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Energy Recovery, Inc. has a market cap of $187.24 million; its shares were traded at around $3.57 with and P/S ratio of 3.98. ERII is in the portfolios of Mario Gabelli of GAMCO Investors.
Highlight of Business Operations: General and administrative expense increased by $975,000, or 32%, to $4.0 million for the three months ended September 30, 2010 from $3.0 million for the three months ended September 30, 2009. The increase of general and administrative expense was attributable primarily to the amortization of acquired intangible assets related to the acquisition of Pump Engineering, LLC and an increase in occupancy costs related to our new corporate headquarters. General and administrative expense as a percentage of our net revenue increased to 58% for the three months ended September 30, 2010 from 32% for the three months ended September 30, 2009 as general and administrative costs increased period over period as described above while net revenue decreased.
Of the $975,000 net increase in general and administrative expense, increases of $677,000 related to amortization of intangible assets, $297,000 related to occupancy costs, $239,000 related to changes in bad debt and other reserves, and $66,000 related to local taxes and other administrative costs. These increases in costs were offset in part by decreases of $232,000 related to professional and other services, $37,000 related to compensation and employee-related benefits, and $35,000 related to credit risk insurance. Share-based compensation expense included in general and administrative expense was $445,000 for the three months ended September 30, 2010 and $486,000 for the three months ended September 30, 2009.
Of the $226,000 increase in sales and marketing expense for the three months ended September 30, 2010, $143,000 related to promotional and advertising expenses and $106,000 related to compensation, employee-related benefits, and commissions to outside sales representatives. These increases in costs were offset in part by a decrease of $23,000 related to occupancy costs. Share-based compensation expense included in sales and marketing expense was $165,000 for the three months ended September 30, 2010 and $253,000 for the three months ended September 30, 2009.
Research and development expense increased by $473,000, or 61%, to $1.3 million for the three months ended September 30, 2010 from $0.8 million for the three months ended September 30, 2009. Research and development expense as a percentage of our net revenue increased to 18% for the three months ended September 30, 2010 from 8% for the three months ended September 30, 2009 as research and development expense increased for those periods while net revenue decreased.
Of the $473,000 increase in research and development expense for the three months ended September 30, 2010, $273,000 related to an increase in research and development direct project costs and $200,000 related to increased compensation and employee-related benefits as a result of our acquisition of Pump Engineering, LLC in December 2009.
Non-operating net income changed favorably by $43,000 to $63,000 for the three months ended September 30, 2010 from $20,000 for the three months ended September 30, 2009. The change was primarily due to a $61,000 favorable change in net foreign currency gains, resulting from a decrease in foreign currency denominated contracts and a favorable change in foreign currency rates for the three months ended September 30, 2010. The favorable increase was partially offset by a decrease in interest income of $13,000 resulting from lower interest rates and lower cash balances during the third quarter of 2010 and an increase in interest expense of $5,000 as a result of additional capital leases and debt acquired in a business combination in December 2009.
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