Energy Recovery Reports First Quarter 2017 Financial Results
First Quarter Summary:
- Total revenue increased 20% year-over-year to
$13.5 million ; highest Q1 revenue in the Company's history - Product gross margin of 62.4%
- Total gross margin(1) of 65.9%
- Operating expenses decreased 3% year-over-year to
$9.5 million - Net loss of
$0.4 million , or$(0.01) per share; a year-over-year improvement of 78%
Revenues
For the first quarter of 2017, the Company generated total revenue of
The Water Segment generated total product revenue of
The Oil & Gas Segment generated total revenue of
Gross Margin
For the first quarter of 2017, product gross margin was 62.4%, representing a decrease of 1% compared to 63.4% in the first quarter of 2016. This decrease was primarily driven by the recognition of lower-margin Oil & Gas Segment product revenue. Including license and development revenue, total gross margin(1) was 65.9% in the first quarter of 2017.
The Water Segment generated product gross margin of 67.1%, an increase of 4% year-over-year. The increase is largely driven by higher MPD sales in the first quarter of 2017 which resulted in a higher percentage of higher margin PX sales.
The Oil & Gas Segment generated product gross margin of 29.6% attributed to the IsoBoost POC project. There was no product revenue for the Oil & Gas Segment and therefore no product gross margin in the comparable period last year. Including license and development revenue, Oil & Gas Segment total gross margin(1) was 61.1%.
Operating Expenses
For the first quarter of 2017, operating expenses decreased by
The Water Segment operating expenses were
The Oil & Gas Segment operating expenses were
Finally, corporate operating expenses were
Bottom Line Summary
To summarize financial performance for the first quarter of 2017, the Company reported a net loss of
Cash Flow Highlights
For the first quarter ended
The Company ended the year with unrestricted cash of
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 the Company's expectations for its financial performance in 2017, the Company's belief that the MTeq has the potential to change the pumping paradigm within drilling applications, and the Company's ability to achieve the milestones under the VorTeq license agreement and receive the related contractual payments. 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 our ability to achieve the milestones under the VorTeq license agreement, any other factors that may have been discussed herein regarding the risks and uncertainties of our business, and the risks discussed under "Risk Factors" in our Form 10-K filed with the U.S.
Use of Non-GAAP Financial Measures
This press release includes certain non-GAAP financial measures, including total gross profit. 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
Conference Call to Discuss First Quarter 2017 Financial Results
LIVE CONFERENCE CALL: Listen-only, Toll-free: 888-271-8608 Listen-only, Local: 913-312-0270 Access code: 9723984 |
CONFERENCE CALL REPLAY: Expiration: Toll-free: 888-203-1112 Local: 719-457-0820 Access code: 9723984 |
Investors may also access the live call or the replay over the internet at ir.energyrecovery.com. The replay will be available approximately three hours after the live call concludes.
Disclosure Information
About
Contact
buhlmer@energyrecovery.com
(713) 858-2284
1 Total gross margin is a Non-GAAP financial measure. Please refer to the discussion under headings "Use of Non-GAAP Financial Measures" and "Reconciliations of Non-GAAP Financial Measures."
| ||
CONSOLIDATED BALANCE SHEETS | ||
(in thousands, except share data and par value) | ||
(unaudited) | ||
March 31, |
| |
ASSETS | ||
Current assets: |
||
Cash and cash equivalents |
$ 58,691 |
$ 61,364 |
Restricted cash |
3,323 |
2,297 |
Short-term investments |
38,668 |
39,073 |
Accounts receivable, net of allowance for doubtful accounts of |
9,184 |
11,759 |
Unbilled receivables, current |
2,216 |
190 |
Cost and estimated earnings in excess of billings |
3,371 |
1,825 |
Inventories |
4,824 |
4,550 |
Prepaid expenses and other current assets |
1,867 |
1,311 |
Total current assets |
122,144 |
122,369 |
Restricted cash, non-current |
1,521 |
2,087 |
Deferred tax assets. non-current |
1,427 |
1,270 |
Property and equipment, net of accumulated depreciation of |
8,610 |
8,643 |
|
12,790 |
12,790 |
Other intangible assets, net |
1,743 |
1,900 |
Other assets, non-current |
2 |
4 |
Total assets |
$ 148,237 |
$ 149,063 |
LIABILITIES AND STOCKHOLDERS' EQUITY | ||
Current liabilities: |
||
Accounts payable |
$ 1,824 |
$ 1,505 |
Accrued expenses and other current liabilities |
5,876 |
9,019 |
Income taxes payable |
16 |
16 |
Accrued warranty reserve |
398 |
406 |
Deferred revenue |
5,898 |
6,201 |
Current portion of long-term debt |
11 |
11 |
Total current liabilities |
14,023 |
17,158 |
Long-term debt, net of current portion |
25 |
27 |
Deferred tax liabilities, non-current |
2,297 |
2,233 |
Deferred revenue, non-current |
62,708 |
63,958 |
Other non-current liabilities |
507 |
554 |
Total liabilities |
79,560 |
83,930 |
Commitments and Contingencies (Note 9) |
||
Stockholders' equity: |
||
Preferred stock, |
— |
— |
Common stock, |
58 |
57 |
Additional paid-in capital |
143,641 |
139,676 |
Accumulated other comprehensive loss |
(107) |
(118) |
|
(16,210) |
(16,210) |
Accumulated deficit |
(58,705) |
(58,272) |
Total stockholders' equity |
68,677 |
65,133 |
Total liabilities and stockholders' equity |
$ 148,237 |
$ 149,063 |
| ||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||
(in thousands, except per share data) | ||
(unaudited) | ||
Three Months Ended March 31, | ||
2017 |
2016 | |
Product revenue |
$ 12,261 |
$ 10,051 |
Product cost of revenue |
4,610 |
3,674 |
Product gross profit |
7,651 |
6,377 |
License and development revenue |
1,250 |
1,250 |
Operating expenses: |
||
General and administrative |
4,408 |
4,884 |
Sales and marketing |
2,453 |
2,070 |
Research and development |
2,509 |
2,665 |
Amortization of intangible assets |
158 |
157 |
Total operating expenses |
9,528 |
9,776 |
Loss from operations |
(627) |
(2,149) |
Other expense: |
||
Interest expense |
(1) |
(1) |
Other non-operating income (expense) |
118 |
(21) |
Loss before income taxes |
(510) |
(2,171) |
Benefit for income taxes |
(77) |
(205) |
Net loss |
$ (433) |
$ (1,966) |
Basic and diluted net loss per share |
$ (0.01) |
$ (0.04) |
Shares used in basic and diluted per share calculation |
53,825 |
52,207 |
| ||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
(in thousands) | ||
(unaudited) | ||
Three Months Ended | ||
2017 |
2016 | |
Cash Flows From Operating Activities |
||
Net loss |
$ (433) |
$ (1,966) |
Adjustments to reconcile net loss to net cash used in operating activities: |
||
Share-based compensation |
1,113 |
1,188 |
Depreciation and amortization |
881 |
932 |
Amortization of premiums on investments |
113 |
3 |
Change in fair value of put options |
— |
29 |
Valuation adjustments for excess or obsolete inventory |
71 |
12 |
Provision for warranty claims |
55 |
— |
Provision for doubtful accounts |
4 |
4 |
Unrealized (gain) loss on foreign currency transactions |
(15) |
53 |
Other non-cash adjustments |
(31) |
(44) |
Reversal of accruals related to expired warranties |
(63) |
(33) |
Deferred income taxes |
(93) |
(207) |
Changes in operating assets and liabilities: |
||
Accounts receivable |
2,571 |
3,904 |
Accounts payable |
189 |
727 |
Income taxes payable |
(1) |
(4) |
Deferred revenue, product |
(303) |
(245) |
Inventories |
(345) |
(234) |
Prepaid and other assets |
(553) |
(385) |
Deferred revenue, license and development |
(1,250) |
(1,250) |
Cost and estimated earnings in excess of billings |
(1,546) |
— |
Unbilled receivables |
(2,026) |
81 |
Accrued expenses and other liabilities |
(3,162) |
(2,825) |
Net cash used in operating activities |
(4,824) |
(260) |
Cash Flows From Investing Activities |
||
Maturities of marketable securities |
9,646 |
— |
Purchases of marketable securities |
(9,355) |
— |
Capital expenditures |
(532) |
(152) |
Restricted cash |
(460) |
(335) |
Net cash used in investing activities |
(701) |
(487) |
Cash Flows From Financing Activities |
||
Net proceeds from issuance of common stock |
2,992 |
1,515 |
Tax payment for employee shares withheld |
(153) |
— |
Repayment of long-term debt |
(2) |
(2) |
Repurchase of common stock |
— |
(4,106) |
Net cash provided by (used in) financing activities |
2,837 |
(2,593) |
Effect of exchange rate differences on cash and cash equivalents |
15 |
(64) |
Net change in cash and cash equivalents |
(2,673) |
(3,404) |
Cash and cash equivalents, beginning of period |
61,364 |
99,931 |
Cash and cash equivalents, end of period |
$ 58,691 |
$ 96,527 |
| |||||||
FINANCIAL INFORMATION BY SEGMENT | |||||||
(in thousands) | |||||||
(unaudited) | |||||||
Three Months Ended March 31, 2017 |
Three Months Ended March 31, 2016 | ||||||
Water |
Oil &Gas |
Total |
Water |
Oil &Gas |
Total | ||
Product revenue |
$ 10,716 |
$ 1,545 |
$ 12,261 |
$ 10,051 |
$ — |
$ 10,051 | |
Product cost of revenue |
3,522 |
1,088 |
4,610 |
3,674 |
— |
3,674 | |
Product gross profit |
7,194 |
457 |
7,651 |
6,377 |
— |
6,377 | |
License and development revenue |
— |
1,250 |
1,250 |
— |
1,250 |
1,250 | |
Operating expenses: |
|||||||
General and administrative |
318 |
349 |
667 |
219 |
188 |
407 | |
Sales and marketing |
1,499 |
641 |
2,140 |
1,129 |
807 |
1,936 | |
Research and development |
262 |
2,246 |
2,508 |
359 |
2,297 |
2,656 | |
Amortization of intangibles |
158 |
— |
158 |
157 |
— |
157 | |
Total operating expenses |
2,237 |
3,236 |
5,473 |
1,864 |
3,292 |
5,156 | |
Operating income (loss) |
$ 4,957 |
|
3,428 |
$ 4,513 |
|
2,471 | |
Less: |
|||||||
Corporate operating expenses |
4,055 |
4,620 | |||||
Consolidated operating loss |
(627) |
(2,149) | |||||
Non-operating income (expenses) |
117 |
(22) | |||||
Loss before income taxes |
$ (510) |
$ (2,171) |
| |||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | |||||
(in thousands, except per share data) | |||||
This press release includes non-GAAP financial information because we plan and manage our business using such information. Our non-GAAP Total Gross Margin is determined by adding back the license and development revenue associated with the amortization of the VorTeq license agreement exclusivity fee. | ||
Three Months Ended | ||
2017 |
2016 | |
Product revenue |
$ 12,261 |
$ 10,057 |
License and development revenue |
1,250 |
1,250 |
Total revenue |
$ 13,511 |
$ 11,301 |
Product gross profit |
$ 7,651 |
$ 6,377 |
License and development gross profit |
1,250 |
1,250 |
Total gross profit (Non-GAAP) |
$ 8,901 |
$ 7,627 |
Product gross margin |
62.4% |
63.4% |
Total gross margin (Non-GAAP) |
65.9% |
67.5% |
Net loss |
$ (433) |
$ (1,966) |
Interest expense |
(1) |
(1) |
Other non-operating income (expense) |
118 |
(21) |
Benefit for income taxes |
(77) |
(205) |
Depreciation and amortization |
881 |
932 |
EBITDA (Non-GAAP) |
$ 254 |
$ (1,217) |
Net loss |
$ (433) |
$ (1,966) |
Non-core operating expenses |
— |
1,008 |
Adjusted net loss (Non-GAAP) |
$ (433) |
$ (958) |
Basic net loss per share |
$ (0.01) |
$ (0.04) |
Adjusted basic net loss) per share (Non-GAAP) |
$ (0.01) |
$ (0.02) |
Weighted average shares outstanding – basic |
53,825 |
52,207 |
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