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Energy Recovery Reports First Quarter 2016 Results

FIRST QUARTER SUMMARY:

  • Record quarter total gross margin of 67.5% [(] [1] [)]
  • Total revenue increased 93% year-over-year to $11.3 million
  • Product gross margin increased to 63.4% from 56.8%, an increase of 660 basis points year-over-year
  • Operating expenses decreased 14% year-over-year to $9.8 million
  • Net loss of $(2.0) million, or $(0.04) per share compared to net loss of $(8.3) million, or $(0.16) per share, in the prior year quarter
  • Adjusted net loss of $(1.0) million, or $(0.02) per share compared to adjusted net loss of $(5.2) million, or $(0.10) per share, in the prior year quarter [(1)]

SAN LEANDRO, Calif., May 04, 2016 (GLOBE NEWSWIRE) -- Energy Recovery Inc. ERII, +0.75% the leader in pressure energy technology for industrial fluid flows, today announced its financial results for the first quarter ended on March 31, 2016.

Joel Gay, Chief Executive Officer, remarked, "We are encouraged by the strong start to the year with significant revenue growth from our desalination business, meaningful margin expansion, and improved earnings. Revenue nearly doubling reflects our focus on enhancing our leadership position in a strengthening global desalination market and generating material revenues from our Oil & Gas segment in the form of license and development revenue from the previously announced Schlumberger agreement. With respect to the Schlumberger agreement, we have mobilized for the first milestone test and remain confident that both milestones will be achieved in 2016 thereby triggering an incremental $50 million in contract payments.

Mr. Gay continued, "Along with strong financial performance, we continue to advance our corporate strategy through emerging market segments beyond just hydraulic fracturing. We recently announced a letter of award totaling up to $11 million for our proprietary IsoBoost technology in a large new-build gas processing plant in the Middle East. We remain focused on strengthening our financial position and driving long-term profitable growth."

REVENUESThe Company generated total revenue of $11.3 million in the first quarter of 2016, reflecting an increase of 93% when compared to the same period of the prior year. The increase was primarily due to significantly higher mega-project shipments in the current year as compared to the previous year as well as an increase in OEM revenue. The Company recognized $1.3 million in license and development revenue associated with the amortization of the Schlumberger exclusivity fee and had product revenue of $10.1 million.

During the fourth quarter of 2015, the Company executed an exclusive worldwide licensing agreement with Schlumberger for the use of the VorTeq technology which includes $125 million in upfront payments paid in stages (pre-commercialization payments). Under the terms of the agreement, the Company received an exclusivity fee of $75 million. For accounting purposes, the Company recognized $1.3 million of license and development revenue which is representative of the straight-line amortization over the fifteen-year term of the agreement. Schlumberger will also pay two (2) separate $25 million milestone payments (for a total of $50 million) subject to the Company satisfying certain key performance indicators. Following commercialization, Schlumberger will pay an annual royalty of $1.5 million per VorTeq in service for the duration of the license agreement. Total annual royalties are dictated by minimum adoption requirements as a percentage of Schlumberger's active fleets.

GROSS MARGIN
Product gross margin increased by 660 basis points to 63.4% in the first quarter of 2016, compared to 56.8% in the first quarter of 2015. This increase was primarily due to higher MPD volume and production as well as a favorable price and mix.

Including the revenue associated with the Schlumberger exclusivity fee, total gross margin increased by more than 1,000 basis points to 67.5% in the first quarter of 2016 [(1)] .

OPERATING EXPENSESOperating expenses for the first quarter of 2016 decreased by $1.6 million to $9.8 million from $11.4 million in the first quarter of 2015. The decline in operating expenses was primarily due to a reduction in non-recurring expenses. Non-recurring expenses in the first quarter of 2015 totaled $3.0 million - primarily due to the CEO transition - whereas non-recurring expenses in the first quarter of 2016 totaled $1.0 million - chiefly due to the General Counsel transition.

BOTTOM LINE SUMMARYTo summarize financial performance for the first quarter of 2016, the Company reported a net loss of $(2.0) million, or $(0.04) per share. Comparatively, the Company reported a net loss of $(8.3) million, or $(0.16) per share, in the first quarter of 2015. The improvement in performance was largely due to higher water segment sales volume, a favorable shift in product mix, revenue associated with the Schlumberger exclusivity fee amortization, and reduced operating expenses.

Excluding non-recurring items, the Company incurred an adjusted net loss of $(1.0) million, or $(0.02) per share in the first quarter of 2016 [(1] [)] . Comparatively, the Company incurred an adjusted net loss of $(5.2) million, or $(0.10) per share, in the first quarter of 2015 [(1)] .

CASHFLOW HIGHLIGHTSFor the first quarter ended on March 31, 2016, the Company reported a use of cash of $(3.4) million.

Cash used by operating activities was $(0.3)...


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