Energy Recovery Reports Fiscal Year End 2017 Financial Results
Full Year Summary:
- Total revenue of
$63.2 million , an increase of 15% year-over-year - Product gross margin of 67.2%
- Total gross margin(1) of 69.8%
- Net income of
$12.4 million , or$0.22 per diluted share
Fourth Quarter Summary:
- Total revenue of
$22.4 million , an increase of 25% year-over-year - Product gross margin of 68.5%
- Total gross margin(1) of 70.2%
- Net income of
$11.6 million , or$0.21 per diluted share
President and CEO
Revenues
For the fiscal year ended
The Water segment generated total product revenue of
For the fourth quarter of 2017, the Company generated total revenue of
Gross Margin
For the fiscal year ended
The Water segment generated product gross margin of 70.5% for the fiscal year ended
For the fourth quarter of 2017, product gross margin was 68.5%. Product gross margin increased by 430 basis points from 64.2% in the fourth quarter of 2016. This increase was largely driven by favorable price and product mix, and manufacturing efficiencies in the Water segment. Including license and development revenue, total gross margin(1) was 70.2% for the fourth quarter of 2017. Total gross margin(1) increased 350 basis points from 66.7% in the fourth quarter of 2016.
Operating Expenses
For the fiscal year ended
The Water segment operating expenses for fiscal year ended
The Corporate segment operating expenses of
For the fourth quarter of 2017, operating expenses were
Bottom Line Summary
To summarize our financial performance, on a full year basis, the Company reported a net income of
On a quarterly basis, the Company reported a net income of
Cash Flow Highlights
The Company ended the quarter with unrestricted cash of
For the fiscal year ended
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 belief that the current expansion phase in the desalination business cycle will continue through 2018, and the Company's belief that it will make material progress towards commercialization of the VorTeq system throughout 2018. 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
Use of Non-GAAP Financial Measures
This press release includes certain non-GAAP financial measures, including total gross margin. 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
(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." |
Conference Call to Discuss Fourth Quarter and Fiscal Year 2017 Financial Results
LIVE CONFERENCE CALL:
Listen-only, US / Canada Toll-free: 877-709-8150
Listen-only, Local / International Toll: (+1) 201-689-8354
Access code: 13676918
CONFERENCE CALL REPLAY:
Expiration:
US / Canada Toll-free: 877-660-6853
Local / International Toll: (+1) 201-612-7415
Access code: 13676918
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
| ||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||
(In thousands, except share data and par value) | ||||||||||
(Unaudited) | ||||||||||
| ||||||||||
2017 |
2016 |
|||||||||
ASSETS |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ |
27,780 |
$ |
61,364 |
||||||
Restricted cash |
2,664 |
2,297 |
||||||||
Short-term investments |
70,020 |
39,073 |
||||||||
Accounts receivable, net of allowance for doubtful accounts of |
12,465 |
11,759 |
||||||||
Unbilled receivables, current |
1,413 |
190 |
||||||||
Cost and estimated earnings in excess of billings |
4,998 |
1,825 |
||||||||
Inventories |
5,514 |
4,550 |
||||||||
Prepaid expenses and other current assets |
1,342 |
1,311 |
||||||||
Total current assets |
126,196 |
122,369 |
||||||||
Restricted cash, non-current |
182 |
2,087 |
||||||||
Deferred tax assets, non-current |
7,902 |
1,270 |
||||||||
Property and equipment, net |
13,393 |
8,643 |
||||||||
|
12,790 |
12,790 |
||||||||
Other intangible assets, net |
1,269 |
1,900 |
||||||||
Other assets, non-current |
12 |
4 |
||||||||
Total assets |
$ |
161,744 |
$ |
149,063 |
||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||||
Current liabilities: |
||||||||||
Accounts payable |
$ |
4,091 |
$ |
1,505 |
||||||
Accrued expenses and other current liabilities |
9,322 |
9,019 |
||||||||
Income taxes payable |
432 |
16 |
||||||||
Accrued warranty reserve |
366 |
406 |
||||||||
Deferred revenue, current |
5,611 |
6,201 |
||||||||
Current portion of long-term debt |
11 |
11 |
||||||||
Total current liabilities |
19,833 |
17,158 |
||||||||
Long-term debt, less current portion |
16 |
27 |
||||||||
Deferred tax liabilities, non-current |
— |
2,233 |
||||||||
Deferred revenue, non-current |
59,006 |
63,958 |
||||||||
Other non-current liabilities |
358 |
554 |
||||||||
Total liabilities |
79,213 |
83,930 |
||||||||
Commitments and Contingencies (Note 8) |
||||||||||
Stockholders' equity: |
||||||||||
Preferred stock, |
— |
— |
||||||||
Common stock, |
58 |
57 |
||||||||
Additional paid-in capital |
149,006 |
139,676 |
||||||||
Accumulated comprehensive loss |
(125) |
(118) |
||||||||
|
(20,486) |
(16,210) |
||||||||
Accumulated deficit |
(45,922) |
(58,272) |
||||||||
Total stockholders' equity |
82,531 |
65,133 |
||||||||
Total liabilities and stockholders' equity |
$ |
161,744 |
$ |
149,063 |
||||||
| ||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||
(In thousands, except per share data) | ||||||||||||||
(Unaudited) | ||||||||||||||
Years Ended | ||||||||||||||
2017 |
2016 |
2015 |
||||||||||||
Product revenue |
$ |
58,156 |
$ |
49,715 |
$ |
43,671 |
||||||||
Product cost of revenue |
19,061 |
17,849 |
19,111 |
|||||||||||
Product gross profit |
39,095 |
31,866 |
24,560 |
|||||||||||
License and development revenue |
5,000 |
5,000 |
1,042 |
|||||||||||
Operating expenses: |
||||||||||||||
General and administrative |
17,354 |
16,626 |
19,773 |
|||||||||||
Sales and marketing |
9,391 |
9,116 |
9,326 |
|||||||||||
Research and development |
13,443 |
10,136 |
7,659 |
|||||||||||
Amortization of intangible assets |
631 |
631 |
635 |
|||||||||||
Total operating expenses |
40,819 |
36,509 |
37,393 |
|||||||||||
Income (loss) from operations |
3,276 |
357 |
(11,791) |
|||||||||||
Other income (expense): |
||||||||||||||
Interest income |
870 |
309 |
53 |
|||||||||||
Interest expense |
(2) |
(3) |
(42) |
|||||||||||
Other non-operating expense, net |
(188) |
(19) |
(192) |
|||||||||||
Total other income (expense), net |
680 |
287 |
(181) |
|||||||||||
Income (loss) before income taxes |
3,956 |
644 |
(11,972) |
|||||||||||
Benefit from income taxes |
(8,394) |
(390) |
(334 |
|||||||||||
Net income (loss) |
$ |
12,350 |
$ |
1,034 |
$ |
(11,638) |
||||||||
Income (loss) per share: |
||||||||||||||
Basic |
$ |
0.23 |
$ |
0.02 |
$ |
(0.22) |
||||||||
Diluted |
$ |
0.22 |
$ |
0.02 |
$ |
(0.22) |
||||||||
Number of shares used in per share calculations: |
||||||||||||||
Basic |
53,701 |
52,341 |
52,151 |
|||||||||||
Diluted |
55,612 |
55,451 |
52,151 |
|||||||||||
| |||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
(In thousands) | |||||||||||
(Unaudited) | |||||||||||
Years Ended | |||||||||||
2017 |
2016 |
2015 | |||||||||
Cash Flows From Operating Activities: |
|||||||||||
Net income (loss) |
$ |
12,350 |
$ |
1,034 |
$ |
(11,638) |
|||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|||||||||||
Stock-based compensation |
4,087 |
3,263 |
4,059 |
||||||||
Depreciation and amortization |
3,666 |
3,680 |
3,838 |
||||||||
Amortization of premiums on investments |
460 |
174 |
162 |
||||||||
Provision for warranty claims |
246 |
208 |
135 |
||||||||
Reversal of accruals related to expired warranties |
(200) |
(236) |
(395) |
||||||||
Unrealized loss on foreign currency translation |
144 |
13 |
1 |
||||||||
Provision for doubtful accounts |
55 |
76 |
112 |
||||||||
Adjustments for excess or obsolete inventory |
201 |
(361) |
(250) |
||||||||
Deferred income taxes |
(8,865) |
(459) |
(326) |
||||||||
Other non-cash adjustments |
(196) |
(131) |
23 |
||||||||
Changes in operating assets and liabilities: |
|||||||||||
Accounts receivable |
(761) |
(244) |
(743) |
||||||||
Unbilled receivables |
(1,223) |
1,695 |
(128) |
||||||||
Costs and estimated earnings in excess of billings |
(3,173) |
(1,825) |
— |
||||||||
Inventories |
(1,250) |
2,287 |
1,951 |
||||||||
Prepaid and other assets |
(39) |
(402) |
316 |
||||||||
Accounts payable |
2,118 |
(360) |
48 |
||||||||
Accrued expenses and other liabilities |
364 |
1,259 |
(708) |
||||||||
Income taxes payable |
416 |
14 |
(3) |
||||||||
Litigation settlement |
— |
— |
(1,700) |
||||||||
Deferred revenue, product |
(505) |
280 |
343 |
||||||||
Deferred revenue, license and development |
(5,000) |
(5,000) |
73,958 |
||||||||
Net cash provided by operating activities |
2,895 |
4,965 |
69,055 |
||||||||
Cash Flows From Investing Activities: |
|||||||||||
Restricted cash |
1,538 |
(577) |
1,665 |
||||||||
Maturities of marketable securities |
49,106 |
7,535 |
12,925 |
||||||||
Purchases of marketable securities |
(80,641) |
(46,552) |
— |
||||||||
Capital expenditures |
(7,376) |
(1,112) |
(572) |
||||||||
Net cash (used in) provided by investing activities |
(37,373) |
(40,706) |
14,018 |
||||||||
Cash Flows From Financing Activities: |
|||||||||||
Net proceeds from issuance of common stock |
5,508 |
6,600 |
1,326 |
||||||||
Tax payment for employee shares withheld |
(270) |
— |
— |
||||||||
Proceeds from long-term debt |
— |
— |
55 |
||||||||
Repayment of long-term debt |
(11) |
(10) |
(7) |
||||||||
Repurchase of common stock |
(4,276) |
(9,375) |
— |
||||||||
Net cash provided by (used in) financing activities |
951 |
(2,785) |
1,374 |
||||||||
Effect of exchange rate differences on cash and cash equivalents |
(57) |
(41) |
(17) |
||||||||
Net change in cash and cash equivalents |
(33,584) |
(38,567) |
84,430 |
||||||||
Cash and cash equivalents, beginning of year |
61,364 |
99,931 |
15,501 |
||||||||
Cash and cash equivalents, end of year |
$ |
27,780 |
$ |
61,364 |
$ |
99,931 |
| |||||||||||||||||||||||
FINANCIAL INFORMATION BY SEGMENT | |||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
Three Months Ended |
Three Months Ended | ||||||||||||||||||||||
Water |
Oil &Gas |
Total |
Water |
Oil &Gas |
Total | ||||||||||||||||||
Product revenue |
$ |
20,594 |
$ |
545 |
$ |
21,139 |
$ |
14,953 |
$ |
1,714 |
$ |
16,667 |
|||||||||||
Product cost of revenue |
6,029 |
638 |
6,667 |
4,797 |
1,174 |
5,971 |
|||||||||||||||||
Product gross profit |
14,565 |
(93) |
14,472 |
10,156 |
540 |
10,696 |
|||||||||||||||||
License and development revenue |
— |
1,250 |
1,250 |
— |
1,250 |
1,250 |
|||||||||||||||||
Operating expenses: |
|||||||||||||||||||||||
General and administrative |
436 |
480 |
916 |
253 |
350 |
603 |
|||||||||||||||||
Sales and marketing |
1,748 |
593 |
2,341 |
1,413 |
852 |
2,265 |
|||||||||||||||||
Research and development |
254 |
4,483 |
4,737 |
377 |
2,311 |
2,688 |
|||||||||||||||||
Amortization of intangibles |
158 |
— |
158 |
158 |
— |
158 |
|||||||||||||||||
Operating expenses |
2,596 |
5,556 |
8,152 |
2,201 |
3,513 |
5,714 |
|||||||||||||||||
Operating income (loss) |
$ |
11,969 |
$ |
(4,399) |
7,570 |
$ |
7,955 |
$ |
(1,723) |
6,232 |
|||||||||||||
Less: Corporate operating expenses |
4,513 |
3,552 |
|||||||||||||||||||||
Consolidated operating income |
3,057 |
2,680 |
|||||||||||||||||||||
Non-operating income |
220 |
152 |
|||||||||||||||||||||
Income before income taxes |
$ |
3,277 |
$ |
2,832 |
|||||||||||||||||||
Year Ended | |||||||||||||||||||||||
Water |
Oil &Gas |
Total | |||||||||||||||||||||
Product revenue |
$ |
54,301 |
$ |
3,855 |
$ |
58,156 |
|||||||||||||||||
Product cost of revenue |
16,032 |
3,029 |
19,061 |
||||||||||||||||||||
Product gross profit |
38,269 |
826 |
39,095 |
||||||||||||||||||||
License and development revenue |
— |
5,000 |
5,000 |
||||||||||||||||||||
Operating expenses: |
|||||||||||||||||||||||
General and administrative |
1,401 |
1,565 |
2,966 |
||||||||||||||||||||
Sales and marketing |
5,787 |
2,228 |
8,015 |
||||||||||||||||||||
Research and development |
1,064 |
12,217 |
13,281 |
||||||||||||||||||||
Amortization of intangibles |
631 |
— |
631 |
||||||||||||||||||||
Operating expenses |
8,883 |
16,010 |
24,893 |
||||||||||||||||||||
Operating income (loss) |
$ |
29,386 |
$ |
(10,184) |
19,202 |
||||||||||||||||||
Less: Corporate operating expenses |
15,926 |
||||||||||||||||||||||
Consolidated operating income |
3,276 |
||||||||||||||||||||||
Non-operating income |
680 |
||||||||||||||||||||||
Income before income taxes |
$ |
3,956 |
|||||||||||||||||||||
Year Ended | |||||||||||||||||||||||
Water |
Oil &Gas |
Total | |||||||||||||||||||||
Product revenue |
$ |
47,545 |
$ |
2,170 |
$ |
49,715 |
|||||||||||||||||
Product cost of revenue |
16,353 |
1,496 |
17,849 |
||||||||||||||||||||
Product gross profit |
31,192 |
674 |
31,866 |
||||||||||||||||||||
License and development revenue |
— |
5,000 |
5,000 |
||||||||||||||||||||
Operating expenses: |
|||||||||||||||||||||||
General and administrative |
1,081 |
1,000 |
2,081 |
||||||||||||||||||||
Sales and marketing |
5,076 |
2,985 |
8,061 |
||||||||||||||||||||
Research and development |
1,331 |
8,705 |
10,036 |
||||||||||||||||||||
Amortization of intangibles |
631 |
— |
631 |
||||||||||||||||||||
Operating expenses |
8,119 |
12,690 |
20,809 |
||||||||||||||||||||
Operating income (loss) |
$ |
23,073 |
$ |
(7,016) |
16,057 |
||||||||||||||||||
Less: Corporate operating expenses |
15,700 |
||||||||||||||||||||||
Consolidated operating income |
357 |
||||||||||||||||||||||
Non-operating income |
287 |
||||||||||||||||||||||
Income before income taxes |
$ |
644 |
|||||||||||||||||||||
Year Ended | |||||||||||||||||||||||
Water |
Oil &Gas |
Total | |||||||||||||||||||||
Product revenue |
$ |
43,530 |
$ |
141 |
$ |
43,671 |
|||||||||||||||||
Product cost of revenue |
19,045 |
66 |
19,111 |
||||||||||||||||||||
Product gross profit |
24,485 |
75 |
24,560 |
||||||||||||||||||||
License and development revenue |
— |
1,042 |
1,042 |
||||||||||||||||||||
Operating expenses: |
|||||||||||||||||||||||
General and administrative |
936 |
1,797 |
2,733 |
||||||||||||||||||||
Sales and marketing |
4,918 |
4,070 |
8,988 |
||||||||||||||||||||
Research and development |
1,126 |
6,552 |
7,678 |
||||||||||||||||||||
Amortization of intangibles |
635 |
— |
635 |
||||||||||||||||||||
Operating expenses |
7,615 |
12,419 |
20,034 |
||||||||||||||||||||
Operating income (loss) |
$ |
16,870 |
$ |
(11,302) |
5,568 |
||||||||||||||||||
Less: Corporate operating expenses |
17,359 |
||||||||||||||||||||||
Consolidated operating loss |
(11,791) |
||||||||||||||||||||||
Non-operating expense |
(181) |
||||||||||||||||||||||
Loss before income taxes |
$ |
(11,972) |
| |||||||||||||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | |||||||||||||||
(In thousands, except per share data) | |||||||||||||||
(Unaudited) | |||||||||||||||
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 exclusivity fee. Our non-GAAP Adjusted Net Income or Loss is determined by adding back non-recurring operating expenses. | |||||||||||||||
Three Months Ended |
Years Ended | ||||||||||||||
2017 |
2016 |
2017 |
2016 | ||||||||||||
Product revenue |
$ |
21,139 |
$ |
16,667 |
$ |
58,156 |
$ |
49,715 |
|||||||
License and development revenue |
1,250 |
1,250 |
5,000 |
5,000 |
|||||||||||
Total revenue |
$ |
22,389 |
$ |
17,917 |
$ |
63,156 |
$ |
54,715 |
|||||||
Product gross profit |
$ |
14,472 |
$ |
10,696 |
$ |
39,095 |
$ |
31,866 |
|||||||
License and development revenue |
1,250 |
1,250 |
5,000 |
5,000 |
|||||||||||
Total gross profit (non-GAAP) |
$ |
15,722 |
$ |
11,946 |
$ |
44,095 |
$ |
36,866 |
|||||||
Product gross margin |
68.5 |
% |
64.2 |
% |
67.2 |
% |
64.1 |
% | |||||||
Total gross margin (non-GAAP) |
70.2 |
% |
66.7 |
% |
69.8 |
% |
67.4 |
% | |||||||
Net income (loss) |
$ |
11,625 |
$ |
3,123 |
$ |
12,350 |
$ |
1,034 |
|||||||
Reversal of non-recurring expense (benefit) (non-GAAP) |
(8,348) |
— |
(8,394) |
1,008 |
|||||||||||
Adjusted net income (loss) (non-GAAP) |
$ |
3,277 |
$ |
3,123 |
$ |
3,956 |
$ |
2,042 |
|||||||
Income (loss) per share: |
|||||||||||||||
Diluted |
$ |
0.21 |
$ |
0.06 |
$ |
0.22 |
$ |
0.02 |
|||||||
Diluted (non-GAAP) |
$ |
0.06 |
$ |
0.06 |
$ |
0.07 |
$ |
0.04 |
|||||||
Number of diluted shares used in per share calculations |
55,715 |
55,947 |
55,612 |
55,451 |
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