Energy Recovery(US:ERII)2022-02-25 02:30Financial Data and Key Metrics Changes - The company achieved a record revenue of $104 million in 2021, exceeding the original guidance of 10% growth by 3%, resulting in a 13% year-over-year increase [7] - Product gross margin ended the year just shy of 69%, with a slight decrease attributed to increased sales of lower margin products [34] - Operating expenditures decreased to 55% of product revenue from over 60% in 2020, indicating improved operational efficiency [35] Business Line Data and Key Metrics Changes - The desalination business saw double-digit growth, with a target to double the business by 2026 [11] - Industrial wastewater sales reached $1 million in the first year, with a sales pipeline growing into double-digit millions, and guidance set for $3 million in 2022 [15] - The refrigeration segment received positive industry response, with the first joint development agreement signed with a leading manufacturer [20] Market Data and Key Metrics Changes - Asia sales grew 2.5 times over 2020, exceeding pre-pandemic trends by about 40%, indicating a significant shift in market dynamics [33] - The company anticipates continued growth in Asia, driven by both desalination and industrial wastewater businesses [33] Company Strategy and Development Direction - The company aims to maintain a disciplined approach to growth, focusing on profitability while expanding into new industries [10] - A strategic focus on evolving products to enhance customer experience and maintain market position is emphasized [12] - The company is targeting $100 million to $300 million in revenue by 2026, driven by favorable regulatory pressures and market opportunities [27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving a cash flow breakeven run rate in both industrial wastewater and refrigeration businesses by the end of 36 months [46] - The company is monitoring inflation and potential interest rate increases but does not foresee them as risks to growth in the next 12 to 24 months [52] Other Important Information - The company executed buybacks valued at $23 million in 2021 and has repurchased a cumulative $27 million worth of shares to date [49] - A working capital agreement for $50 million was signed with JPMorgan Chase to provide flexibility in managing working capital as the company grows [50] Q&A Session Summary Question: G&A expense for sales and marketing outlook - Management indicated that G&A expenses would not significantly increase year-over-year, with a focus on better allocation of expenses [56] Question: Gross margins in lithium ion and wastewater business - Management targets long-term gross margins in line with desalination but expects initial margins to be lower [58] Question: Impact of geopolitical issues on business - Management does not expect disruptions in sourcing or supply chain due to geopolitical issues, citing built-up inventory as a buffer [63] Question: Operating leverage and cash realization from inventory - Management explained that cash realization from Q4 sales would occur in Q1, with a stable inventory expected for the year [67]