Energy Recovery Reports Second Quarter and Year-to-Date 2017 Results
Second Quarter Summary:
- Total revenue of
$12.2 million - Product gross margin of 67.7%; highest in Company's history
- Total gross margin(1) of 71.0%; highest in Company's history
- Net loss of
($0.5) million , or ($0.01 ) per share
Year-to-Date Summary:
- Total revenue of
$25.7 million , an increase of 5% year-over-year - Product gross profit and product gross margin of
$15.0 million and 64.9%, respectively; highest in Company's history - Total gross profit(1) and total gross margin(1) of
$17.5 million and 68.3%, respectively; highest in Company's history - Net loss of
($1.0) million or ($0.02 ) per share
Revenues
For the second 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 second quarter of 2017, product gross margin was 67.7%, representing an increase of 310 basis points over the same period last year and the highest product gross margin in Company history. This increase was largely driven by favorable Water Segment channel mix and production efficiencies, offset by Oil & Gas Segment product margins of 25.1%. Including license and development revenue, total gross margin(1) was 71.0% in the second quarter of 2017, this represents the highest total gross margin in Company history.
The Water Segment generated product gross margin of 72.7% as compared to 64.6% in prior year quarter. The increase is largely driven by favorable price and product mix, and production efficiencies.
The Oil & Gas Segment generated product gross margin of 25.1% associated with the aforementioned IsoBoost systems sale. There was no product revenue for Oil & Gas 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 64.0%.
Operating Expenses
For the second quarter of 2017, operating expenses were
The Water Segment operating expenses of
The Oil & Gas Segment operating expenses were
Finally, corporate operating expenses were
Bottom Line Summary
To summarize financial performance for the second quarter of 2017, the Company reported a net loss of
Cash Flow Highlights
During the first half of 2017, the Company's net cash used by operating activities was
The Company ended the quarter 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 Company is making progress towards commercialization of the VorTeq and MTeq technologies, the Company's expected timing relating to the commissioning of the second generation VorTeq system, private testing and attempting milestone testing under the VorTeq license agreement, and the Company's ability to achieve milestone one under the VorTeq license agreement during the fourth quarter. 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 and 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
Conference Call to Discuss Second Quarter 2017 Financial Results
LIVE CONFERENCE CALL: Listen-only, US / Canada Toll-free: 888-239-5343 Listen-only, Local / International Toll: (+1) 913-312-0653 Access code: 7282090 |
CONFERENCE CALL REPLAY: Expiration: US / Canada Toll-free: 888-203-1112 Local / International Toll: (+1) 719-457-0820 Access code: 7282090 |
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" and "total gross profit" are non-GAAP financial measures. 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) | ||
|
| |
ASSETS | ||
Current assets: |
||
Cash and cash equivalents |
$ 33,281 |
$ 61,364 |
Restricted cash |
2,478 |
2,297 |
Short-term investments |
57,478 |
39,073 |
Accounts receivable, net of allowance for doubtful accounts of |
12,347 |
11,759 |
Unbilled receivables, current |
451 |
190 |
Cost and estimated earnings in excess of billings |
3,861 |
1,825 |
Inventories |
6,370 |
4,550 |
Prepaid expenses and other current assets |
1,835 |
1,311 |
Total current assets |
118,101 |
122,369 |
Restricted cash, non-current |
778 |
2,087 |
Deferred tax assets, non-current |
1,631 |
1,270 |
Property and equipment, net of accumulated depreciation of |
10,974 |
8,643 |
|
12,790 |
12,790 |
Other intangible assets, net |
1,585 |
1,900 |
Other assets, non-current |
2 |
4 |
Total assets |
$ 145,861 |
$ 149,063 |
LIABILITIES AND STOCKHOLDERS' EQUITY | ||
Current liabilities: |
||
Accounts payable |
$ 2,829 |
$ 1,505 |
Accrued expenses and other current liabilities |
6,883 |
9,019 |
Income taxes payable |
80 |
16 |
Accrued warranty reserve |
374 |
406 |
Deferred revenue |
5,856 |
6,201 |
Current portion of long-term debt |
11 |
11 |
Total current liabilities |
16,033 |
17,158 |
Long-term debt, net of current portion |
22 |
27 |
Deferred tax liabilities, non-current |
2,361 |
2,233 |
Deferred revenue, non-current |
61,458 |
63,958 |
Other non-current liabilities |
459 |
554 |
Total liabilities |
80,333 |
83,930 |
Commitments and Contingencies (Note 9) |
||
Stockholders' equity: |
||
Preferred stock, |
— |
— |
Common stock, |
58 |
57 |
Additional paid-in capital |
145,296 |
139,676 |
Accumulated other comprehensive loss |
(87) |
(118) |
|
(20,486) |
(16,210) |
Accumulated deficit |
(59,253) |
(58,272) |
Total stockholders' equity |
65,528 |
65,133 |
Total liabilities and stockholders' equity |
$ 145,861 |
$ 149,063 |
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||
(in thousands, except per share data) | |||||
(unaudited) | |||||
Three Months Ended |
Six Months Ended | ||||
2017 |
2016 |
2017 |
2016 | ||
Product revenue |
$ 10,922 |
$ 11,973 |
$ 23,183 |
$ 22,024 | |
Product cost of revenue |
3,530 |
4,236 |
8,140 |
7,910 | |
Product gross profit |
7,392 |
7,737 |
15,043 |
14,114 | |
License and development revenue |
1,250 |
1,250 |
2,500 |
2,500 | |
Operating expenses: |
|||||
General and administrative |
3,927 |
3,992 |
8,335 |
8,876 | |
Sales and marketing |
2,174 |
1,935 |
4,627 |
4,005 | |
Research and development |
3,077 |
2,422 |
5,586 |
5,087 | |
Amortization of intangible assets |
158 |
158 |
316 |
315 | |
Total operating expenses |
9,336 |
8,507 |
18,864 |
18,283 | |
(Loss) income from operations |
(694) |
480 |
(1,321) |
(1,669) | |
Other (expense) income: |
|||||
Interest expense |
— |
— |
(1) |
(1) | |
Other non-operating income |
111 |
79 |
229 |
58 | |
(Loss) income before income taxes |
(583) |
559 |
(1,093) |
(1,612) | |
(Benefit from) provision for income taxes |
(35) |
103 |
(112) |
(102) | |
Net (loss) income |
$ (548) |
$ 456 |
$ (981) |
$ (1,510) | |
Basic net (loss) income per share |
$ (0.01) |
$ 0.01 |
$ (0.02) |
$ (0.03) | |
Diluted net (loss) income per share |
$ (0.01) |
$ 0.01 |
$ (0.02) |
$ (0.03) | |
Shares used in basic per share calculation |
53,748 |
52,369 |
53,786 |
52,288 | |
Shares used in diluted per share calculation |
53,748 |
55,698 |
53,786 |
52,288 |
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
(in thousands) | ||
(unaudited) | ||
Six Months Ended | ||
2017 |
2016 | |
Cash Flows From Operating Activities |
||
Net loss |
$ (981) |
$ (1,510) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
||
Share-based compensation |
2,120 |
1,865 |
Depreciation and amortization |
1,820 |
1,851 |
Amortization of premiums on investments |
230 |
34 |
Provision for warranty claims |
91 |
96 |
Unrealized loss on foreign currency transactions |
16 |
52 |
Provision for doubtful accounts |
10 |
16 |
Change in fair value of put options |
— |
33 |
Other non-cash adjustments |
(93) |
(49) |
Valuation adjustments for excess or obsolete inventory |
(119) |
(42) |
Reversal of accruals related to expired warranties |
(123) |
(146) |
Deferred income taxes |
(233) |
(199) |
Changes in operating assets and liabilities: |
||
Accounts payable |
1,324 |
(347) |
Income taxes payable |
64 |
89 |
Unbilled receivables |
(261) |
81 |
Deferred revenue, product |
(307) |
855 |
Prepaid and other assets |
(522) |
(384) |
Accounts receivable |
(598) |
3,333 |
Inventories |
(1,701) |
389 |
Cost and estimated earnings in excess of billings |
(2,036) |
— |
Accrued expenses and other liabilities |
(2,185) |
(2,668) |
Deferred revenue, license and development |
(2,500) |
(2,500) |
Net cash (used in) provided by operating activities |
(5,984) |
849 |
Cash Flows From Investing Activities |
||
Maturities of marketable securities |
12,505 |
— |
Restricted cash |
1,128 |
(315) |
Capital expenditures |
(3,777) |
(613) |
Purchases of marketable securities |
(31,146) |
(14,903) |
Net cash used in investing activities |
(21,290) |
(15,831) |
Cash Flows From Financing Activities |
||
Net proceeds from issuance of common stock |
3,682 |
2,511 |
Repayment of long-term debt |
(5) |
(5) |
Tax payment for employee shares withheld |
(195) |
— |
Repurchase of common stock |
(4,276) |
(8,378) |
Net cash used in financing activities |
(794) |
(5,872) |
Effect of exchange rate differences on cash and cash equivalents |
(15) |
(90) |
Net change in cash and cash equivalents |
(28,083) |
(20,944) |
Cash and cash equivalents, beginning of period |
61,364 |
99,931 |
Cash and cash equivalents, end of period |
$ 33,281 |
$ 78,987 |
FINANCIAL INFORMATION BY SEGMENT | |||||||
(in thousands) | |||||||
(unaudited) | |||||||
Three Months Ended |
Three Months Ended | ||||||
Water |
Oil &Gas |
Total |
Water |
Oil &Gas |
Total | ||
Product revenue |
$ 9,764 |
$ 1,158 |
$ 10,922 |
$ 11,973 |
$ — |
$ 11,973 | |
Product cost of revenue |
2,663 |
867 |
3,530 |
4,236 |
— |
4,236 | |
Product gross profit |
7,101 |
291 |
7,392 |
7,737 |
— |
7,737 | |
License and development revenue |
— |
1,250 |
1,250 |
— |
1,250 |
1,250 | |
Operating expenses: |
|||||||
General and administrative |
313 |
375 |
688 |
263 |
184 |
447 | |
Sales and marketing |
1,244 |
563 |
1,807 |
1,100 |
576 |
1,676 | |
Research and development |
232 |
2,819 |
3,051 |
333 |
2,074 |
2,407 | |
Amortization of intangibles |
158 |
— |
158 |
158 |
— |
158 | |
Total operating expenses |
1,947 |
3,757 |
5,704 |
1,854 |
2,834 |
4,688 | |
Operating income (loss) |
$ 5,154 |
|
2,938 |
$ 5,883 |
|
4,299 | |
Less: |
|||||||
Corporate operating expenses |
3,632 |
3,819 | |||||
Consolidated operating (loss) income |
(694) |
480 | |||||
Non-operating income |
111 |
79 | |||||
(Loss) income before income taxes |
$ (583) |
$ 559 | |||||
Six Months Ended |
Six Months Ended | ||||||
Water |
Oil &Gas |
Total |
Water |
Oil &Gas |
Total | ||
Product revenue |
$ 20,480 |
$ 2,703 |
$ 23,183 |
$ 22,024 |
$ — |
$ 22,024 | |
Product cost of revenue |
6,185 |
1,955 |
8,140 |
7,910 |
— |
7,910 | |
Product gross profit |
14,295 |
748 |
15,043 |
14,114 |
— |
14,114 | |
License and development revenue |
— |
2,500 |
2,500 |
— |
2,500 |
2,500 | |
Operating expenses: |
|||||||
General and administrative |
631 |
724 |
1,355 |
482 |
372 |
854 | |
Sales and marketing |
2,743 |
1,204 |
3,947 |
2,229 |
1,383 |
3,612 | |
Research and development |
494 |
5,065 |
5,559 |
692 |
4,371 |
5,063 | |
Amortization of intangibles |
316 |
— |
316 |
315 |
— |
315 | |
Total operating expenses |
4,184 |
6,993 |
11,177 |
3,718 |
6,126 |
9,844 | |
Operating income (loss) |
$ 10,111 |
|
6,366 |
$ 10,396 |
|
6,770 | |
Less: |
|||||||
Corporate operating expenses |
7,687 |
8,439 | |||||
Consolidated operating loss |
(1,321) |
(1,669) | |||||
Non-operating income |
228 |
57 | |||||
Loss before income taxes |
$ (1,093) |
$ (1,612) |
| |||||
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 and total gross profit are determined by adding back the license and development revenue associated with the amortization of the VorTeq exclusivity fee. Our non-GAAP Adjusted Income or Loss is determined by adding back non-recurring operating expenses. | |||||
Three Months Ended |
Six Months Ended | ||||
2017 |
2016 |
2017 |
2016 | ||
Product revenue |
$ 10,922 |
$ 11,973 |
$ 23,183 |
$ 22,024 | |
License and development revenue |
1,250 |
1,250 |
2,500 |
2,500 | |
Total revenue |
$ 12,172 |
$ 13,223 |
$ 25,683 |
$ 24,524 | |
Product gross profit |
$ 7,392 |
$ 7,737 |
$ 15,043 |
$ 14,114 | |
License and development gross profit |
1,250 |
1,250 |
2,500 |
2,500 | |
Total gross profit (non-GAAP) |
$ 8,642 |
$ 8,987 |
$ 17,543 |
$ 16,614 | |
Product gross margin |
67.7% |
64.6% |
64.9% |
64.1% | |
Total gross margin (non-GAAP) |
71.0% |
68.0% |
68.3% |
67.7% | |
Net loss |
$ (548) |
$ 456 |
$ (981) |
$ (1,510) | |
Non-recurring operating expenses (non-GAAP) |
— |
— |
— |
1,008 | |
Adjusted net loss (non-GAAP) |
$ (548) |
$ 456 |
$ (981) |
$ (502) | |
Basic and diluted net loss per share |
$ (0.01) |
$ 0.01 |
$ (0.02) |
$ (0.03) | |
Adjusted basic and diluted net loss per share (non-GAAP) |
$ (0.01) |
$ 0.01 |
$ (0.02) |
$ (0.01) | |
Weighted average shares outstanding – basic |
53,748 |
52,369 |
53,786 |
52,288 | |
Weighted average shares outstanding – diluted |
53,748 |
55,698 |
53,786 |
52,288 | |
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