Energy Recovery(US:ERII)2019-05-03 01:51Financial Data and Key Metrics Changes - For Q1 2019, the company generated total revenue of $19.8 million, representing a 43% year-over-year increase [9] - The product gross margin was 69%, and the overall gross margin was 75% [9] - GAAP net income for the quarter was $2.7 million, or $0.05 per diluted share [9] - Operating cash flow was negative $6 million, consistent with historical trends [13] - Cash and securities balance decreased from $96.7 million at the end of 2018 to $91.5 million on March 31, 2019, while remaining debt-free [14] Business Line Data and Key Metrics Changes - The water business generated $16 million in revenues for Q1 2019, a growth of 45% year-over-year [10] - The oil and gas business generated total revenue of $3.8 million, with $3.7 million related to VorTeq license revenue recognition [11] - Mega-projects accounted for 60% of water revenue, OEM contributed 28%, and aftermarket made up 12% [46] Market Data and Key Metrics Changes - The company expects potable water demand to increase by roughly 30% by 2050, driven by factors such as population growth and climate change [18] - The transition from thermal desalination to seawater reverse osmosis (SWRO) is creating significant demand for new SWRO mega projects, estimated at 100 to 150 to maintain current water supply levels [21] - The company anticipates a potential growth forecast extension to the low-teens percentage range due to accelerating project activity [23] Company Strategy and Development Direction - The company is focused on growth and reinvestment in its water business and the commercialization of VorTeq in the oil and gas sector [15] - Plans to double manufacturing capacity over the next 12 to 18 months to meet anticipated future demand [25] - The company is actively pursuing water growth initiatives while maintaining a strong project backlog [26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the water business's growth potential, citing favorable industry demand trends and a strong project pipeline [17] - The company is addressing the growing supply-demand disconnect in water resources and is well-positioned to be part of the global supply solution [33] - Management indicated that the first quarter was a strong start to the year, with expectations for solid results moving forward [33] Other Important Information - The company is expanding its testing capabilities for VorTeq at its facility outside Houston, which is expected to accelerate the commercialization timeline [27][30] - The company is hiring additional personnel to support increased testing and operational needs [43] Q&A Session Summary Question: Discussion on VorTeq commercialization and relationship with Liberty - Management emphasized the focus on commercializing VorTeq technology for both product licensees and partners, ensuring progress is made for both parties [35] Question: Clarification on prioritization of M1 and Liberty deployment - Management confirmed that testing and development for both parties are not mutually exclusive, and they are making progress with the current VorTeq system [41] Question: Update on staffing for the new commercial development center - Management stated plans to double personnel over the next year, with hiring for field personnel and machinists already underway [43] Question: Breakdown of water revenues - Management provided a revenue breakdown: mega-projects at 60%, OEM at 28%, and aftermarket at 12% [46] Question: Scalability of manufacturing investments - Management indicated that the current facility is designed to easily double capacity, with plans to add necessary machinery to support growth [49] Question: Update on addressable market expansion efforts - Management noted an increase in the total addressable market due to thermal retrofits and plans to explore adjacent markets in the future [51]