Energy Recovery(US:ERII)2019-08-02 02:23Financial Data and Key Metrics Changes - Total revenue for Q2 2019 was $22.8 million, representing a 10% year-over-year growth. Year-to-date revenue reached $42.6 million, a 23% increase compared to the first half of 2018 [6] - Product gross margin was 71% and overall gross margin was 76% for the quarter, showing strength despite cost pressures [6] - GAAP net income for the quarter was $3.7 million, or $0.07 per diluted share [6] Business Line Data and Key Metrics Changes - The Water business generated $19.2 million in revenue during Q2, a 12% growth year-over-year, with year-to-date revenues of $35.2 million, a 25% increase [7] - The Oil & Gas business generated $3.6 million in revenue for Q2, a 6% increase year-over-year, primarily due to ASC 606 recognition of VorTeq license revenue [8] Market Data and Key Metrics Changes - The company noted a slowdown in growth in the Water business compared to the previous quarter, which had a 45% increase, but full-year revenue expectations remain in the low-teens percentage growth range compared to fiscal year 2018 [7] Company Strategy and Development Direction - The company is focused on growth and reinvestment in the Water business and on the commercialization of VorTeq in the Oil & Gas business [12] - There is a strong backlog and pipeline in the Water business, driven by macro demand trends such as population growth and climate change, leading to increased capital investment in desalination [13][14] - The company is investing in water infrastructure and expanding capacity to meet customer demand for the next three years [19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth cycle in the Water business, which is expected to continue for the next 2 to 3 years due to increasing water scarcity [13][20] - In the Oil & Gas sector, the focus remains on advancing VorTeq technology and preparing for commercialization, with significant progress made in addressing technical challenges [21][28] Other Important Information - Operating expenditures grew 26% year-on-year to $13.3 million for the quarter, largely due to investments in R&D [9] - The company maintained a strong cash position, with cash and securities balance increasing from $91.5 million to $96.8 million [11] Q&A Session Summary Question: How does the company approach internal milestones for VorTeq? - Management highlighted material progress in VorTeq development and confidence in meeting technical requirements before year-end, emphasizing the importance of the Houston facility for testing [30][31] Question: How is the company scaling for commercialization? - The company is developing internal manufacturing capabilities and ensuring supplier capacity for key components, focusing on the anticipated demand for the first several years [32][33] Question: Are there potential applications for PX technology in wastewater treatment? - Management indicated that while they are exploring other industries, the current focus remains on SWRO and expanding the product offering [36][38] Question: Will the company build another missile for VorTeq testing? - Management stated that they do not see the need for another missile at this time and will finalize the design before making further investments [39][41] Question: What are the expected operating expenses for the Commercial Development Center pre-commercialization? - Management indicated that operating expenses would not significantly increase prior to commercialization, with fluctuations depending on testing activities [45] Question: What is the expected CapEx budget for the Water side in 2020? - Management suggested that CapEx for Water would likely remain flat compared to 2019, estimating around $10 million [47]