Energy Recovery Reports Third Quarter and Year-to-Date 2017 Results
Third Quarter Summary:
- Total revenue of
$15.1 million , an increase of 23% year-over-year; highest Q3 revenue in Company history - Product gross margin of 69.3%; highest product gross margin in Company history
- Total gross margin(1) of 71.8%; highest total gross margin in Company history
- Net income of
$1.7 million , or$0.03 per share
Year-to-Date Summary:
- Total revenue of
$40.8 million , an increase of 11% year-over-year; highest nine month revenue in Company history - Product gross margin of 66.5%; highest nine month product gross margin in Company history
- Total gross margin(1) of 69.6%; highest nine month total gross margin(1) in Company history
- Net income of
$0.7 million , or$0.01 per share
President and CEO
The following serves as a synopsis of the testing highlights:
- Achieved individual pressure exchanger flow rates of up to 8.5 barrels per minute at 9,000 psi clean, which is to say without proppant, all 12 pressure exchangers achieved rate;
- Achieved duration runs of 60 barrels per minute at 9,000 psi clean, again without proppant;
- Pumped 100,000 lbs of proppant at rates of 62 to 64 barrels per minute, proppant concentration of up to 2.4 pounds per gallon added and at pressures ranging from 6,800 psi to 7,200 psi; with 87,000 lbs of proppant being processed in a continuous, uninterrupted 33-minute run.
Suffice it to say that such results outperformed our expectations as they were achieved during the first and only private testing session which lasted approximately one week. It should be further noted that the second generation VorTeq system is entirely bespoke and distinct from the first generation, which is to say we did not export a single component from
We are hopeful that this fulsome disclosure allows the discourse to progress beyond "does the VorTeq work," to "how and when will it be commercialized?" We have been working flat-out throughout the year to arrive at this point and I am proud of the incredibly talented men and women that constitute our Engineering Team, as well the balance of the organization whose peer group-leading performance has not gone unnoticed by Management."
Revenues
For the third 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 third quarter of 2017, product gross margin was 69.3%, representing the highest product gross margin in Company history. Product gross margin increased 520 basis points from 64.0% in the third quarter of 2016. This increase was largely driven by manufacturing efficiencies, higher MPD volume and favorable price and product mix in the Water Segment. Including license and development revenue, total gross margin(1) of 71.8% for the third quarter of 2017 was the highest total gross margin(1) in Company history. Total gross margin(1) increased 410 basis points from 67.7% in the third quarter of 2016.
The Water Segment generated product gross margin of 71.1%, representing the highest Water Segment product gross margin in Company history. Water Segment product gross margin increased by 6.0%, compared to 65.5% in the third quarter of 2016. This increase was largely driven by manufacturing efficiencies, higher volume and favorable price and product mix in the third quarter of 2017.
The Oil & Gas Segment generated product gross margin of 28.2%, compared to 29.6% in the third quarter of 2016. This decrease was attributable to PoC revenue recognition costs. Including license and development revenue, the Oil & Gas Segment total gross margin(1) for the third quarter of 2017 was 76.5%.
Operating Expenses
For the third quarter of 2017, operating expenses were
The Water Segment operating expenses for the third quarter of 2017 were
The Oil & Gas Segment operating expenses for the third quarter of 2017 were
Finally, corporate operating expenses of
Bottom Line Summary
To summarize financial performance for the third quarter of 2017, the Company reported a net income of
Cash Flow Highlights
The Company ended the quarter with unrestricted cash of
During the nine months 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 expected timing with respect to milestone testing, and the Company's belief that it will commercialize the VorTeq system. 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 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 Third Quarter 2017 Financial Results
LIVE CONFERENCE CALL:
Listen-only, US / Canada Toll-free: 888-394-8218
Listen-only, Local / International Toll: (+1) 719-325-2202
Access code: 7579235
CONFERENCE CALL REPLAY:
Expiration:
US / Canada Toll-free: 888-203-1112
Local / International Toll: (+1) 719-457-0820
Access code: 7579235
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 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 |
$ |
19,245 |
$ |
61,364 |
|||
Restricted cash |
2,908 |
2,297 |
|||||
Short-term investments |
72,241 |
39,073 |
|||||
Accounts receivable, net of allowance for doubtful accounts of |
11,929 |
11,759 |
|||||
Unbilled receivables, current |
573 |
190 |
|||||
Cost and estimated earnings in excess of billings |
4,453 |
1,825 |
|||||
Inventories |
6,283 |
4,550 |
|||||
Prepaid expenses and other current assets |
1,663 |
1,311 |
|||||
Total current assets |
119,295 |
122,369 |
|||||
Restricted cash, non-current |
182 |
2,087 |
|||||
Deferred tax assets, non-current |
1,711 |
1,270 |
|||||
Property and equipment, net of accumulated depreciation of |
13,632 |
8,643 |
|||||
|
12,790 |
12,790 |
|||||
Other intangible assets, net |
1,427 |
1,900 |
|||||
Other assets, non-current |
2 |
4 |
|||||
Total assets |
$ |
149,039 |
$ |
149,063 |
|||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: |
|||||||
Accounts payable |
$ |
3,336 |
$ |
1,505 |
|||
Accrued expenses and other current liabilities |
7,657 |
9,019 |
|||||
Income taxes payable |
142 |
16 |
|||||
Accrued warranty reserve |
314 |
406 |
|||||
Deferred revenue |
6,230 |
6,201 |
|||||
Current portion of long-term debt |
11 |
11 |
|||||
Total current liabilities |
17,690 |
17,158 |
|||||
Long-term debt, net of current portion |
19 |
27 |
|||||
Deferred tax liabilities, non-current |
2,428 |
2,233 |
|||||
Deferred revenue, non-current |
60,223 |
63,958 |
|||||
Other non-current liabilities |
411 |
554 |
|||||
Total liabilities |
80,771 |
83,930 |
|||||
Commitments and Contingencies (Note 9) |
|||||||
Stockholders' equity: |
|||||||
Preferred stock, |
— |
— |
|||||
Common stock, |
58 |
57 |
|||||
Additional paid-in capital |
146,320 |
139,676 |
|||||
Accumulated other comprehensive loss |
(77) |
(118) |
|||||
|
(20,486) |
(16,210) |
|||||
Accumulated deficit |
(57,547) |
(58,272) |
|||||
Total stockholders' equity |
68,268 |
65,133 |
|||||
Total liabilities and stockholders' equity |
$ |
149,039 |
$ |
149,063 |
| |||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
(in thousands, except per share data) | |||||||||||||||
(unaudited) | |||||||||||||||
Three Months Ended |
Nine Months Ended | ||||||||||||||
2017 |
2016 |
2017 |
2016 | ||||||||||||
Product revenue |
$ |
13,834 |
$ |
11,024 |
$ |
37,017 |
$ |
33,048 |
|||||||
Product cost of revenue |
4,254 |
3,968 |
12,394 |
11,878 |
|||||||||||
Product gross profit |
9,580 |
7,056 |
24,623 |
21,170 |
|||||||||||
License and development revenue |
1,250 |
1,250 |
3,750 |
3,750 |
|||||||||||
Operating expenses: |
|||||||||||||||
General and administrative |
4,034 |
3,971 |
12,369 |
12,847 |
|||||||||||
Sales and marketing |
2,061 |
2,512 |
6,688 |
6,517 |
|||||||||||
Research and development |
3,038 |
2,319 |
8,624 |
7,406 |
|||||||||||
Amortization of intangible assets |
157 |
158 |
473 |
473 |
|||||||||||
Total operating expenses |
9,290 |
8,960 |
28,154 |
27,243 |
|||||||||||
Income (loss) from operations |
1,540 |
(654) |
219 |
(2,323) |
|||||||||||
Other (expense) income: |
|||||||||||||||
Interest expense |
(1) |
(1) |
(2) |
(2) |
|||||||||||
Other non-operating income |
233 |
79 |
462 |
137 |
|||||||||||
Income (loss) before income taxes |
1,772 |
(576) |
679 |
(2,188) |
|||||||||||
Provision for (benefit from) income taxes |
66 |
3 |
(46) |
(99) |
|||||||||||
Net income (loss) |
$ |
1,706 |
$ |
(579) |
$ |
725 |
$ |
(2,089) |
|||||||
Basic net income (loss) per share |
$ |
0.03 |
$ |
(0.01) |
$ |
0.01 |
$ |
(0.04) |
|||||||
Diluted net income (loss) per share |
$ |
0.03 |
$ |
(0.01) |
$ |
0.01 |
$ |
(0.04) |
|||||||
Shares used in basic per share calculation |
53,580 |
52,106 |
53,717 |
52,227 |
|||||||||||
Shares used in diluted per share calculation |
55,140 |
52,106 |
55,571 |
52,227 |
| |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(in thousands) | |||||||
(unaudited) | |||||||
Nine Months Ended | |||||||
2017 |
2016 | ||||||
Cash Flows From Operating Activities |
|||||||
Net income (loss) |
$ |
725 |
$ |
(2,089) |
|||
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |
|||||||
Share-based compensation |
3,136 |
2,640 |
|||||
Depreciation and amortization |
2,704 |
2,771 |
|||||
Amortization of premiums on investments |
379 |
94 |
|||||
Provision for warranty claims |
145 |
134 |
|||||
Unrealized loss on foreign currency transactions |
69 |
65 |
|||||
Provision for doubtful accounts |
16 |
68 |
|||||
Change in fair value of put options |
— |
33 |
|||||
Other non-cash adjustments |
(145) |
(120) |
|||||
Valuation adjustments for excess or obsolete inventory |
(230) |
(175) |
|||||
Reversal of accruals related to expired warranties |
(237) |
(201) |
|||||
Deferred income taxes |
(244) |
(270) |
|||||
Changes in operating assets and liabilities: |
|||||||
Accounts payable |
1,831 |
(69) |
|||||
Deferred revenue, product |
81 |
557 |
|||||
Income taxes payable |
126 |
135 |
|||||
Accounts receivable |
(186) |
3,330 |
|||||
Prepaid and other assets |
(350) |
(598) |
|||||
Unbilled receivables |
(383) |
971 |
|||||
Inventories |
(1,503) |
839 |
|||||
Accrued expenses and other liabilities |
(1,728) |
(1,598) |
|||||
Cost and estimated earnings in excess of billings |
(2,628) |
(440) |
|||||
Deferred revenue, license and development |
(3,750) |
(3,750) |
|||||
Net cash (used in) provided by operating activities |
(2,172) |
2,327 |
|||||
Cash Flows From Investing Activities |
|||||||
Maturities of marketable securities |
30,977 |
1,000 |
|||||
Restricted cash |
1,294 |
(15) |
|||||
Capital expenditures |
(6,843) |
(900) |
|||||
Purchases of marketable securities |
(64,530) |
(15,912) |
|||||
Net cash used in investing activities |
(39,102) |
(15,827) |
|||||
Cash Flows From Financing Activities |
|||||||
Net proceeds from issuance of common stock |
3,722 |
3,708 |
|||||
Repayment of long-term debt |
(8) |
(7) |
|||||
Tax payment for employee shares withheld |
(228) |
— |
|||||
Repurchase of common stock |
(4,276) |
(9,375) |
|||||
Net cash used in financing activities |
(790) |
(5,674) |
|||||
Effect of exchange rate differences on cash and cash equivalents |
(55) |
(66) |
|||||
Net change in cash and cash equivalents |
(42,119) |
(19,240) |
|||||
Cash and cash equivalents, beginning of period |
61,364 |
99,931 |
|||||
Cash and cash equivalents, end of period |
$ |
19,245 |
$ |
80,691 |
| |||||||||||||||||||||||
FINANCIAL INFORMATION BY SEGMENT | |||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||
Three Months Ended |
Three Months Ended | ||||||||||||||||||||||
Water |
Oil &Gas |
Total |
Water |
Oil &Gas |
Total | ||||||||||||||||||
Product revenue |
$ |
13,227 |
$ |
607 |
$ |
13,834 |
$ |
10,568 |
$ |
456 |
$ |
11,024 |
|||||||||||
Product cost of revenue |
3,818 |
436 |
4,254 |
3,647 |
321 |
3,968 |
|||||||||||||||||
Product gross profit |
9,409 |
171 |
9,580 |
6,921 |
135 |
7,056 |
|||||||||||||||||
License and development revenue |
— |
1,250 |
1,250 |
— |
1,250 |
1,250 |
|||||||||||||||||
Operating expenses: |
|||||||||||||||||||||||
General and administrative |
334 |
361 |
695 |
346 |
278 |
624 |
|||||||||||||||||
Sales and marketing |
1,296 |
431 |
1,727 |
1,434 |
750 |
2,184 |
|||||||||||||||||
Research and development |
316 |
2,669 |
2,985 |
262 |
2,023 |
2,285 |
|||||||||||||||||
Amortization of intangibles |
157 |
— |
157 |
158 |
— |
158 |
|||||||||||||||||
Total operating expenses |
2,103 |
3,461 |
5,564 |
2,200 |
3,051 |
5,251 |
|||||||||||||||||
Operating income (loss) |
$ |
7,306 |
$ |
(2,040) |
5,266 |
$ |
4,721 |
$ |
(1,666) |
3,055 |
|||||||||||||
Less: |
|||||||||||||||||||||||
Corporate operating expenses |
3,726 |
3,709 |
|||||||||||||||||||||
Consolidated operating (loss) income |
1,540 |
(654) |
|||||||||||||||||||||
Non-operating income |
232 |
78 |
|||||||||||||||||||||
(Loss) income before income taxes |
$ |
1,772 |
$ |
(576) |
|||||||||||||||||||
Nine Months Ended |
Nine Months Ended | ||||||||||||||||||||||
Water |
Oil &Gas |
Total |
Water |
Oil &Gas |
Total | ||||||||||||||||||
Product revenue |
$ |
33,707 |
$ |
3,310 |
$ |
37,017 |
$ |
32,592 |
$ |
456 |
$ |
33,048 |
|||||||||||
Product cost of revenue |
10,003 |
2,391 |
12,394 |
11,557 |
321 |
11,878 |
|||||||||||||||||
Product gross profit |
23,704 |
919 |
24,623 |
21,035 |
135 |
21,170 |
|||||||||||||||||
License and development revenue |
— |
3,750 |
3,750 |
— |
3,750 |
3,750 |
|||||||||||||||||
Operating expenses: |
|||||||||||||||||||||||
General and administrative |
965 |
1,085 |
2,050 |
828 |
650 |
1,478 |
|||||||||||||||||
Sales and marketing |
4,039 |
1,635 |
5,674 |
3,663 |
2,133 |
5,796 |
|||||||||||||||||
Research and development |
810 |
7,734 |
8,544 |
954 |
6,394 |
7,348 |
|||||||||||||||||
Amortization of intangibles |
473 |
— |
473 |
473 |
— |
473 |
|||||||||||||||||
Total operating expenses |
6,287 |
10,454 |
16,741 |
5,918 |
9,177 |
15,095 |
|||||||||||||||||
Operating income (loss) |
$ |
17,417 |
$ |
(5,785) |
11,632 |
$ |
15,117 |
$ |
(5,292) |
9,825 |
|||||||||||||
Less: |
|||||||||||||||||||||||
Corporate operating expenses |
11,413 |
12,148 |
|||||||||||||||||||||
Consolidated operating loss |
219 |
(2,323) |
|||||||||||||||||||||
Non-operating income |
460 |
135 |
|||||||||||||||||||||
Loss before income taxes |
$ |
679 |
$ |
(2,188) |
| |||||||||||||||
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 exclusivity fee. Our non-GAAP Adjusted Income or Loss is determined by adding back non-recurring operating expenses | |||||||||||||||
Three Months Ended |
Nine Months Ended | ||||||||||||||
2017 |
2016 |
2017 |
2016 | ||||||||||||
Product revenue |
$ |
13,834 |
$ |
11,024 |
$ |
37,017 |
$ |
33,048 |
|||||||
License and development revenue |
1,250 |
1,250 |
3,750 |
3,750 |
|||||||||||
Total revenue |
$ |
15,084 |
$ |
12,274 |
$ |
40,767 |
$ |
36,798 |
|||||||
Product gross profit |
$ |
9,580 |
$ |
7,056 |
$ |
24,623 |
$ |
21,170 |
|||||||
License and development gross profit |
1,250 |
1,250 |
3,750 |
3,750 |
|||||||||||
Total gross profit (non-GAAP) |
$ |
10,830 |
$ |
8,306 |
$ |
28,373 |
$ |
24,920 |
|||||||
Product gross margin |
69.3 |
% |
64.0 |
% |
66.5 |
% |
64.1 |
% | |||||||
Total gross margin (non-GAAP) |
71.8 |
% |
67.7 |
% |
69.6 |
% |
67.7 |
% | |||||||
Net income / (loss) |
$ |
1,706 |
$ |
(579) |
$ |
725 |
$ |
(2,089) |
|||||||
Non-recurring operating expenses (non-GAAP) |
— |
— |
— |
1,008 |
|||||||||||
Adjusted net income / (loss) (non-GAAP) |
$ |
1,706 |
$ |
(579) |
$ |
725 |
$ |
(1,081) |
|||||||
Basic and diluted net income / (loss) per share |
$ |
0.03 |
$ |
(0.01) |
$ |
0.01 |
$ |
(0.04) |
|||||||
Adjusted basic and diluted net loss per share (non-GAAP) |
$ |
0.03 |
$ |
(0.01) |
$ |
0.01 |
$ |
(0.02) |
|||||||
Weighted average shares outstanding – basic |
53,580 |
52,106 |
53,717 |
52,227 |
|||||||||||
Weighted average shares outstanding – diluted |
55,140 |
52,106 |
55,571 |
52,227 |
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