Energy Recovery Reports Second Quarter and First-Half 2016 Results
Second Quarter 2016 Summary
- Total revenue increased 26% to
$13.2 million , one of the best second quarters in the Company’s post-IPO history - EPS of
$0.01 - Highest total gross margin(1) in the Company’s post-IPO history of 68% for the second quarter; product gross margin was 65% for the same period
Revenues
The Company generated total revenue of
The Company recognized
Gross Margin
Product gross margin increased 1,100 basis points to 65% for the second quarter of 2016, compared to 54% in the second quarter of 2015. Including license and development revenue associated with the Schlumberger exclusivity fee, total gross margin(1) increased by 1,400 basis points to 68%, which represents the highest total gross margin in the Company’s post-IPO history.
Operating Expenses
Operating expenses for the second quarter of 2016 decreased to
The decrease quarter over quarter was driven by a reduction in non-recurring expenses and administrative expenses, offset by higher R&D expenses associated with Schlumberger Milestone 1 testing. Non-recurring expenses in the second quarter of 2015 totaled
Bottom Line Summary
To summarize financial performance, the Company reported net income of
The improvement was driven by strengthening demand in global desalination markets, a favorable shift in product mix, revenue associated with the Schlumberger exclusivity fee amortization, and a reduction in operating expenses.
Excluding non-recurring items, the Company reported adjusted net income(1) of
Comparatively, the Company reported an adjusted net loss(1) of
Cash Flow Highlights
The Company ended the quarter with unrestricted cash of
During the second quarter of 2016, the Company’s net cash provided by operating activities was
During the first half of 2016, cash provided by operating activities was
1 Total gross profit, total gross margin, adjusted net income (loss), and adjusted basic and diluted net income (loss) per share 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.”
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 2016 and the Company’s ability to achieve the milestones under the Schlumberger licensing 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 Schlumberger 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, total gross margin, adjusted net income (loss), and adjusted basic and diluted net income (loss) per share. 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 2016 Results
LIVE CONFERENCE CALL WEBCAST: Listen-only, Toll-free: 888-539-3612 Listen-only, Local: 719-457-2604 Access code: 5906242 | CONFERENCE CALL REPLAY: Expiration: Toll-free: 888-203-1112 Local: 719-457-0820 Access code: 5906242 |
Investors may also access the live call or the replay over the internet at www.streetevents.com or www.energyrecovery.com. The replay will be available approximately three hours after the live call concludes.
About
ENERGY RECOVERY, INC. | ||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||
(in thousands, except share data and par value) | ||||||
(unaudited) | ||||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 78,987 | $ | 99,931 | ||
Restricted cash | 1,058 | 1,490 | ||||
Short-term investments | 15,095 | 257 | ||||
Accounts receivable, net of allowance for doubtful accounts of | 8,242 | 11,590 | ||||
Unbilled receivables, current | 1,804 | 1,879 | ||||
Inventories | 6,178 | 6,503 | ||||
Deferred tax assets, net | — | 938 | ||||
Prepaid expenses and other current assets | 1,272 | 943 | ||||
Total current assets | 112,636 | 123,531 | ||||
Restricted cash, non-current | 3,065 | 2,317 | ||||
Unbilled receivables, non-current | — | 6 | ||||
Deferred tax assets, non-current | 885 | — | ||||
Property and equipment, net of accumulated depreciation of | 9,762 | 10,622 | ||||
12,790 | 12,790 | |||||
Other intangible assets, net | 2,216 | 2,531 | ||||
Other assets, non-current | 2 | 2 | ||||
Total assets | $ | 141,356 | $ | 151,799 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 1,518 | $ | 1,865 | ||
Accrued expenses and other current liabilities | 5,233 | 7,808 | ||||
Income taxes payable | 89 | 2 | ||||
Accrued warranty reserve | 411 | 461 | ||||
Deferred revenue | 6,772 | 5,878 | ||||
Current portion of long-term debt | 10 | 10 | ||||
Total current liabilities | 14,033 | 16,024 | ||||
Long-term debt, net of current portion | 33 | 38 | ||||
Deferred tax liabilities, non-current | 2,109 | 2,360 | ||||
Deferred revenue, non-current | 66,462 | 69,000 | ||||
Other non-current liabilities | 637 | 718 | ||||
Total liabilities | 83,274 | 88,140 | ||||
Commitments and Contingencies (Note 9) | ||||||
Stockholders’ equity: | ||||||
Preferred stock, | — | — | ||||
Common stock, | 56 | 55 | ||||
Additional paid-in capital | 134,156 | 129,809 | ||||
Accumulated other comprehensive loss | (101 | ) | (64 | ) | ||
(15,213 | ) | (6,835 | ) | |||
Accumulated deficit | (60,816 | ) | (59,306 | ) | ||
Total stockholders’ equity | 58,082 | 63,659 | ||||
Total liabilities and stockholders’ equity | $ | 141,356 | $ | 151,799 | ||
ENERGY RECOVERY, INC. | |||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||
(in thousands, except per share data) | |||||||||||||
(unaudited) | |||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||
Product revenue | $ | 11,973 | $ | 10,484 | $ | 22,024 | $ | 16,348 | |||||
Product cost of revenue | 4,236 | 4,836 | 7,910 | 7,367 | |||||||||
Product gross profit | 7,737 | 5,648 | 14,114 | 8,981 | |||||||||
License and development revenue | 1,250 | — | 2,500 | — | |||||||||
Operating expenses: | |||||||||||||
General and administrative | 3,992 | 5,362 | 8,876 | 11,640 | |||||||||
Sales and marketing | 1,935 | 1,994 | 4,005 | 4,427 | |||||||||
Research and development | 2,422 | 1,410 | 5,087 | 3,943 | |||||||||
Amortization of intangible assets | 158 | 158 | 315 | 317 | |||||||||
Total operating expenses | 8,507 | 8,924 | 18,283 | 20,327 | |||||||||
Income (loss) from operations | 480 | (3,276 | ) | (1,669 | ) | (11,346 | ) | ||||||
Other expense: | |||||||||||||
Interest expense | — | — | (1 | ) | (40 | ) | |||||||
Other non-operating income (expense) | 79 | 20 | 58 | (82 | ) | ||||||||
Income (loss) before income taxes | 559 | (3,256 | ) | (1,612 | ) | (11,468 | ) | ||||||
Provision (benefit) for income taxes | 103 | 71 | (102 | ) | 142 | ||||||||
Net income (loss) | $ | 456 | $ | (3,327 | ) | $ | (1,510 | ) | $ | (11,610 | ) | ||
Net income (loss) per share - basic | $ | 0.01 | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.22 | ) | ||
Net income (loss) per share - diluted | $ | 0.01 | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.22 | ) | ||
Weighted average shares outstanding - basic | 52,369 | 52,026 | 52,288 | 51,987 | |||||||||
Weighted average shares outstanding - diluted | 55,698 | 52,026 | 52,288 | 51,987 | |||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
(in thousands) | ||||||
(unaudited) | ||||||
Six Months Ended | ||||||
2016 | 2015 | |||||
Cash Flows From Operating Activities | ||||||
Net loss | $ | (1,510 | ) | $ | (11,610 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Stock-based compensation | 1,865 | 3,053 | ||||
Depreciation and amortization | 1,851 | 1,959 | ||||
Provision for warranty claims | 96 | 15 | ||||
Unrealized loss on foreign currency transactions | 52 | 21 | ||||
Amortization of premiums on investments | 34 | 130 | ||||
Change in fair value of put options | 33 | — | ||||
Provision for doubtful accounts | 16 | 59 | ||||
Valuation adjustments for excess or obsolete inventory | (42 | ) | 21 | |||
Other non-cash adjustments | (49 | ) | 86 | |||
Reversal of accruals related to expired warranties | (146 | ) | — | |||
Deferred income taxes | (199 | ) | 131 | |||
Changes in operating assets and liabilities: | ||||||
Accounts receivable | 3,333 | 3,472 | ||||
Deferred revenue, product | 855 | 714 | ||||
Inventories | 389 | (1,520 | ) | |||
Income taxes payable | 89 | 4 | ||||
Unbilled receivables | 81 | 60 | ||||
Litigation settlement | — | (1,700 | ) | |||
Accounts payable | (347 | ) | 549 | |||
Prepaid and other assets | (384 | ) | 239 | |||
Deferred revenue, SLB license | (2,500 | ) | — | |||
Accrued expenses and other liabilities | (2,668 | ) | (3,633 | ) | ||
Net cash provided by (used in) operating activities | 849 | (7,950 | ) | |||
Cash Flows From Investing Activities | ||||||
Maturities of marketable securities | — | 8,235 | ||||
Restricted cash | (315 | ) | 2,422 | |||
Capital expenditures | (613 | ) | (429 | ) | ||
Purchases of marketable securities | (14,903 | ) | — | |||
Net cash (used in) provided by investing activities | (15,831 | ) | 10,228 | |||
Cash Flows From Financing Activities | ||||||
Net proceeds from issuance of common stock | 2,511 | 293 | ||||
Proceeds from long-term debt | — | 55 | ||||
Repayment of long-term debt | (5 | ) | (2 | ) | ||
Repurchase of common stock | (8,378 | ) | — | |||
Net cash (used in) provided by financing activities | (5,872 | ) | 346 | |||
Effect of exchange rate differences on cash and cash equivalents | (90 | ) | (18 | ) | ||
Net change in cash and cash equivalents | (20,944 | ) | 2,606 | |||
Cash and cash equivalents, beginning of period | 99,931 | 15,501 | ||||
Cash and cash equivalents, end of period | $ | 78,987 | $ | 18,107 | ||
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 Profit, Total Gross Margin are determined by adding back the license and development revenue associated with the amortization of the Schlumberger exclusivity fee. Our non-GAAP Adjusted Net Income and per share information also exclude non-recurring expenses.
Three Months Ended | Six Months Ended | ||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||
Product revenue | $ | 11,973 | $ | 10,484 | $ | 22,024 | $ | 16,348 | |||||
License and development revenue | 1,250 | - | 2,500 | ||||||||||
Total revenue | 13,223 | 10,484 | 24,524 | ||||||||||
Product gross profit | 7,737 | 5,648 | 14,114 | ||||||||||
License and development revenue | 1,250 | - | 2,500 | ||||||||||
Total gross profit (Non-GAAP) | 8,987 | 5,648 | 16,614 | ||||||||||
Product gross margin | 65 | % | 54 | % | 64 | % | 55 | % | |||||
Total gross margin (Non-GAAP) | 68 | % | 54 | % | 68 | % | 55 | % | |||||
Net income (loss) | 456 | (3,327 | ) | (1,510 | ) | (11,610 | ) | ||||||
Non-recurring operating expenses | - | 2,674 | 1,008 | 5,719 | |||||||||
Adjusted net income (loss) (Non-GAAP) | 456 | (653 | ) | (502 | ) | (5,891 | ) | ||||||
Basic and diluted net income (loss) per share | 0.01 | (0.06 | ) | (0.03 | ) | (0.22 | ) | ||||||
Adjusted basic and diluted net income (loss) per share (Non-GAAP) | 0.01 | (0.01 | ) | (0.01 | ) | (0.11 | ) | ||||||
Weighted average shares outstanding - basic | 52,369 | 52,026 | 52,288 | 51,987 | |||||||||
Weighted average shares outstanding - diluted | 55,698 | 52,026 | 52,288 | 51,987 |
ContactSource:Chris Gannon Chief Financial Officer 510-483-7370