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Energy Recovery(ERII) - 2025 Q2 - Quarterly Results
Energy RecoveryEnergy Recovery(US:ERII)2025-08-06 20:10

Second Quarter 2025 Financial Results Overview Key Financial Highlights (GAAP) Energy Recovery reported Q2 2025 GAAP financial results aligned with internal expectations, with revenue up 3% to $28.1 million, primarily due to contract project revenue timing. Gross margin slightly decreased by 60 basis points to 64.0%, but operating expenses significantly reduced by 15.8%, leading to substantial improvement in operating income and a net profit of $2.1 million, a 420% increase from Q2 2024's net loss - Q2 2025 financial results met internal expectations and aligned with the company's previously announced quarterly revenue pacing expectations for 20255 - Revenue growth of 3% was primarily attributed to the timing of contract project revenue recognition5 - Gross margin decreased by 60 basis points mainly due to product mix and tariff costs5 - Operating expenses decreased by 15.8% primarily due to reduced personnel and consulting costs5 2025 Q2 and H1 GAAP Financial Highlights (in millions of dollars, except percentages and per share data) | Metric | Q2 2025 | Q2 2024 | Y-o-Y Change | H1 2025 | H1 2024 | Y-o-Y Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue ($M) | $28.1M | $27.2M | Growth 3% | $36.1M | $39.3M | Decrease 8% | | Gross Margin | 64.0% | 64.6% | Decrease 60 bps | 62.1% | 62.9% | Decrease 80 bps | | Operating Margin | 5.3% | (7.4%) | NM | (30.7%) | (33.0%) | Growth 230 bps | | Net Income (Loss) ($M) | $2.1M | ($0.6M) | Growth 420% | ($7.8M) | ($8.9M) | Growth 12% | | Net Income (Loss) Per Share | $0.04 | ($0.01) | Growth $0.05 | ($0.14) | ($0.16) | Growth $0.02 | | Net Cash Provided by Operating Activities ($M) | $4.1M | $8.1M | | $14.8M | $14.6M | | Non-GAAP Financial Highlights Energy Recovery's Q2 2025 non-GAAP financial highlights show an adjusted operating margin of 12.2%, a 310 basis point year-over-year decrease. Adjusted net income was $3.7 million, down 25% from Q2 2024, with adjusted diluted EPS at $0.07. Adjusted EBITDA for the quarter was $4.4 million, and free cash flow was $4.0 million 2025 Q2 and H1 Non-GAAP Financial Highlights (in millions of dollars, except percentages and per share data) | Metric | Q2 2025 | Q2 2024 | Y-o-Y Change | H1 2025 | H1 2024 | Y-o-Y Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Adjusted Operating Margin | 12.2% | 15.3% | Decrease 310 bps | (17.4%) | (7.7%) | Decrease 970 bps | | Adjusted Net Income (Loss) ($M) | $3.7M | $5.0M | Decrease 25% | ($3.3M) | $0.5M | NM | | Adjusted Net Income (Loss) Per Share | $0.07 | $0.09 | Decrease $0.02 | ($0.06) | $0.01 | Decrease $0.07 | | Adjusted EBITDA ($M) | $4.4M | $5.2M | | ($4.4M) | ($1.0M) | | | Free Cash Flow ($M) | $4.0M | $7.9M | | $14.5M | $13.5M | | Corporate Information and Disclosures Forward-Looking Statements This section contains standard forward-looking statements, cautioning investors that actual results may differ materially from projections due to various risks and uncertainties, including future product demand, customer and third-party partner performance, revenue recognition timing, and other factors detailed in SEC filings. The company undertakes no obligation to update these statements - Forward-looking statements are based on the company's current information and management's beliefs, assumptions, estimates, or projections, and are not guarantees of future events or results7 - Potential risks and uncertainties include future demand for the company's products, performance of customers and third-party partners, timing of revenue recognition, and other risk factors for the company's business7 - The company undertakes no obligation to update forward-looking statements7 Use of Non-GAAP Financial Measures Energy Recovery utilizes non-GAAP financial measures such as adjusted operating margin, adjusted net income (loss), adjusted diluted EPS, adjusted EBITDA, and free cash flow to analyze operational performance, set budgets, and facilitate period-over-period comparisons. These metrics supplement GAAP, aiming to provide a more comprehensive understanding of business trends - The company uses non-GAAP financial measures to analyze operating performance and future prospects, set internal budgets and financial goals, and facilitate period-over-period comparisons8 - Non-GAAP financial measures do not reflect a comprehensive accounting system and should be considered as a supplement to, not a substitute for or superior to, GAAP results8 Definitions of Non-GAAP Financial Measures This section defines key non-GAAP financial metrics, including adjusted operating margin, adjusted net income (loss), adjusted EBITDA, and free cash flow, detailing the specific adjustments made to GAAP figures for each calculation - Adjusted operating margin is defined as operating income (loss) excluding stock-based compensation, executive transition costs, and restructuring charges, divided by revenue11 - Adjusted net income (loss) is defined as net income (loss) excluding stock-based compensation, executive transition costs, restructuring charges, long-lived asset impairment, and related tax impacts11 - Adjusted EBITDA is defined as net income (loss) excluding depreciation and amortization, stock-based compensation, executive transition costs, restructuring charges, long-lived asset impairment, other income (expense) net, and provision (benefit) for income taxes11 - Free cash flow is defined as net cash provided by operating activities less capital expenditures11 Disclosure Information Energy Recovery fulfills its Regulation FD disclosure obligations through the investor relations section of its website, advising investors to monitor this site in addition to news releases, SEC filings, and public conference calls and webcasts - Energy Recovery uses the investor relations section of its website to comply with its Regulation FD disclosure obligations12 - Investors should monitor the company's investor relations website, as well as news releases, SEC filings, and public conference calls and webcasts12 About Energy Recovery Energy Recovery is a global leader in energy efficiency technology, specializing in pressure exchanger platforms, designing and manufacturing high-performance solutions that deliver cost savings and energy efficiency across multiple industries, with over 30 years of experience in desalination - Energy Recovery is a global leader in energy efficiency technology, built on its pressure exchanger technology platform13 - The company designs and manufactures high-performance solutions that deliver cost savings and energy efficiency across multiple industries13 - The company has over 30 years of experience in the desalination industry, providing solutions that optimize operations and positively impact the environment13 Investor Contact This section provides the email contact information for investor relations - Investor Relations contact email: ir@energyrecovery.com14 Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets As of June 30, 2025, Energy Recovery's total assets were $212,275 thousand, down from $242,792 thousand on December 31, 2024, primarily due to decreases in cash, cash equivalents, investments, and accounts receivable. Total liabilities also decreased to $27,068 thousand, while stockholders' equity stood at $185,207 thousand Condensed Consolidated Balance Sheets (June 30, 2025 vs. December 31, 2024) (thousand dollars) | Metric | June 30, 2025 (thousand dollars) | December 31, 2024 (thousand dollars) | | :--- | :--- | :--- | | Cash, Cash Equivalents, and Investments | $93,650 | $99,851 | | Accounts Receivable and Contract Assets | $35,548 | $66,842 | | Inventories, Net | $32,660 | $24,906 | | Total Assets | $212,275 | $242,792 | | Total Liabilities | $27,068 | $32,782 | | Stockholders' Equity | $185,207 | $210,010 | Condensed Consolidated Statements of Operations Q2 2025 revenue increased 3% year-over-year to $28,051 thousand, while revenue for the six months ended June 30, 2025, decreased 8% year-over-year to $36,116 thousand. The company achieved a net profit of $2,054 thousand in Q2 2025, a significant improvement from a $642 thousand net loss in Q2 2024. Half-year net loss narrowed to $7,826 thousand from $8,902 thousand in the prior year, with operating expenses decreasing in both periods Condensed Consolidated Statements of Operations (Q2 and H1 2025 vs. Prior Year Periods) (thousand dollars) | Metric | Q2 2025 (thousand dollars) | Q2 2024 (thousand dollars) | H1 2025 (thousand dollars) | H1 2024 (thousand dollars) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $28,051 | $27,199 | $36,116 | $39,289 | | Cost of Sales | $10,097 | $9,633 | $13,704 | $14,588 | | Gross Profit | $17,954 | $17,566 | $22,412 | $24,701 | | Total Operating Expenses | $16,480 | $19,580 | $33,500 | $37,649 | | Operating Income (Loss) | $1,474 | ($2,014) | ($11,088) | ($12,948) | | Net Income (Loss) | $2,054 | ($642) | ($7,826) | ($8,902) | | Basic Net Income (Loss) Per Share | $0.04 | ($0.01) | ($0.14) | ($0.16) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities was $14,824 thousand, a slight increase from $14,570 thousand in the prior year. Investing activities generated a net cash inflow of $33,566 thousand, primarily from net investments in marketable securities, a significant contrast to a $43,830 thousand net outflow in 2024. Financing activities resulted in a $21,026 thousand net cash outflow, mainly due to common stock repurchases. Overall, cash, cash equivalents, and restricted cash increased by $27,424 thousand, reaching $57,181 thousand at period-end Condensed Consolidated Statements of Cash Flows (H1 2025 vs. H1 2024) (thousand dollars) | Metric | H1 2025 (thousand dollars) | H1 2024 (thousand dollars) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $14,824 | $14,570 | | Net Cash Provided by (Used in) Investing Activities | $33,566 | ($43,830) | | Net Cash Provided by (Used in) Financing Activities | ($21,026) | $1,502 | | Net Change in Cash, Cash Equivalents, and Restricted Cash | $27,424 | ($27,782) | | Cash, Cash Equivalents, and Restricted Cash at End of Period | $57,181 | $40,443 | Supplemental Financial Data (Unaudited) Channel Revenue Total revenue for Q2 2025 increased 3% year-over-year, driven by a 20% growth in OEM revenue and a 10% increase in aftermarket revenue, offsetting a 6% decline in large project revenue. For the six months ended June 30, 2025, total revenue decreased 8%, primarily due to a 25% drop in large project revenue, despite a 20% growth in OEM revenue Channel Revenue (Q2 and H1 2025 vs. Prior Year Periods) (thousand dollars) | Channel | Q2 2025 (thousand dollars) | Q2 2024 (thousand dollars) | Y-o-Y Change (Q2) | H1 2025 (thousand dollars) | H1 2024 (thousand dollars) | Y-o-Y Change (YTD) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Large Projects | $14,802 | $15,815 | Decrease 6% | $14,838 | $19,915 | Decrease 25% | | Original Equipment Manufacturer | $8,357 | $6,945 | Growth 20% | $12,358 | $10,291 | Growth 20% | | Aftermarket | $4,892 | $4,439 | Growth 10% | $8,920 | $9,083 | Decrease 2% | | Total Revenue | $28,051 | $27,199 | Growth 3% | $36,116 | $39,289 | Decrease 8% | Segment Activity In Q2 2025, the Water segment reported $27,839 thousand in revenue, $17,913 thousand in gross profit, and operating income increased to $11,706 thousand from $10,800 thousand in Q2 2024. The Emerging Technologies segment reported $212 thousand in revenue and $41 thousand in gross profit, while corporate expenses significantly impacted overall operating loss. For the six months, the Water segment's operating income was $10,103 thousand, with Emerging Technologies and Corporate segments contributing to the overall operating loss Segment Activity (Q2 2025 vs. Q2 2024) (thousand dollars) | Metric | Water (thousand dollars) | Emerging Water Technologies (thousand dollars) | Corporate (thousand dollars) | Total (thousand dollars) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $27,839 | $212 | $0 | $28,051 | | Gross Profit (Loss) | $17,913 | $41 | $0 | $17,954 | | Operating Income (Loss) | $11,706 | ($3,946) | ($6,286) | $1,474 | Segment Activity (H1 2025 vs. H1 2024) (thousand dollars) | Metric | Water (thousand dollars) | Emerging Technologies (thousand dollars) | Corporate (thousand dollars) | Total (thousand dollars) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $35,903 | $213 | $0 | $36,116 | | Gross Profit (Loss) | $22,416 | ($4) | $0 | $22,412 | | Operating Income (Loss) | $10,103 | ($7,962) | ($13,229) | ($11,088) | Stock-based Compensation Expense Total stock-based compensation expense for Q2 2025 was $1,936 thousand, down from $2,817 thousand in Q2 2024. For the six months ended June 30, 2025, the expense was $3,899 thousand, lower than $6,100 thousand in the prior year, with reductions across cost of sales, general and administrative, sales and marketing, and research and development categories Stock-based Compensation Expense (Q2 and H1 2025 vs. Prior Year Periods) (thousand dollars) | Category | Q2 2025 (thousand dollars) | Q2 2024 (thousand dollars) | H1 2025 (thousand dollars) | H1 2024 (thousand dollars) | | :--- | :--- | :--- | :--- | :--- | | Cost of Sales | $148 | $461 | $296 | $804 | | General and Administrative | $728 | $1,011 | $1,598 | $2,418 | | Sales and Marketing | $701 | $912 | $1,380 | $1,922 | | Research and Development | $359 | $433 | $625 | $956 | | Total Stock-based Compensation Expense | $1,936 | $2,817 | $3,899 | $6,100 | Reconciliation of Non-GAAP Financial Measures This section provides a detailed reconciliation of GAAP to non-GAAP financial measures for both quarterly and half-year periods, illustrating specific adjustments made for stock-based compensation, executive transition costs, restructuring charges, long-lived asset impairment, and their tax impacts to derive adjusted operating margin, adjusted net income (loss), adjusted diluted EPS, adjusted EBITDA, and free cash flow Reconciliation of Non-GAAP Financial Measures (Q2 and H1 2025 vs. Prior Year Periods) (in millions of dollars, except percentages and per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Operating Margin (GAAP) | 5.3% | (7.4%) | (30.7%) | (33.0%) | | Stock-based Compensation Adjustment | 6.9% | 10.4% | 10.8% | 15.5% | | Executive Transition Costs Adjustment | — | 12.3% | — | 9.7% | | Restructuring Charges Adjustment | — | — | 1.5% | — | | Long-lived Asset Impairment Adjustment | — | — | 1.0% | — | | Adjusted Operating Margin | 12.2% | 15.3% | (17.4%) | (7.7%) | | Net Income (Loss) (GAAP) ($M) | $2.1M | ($0.6M) | ($7.8M) | ($8.9M) | | Net Income (Loss) Adjustment ($M) | $1.6M | $5.6M | $4.5M | $9.4M | | Adjusted Net Income (Loss) ($M) | $3.7M | $5.0M | ($3.3M) | $0.5M | | Net Income (Loss) Per Share (GAAP) | $0.04 | ($0.01) | ($0.14) | ($0.16) | | Net Income (Loss) Per Share Adjustment | $0.03 | $0.10 | $0.08 | $0.17 | | Adjusted Net Income (Loss) Per Share | $0.07 | $0.09 | ($0.06) | $0.01 | | Adjusted EBITDA ($M) | $4.4M | $5.2M | ($4.4M) | ($1.0M) | | Free Cash Flow ($M) | $4.0M | $7.9M | $14.5M | $13.5M | Conference Call Details Conference Call to Discuss Financial Results Energy Recovery announced details for a live conference call and Q&A session to discuss financial results, scheduled for Wednesday, August 6, 2025, at 2:00 PM PT / 5:00 PM ET. Replay information is also provided, accessible until Saturday, September 6, 2025. Investors can access the call and replay via the company's investor relations website - A live conference call and Q&A session is scheduled for Wednesday, August 6, 2025, at 2:00 PM PT / 5:00 PM ET10 - Toll-free dial-in for US/Canada: +1 (888) 645-4404; Local/International dial-in: +1 (862) 298-070210 - A replay of the conference call will be available approximately three hours after the live call, accessible until Saturday, September 6, 2025, with access code 1375503110