Energy Recovery Reports Second Quarter Financial Results
Second Quarter 2020 Highlights:
- Product revenue of
$19.3 million , flat year-over-year and a sign of stability of the desalination industry in a period of global uncertainty - License and development revenue of
$24.4 million related to the termination of the license agreement between the Company andSchlumberger Technology Corporation ("Schlumberger") - Product gross margin of 66.0%, a decrease of 550 basis points year-over-year, of which 370 basis points are due to COVID-19 temporary reductions in manufacturing
- Net income of
$16.9 million , or diluted earnings per share of$0.30 , an increase of$0.23 year-over-year, including$17.2 million , net of tax related to the termination of the license agreement between the Company and Schlumberger and the impairment of related long-lived assets.
Year-to-Date 2020 Highlights:
- Product revenue of
$38.3 million , an increase of 8% year-over-year - License and development revenue of
$26.9 million of which$24.4 million is related to the termination of the license agreement between the Company and Schlumberger - Product gross margin of 68.0%, a decrease of 250 basis points year-over-year
- Net income of
$17.5 million , or diluted earnings per share of$0.31 , an increase of$0.20 year-over-year, including$17.2 million , net of tax related to the termination of the license agreement between the Company and Schlumberger and the impairment of related long-lived assets.
"Our performance this quarter demonstrates the resiliency of our business and the capabilities of our team to adapt to unprecedented global circumstances. Despite these challenges, the continued growth of mega SWRO projects and conversion of thermal desalination facilities to SWRO is driving increased demand for our technology and concurrent growth in our revenue," said
COVID-19 Pandemic
In early
While any effect of the pandemic has had only a limited effect on the Company's financials to date, the Company's gross margin for the first half of 2020 was negatively affected due to reduced production output while the plant was underutilized. Based on the Company's current rate of production, the Company believes that it will be able to fulfill our existing delivery obligations in fiscal year 2020 and beyond.
Second Quarter 2020
Revenues
For the second quarter ended
The Water segment generated total product revenue of
Product Gross Margin
For the second quarter ended
Operating Expenses
For the second quarter ended
COVID-19 did not have a material effect on operating expenditures during the three months ended
Bottom Line Summary
To summarize the Company's financial performance, on a quarterly basis, the Company reported a net income of
Cash Flow Highlights
The Company finished the second quarter 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 there will be increased demand for our technology resulting in growth in our revenue; the Company will be able to generate near-term shareholder value from our VorTeq technology; the Company will be able to monetize the VorTeq technology; the Company we will be able to fulfill our existing delivery obligations in fiscal year 2020 and beyond; and at this time, we will not continue to experience decreases in the product gross margin due to the COVID-19 pandemic. 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 the Company's 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 the Company's business, and the risks discussed under "Risk Factors" in the Company's Form 10-K filed with the
Conference Call to Discuss Second Quarter 2020 Financial Results
LIVE CONFERENCE CALL:
Listen-only, US / Canada Toll-Free: +1 (877) 709-8150
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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
For more than 20 years,
Contact
Investor Relations
ir@energyrecovery.com
(281) 962-8105
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
2020 | 2019 | |||||||
(In thousands) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 62,970 | $ | 26,387 | ||||
Short-term investments | 28,409 | 58,736 | ||||||
Accounts receivable, net | 12,816 | 12,979 | ||||||
Inventories, net | 9,915 | 10,317 | ||||||
Prepaid expenses and other current assets | 4,987 | 4,548 | ||||||
Total current assets | 119,097 | 112,967 | ||||||
Long-term investments | 5,510 | 15,419 | ||||||
Deferred tax assets, non-current | 12,231 | 16,897 | ||||||
Property and equipment, net | 18,838 | 18,843 | ||||||
Operating lease, right of use asset | 16,810 | 11,195 | ||||||
12,790 | 12,790 | |||||||
Other intangible assets, net | 57 | 65 | ||||||
Other assets, non-current | 639 | 598 | ||||||
Total assets | $ | 185,972 | $ | 188,774 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,860 | $ | 1,192 | ||||
Accrued expenses and other current liabilities | 6,771 | 9,869 | ||||||
Lease liabilities | 1,196 | 1,023 | ||||||
Contract liabilities | 980 | 15,746 | ||||||
Total current liabilities | 10,807 | 27,830 | ||||||
Lease liabilities, non-current | 17,155 | 11,533 | ||||||
Contract liabilities, non-current | 97 | 13,120 | ||||||
Other non-current liabilities | 496 | 278 | ||||||
Total liabilities | 28,555 | 52,761 | ||||||
Commitments and contingencies (Note 8) | ||||||||
Stockholders' equity: | ||||||||
Common stock | 61 | 61 | ||||||
Additional paid-in capital | 173,729 | 170,028 | ||||||
Accumulated other comprehensive income (loss) | 119 | (37 | ) | |||||
(30,486 | ) | (30,486 | ) | |||||
Accumulated earnings (deficit) | 13,994 | (3,553 | ) | |||||
Total stockholders' equity | 157,417 | 136,013 | ||||||
Total liabilities and stockholders' equity | $ | 185,972 | $ | 188,774 | ||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Product revenue | $ | 19,256 | $ | 19,226 | $ | 38,257 | $ | 35,298 | ||||||||
Product cost of revenue | 6,549 | 5,483 | 12,233 | 10,418 | ||||||||||||
Product gross profit | 12,707 | 13,743 | 26,024 | 24,880 | ||||||||||||
License and development revenue | 24,352 | 3,570 | 26,895 | 7,293 | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative | 5,599 | 5,500 | 12,480 | 11,079 | ||||||||||||
Sales and marketing | 1,497 | 2,181 | 3,635 | 4,343 | ||||||||||||
Research and development | 6,352 | 5,480 | 13,061 | 9,734 | ||||||||||||
Amortization of intangible assets | 4 | 157 | 8 | 313 | ||||||||||||
Impairment of long-lived assets | 2,332 | - | 2,332 | - | ||||||||||||
Total operating expenses | 15,784 | 13,318 | 31,516 | 25,469 | ||||||||||||
Income from operations | 21,275 | 3,995 | 21,403 | 6,704 | ||||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 255 | 528 | 675 | 1,051 | ||||||||||||
Other non-operating expense, net | (18 | ) | (48 | ) | (30 | ) | (72 | ) | ||||||||
Total other income, net | 237 | 480 | 645 | 979 | ||||||||||||
Income before income taxes | 21,512 | 4,475 | 22,048 | 7,683 | ||||||||||||
Provision for income taxes | 4,586 | 756 | 4,501 | 1,310 | ||||||||||||
Net income | $ | 16,926 | $ | 3,719 | $ | 17,547 | $ | 6,373 | ||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.30 | $ | 0.07 | $ | 0.32 | $ | 0.12 | ||||||||
Diluted | $ | 0.30 | $ | 0.07 | $ | 0.31 | $ | 0.11 | ||||||||
Number of shares used in per share calculations: | ||||||||||||||||
Basic | 55,614 | 54,681 | 55,513 | 54,400 | ||||||||||||
Diluted | 56,371 | 56,110 | 56,438 | 55,764 | ||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended | ||||||||
2020 | 2019 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 17,547 | $ | 6,373 | ||||
Adjustments to reconcile net income to cash (used in) provided by operating activities | ||||||||
Stock-based compensation | 2,595 | 3,071 | ||||||
Depreciation and amortization | 2,751 | 1,952 | ||||||
Amortization (accretion) of premiums and discounts on investments | 215 | (30 | ) | |||||
Deferred income taxes | 4,666 | 1,285 | ||||||
Provision for warranty claims | 173 | 242 | ||||||
Impairment of long-lived assets | 2,332 | - | ||||||
Other non-cash adjustments | 55 | 259 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 101 | (4,986 | ) | |||||
Contract assets | (198 | ) | 2,147 | |||||
Inventories, net | 260 | (725 | ) | |||||
Prepaid and other assets | (278 | ) | 1,026 | |||||
Accounts payable | 1,285 | 14 | ||||||
Accrued expenses and other liabilities | (4,012 | ) | (2,942 | ) | ||||
Income taxes | 3 | 47 | ||||||
Contract liabilities | (27,789 | ) | (7,730 | ) | ||||
Net cash (used in) provided by operating activities | (294 | ) | 3 | |||||
Cash flows from investing activities: | ||||||||
Sales of marketable securities | 9,767 | - | ||||||
Maturities of marketable securities | 43,286 | 47,993 | ||||||
Purchases of marketable securities | (12,855 | ) | (46,549 | ) | ||||
Capital expenditures | (4,410 | ) | (4,685 | ) | ||||
Net cash provided by (used in) investing activities | 35,788 | (3,241 | ) | |||||
Cash flows from financing activities: | ||||||||
Net proceeds from issuance of common stock | 1,128 | 4,581 | ||||||
Tax payment for employee shares withheld | (23 | ) | (62 | ) | ||||
Net cash provided by financing activities | 1,105 | 4,519 | ||||||
Effect of exchange rate differences on cash and cash equivalents | (15 | ) | - | |||||
Net change in cash, cash equivalents and restricted cash | 36,584 | 1,281 | ||||||
Cash, cash equivalents and restricted cash, beginning of year | 26,488 | 22,138 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 63,072 | $ | 23,419 | ||||
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
Water | Oil & Gas | Corporate | Total | Water | Oil & Gas | Corporate | Total | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Product revenue | $ | 19,256 | $ | - | $ | - | $ | 19,256 | $ | 19,226 | $ | - | $ | - | $ | 19,226 | ||||||||||||||||
Product cost of revenue | 6,549 | - | - | 6,549 | 5,483 | - | - | 5,483 | ||||||||||||||||||||||||
Product gross profit | 12,707 | - | - | 12,707 | 13,743 | - | - | 13,743 | ||||||||||||||||||||||||
License and development revenue | - | 24,352 | - | 24,352 | - | 3,570 | - | 3,570 | ||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
General and administrative | 456 | 421 | 4,722 | 5,599 | 563 | 412 | 4,525 | 5,500 | ||||||||||||||||||||||||
Sales and marketing | 1,124 | 18 | 355 | 1,497 | 1,559 | 319 | 303 | 2,181 | ||||||||||||||||||||||||
Research and development | 960 | 4,517 | 875 | 6,352 | 1,103 | 4,305 | 72 | 5,480 | ||||||||||||||||||||||||
Amortization of intangible assets | 4 | - | - | 4 | 157 | - | - | 157 | ||||||||||||||||||||||||
Impairment of long-lived assets | - | 2,332 | - | 2,332 | - | - | - | - | ||||||||||||||||||||||||
Total operating expenses | 2,544 | 7,288 | 5,952 | 15,784 | 3,382 | 5,036 | 4,900 | 13,318 | ||||||||||||||||||||||||
Operating income (loss) | $ | 10,163 | $ | 17,064 | $ | (5,952 | ) | 21,275 | $ | 10,361 | $ | (1,466 | ) | $ | (4,900 | ) | 3,995 | |||||||||||||||
Other income, net | 237 | 480 | ||||||||||||||||||||||||||||||
Income before income taxes | $ | 21,512 | $ | 4,475 | ||||||||||||||||||||||||||||
Six Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
Water | Oil & Gas | Corporate | Total | Water | Oil & Gas | Corporate | Total | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Product revenue | $ | 38,257 | $ | - | $ | - | $ | 38,257 | $ | 35,194 | $ | 104 | $ | - | $ | 35,298 | ||||||||||||||||
Product cost of revenue | 12,233 | - | - | 12,233 | 10,230 | 188 | - | 10,418 | ||||||||||||||||||||||||
Product gross profit (loss) | 26,024 | - | - | 26,024 | 24,964 | (84 | ) | - | 24,880 | |||||||||||||||||||||||
License and development revenue | - | 26,895 | - | 26,895 | - | 7,293 | - | 7,293 | ||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
General and administrative | 861 | 1,162 | 10,457 | 12,480 | 1,097 | 776 | 9,206 | 11,079 | ||||||||||||||||||||||||
Sales and marketing | 2,800 | 76 | 759 | 3,635 | 3,208 | 582 | 553 | 4,343 | ||||||||||||||||||||||||
Research and development | 1,862 | 9,764 | 1,435 | 13,061 | 1,908 | 7,668 | 158 | 9,734 | ||||||||||||||||||||||||
Amortization of intangible assets | 8 | - | - | 8 | 313 | - | - | 313 | ||||||||||||||||||||||||
Impairment of long-lived assets | - | 2,332 | - | 2,332 | - | - | - | - | ||||||||||||||||||||||||
Total operating expenses | 5,531 | 13,334 | 12,651 | 31,516 | 6,526 | 9,026 | 9,917 | 25,469 | ||||||||||||||||||||||||
Operating income (loss) | $ | 20,493 | $ | 13,561 | $ | (12,651 | ) | 21,403 | $ | 18,438 | $ | (1,817 | ) | $ | (9,917 | ) | 6,704 | |||||||||||||||
Other income, net | 645 | 979 | ||||||||||||||||||||||||||||||
Income before income taxes | $ | 22,048 | $ | 7,683 | ||||||||||||||||||||||||||||
SOURCE:
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