-economic environment. In our CO2 refrigeration business, we have gone live with the installation of our PX G1300 with Vallarta Supermarkets in California. This is the second installation in a grocery store for the PX G1300, and we are collecting valuable data and proving the efficiency gains the PX G1300 delivers in CO2 refrigeration racks.”

Mr. Mao added, “In addition, the reference designs published on our website have piqued the interest of additional commercial and industrial refrigeration manufacturers. As a result of this, we will be shipping PX G1300 units to various customers for installation in the later part of this year, or early 2023. These units will be used for initial deployments in both commercial and industrial refrigeration applications.”

“Sales in our industrial wastewater business continue to grow and we should exceed our full-year guidance of $3.0 million. In our water business we launched the PX Q400 pressure exchanger, which is the next evolution of our PX® Pressure Exchanger® technology. This new addition to our PX offering is our most efficient PX available for use in both SWRO and industrial wastewater applications.”

Financial Highlights

Third Quarter (Quarter to Date)

	GAAP			Non-GAAP(1)
	Q3 2022	Q3 2021	vs. Q3 2021	Q3 2022	Q3 2021	vs. Q3 2021
	(In millions except for percentages, basis points and per share amounts)
Revenue	$30.5	$20.8	up 47%	$30.5	$20.8	up 47%
Gross margin	69.1%	70.6%	down 150 bps	69.5%	71.1%	down 160 bps
Operating margin	16.1%	6.9%	up 920 bps	22.4%	12.8%	up 960 bps
Net income	$4.8	$1.1	up 347%	$6.5	$2.3	up 182%
Net income per share	$0.08	$0.02	up 300%	$0.12	$0.04	up 200%
Effective tax rate	7.2%	26.8%		8.7%	14.9%
Adjusted EBITDA				$7.7	$3.7	up 109%
Free cash flow				($1.6)	($6.7)

Fiscal Year (Year to Date)

	GAAP			Non-GAAP(1)
	2022	2021	2022 vs. 2021	2022	2021	2022 vs. 2021
	(In millions, except net income per share, percentages and basis points)
Revenue	$83.3	$70.3	up 18%	$83.3	$70.3	up 18%
Gross margin	69.0%	68.4%	up 60 bps	69.4%	68.8%	up 60 bps
Operating margin	12.3%	11.2%	up 110 bps	20.3%	17.7%	up 260 bps
Net income	$10.3	$9.0	up 15%	$15.8	$11.2	up 41%
Net income per share	$0.18	$0.15	up 20%	$0.28	$0.20	up 40%
Effective tax rate	3.5%	(12.4%)		9.1%	11.0%
Adjusted EBITDA				$19.8	$15.5	up 28%
Free cash flow				$3.3	$2.4

(1)“Adjusted income from operations,” “Adjusted net income per share,” “Free cash flow” and “Adjusted EBITDA” are non-GAAP financial measures. Refer to the sections “Use of Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures.”

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 PX Q400 is the highest performing PX available for SWRO and industrial wastewater facilities; and our belief that the Company has the right products and strategy to survive the macro-economic environment and our goals. 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 income from operations, adjusted net income per share, 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 Third Quarter and Year to Date 2022 Financial Results

•Adjusted income from operations is a non-GAAP financial measure that the Company defines as income from operations which excludes i) share-based compensation; and ii) non-recurring costs, such as severance costs and accelerated depreciation.

•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-recurring costs, such as severance costs and accelerated depreciation, and iii) the applicable tax effect of the excluded items including the share-based compensation discrete tax item, divided by basic shares outstanding.

•Adjusted 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-recurring costs, such as severance costs; iv) other income, net, such as interest income and other non-operating (expense) income, 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 (used in) operating activities less capital expenditures.

Conference Call to Discuss Third Quarter 2022 Financial Results

LIVE CONFERENCE CALL:

Wednesday, November 2, 2022, 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: Friday, December 2, 2022

US / Canada Toll-Free: +1 (877) 660-6853

Local / International Toll: +1 (201) 612-7415

Access code: 13732700

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)

	September 30, 2022		December 31, 2021
	(In thousands)
ASSETS
Cash, cash equivalents and investments	$	86,558	$	107,988
Accounts receivable and contract assets	19,313		21,108
Inventories, net	32,132		20,383
Prepaid expenses and other assets	5,486		4,582
Property, equipment and operating leases	32,234		35,014
Goodwill and other intangible assets	12,819		12,827
Deferred tax assets and other assets	11,579		11,788
TOTAL ASSETS	$	200,121	$	213,690
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Accounts payable and accrued expenses	$	13,250	$	14,903
Contract liabilities	2,209		3,406
Lease liabilities	15,284		16,443
Other liabilities, non-current	75		159
Total liabilities	30,818		34,911
Stockholders’ equity	169,303		178,779
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	200,121	$	213,690

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In thousands, except per share data)
Revenue	$	30,462	$	20,781	$	83,300	$	70,328
Cost of revenue	9,417		6,089		25,835		22,251
Gross profit	21,045		14,692		57,465		48,077
Operating expenses
General and administrative	7,608		5,853		21,155		18,641
Sales and marketing	4,703		2,996		11,916		8,236
Research and development	3,828		4,416		14,170		13,342
Total operating expenses	16,139		13,265		47,241		40,219
Income from operations	4,906		1,427		10,224		7,858
Other income, net	254		37		477		158
Income before income taxes	5,160		1,464		10,701		8,016
Provision for (benefit from) income taxes	371		393		377		(990)
Net income	$	4,789	$	1,071	$	10,324	$	9,006
Net income per share
Basic	$	0.09	$	0.02	$	0.18	$	0.16
Diluted	$	0.08	$	0.02	$	0.18	$	0.15
Number of shares used in per share calculations
Basic	55,881		57,026		56,291		57,053
Diluted	57,372		58,709		57,708		58,785

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2022		2021
	(In thousands)
Cash flows from operating activities:
Net income	$	10,324	$	9,006
Non-cash adjustments	11,136		8,153
Net cash used in operating assets and liabilities	(15,192)		(9,865)
Net cash provided by operating activities	6,268		7,294
Cash flows from investing activities:
Net investment in marketable securities	(1,857)		(22,653)
Capital expenditures, net	(2,265)		(4,894)
Net cash used in investing activities	(4,122)		(27,547)
Cash flows from financing activities:
Net proceeds from issuance of common stock	2,244		8,939
Repurchase of common stock	(26,654)		(17,156)
Net cash used in financing activities	(24,410)		(8,217)
Effect of exchange rate differences	38		(40)
Net change in cash, cash equivalents and restricted cash	$	(22,226)	$	(28,510)
Cash, cash equivalents and restricted cash, end of period	$	52,235	$	65,848

ENERGY RECOVERY, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(Unaudited)

Channel Revenue

	Three Months Ended September 30,					Nine Months Ended September 30,
	2022		2021		vs. 2021	2022		2021		vs. 2021
	(In thousands, except percentages)
Megaproject	$	17,347	$	13,275	up 31%	$	51,257	$	50,307	up 2%
Original equipment manufacturer	9,032		4,844		up 86%	21,392		11,909		up 80%
Aftermarket	4,083		2,662		up 53%	10,651		8,112		up 31%
Total Revenues	$	30,462	$	20,781	up 47%	$	83,300	$	70,328	up 18%

Segment Activity

	Three Months Ended September 30, 2022								Three Months Ended September 30, 2021
	Water		Emerging Technologies		Corporate		Total		Water		Emerging Technologies		Corporate		Total
	(In thousands)
Revenue	$	30,462	$	—	$	—	$	30,462	$	20,767	$	14	$	—	$	20,781
Cost of revenue	9,417		—		—		9,417		6,089		—		—		6,089
Gross profit	21,045		—		—		21,045		14,678		14		—		14,692
Operating expenses
General and administrative	1,911		878		4,819		7,608		1,437		1,373		3,043		5,853
Sales and marketing	3,242		960		501		4,703		2,250		327		419		2,996
Research and development	1,216		2,612		—		3,828		762		3,654		—		4,416
Total operating expenses	6,369		4,450		5,320		16,139		4,449		5,354		3,462		13,265
Operating income (loss)	$	14,676	$	(4,450)	$	(5,320)	$	4,906	$	10,229	$	(5,340)	$	(3,462)	$	1,427

	Nine Months Ended September 30, 2022								Nine Months Ended September 30, 2021
	Water		Emerging Technologies		Corporate		Total		Water		Emerging Technologies		Corporate		Total
	(In thousands)
Revenue	$	83,191	$	109	$	—	$	83,300	$	70,275	$	53	$	—	$	70,328
Cost of revenue	25,817		18		—		25,835		22,251		—		—		22,251
Gross profit	57,374		91		—		57,465		48,024		53		—		48,077
Operating expenses
General and administrative	4,909		3,140		13,106		21,155		4,777		3,854		10,010		18,641
Sales and marketing	8,197		2,120		1,599		11,916		6,535		735		966		8,236
Research and development	3,159		11,011		—		14,170		1,858		11,484		—		13,342
Total operating expenses	16,265		16,271		14,705		47,241		13,170		16,073		10,976		40,219
Operating income (loss)	$	41,109	$	(16,180)	$	(14,705)	$	10,224	$	34,854	$	(16,020)	$	(10,976)	$	7,858

Share-based Compensation

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In thousands)
Stock-based compensation expense charged to:
Cost of revenue	$	124	$	86	$	370	$	314
General and administrative	743		628		2,735		2,235
Sales and marketing	426		271		1,232		1,048
Research and development	205		248		767		979
Total stock-based compensation expense	$	1,498	$	1,233	$	5,104	$	4,576

ENERGY RECOVERY, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (1)

(Unaudited)

This press release includes certain non-GAAP financial information because we plan and manage our business using such information. The following table reconciles the GAAP financial information to the non-GAAP financial information.

	Quarter-to-Date						Year-to-Date
	Q3'2022			Q3'2021			2022			2021
	(In millions, except shares, per share and percentages)
Gross margin (GAAP)	69.1%			70.6%			69.0%			68.4%
Share-based compensation	0.4%			0.5%			0.4%			0.4%
Adjusted gross margin (non-GAAP)	69.5%			71.1%			69.4%			68.8%
Income from operations (GAAP)	$	4.9		$	1.4		$	10.2		$	7.9
Share-based compensation	1.5			1.2			5.1			4.6
Severance	—			—			0.3			—
Accelerated depreciation	—			—			0.9			—
Litigation charges	0.4			—			0.4			—
Adjusted income from operations (non-GAAP)	$	6.8		$	2.7		$	16.9		$	12.4
Operating margin (GAAP)	16.1		%	6.9		%	12.3		%	11.2		%
Share-based compensation	4.9		%	5.9		%	6.1		%	6.5		%
Severance	—		%	—		%	0.4		%	—		%
Accelerated depreciation	—		%	—		%	1.0		%	—		%
Litigation charges	1.4		%	—		%	0.5		%	—		%
Adjusted operating margin (non-GAAP)	22.4		%	12.8		%	20.3		%	17.7		%
Net income (GAAP)	$	4.8		$	1.1		$	10.3		$	9.0
Share-based compensation (2)	1.5			1.2			5.1			4.6
Severance (2)	—			—			0.3			—
Accelerated depreciation (2)	—			—			0.7			—
Litigation charges (2)	0.4			—			0.4			—
Share-based compensation discrete tax item	(0.2)			—			(1.0)			(2.4)
Adjusted net income (non-GAAP)	$	6.5		$	2.3		$	15.8		$	11.2
Net income per share (GAAP)	$	0.08		$	0.02		$	0.18		$	0.15
Adjustments to net income per share (3)	0.04			0.02			0.10			0.05
Adjusted net income per share (non-GAAP)	$	0.12		$	0.04		$	0.28		$	0.20
Shares used in calculating adjusted net income per share (in thousands)
Diluted shares (GAAP)	57,372			58,709			57,708			58,785
Less: Dilutive equity awards	1,491			1,683			1,417			1,732
Diluted shares (non-GAAP)	55,881			57,026			56,291			57,053
Effective tax rate (GAAP)	7.2%			26.8%			3.5%			(12.4%)
Adjustments to effective tax rate (4)	1.5%			(11.9%)			5.6%			23.3%
Adjusted effective tax rate (non-GAAP)	8.7%			14.9%			9.1%			11.0%
Net income (GAAP)	$	4.8		$	1.1		$	10.3		$	9.0
Share-based compensation	1.5			1.2			5.1			4.6
Severance	—			—			0.3			—
Depreciation and amortization	0.9			1.0			3.8			3.1
Litigation charges	0.4			—			0.4			—
Other income, net	(0.3)			—			(0.5)			(0.2)
Provision for (benefit from) income taxes	0.4			0.4			0.4			(1.0)
Adjusted EBITDA (non-GAAP)	$	7.7		$	3.7		$	19.8		$	15.5
Free cash flow
Net cash provided by (used in) operating activities	$	(1.2)		$	(4.2)		$	6.3		$	7.3
Capital expenditures	(0.4)			(2.5)			(3.0)			(4.9)
Free cash flow (non-GAAP)	$	(1.6)		$	(6.7)		$	3.3		$	2.4

(1)Amounts may not total due to rounding.

(2)Amount presented are net of tax.

(3)Adjustments to net income per share reflects the adjustments for share-based compensation discrete tax item, and share-based compensation, severance costs and accelerated depreciation, net of taxes, on a per share basis.

(4)Adjustments to effective tax rate reflects adjustments for share-based compensation discrete tax item, share-based compensation, severance costs and accelerated depreciation.

XML

Cover Page	Aug. 03, 2022
Cover [Abstract]
Document Type	8-K
Document Period End Date	Nov. 02, 2022
Entity Registrant Name	Energy Recovery, Inc.
Entity Incorporation, State or Country Code	DE
Entity File Number	001-34112
Entity Tax Identification Number	01-0616867
Entity Address, Address Line One	1717 Doolittle Dr.
Entity Address, City or Town	San Leandro
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	94577
City Area Code	510
Local Phone Number	483-7370
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock, $0.001 par value per share
Trading Symbol	ERII
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false
Entity Central Index Key	0001421517
Amendment Flag	false