Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Energy Recovery Inc (ERII, Financial) achieved second-quarter water revenue of $26.9 million, a $6.4 million increase compared to the same quarter last year.
- The company completed significant shipments for large-scale projects, including the Perur project in Chennai, India, and the Hassyan IPP project in Dubai, UAE.
- Energy Recovery Inc (ERII) signed $15 million in contracts to supply pressure exchangers to several SWRO desal plants in India.
- The company's gross margin rebounded to approximately 65% in the second quarter, with full-year gross margin guidance maintained at 64% to 67%.
- Energy Recovery Inc (ERII) increased its cash and investment position from $129 million to $138 million in the second quarter, with expectations to end the year between $140 million and $150 million.
Negative Points
- The company's current 2024 total revenue reflects a 9% decrease year over year, driven by the timing of the closure of several large-scale project contracts.
- Operating expenses increased by 21% over the second quarter of last year, primarily due to one-time expenses related to the long-term growth strategy and executive transition costs.
- Energy Recovery Inc (ERII) experienced a small net income loss in the quarter, although there was a large sequential improvement from the previous quarter.
- The wastewater business had a slow start to the year, primarily driven by economic conditions in China, although an uptick in bid activity is expected in the second half.
- The company is still facing material handling challenges with the Q400 ramp-up production, although these are expected to be resolved by the end of the third quarter.
Q & A Highlights
Q: Can you provide more details on the playbook and the metrics you will unveil?
A: We will break out the release of the playbook into labs. For the Q3 earnings call, we will provide '25 and '26 revenue guidance and a few milestones. In the Q4 webinar, we will offer a five-year look, including revenue, earnings, and a breakdown by business unit. - David Moon, President, Chief Executive Officer, Director
Q: What exactly is being measured by DC Engineering in the refrigeration product?
A: DC Engineering is measuring energy savings and capacity extension. These metrics are critical, especially during high heat load days. - David Moon, President, Chief Executive Officer, Director
Q: Is there any evidence that macroeconomic factors are hindering desalination development in the Middle East?
A: No, we have not seen any evidence that high interest rates, currency fluctuations, or oil prices are affecting desalination projects in the Middle East. - David Moon, President, Chief Executive Officer, Director
Q: How have the recently deployed second-generation PX Gs performed compared to the prior generation?
A: The second-generation PX Gs are running non-stop with no vibration and better sound levels. They are performing well, even under stress tests in high-temperature areas like Southern California. - David Moon, President, Chief Executive Officer, Director
Q: Are you hearing anything about desalination or RO and wastewater participating in data centers?
A: We are pushing the discussion on our side. We are exploring how to leverage the data-rich opportunities our PXs provide and discussing potential AI applications with our EPCs and online operators. - David Moon, President, Chief Executive Officer, Director
Q: What gives you confidence that the second-half revenue will meet your full-year guidance despite a slow start?
A: We did about $600,000 in wastewater this quarter, equal to last year. Our backlog is growing, and we have seen an uptick in quoting activity, especially from China. This supports our confidence in meeting the $12 to $15 million guidance for the year. - David Moon, President, Chief Executive Officer, Director
Q: How did you decide on Michael Mancini as the new CFO, and do you regret not having an overlap with Josh?
A: Michael is an experienced CFO with a strong background in start-ups and investor relations. While an overlap would have been ideal, Michael will hit the ground running, and Josh has offered to be available if needed. - David Moon, President, Chief Executive Officer, Director
Q: What does a typical supermarket rollout look like for CO2 refrigeration systems?
A: Early adopters like Kroger will likely start with older stores where leaks or system issues are prevalent. New stores will certainly use CO2 systems. The rollout will be part of their capital plans over the next five years. - David Moon, President, Chief Executive Officer, Director
Q: Will the OEMs be comfortable with the run time data in the white paper?
A: The run time data requirements have been provided by the OEMs. The summer period is critical, and if we achieve good results, it will be enough to advance discussions with end users. - David Moon, President, Chief Executive Officer, Director
Q: What are you seeing in terms of visibility for 2025 and potential growth?
A: We are confident that 2025 will be another year of growth, continuing our trend. The macro story looks good, and we expect to ride that wave. More details will be provided in the Q3 call and the Q4 webinar. - David Moon, President, Chief Executive Officer, Director
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
