Energy Recovery (ERII) 1 May 242024 Q1 Earnings call transcript

Greetings, and welcome to the Energy Recovery First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.It is now my pleasure to introduce your host, James Siccardi, Vice President of Investor Relations. Thank you, Mr. Siccardi.

You may begin.

to XXXX welcome conference quarter and call. everyone, Energy first Recovery's earnings Hello, Jim of Vice Energy name Siccardi, My is President Recovery. Investor at Relations financial Officer, or the call, Litigation XXXX we of And and make Private projections performance Chief with Securities today forward-looking may the provisions Officer, David statements regarding contained other Executive the under Financial today's I'm of our Harbor company. Moon; future Reform Ballard.During our Joshua future Act and events and Safe here the Chief President in may discuss expectations, management's statements on available statements and performance, our These currently market business, and strategy.Forward-looking outlooks, new cost beliefs, economic assumptions, growth are business their information us and based estimates, on products or and to structure, projections.

to this company statements I obligation disclaims to statements.All this Moon. made the are as President any performance point, the today, uncertainties, events or Chief documents during our certain subsequent Form company's subject specifically our that results over during in to future documents reflect Forward-looking time and required May forward-looking Form differ and files are and cause identify SEC, and law.At actual and projections XXXX, important will intent otherwise call factors. to you of statements or time statements from forward-looking risks, are contained any the refer by to X, call those company to Executive the update or materially XX-K only We from Officer, to guarantees the other could made These made not expressly with this call unless XX-Q. David circumstances, factors turn of

joining and Jim, today. thank us Thank you all for you,

have anticipated. progress. $XX we've some a $XX.X played out to making I, quarter transition, real our candidate on Revenue and to Recovery's Josh's right to growth of will $XX is that date was promising XX.I guidance Board, our With quarter we of well diversification of line for strategy been in strongly busy and drive in Energy prior to million the actively as the last We critical us and to believe CFO candidates strategy one for call stated future. was is are our with the at million. June as regards first last PX the place our million The as interviewing believe

us will integral specifically in and refrigeration. hard strategic product our development wastewater roles development our additional us to challenging the Playbook. guidance, contributing in providing market of strategy play and and but especially, let's water. second critically update, our into believe expense build which get I will in strategic While work strategic add significant share continuing We lion's the strategic growth our in from critical potential and accelerate maintaining leadership that on foundational have our cycle look to work desalination, also our the of future provide to to the wastewater markets, recognize anticipate the continue importance of COX perspective.We experts is into it this originate. is with establish grow strong is years.Now from now revenue coming market quarter to will ways to we assistance the in and kicked of for planning as the refrigeration industry These our on enlisted where This data, will industry to and experts starting penetration off formally the have important a this while intelligence it foundation off

million guidance maintaining to of the $XXX $XXX for are we revenue our million First, year.

in Brazil signed of of our increase $XX guided XXXX. in pipeline example contracted $XX second detail addition, of the the the the our revenue also of area, underpins including Middle year's XXXX growth unchanged. or water in over call million, challenges outside how quarter East, of are totals is project the being We South we in the growing for heavily guidance This historic This a the In compares our reflects reflected quarter, desal's ways.The growing some or clear in year.In we mid-point at wastewater XX% of current of the million, year. in year. project and new first the range, for discussed projects, deal August, in last second the to America. towards Our guided in year range the just our remain XXXX. weighted our our recognized a XX% guidance same revenue roughly cadence this This time first half confidence for is shipment challenges mega in XX%

our signed most both the in as project year strength the deals mega sales we aftermarket real year. start seeing the are of desal OEM and have We and for

and close Our strongly range focus of to in we the $XX maintaining in and remaining also this $XX is year. of as months, as as handful in for year, is developing possible.Our business our our the momentum confident coming as to in million OEM channels the our end year well million remain deals water megaproject today to the wastewater aftermarket well

pipeline We've Our water. to news from forever XX% tool to impacted The by increased seen signed PFAS government last continues water $X communities also compared contamination, is by to wastewater almost osmosis rules contracts in existing positive wastewater market. one United or year States filtration. locally on in filtering to April Administration here help we've our drinking municipal it grow, U.S. to at our billion as for address the the as and Biden water drinking with has reverse out XXth relates this allocated adopted newly drinking PFAS.Now announced chemicals, PFAS valuable time.

with few these in the as months, a problem, scarcity tackles in play the this the only most and solution takeaways growing taking the past the focus all underscore continues meetings, can world meet water exploring years approach the the the we The around the and to we are challenge, Europe. quality the and believe I in them our that engaged attention OEMs While growing support happening on and on I will to opportunities key we few it's of global be business. coming role let's our Playbook. important world key major move year. reverse osmosis of PFAS is have these The U.S. this this which a timing activity to not was to from today.Now COX in

to is foremost, our in the this and which more the uninterrupted interest fully to on remain is data, data to accept will resources our need of interested ourselves data earnings that and broader success.Second, G in summer First the value money, comfort acceptance market time end feedback a directly future have integrate building to gates to looking reliable our to commitment provide into position can call, G.At our revenue the will our field, in path be to critical the existing and field adjust forward is This data year. in substantial architectures incorporate the and OEMs data runtime best customers OEMs first quarter. to are This architecture and performance systems COX in to received we the that X in and in last OEMs a market OEMs gates the to the to step potential commercial discussed for the will allow proposition, fine-tune Recovery forward with the quality, why take OEMs the once product to activities for from therefore during goal of is systems. directly is the be G marketplace, PX very the the This relationships and we better penetration the commit another growth. reason the see support catalyst Energy so the PX creating a to months, positive. will These for of and was OEMs' mean of clear which their engineering PX PX our the it OEMs.Third, value G. rack the their PX G OEMs key feedback

successful the pleased increase testing shown this end of our performance we of to announce I we've in our providing runtime that year. an to am Lab is reliability gate order in second first need which PX G by data performance, the has internal critical generation magnitude milestone. of QX, XXXX. The and uninterrupted labs achieved the is this of completion

been in have third-party and been G California validation successfully Belgium. field installations the since March.The second PX to operations, installed now year. supermarkets by successful sites of a beginning Both part of operating additional of second-generation and test XX end beta of the gate installation, as the this in has XX The is validation

critical to XX first this sites for install are Our step data key provide and we need. most performance the year the this will is summer, that which sites roughly

we today, running. of sites currently X have As currently

these U.S. The are by expect Hungary, commissioned of remaining end in are and August. strong to scheduled sites updates Europe will market. X activities, additional our off end to you and from I for the June year.Outside U.S. X other update be we sites the of on to progress We of I to by the in but Belgium, critical a the Canada, have continue start X August, the the

start the PX serve the with to globe G to out a this Whereas regulatory and as award of EU ACR across to in stringent News EU the the environment. the since year-round reduced This hurdle XX% is environment.Second, biggest catching gain that that XXth. HFC which systems is a of stringent Refrigeration XXXX, costs, adjusting the The by for requirements. on improve conditioning the the HFCs First, to regulations reducing award reduction. supermarkets should was sector. awarded by refrigeration its G proof XXXX Year on regulatory XX% of update global the from baseline third of now effective from the as selected the energy recognition changing received ability the XXXX became perhaps usage Product innovation COX quick and in technology This have PX by new, in reduction attention our and has PX up XXXX accelerated is was transcritical I more previous London. G single excellence the continues by across faced March to regulations further performance The is we've air came

and of million usage I've EU in XX% As in follows: me of XXXX America North to position water the XXXX, let business place and the to news in is we XXXX, our must deliver put and do several March of on to million will in invest by revenue COX.So to revenue, dominant months the next over for over you sum least good for in million. to In the story.And year, The XX that, interim, the the install the deliverables XXth, to end by XX update deliver million $XX $XXX the as in growth. X% maintain us the to X $XXX future XX% guidance the year $XX operational the scarcity call COX This of growing full baseline work grow that our our our up, their XXXX. to remain to and in water in desalination, on sites of hand grow Josh reduce at purest global wastewater Europe financials. with position to to are means for we

Good afternoon, everyone.

First OEM year, our was water no call. quarter and within earnings the remaining mega comfortably guidance the sales. roughly coming revenue midpoint revenue last first with and within of split Unlike channel with our projects, mix between and balanced, real last surprises fell the more from half expectations, aftermarket our from our quarter

G, expect a material OEM this test revenue and in growth currently due to to OEM our in in Although technology launch February double-digit shipping. David's the channel enhancements significant the to no XXXX.We now reporting with last channel compared line the comments second timing our make of PX second projects shows are quarter, and is year, regards is to simply in QX pause generation short in healthy here show decline the this emerging the We which to as with to quarter. our

show estimated maintaining means and second QX, the still that quarter into today, are XX% $XX XX% in for to sit last heavily second quarters second of Where the X assuming $XX the range revenue year. we million QX. falling We that of This weighted million. water our the the revenue will we half we are half are in at to

status we into year million be revenue movements more a you signed couple prepared and mega However, projects.David our will million target Note this the August possible precisely water of comes to in that of a call better our $XXX as of our third year-to-date. range contracts quarter buffer includes to update focus. $XXX shipped against up to mentioned the of

the of to We have how a to of questions getting year all the sense as been of from lot get on a our progressing. status is you pipeline

you update to year sense on tracking to as you how is guidance. forward cumulative plan give are current we this number the full-year move to through Our continue to the as a we to

in the will signed $XX million markets, to in XXXX. quarter.Our lowering for QX last was our then shipped ship this a is in revenue quarter, the pumps quarter wastewater in year that XX%. explicitly for and reset on of cited in in first weighted first We our margin those Much gross Therefore, year low inclusive product next note are which desalination year, seeing out the blended forecasted basis. projects, margin to for both water heavily we mix turbochargers is more a and a XXXX, like

been because despite the over below also of basis inflation will XXX that note costs we past This manufacturing have our the is similar QX XXXX, points year. growing You mix. margin and is describing a product that

scrap lower not higher our quarter an margin but year effect the for material as guided of had be in first fully a percentage range outsized take to denominator, We larger expect to and slightly experienced with also pressure revenue sales. the which, will the year. full exchangers a recover combined on We progresses

we XX% XX%, of variance range to turn for now, have with line roughly our our expenses. from now falls in expectations change year-on-year XXXX the QX XXXX.Let's operating guided to For to no and

XX% last of OpEx over year. Our first quarter grew the

of things relevant QX XXXX, at are is However, reporting a here. X decrease we more against X% comparison. play a are which There

release. calculations OpEx First, which $XXX,XXX our note press we what call, non-GAAP nearly our of executive will is onetime transition in costs, QX in inclusive you of,

added another last X% investments In includes spend of people to businesses. as short-term $XXX,XXX, in year addition, charges COX throughout increased made and our $XXX,XXX we temporary our headcount recurring and the support headcount sales quarter at retention in and we OpEx seeing Therefore, of of marketing our increased first the what year-on-year.Second, now to executives the investments is water quarter year. for some Adjusted of other grants for the end these spend grew our are organization of provided both XXXX in and effect and base closer this the grew XXXX. roughly in in

are to Now further provide base transition our quarter, we little to the the OpEx into costs expect ongoing that the becoming and related our fairly flat. second wanted forecast I a to some onetime are deeper our to recurring we go clearer, clarity.In OpEx year, into also additional remain

and work executive However, mentioned as costs, we will mix long-term in overall to cash have items, portion $X our could significant between as These support a growth transition, strategy remarks. which material onetime opening meaning expenses will land will in likely be $XX high $XX and of our of by OpEx million a related with associated to include as million million. David noncash in his QX,

base $X expenses you a for of million some the $X.X these expenses roughly of have We onetime of are of about to $XXX,XXX of this to $XX additional decision these the last discretionary in that recurring get our not million the plans. $XX OpEx in Note these versus my way spend that areas be will could our million quarter of from to of softer and growth guidance are $XX end we expenses, expecting light of an charges made onetime year. by the When million. million the reductions around to these onetime total to described million nonpersonnel in add in $XX brings reduce earlier, XXXX.In

of in but onetime forecasted a If OpEx the XXXX. you costs, should normalize to is I $X to at million roughly $XX that total XXXX compared this estimated prior year for realize we again million. add $XX of an our puts anomaly years, million bit our

you level and line. repeat and do sure any that with loss bottom between operating year.Now as can in recurring Like on public We first be We differentiate last clearly based to experienced forecasted, of turn spend our should each charges year, to our quarter the to onetime this a expect revenue in QX, onetime OpEx. line quarter expected and we our not largely fixed spend will so estimates. this outline be let's next

the third our territory negative, remain to back second quarters the expect fourth and year moving We strong. positive end in quarter into to

continued quarter, to in our million to and first cash from investments the cash million. We increasing $XXX grow $XXX

level in to levels build this shipments support pause balances the at second these QX. expect to inventory to we quarter continue QX in We planned as and

normalized We Q&A. third in driven until are seeing levels I've quarters that, move finished related as let's and continue inventory uptick to back year, an goods calls.And fourth last levels already with the Like inventory this. WIP to by will down build dipping in previous and described to in to

Molchanov first Our Pavel Instructions] with of come the from James. Raymond question line [Operator will

about talked still into that XXth? half recognized that you of 'XX What's the India year. to in pushed track Is desal June ago, that? first months versus before be a the on last X project was on status

it's along Pavel, today. got yet. expected by We'll We Technically, year. moving XXth, has It see out not Josh. still shipped we're pretty June well. whether but this an it's update

Okay.

So the correct? half, in second maybe

in the yes. be second Could half,

[Technical Difficulty] [Technical Also, there effort months the Understood. how Okay. progressing? comment deployments ago, that was a of X that is Difficulty]

there, question, you broke please? repeat Can up that Pavel. You

there months slowed about product its X deliberately was effort How ago, refrigeration is to a being of also comment progressing? the improve reliability. that deployments

is this Moon. Pavel, David Yes.

So, well. generation progressing the second is

gate reliability lab, internal good So was testing the and passed milestone, or terms the got we through in just of which performance. results really first in

and And so, doing since the in U.S. Europe of been very results. with end March, in we've now or of beginning field March beta testing good -- the since the

far, so sites out the script. milestone, I've season results. in on through now would testing are the to summer next pleased be moving it with talked we about our very the but to summer getting pushing so, And And the that XX

When XXXX, were targets you which, ago, some on another of kind Okay. X you acknowledged big the came you put out months When of will know, ready you, as some in, question updated kind do targets? for side. be for think you as And you picture aggressive strategy. David, to were there

So, 'XX, what expect 'XX by in work we're that talking we're our 'XX, the third the strategy outyears about and be get call. we'll now, middle I latest time the quarter calling earnings our of Playbook, we to the

That's me. X helpful. Last Okay. for

which customer is think because that of do how geography. project a as we about how Brazil minute a kind about? it particularly talk of desal sounds water scarce you Brazil, mentioned in not really Can and ago, You big interesting came

Yes.

it's portable XX%. increase the government's Brazil's by a the water -- of initiative supply So to part

is Fortaleza, this desal newer in day. of so, biggest megaproject. online It's be in will XX,XXX of And Brazil. first It's be I Northeast our city which our think, part XXXX. is be It's going fourth will the roughly, And QXXXs, all in which cubic this planned by to It's per the Brazil. product. the meters be to end

initiative, And first South so, follow. very large America more hopefully we're excited about project desal given to and government's in the our

[Operator with question will of Instructions] line Pfingst B. Our from next Securities. Ryan come Riley the

ahead you place significant some PX OEMs? could these if on orders data the this translate this expect hands well, of in For to Gs all that or that the meaningful getting Potentially revenue customers into would getting really the deployed of focus in summer, the is year? later additional here goes 'XX,

of getting months white into data, at latter the first. paper least And will hands first. in OEMs into of worth which the turn a QX, It's sometime that's X

summer start for, last steps was with what mean, and up OEMs users data. hands summer. U.S. I talking pounded doing the what the so let's to then in more And G of than summer my once through good and the first months the they'll get going first, table data, in their PX end today.So, that's OEMs start visit few trip Europe, the and that's over they're feel it, about the So that's to -- the they they

that get we're for I paper at half then like done, the tell. year prove energy see start soon looks Let's think the the white in this we'll getting that revenue of to stream momentum fact XXXX. good to build our point? Too and savings, What some last

what Curious And shaping early then, water, shipments for 'XX, just year have $XX to have helpful. up? might That's look contracts Okay. the is signed on this for a that guys year. number try next if like for to in handy how get you of you visibility some million on,

wouldn't top out, have mean, a on still anyway. It'd large don't big it that So, of right? head, Ryan. I I number be we're number but very my be yet, year be wouldn't small. still fairly it a

about delayed What what Any year? about changes you've X.X more Just what there? of general next we kind Okay. in terms visibility, since you're of out expected, then? about ago? given projects only getting Josh, spoke seeing things months Are

not strange we would of on new talk years. which then. real the any that. QX desal seeing desal, we'll about and or the we're data talking point And there Things yet is delays the like few over the to in for No explicitly. industry more but future, We're the when They've I'd ready since to got and or November some GWI. growth point about data still movement source moving shows the XXXX then out generally. -- next be coming I more call, new are call, No. that data our to changes strong I pretty point good industry get track now, you pipeline XXXX for any numbers, anything you because not probably

billion for water. helpful. estimated maybe thermal replacing on What you more the PX with That's TAM of for that about look just an And opportunity $X.X In does you've SWRO X today? tech. talked past, solely like

covered XX% We've of done -- already we've that. about

$XXX age out coming will around next -- which out. XX left, million years, So somewhere we're XX the at over plants years, play as

Thank Thank Instructions] [Operator you. you.

We like to have with session. any I closing that, end the And to our Siccardi back question-and-answer would floor reached turn the for James comments. over of

forward look late Good speaking We evening. today. us with you joining in July. to again for everyone, you, Thank

concludes teleconference. This you. today's Thank

your time. you may participation. Thank disconnect at lines You your this for