Energy Recovery Inc
For the period ended Dec 31, 2024. Filed Feb 26, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 26, 2025
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-K
Period ended 2023-12-31; filed 2024-02-21.
0001421517-24-000055
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-26.
0001421517-25-000048
Item 7. 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 280 previous paragraphs and 309 current paragraphs.
136 unchanged; 75 reworded; 90 added; 66 removed; 3 previous and 8 current paragraphs rearranged.
Tables are not compared: 9 previous and 9 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 (90)
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Sustainability
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these trends and other risks.
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As our revenue is derived from large project contract deliveries that are between 16 to 36 months from contract date, there isno
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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. Recognition of
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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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Year ended December 31, 2024, as compared to theyear ended December 31, 2023
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Theincrease in MPD revenue of$11.7 million was due primarily to:
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•Desalination: The increase in revenue of $8.9 million was due primarily to higher shipments of products to the Middle East and
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Africa (“MEA”), Europe and Asia markets, partially offset by lower shipments of products to the Americas market.
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•Wastewater: The increase in revenue of $2.8 million was due primarily to higher shipments of products to the MEA market.
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Theincrease in OEM revenue of$5.5 million was primarily due to:
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•Desalination: The increase in revenue of $2.7 million was due primarily to higher shipments of products to the MEA and Europe
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markets, partially offset by lower shipments of products to the Americas and Asia markets.
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•Wastewater: The increase in revenueof $3.0 million was due primarily to higher shipments of products to the Asia, Americas and
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MEA markets. The Asia market has seen considerable growth this last year ascertain countries in this market implement climate
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control regulations.
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•Emerging Technology: The decrease in revenue of $0.3 million was due primarily to our product installation in Europe and sales
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to a gas producer in the Americas, both occurring in the prior year.
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Thedecrease in AM revenue of$0.7 million was due primarilyto lower shipments of parts and service to the MEA and Europe
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markets, partially offset by higher shipments of products to the Asia market.
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revenue by geographic location.
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sales of PXs and slightly higher average selling prices related to change inproduct mix, partially offset bya decrease in gross margin. The
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decrease in gross margin for theyear ended December 31, 2024, as compared to the prior year, was due primarily tohigher manufacturing
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costs and scrap costs.
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within the following overall operating expenditures, and the segment and corporate operating expenses discussions below.
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Year ended December 31, 2024, as compared to theyear ended December 31, 2023
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Overall Operating Expenditures. Overall operating expenditures increased by$9.2 million, or 13.5%. This increase was due primarily
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to restructuring charges, and an increase in employee costs, such as employee compensation, stock-based compensation, severance and
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•G&A: higher consulting costs related to the enhancement of our corporate growth strategy; partially offset by lower dues and
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subscription costs.
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•S&M: lower commission costs and lower one-time sustainability consulting costs that we incurred in fiscal year 2023.
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•R&D: lower Emerging Technologies segment development costsand depreciation costs.
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to restructuring charges, and higher employee compensation and benefit costs and stock-based compensation expense in S&M related to an
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expenses were higher due primarily to an increase inconsulting costs to support our growth in desalination and wastewater. These
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increases were partially offset by lower commission costs and depreciation expenses.
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due primarily to restructuring charges, and an increase in S&M employee compensation and marketing costs, partially offset by lower R&D
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costs.
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an increase in recruiting costs, and an increase in stock-based compensation expense due to modification of certain equity awards and
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We released our fourth annual Sustainability Report (formally referred to as our Environmental, Social, and Governance (“ESG”)
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related Financial Disclosures.
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During the year, we announced:
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•Additions to our PX U Series product line, tailored for ultra high-pressure reverse osmosis (“UHPRO”) applications. The
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expanded PX U Series product line includes the U20, U40, U80, and U250 models.
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•The appointment of Fieuw Koeltechniek (“Fieuw”), a leading refrigeration cooling rack and service provider in Belgium, the
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Netherlands, and Luxembourg (these countries are commonly referred to as the “Benelux region”), as our exclusive distribution
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agent in the Benelux region for two years and requires set volume purchase commitments over the life of the contract. Under the
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agreement, Fieuw, is granted the exclusive right to sell our PX G1300 within the Benelux region.
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•The successful installation and commissioning of our PX G1300 in a major supermarket chain in the Benelux region and the
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second installation and commissioning of our PX G1300 with Vallarta Supermarkets in the U.S.
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•Received the prestigious “Refrigeration Innovation of the Year Award” forthe PX G1300 at the ATMO Awards Ceremony of the
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Atmosphere America Summit 2023. The award for Refrigeration Innovation of the Year recognizes systems, products, or
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processes that utilize new technology to provide definitive innovations to refrigeration.
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•Received the Refrigeration & Air Conditioning (“RAC”) Magazine “Innovation of the Year” award together with our partner, the
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Epta Group. The RAC Magazine award was recognized for work on implementing a new approach to further scale up the
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efficiency of CO 2 refrigeration.
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operations.
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other risks.
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•Desalination: The decrease in revenue in theyear ended December 31, 2023, as compared to the prior year, by $6.3 million was
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due primarily to timing of project shipments. Revenuewas lower in the MEA channel, partially offset by an increase in revenue in
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the Americas market.
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•Wastewater: The increase in revenue in theyear ended December 31, 2023, as compared to the prior year, by $3.0 million, was
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due primarily to growth within the Asian, European, and the Americas markets.
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•Emerging Technology: The increase in revenue in theyear ended December 31, 2023, as compared to the prior year, by
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$0.6 million was due primarily to CO 2 growth in the European and Americas markets.
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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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supplies. Generally, the AM channel revenue trend has been increasing over time. The increase in revenue in theyear ended December 31,
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2023, as compared to the prior year, by $3.8 million was due primarily to shipments to customers in the MEA, the Americas and the
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European markets.
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margin, partially offset by an increase in revenue. Thedecrease in gross margin during theyear ended December 31, 2023, as compared to
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the prior year, was due primarily tohigher manufacturing costs, partially offset by changes in product mix, and lower freight and tariffs.
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and corporate operating expense discussions below.
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Overall operating expenditures increased by$5.5 million, or 8.8%, in theyear ended December 31, 2023, as compared to the prior
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year. This increase was due primarily to higher employee costs and share-based compensation expense related to additional headcount,
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•G&A: higher consultant costs, professional fees related tomanagement projects, and CEO and board member search fees;
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•S&M: higher marketing expenses tofurther develop the CO 2 market, an increase in outside commission costs and higher
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software licensing and support costs, partially offset by lower consultant costs, and a litigation settlement cost that occurred in
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2022 with no comparable cost in the current year;
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•R&D: an increase in CO 2 product development costs, offset byexpenses incurred in 2022 with no comparable costs in the
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Highlights, Economic Conditions, Challenges, and Risks
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Economic Conditions, Challenges, and Risks
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report), which details our efforts to accelerate the environmental sustainability of our customers’ operations and enhance the management of
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We released our fifth annual Sustainability Report, which details our efforts to accelerate the environmental sustainability of our
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sustainability issues in our own operations. Our Sustainability Report reports provide examples and data illustrating our products’ positive
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customers’ operations and enhance the management of sustainability issues in our own operations. Our Sustainability Report provides data
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environmental impacts across the industries where we operate. We understand the importance of being a responsible corporate citizen and
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illustrating our products’ positive environmental impacts across the industries where we operate. We understand the importance of being a
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believe our sustainability objectives provide us with a strategic roadmap to become a more resilient business, as well as a way to maintain
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responsible corporate citizen and believe our sustainability objectives provide us with a strategic roadmap to become a more resilient
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our competitive advantage. Our 2022 Sustainability Report (issued in September 2023) outlines our progress on those objectives and aligns
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business, as well as a way to maintain our competitive advantage. Our 2023 Sustainability Report (issued in June 2024) outlines our
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to leading sustainability frameworks and reporting standards, including the United Nations Sustainable Development Goals and the
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progress on those objectives and aligns to leading sustainability frameworks and reporting standards, including the United Nations
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Sustainability Accounting Standards Board, as well as select disclosures from the Global Reporting Initiative and the Task Force on Climate-
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Disclosures, as well as select disclosures from the Global Reporting Initiative.
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As a result of our sustainability efforts and reporting, in 2023, MSCI ESG Research LLC (“MSCI”) upgraded the company from an
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As a result of our sustainability efforts and reporting, in 2024, MSCI ESG Research LLC (“MSCI”) once again awarded to us its
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ESG rating of AA to its highest rating of AAA. MSCI’s evaluation recognizes Energy Recovery as one of the highest performing companies
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highest ESG rating of AAA. MSCI’s evaluation recognizes Energy Recovery as one of the highest performing companies within the Industrial
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within the Industrial Machinery industry in MSCI’s All Company World Index, reflecting robust corporate governance and labor management
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Machinery industry in MSCI’s All Company World Index, reflecting robust corporate governance and labor management practices and
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practices and significant opportunities in clean technology.
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significant opportunities in clean technology.
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and is not a part of, this Annual Report.
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and is not a part of, this Annual Report on Form 10-K.
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remains uncertain, we are constantly evaluating the extent to which these factors will impact our business, financial condition or results of
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remain uncertain, we are constantly evaluating the extent to which these factors will impact our business, financial condition or results of
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Refer to Part I, Item 1, “Business,” and Part I, Item 1A, “Risk Factors,” of this Form 10-K for further discussion of these trends and
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Refer to Part I, Item 1, “Business,” and Part I, Item 1A, “Risk Factors,” in this Annual Report on Form 10-K for further discussion of
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There isno specific seasonality in our revenues to highlight that occurs throughout a calendar year.
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specific seasonality in our revenues to highlight.
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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 theyear
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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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ended December 31, 2023, as compared to the prior year, was due primarily to customers’ project timing, and execution of these projects,
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revenue is dependent oncustomers’ project timing and execution of these projects.
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The Original Equi pment 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 reflects sales to a wide variety of industries in the
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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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shorter duration compared to those projects in the MPD channel.
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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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replenishment of spare parts and supplies.
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regarding our concentration of revenue by geographic location.
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regarding our concentration of revenue.
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Note 10, “Concentrations – Revenue by Geographic Location and Country,”of the Notes for information about for further discussion
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Note 10, “Concentrations –Revenue by Geographic Location and Country,”of the Notes for further discussion regarding our concentration of
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concentrate our revenue for the periods presented and does not indicate a trend specific to any one customer. See Note 10, “Concentrations
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concentrate our revenue for the periods presented and do not indicate a trend specific to any one customer. See Note 10, “Concentrations –
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Gross profit represents our revenue less our cost of revenue. Our cost of revenue consists primarily of raw materials, personnel costs
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Gross profit represents revenue less cost of revenue. Cost of revenue consists primarily of raw materials, personnel costs (including
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(including share-based compensation), manufacturing overhead, warranty costs, depreciation expense and other manufactured components.
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stock-based compensation), manufacturing overhead, warranty costs, and depreciation expense.
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Thedecrease in gross profit for theyear ended December 31, 2023, as compared to the prior year, was due primarily to lower gross
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Theincrease in gross profit for theyear ended December 31, 2024, as compared to the prior year, was due primarily toan increase in
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(“R&D”) operating expenses for theyear ended December 31, 2023, as compared the prior year, are discussed within the following segment
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(“R&D”) operating expenses for theyear ended December 31, 2024, as compared to the comparable period in the prior year, are discussed
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and increased wages and benefit costs in G&A, S&M and R&D. Other non-employee costs included:
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recruiting costs, in G&A and S&M. Changes in non-employee costs included:
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Water Segment. Water segment operating expenses increased by$3.5 million, or 16.0%, in theyear ended December 31, 2023, as
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Water Segment. Water segment operating expenses increased by$3.8 million, or 14.7%. This increase was due primarily
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G&A, S&M and R&D to support our existing desalination operations and our growth in wastewater, and an increase in marketing costs,
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increase in headcount to support our existing desalination operations and our growth in wastewater. In addition, non-employee operating
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Emerging Technologies Segment. Emerging Technologies operating expenses increased by$1.8 million, or 8.7%, in theyear ended
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Emerging Technologies Segment. Emerging Technologies operating expenses increased by$1.0 million, or 4.3%. This increase was
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Corporate Operating Expenses. Corporate operating expenses increased by$0.1 million, or 0.7%, in theyear ended December 31,
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Corporate Operating Expenses. Corporate operating expenses increased by$4.4 million, or 22.5%. This increase was due primarily
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compensation expense, related to an increase in headcount in G&A, S&M and R&D, an increase in travel and marketing costs to further
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to higher employee compensation and benefit costs, and stock-based compensation expense, related to an increase in headcount in G&A,
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Theincrease in Total other income, net in theyear ended December 31, 2023, as compared to the prior year, was due primarily to an
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Theincrease in “Total other income, net” in theyear ended December 31, 2024, as compared to the comparable period in the prior
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The lower provision for income taxes in 2023, as compared to the prior year, was due primarily toa decrease in income from
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The higher provision for income taxes in 2024, as compared to the prior year, was due primarily toan increase in income from
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operations, an increase in tax benefit of $0.6 million related to Foreign Derived Intangible Income (“FDII”), and an increase of$0.3 million in
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operations, a decrease in tax benefit of$0.3 million related to Foreign Derived Intangible Income (“FDII”), and a decrease of$0.4 million in
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R&D tax credits, partially offset by lower share-based compensation related windfalls of$0.7 million.
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R&D tax credits, partially offset by$0.7 million net change on the tax impact of stock-based compensation and executive compensation limits.
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The fiscal year 2023 effective tax rate included abenefit of$2.4 million related to FDII, abenefit of$1.3 million related to R&D tax
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The fiscal year 2024 effective tax rate includeda benefit of$2.1 million related to FDII, abenefit of$0.9 million related to R&D tax
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Sustainable Development Goals, the Sustainability Accounting Standards Board, and the Task Force on Climate-related Financial
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desalination, wastewater, and the refrigeration markets. This channel contains projects smaller in size and revenue, and of
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See Note 10, “Concentrations –Revenue by Geographic Location and Country,”of the Notes to Consolidated Financial Statements in
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Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K (the “Notes”)for further discussion
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Revenues attributable to domestic and international sales
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Customers accounting for 10% or more of revenues
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debt instruments of$70.2 million that are primarily invested in U.S. treasury securities, corporate notes and bonds, and municipal and agency
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agencies to cover their obligations at maturity, not in our ability to trade these securities at a profit. Based on current projections, we believe
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specifically in the Middle East and Africa (“MEA”) markets.
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operating purposes, as needed. Although these securities are available for sale, we generally hold these securities to maturity, and
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liquidity needs for at least the next 12 months.