Energy Recovery Inc
For the period ended Jun 30, 2024. Filed Jul 31, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Jul 31, 2024
ERII$7.15+6.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-01.
0001421517-24-000093
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-07-31.
0001421517-24-000172
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 164 previous paragraphs and 193 current paragraphs.
80 unchanged; 55 reworded; 53 added; 29 removed; 0 previous and 5 current paragraphs rearranged.
Tables are not compared: 7 previous and 10 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (53)
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We generally track our revenues by channels. The channels we recognize and channel definitions we utilize are as follows:
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are large-scale in nature and generally have shipment timelines from 16 to 36 months from contract date.
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•Aftermarket (“AM”) channel: The AM channel represents support and services rendered to our installed customer base. AM
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revenue generally fluctuates from year-to-year and is dependent on our customers’ timing of product upgrades, as well as their
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Theincrease in OEM revenueof$2.2 million was due primarily to:
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•Desalination: The increase in revenue of $2.4 million was due primarily to higher shipments in the Europe and MEA markets,
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partially offset by adecrease in shipments to the Asia market.
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•Wastewater: Revenues were stable compared to the prior year, with anincrease in shipments to the Asia market, whichwas
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partially offset by adecrease in shipments to the Europe market.
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•Emerging Technology: The decrease in revenue of $0.2 million was due primarily to an installment in Europe in the prior year.
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Theincrease in AM revenue of$0.6 million was due primarily to higher shipments to the Americas, Asia and Europe markets, partially
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offset by lower shipments to the MEA market.
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Six months ended June 30, 2024, as compared to thesix months ended June 30, 2023
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specifically in the MEA and Americas markets, partially offset by lower shipments to the Asia market.
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Thedecrease in OEM revenue of$1.2 million was primarily due to:
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•Desalination: The increase in revenue of $0.1 million was due primarily to higher shipments to the Europe and MEA markets,
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which were partially offset by lower shipments to the Asia market.
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•Wastewater: The decrease in revenue of$1.2 million was due primarily to lower shipments in all markets. Prior year revenues
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included a large shipment to the Asia market.
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•Emerging Technology: The decrease in revenue of $0.2 million was due primarily to an installment in Europe in the prior year.
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Theincrease in AM revenue of$2.0 million was due primarily to shipments to the Americas, Asia, and the MEA markets.
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increase in sales of PXs, partially offset bya decrease in gross margin. Thedecrease in gross margin for the three andsix months ended
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Overall Operating Expenditures. Overall operating expenditures of$19.6 million, increased$3.5 million, or 21.4%. This increase was
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due primarily tohigher consulting costs related to the enhancement of our corporate growth strategy, G&A and S&M employee compensation
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and benefits costs related to an increase in headcount, and an increase in share-based compensation expense due to modification of certain
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equity awards and higher severance payments, both related to the termination of certain executive-level employees.
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Water Segment. Water segment operating expenses of$6.8 million, increased by$1.0 million, or 17.2%. This increase was due
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primarily to an increase in employee compensation costs, benefits costs, and share-based compensation expense all related to an increase
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in headcount in S&M, and other R&D costs.
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employee severance costs.
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was due primarilyto higher consulting costs related to the enhancement of our corporate growth strategy.
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Six months ended June 30, 2024, as compared to thesix months ended June 30, 2023
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Overall Operating Expenditures. Overall operating expenditures of$37.6 million, increased by$5.3 million, or 16.2%. This increase
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was due primarily tohigher consulting costs related to the enhancement of our corporate growth strategy and an increase in employee
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compensation and benefits costs, recruiting costs, travel expenses, and an increase in share-based compensation expense due to
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modification of certain equity awards and higher severance payments, both related to the termination of certain executive-level employees.
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Water Segment. Water segment operating expenses of$13.6 million, increased by$1.5 million, or 12.2%. This increase was due
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primarily to higher employee compensation and benefits costs and share-based compensation expense in S&M related to an increase in
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Emerging Technologies Segment. Emerging Technologies operating expenses of$11.6 million, increased by$1.1 million, or 10.0%.
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This increase was due primarily to higher employee compensation and benefits costs, and share-based compensation expense, both related
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Removed paragraphs (29)
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ourreportable segments.
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•Desalination: The decrease in revenue in thethree months ended March 31, 2024, as compared to the prior year, by $2.3 million
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was due primarily totiming of project shipmentsin the Asia and MEAmarkets.
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•Wastewater: The decrease in revenue in thethree months ended March 31, 2024, as compared to the prior year, by $1.1 million,
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was due primarily to timing of project shipments in the Asia market.
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The Aftermarket (“AM”) channel revenue generally fluctuates from year-to-year depending on support and services rendered to our
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installed customer base. AM revenue is also dependent on our customers’ timing of product upgrades, and replenishment of spare parts and
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2024, as compared to the prior year, by$1.3 million was due primarily to shipments to customers in the Middle East, Asia and the Americas
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markets.
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decrease in revenue and a slightly lower gross margin. Thedecrease in gross margin during thethree months ended March 31, 2024, as
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of product sold related to product mix.
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Overall operating expenditures increased by$1.8 million, or 11.1%, in thethree months ended March 31, 2024, as compared to the
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headcount, executive transition costs, and an increase in travel costs. Other non-employee costs included:
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•G&A: lower consultant costs and professional fees;
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•S&M: higher consulting and commission costs, partially offset by lower marketing expenses; and
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•R&D: lower facility and other costs.
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Water Segment. Water segment operating expenses increased by$0.5 million, or 7.5%, in thethree months ended March 31, 2024,
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as compared to the prior year. This increase was due primarily to higher employee costs, including share-based compensation expense, in
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lower R&D costs.
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months ended March 31, 2024, as compared to the prior year. This increase was due primarily to higher employee costs and share-based
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March 31, 2024, as compared to the prior year. This increase was due primarily to higher employee costs and share-based compensation
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expenses were lower due primarily to a decrease in consultant costs andprofessional fees.
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included benefits related to the U.S. federal foreign-derived intangible income (“FDII”) andfederal R&D tax credit, partially offset by certain
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compensation windfalls.
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compensation and certain foreign-based employee share-based compensation.
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•a decrease in cash provided by accounts receivables related to lower revenuesand the timing of collections on the account
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receivable balances;
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•an increase in cash used for inventory for projects in 2024 and 2025; and
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increase in cash used for capital expenditures.
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technology can be brought to market. Other factors for determining the reportable operating segments include the manner in which
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technology can be brought to market. Other factors for determining the reportable operating segments include the manner in which our Chief
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management evaluates our performance combined with the nature of the individual business activities. In addition, our corporate operating
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Operating Decision Maker (“CODM”), our President and Chief Executive Officer, evaluates our performance combined with the nature of the
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expenses include expenditures in support of the water and emerging technologies segments. Wecontinue tomonitor and review our
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individual business activities. In addition, our corporate operating expenses include expenditures in support of the water and emerging
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segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact
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determine whether any changes have occurred that would impact ourreportable segments.
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A discussion regarding our financial condition and results of operations for thethree months ended March 31, 2024, compared to the
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A discussion regarding our financial condition and results of operations for thethree and six months ended June 30, 2024, compared
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three months ended March 31, 2023, is presented below.
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to thethree and six months ended June 30, 2023, is presented below.
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The Megaproject (“MPD”) channel has been the main driver of our long-term growth as revenue from this channel benefits from a
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•Megaproject (“MPD”) channel: The MPD channel has been the main driver of our long-term growth as revenue from this channel
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growing number of projects as well as an increase in the capacity of these projects in some cases. The change in revenue for thethree
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benefits from a growing number of projects as well as an increase in the capacity of these projects in some cases. MPD projects
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The Original Equipment Manufacturer (“OEM”) channel, where we sell into a wide variety of industries in the desalination, wastewater,
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•Original Equipment Manufacturer (“OEM”) channel: The OEM channel describes where we sell into a wide variety of industries in
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and the refrigeration markets, contains projects smaller in size and of shorter duration compared to those projects in the MPD channel.
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the desalination, wastewater, and the refrigeration markets. This channel contains projects smaller in size and revenue, and of
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supplies. Generally, the AM channel revenue has been increasing over time. The increase in revenue in thethree months ended March 31,
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replenishment of spare parts and supplies. Generally, the AM channel revenue has been increasing over time.
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months ended March 31, 2024, as compared tothe prior year, was due primarily to customers’ project timing, and execution of these
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Theincrease in MPD revenue of$3.6 million was due primarily to customers’ project timing, and execution of these projects and
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projects, specifically in the Middle Eastern and Africa (“MEA”) and Americas markets.
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specifically related to an increase of shipments in the Middle East and Africa (“MEA”) and Asia markets.
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share-based compensation), manufacturing overhead, warranty costs, depreciation expense and other manufactured components.
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share-based compensation), manufacturing overhead, warranty costs, and depreciation expense.
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Thedecrease in gross profit for thethree months ended March 31, 2024, as compared to the prior year, was due primarily to a
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Theincrease in gross profit for the three andsix months ended June 30, 2024, as compared to the prior year, was due primarily toan
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compared to the prior year, was due primarily to higher manufacturing costs and an increase in inventory scrap, partially offset by lower cost
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June 30, 2024, as compared to the prior year, was due primarily to higher manufacturing costs, partially offset by costs related toproduct mix.
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(“R&D”) operating expenses for thethree months ended March 31, 2024, ascompared to the prior year, are discussed within the following
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(“R&D”) operating expenses for thethree and six months ended June 30, 2024, as compared to the comparable periods in the prior year, are
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segment and corporate operating expenses discussions below.
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discussed within the following overall operating expenditures, and the segment and corporate operating expenses discussions below.
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Emerging Technologies Segment. Emerging Technologies operating expenses increased by$0.8 million, or 15.4%, in thethree
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Emerging Technologies Segment. Emerging Technologies segment operating expenses of$5.6 million, increased by$0.2 million, or
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prior year. This increase was due primarily to higher compensation costs, share-based compensation expense related to additional
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4.6%. This increase was due primarily to a higher share-based compensation expense related to additional headcount andan increase in
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Corporate Operating Expenses. Corporate operating expenses increased by$0.5 million, or 11.0%, in thethree months ended
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Corporate Operating Expenses. Corporate operating expenses of$7.2 million, increased by$2.2 million, or 44.3%. This increase
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G&A, S&M and R&D to support our existing desalination operations and our growth in wastewater. In addition, non-employee operating
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headcount to support our existing desalination operations and our growth in wastewater. In addition, non-employee operating expenses were
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expenses were higher due primarily to an increase in consultant and commission costs to support our growth in wastewater, partially offset by
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higher due primarily to an increase in consultant costs to support our growth in desalination and wastewater.
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compensation expense, related to an increase in headcount in G&A, S&M and R&D.
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to an increase in headcount in S&M and R&D, and an increase in severance cost.
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expense, related to an increase in headcount in G&A and S&M, and an increase in travel costs. In addition, non-employee operating
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headcount in G&A, an increase in recruiting costs, and an increase in travel costs. In addition, the increase in non-employee operating
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Theincrease in “Total other income, net” in thethree months ended March 31, 2024, as compared to the prior year, was due primarily
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Theincrease in “Total other income, net” in thethree and six months ended June 30, 2024, as compared to the comparable periods in
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to an increase in interest yields and investments.
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the prior year, was due primarily to an increase in interest yields and an increase in short- and long-term investments.
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The interim periodtax benefit from income taxes is determined using an estimate of ourannual effective tax rate, adjusted for discrete
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The interim periodtax provision for and (benefit from) income taxes, respectively, is determined using an estimate of ourannual
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items, if any, that arise during the period. Each quarter, we update ourestimate of the annual effective tax rate, and if the estimated annual
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effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, we update ourestimate of the annual effective
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effective tax rate changes, we make a cumulative adjustment in such period. Thequarterly tax provision and estimate of ourannual effective
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tax rate, and if the estimated annual effective tax rate changes, we make a cumulative adjustment in such period. Thequarterly tax provision
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tax rate are subject to variation due to several factors, including variability in accurately predicting ourpre-tax income or loss and the mix of
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and estimate of ourannual effective tax rate are subject to variation due to several factors, including variability in accurately predicting our
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jurisdictions to which they relate, intercompany transactions, the applicability of special tax regimes, and changes in how we dobusiness.
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pre-tax income or loss and the mix of jurisdictions to which they relate, the applicability of special tax regimes, and changes in how we do
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For thethree months ended March 31, 2024, the recognized benefit from income taxes resulted from the loss for the quarter and
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For thethree and six months ended June 30, 2024, the recognized provision for and (benefit from) income taxes, respectively,
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permanent differences, such as share-based compensation.
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intangible income (“FDII”), federal R&D tax credit, and certain permanent differences, such as share-based compensation windfalls.
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For the three months ended March 31, 2023, the recognized benefit from income tax resulted from the loss for the quarter and
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For the three and six months ended June 30, 2023, the recognized benefit from income tax resulted from the Company’s loss for the
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included benefits related to the U.S. FDII and federal R&D tax credit, along with a discrete tax benefit due primarily to share-based
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respective periods and included benefits related to the U.S. FDII and R&D tax credit, along with a discrete tax benefit due primarily to share-
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The effective tax rate excluding discrete items for thethree months ended March 31, 2024, as compared to the prior year, differed
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The effective tax rate excluding discrete items for thesix months ended June 30, 2024, as compared to the prior year, differed
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primarily due to lower projected U.S. FDII and federal R&D tax credits and higher book income, as well as non-deductible officer share-based
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primarily due to lower projected R&D tax credits, increased non-deductible officer share-based compensation, and higher projected book
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As of March 31, 2024, our principal sources of liquidity consisted of (i) unrestricted cash and cash equivalents of$70.8 million; (ii) investment-
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As of June 30, 2024, our principal sources of liquidity consisted of (i) unrestricted cash and cash equivalents of$40.3 million; (ii) investment-
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grade short-term and long-term marketable debt instruments of$58.7 million that are primarily invested in U.S. treasury securities, corporate
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grade short-term and long-term marketable debt instruments of$97.7 million that are primarily invested in U.S. treasury securities, corporate
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Rearranged current paragraphs (5)
Current report — wording carried from elsewhere
technologies segments. Wecontinue tomonitor and review oursegment reporting structure in accordance with authoritative guidance to
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shorter duration compared to those projects in the MPD channel.
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Three months ended June 30, 2024, as compared to the three months ended June 30, 2023
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Theincrease in MPD revenue of$4.5 million was due primarily to customers’ project timing, and execution of these projects,
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Three months ended June 30, 2024, as compared to the three months ended June 30, 2023