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Energy Recovery Reports Unaudited Financial Results for 2012, Achieving 52% Revenue Growth Over 2011

Energy Recovery Reports Unaudited Financial Results for 2012, Achieving 52%
Revenue Growth Over 2011

FOURTH QUARTER HIGHLIGHTS:

  *Net revenue increased 147% from $6.1 million in the fourth quarter of 2011
    to $15.1 million in the fourth quarter of 2012
  *Gross profit margin increased from 1% in the fourth quarter of 2011 to 43%
    in the current period
  *Operating expenses decreased $1.9 million, or 18%, from $10.6 million in
    the fourth quarter of 2011 to $8.7 million in the fourth quarter of 2012
  *Net loss reduced $7.8 million, or 78%, from $(10.0) million in the fourth
    quarter of the prior year to $(2.2) million in the current period
  *Loss per share reduced from $(0.19) in the quarter ended December 31, 2011
    to $(0.04) in the quarter ended December 31, 2012

FULL YEAR HIGHLIGHTS:

  *Net revenue increased 52% from $28.0 million in 2011 to $42.6 million in
    2012
  *Gross profit margin increased from 28% in 2011 to 47% in 2012
  *Operating expenses decreased $4.2 million, or 13%, from $33.1 million in
    2011 to $28.9 million in 2012
  *Net loss reduced $18.2 million, or 69%, from $(26.4) million in 2011 to
    $(8.3) million in 2012
  *Loss per share reduced from $(0.50) in 2011 to $(0.16) in 2012

SAN LEANDRO, Calif., March 6, 2013 (GLOBE NEWSWIRE) -- Energy Recovery, Inc.
(Nasdaq:ERII), a global leader in harnessing reusable energy from industrial
fluid flows and pressure cycles, announced today its unaudited financial
results for the fourth quarter and fiscal year ended December 31, 2012. In
the fourth quarter of 2012, the Company achieved net revenue of $15.1 million,
representing one of the strongest revenue quarters in the Company's
history.Due to five mega-project shipments in the current period, four to the
Middle East and one to North Africa, the Company attained net revenue growth
of $9.0 million, or 147%, from the fourth quarter of 2011 to the fourth
quarter of 2012.Comparatively, the fourth quarter of 2011 contained no
revenue for mega-project shipments, with all revenue attributable instead to
OEM and aftermarket sales. Strong revenue in the current period was
reflective of overall growth in the desalination market, which compared
favorably to depressed market activity in 2011 caused by the persistent
effects of the global economic crisis and geopolitical events in the Middle
East.In this growing market, the Company realized sizeable gains in market
share due to significant awards for large desalination projects around the
world.Complementing the increase in mega-project activity was substantial
improvement in OEM and after-market sales.

Affected by the recognition of certain expenses, the Company recorded a gross
profit margin of 43% in the fourth quarter of 2012 compared to 55% and 54% in
the third and second quarters of 2012, respectively.The diminished gross
profit margin resulted primarily from an increased provision for excess and
obsolete inventory that totaled $0.9 million, all of which was
non-cash.Nearly all of this provision pertained to legacy parts and
components that were moved from our facility in Michigan as part of the
consolidation of production operations at our corporate headquarters and
manufacturing center in California.The Company obtained the Michigan-based
facility concurrent with its acquisition of Pump Engineering LLC in December
of 2009. Also affecting gross profit margin in the current period was the
recognition of $0.8 million in non-recurring charges associated with a new oil
& gas prototype device, for which no matching revenue was
recognized.Importantly, the Company continues to make significant investments
in oil & gas technologies and solutions to diversify its business and expand
its addressable markets.Although most of these investments are expensed as
incurred in research and development expenses, those that have reached
technological feasibility are ultimately recorded in cost of revenue when
leased, sold, or evaluated for net realizable value and therefore impact gross
profit and margin.

When compared to the prior year period, gross profit margin increased from 1%
in the fourth quarter of 2011 to 43% in the fourth quarter of 2012.In the
prior year period, gross profit margin was impacted adversely by negative
operating leverage and other costs associated with plant disruption and
facility integration regarding the consolidation of production operations in
California.Specifically, these costs included significant unabsorbed overhead
caused by uniquely low production volume, inventory write-downs, valuation
adjustments for excess and obsolete inventory, severance costs associated with
changes in manufacturing personnel, and other costs for the qualification of
new ceramics material.While currently enjoying the benefits of consolidated
production and fully integrated ceramics processing, the Company continues to
drive improvements in labor efficiency, procurement discipline, and
manufacturing yields, and to the extent that volume remains strong in the
future, the Company should experience progressively improving levels of gross
profit margin.

In the context of increased revenue, caused by market growth and share gains,
along with gross profit margin affected by certain expenses itemized above,
the Company demonstrated a reduction of $1.9 million, or 18%, in operating
expenses, decreasing from $10.6 million in the fourth quarter of 2011 to $8.7
million in the fourth quarter of 2012.In the fourth quarter of 2011,
operating expenses were impacted by specific non-recurring events, including
$2.8 million in restructuring charges tied to the closure of our manufacturing
facility in Michigan and the downsizing of our sales office in Spain.In
sequential terms, operating expenses increased from $7.6 million and $6.6
million in the third and second quarters of 2012, respectively.This increase
was partially attributable to a non-cash expense of $1.0 million for the
impairment of intangible assets during the fourth quarter of 2012, which
related entirely to the full impairment of the trademark acquired as part of
the Company's acquisition of Pump Engineering LLC in December of 2009.In
light of the recent launch of the Company's new branding strategy, emphasizing
a vision of harnessing reusable energy from industrial fluid flows and
pressure cycles that is relevant for industries outside of desalination,
management decided to formally discontinue the use of the acquired trademarks
related to "PEI" and "Pump Engineering" and thus concluded that the carrying
value of such trademarks was no longer justified.Offsetting the impairment
loss was $0.8 million in proceeds from a legal settlement, concluding
prolonged litigation with one of the Company's former suppliers.Also
impacting operating expenses in the current period were increased general and
administrative costs caused principally by accrued legal expenses, increased
sales and marketing costs for outside sales commissions and strategic
marketing initiatives, and increased research and development expenses related
to development costs and consulting expenses for oil & gas devices.On the
latter point, the Company is currently in the process of testing multiple new
systems with large oil & gas companies around the world that, if successful,
should result in expansive opportunity for subsequent sales.

With strong revenue realized through large shipments for mega-projects, a
sequentially lower margin affected by certain inventory charges, and increased
operating expenses due primarily to the abovementioned trademark impairment,
the Company reported a net loss of $(2.2) million, or $(0.04) per share, in
the fourth quarter of 2012.Comparatively, the Company reported a net loss of
$(10.0) million, or $(0.19) per share, in the fourth quarter of 2011.In
annual terms, the Company reduced its net loss from $(26.4) million, or
$(0.50) per share, for the year ended December 31, 2011 to $(8.3) million, or
$(0.16) per share, for the year ended December 31, 2012.This reflects a
favorable annual change of $18.1 million, or $0.34 per share, even in the
context of a share repurchase program that resulted in dilution due to the
Company's loss position.

Also in annual terms, the Company achieved 52% growth in net revenue from
$28.0 million in 2011 to $42.6 million in 2012, reflecting the resurging
desalination market and the Company's increased market share related to
mega-project awards around the world.Due primarily to positive operating
leverage attained through increased volume, a favorable product mix of PX
devices over turbocharges and pumps (the latter of which command lower gross
profit margins), and diminished costs realized through plant consolidation and
vertical integration, the Company increased gross profit margin from 28% in
2011 to 47% in 2012. Management believes that these elevated levels of gross
profit margin are sustainable and improvable to the extent that volume
persists and the Company continues to realize cost savings through production
efficiencies and enhanced yields.Additionally, operating expenses decreased
$4.2 million, or 13%, from $33.1 million in 2011 to $28.9 million in 2012 due
to restructuring charges and other transition costs in 2011 along with cost
savings realized in 2012.Despite such improvement in operating expenses, the
Company still invested heavily in its strategy to develop products for the oil
& gas industry and market those products to major oil & gas companies around
the world, which manifested in increased research and development as well as
sales and marketing expenses.

Tom Rooney, President and Chief Executive Officer, commented, "We are very
pleased with the quarterly and annual financial results, as they clearly
demonstrate our ability to drive revenue, achieving increased share in a
growing market, along with our focus in reducing costs through operational
efficiencies.We achieved such bottom-line improvement while making
substantial investments underwriting our strategy to expand into new markets,
the first of which is the oil & gas industry.I am pleased to report that we
are making measurable, tangible progress as we proceed to commission new
energy recovery systems with major oil & gas companies around the world.While
we did not recognize any revenue related to these systems in 2012, we
anticipate achieving meaningful revenue in 2013 followed by increasing revenue
in 2014.Although we predict only modest growth in total revenue for 2013,
weighted toward the second half of the year, we expect to drive meaningful
bottom-line performance through ongoing cost-reduction and
efficiency-enhancing initiatives.Beyond 2013, we anticipate significant
growth in 2014 as the sales pipeline for major desalination projects firms up
and our oil & gas strategy continues to progress.It is my belief that 2012
was a great year, proceeding almost exactly as planned when viewed against
financial and strategic milestones.Taking stock of our achievements in 2012,
while at the same time fully acknowledging the hard work that remains, we are
increasingly excited about the prospects of this great company, and we are
passionately committed to and intensely focused on our growth
strategy.Through relentless and tenacious execution of a winning strategy,
the financial results should continue to improve, with 2012 serving as the
first step in a multi-year transformation."

After a share repurchase program that used $4.0 million in cash to buy back
1.8 million shares of common stock in the first and second quarters of 2012,
the Company's balance sheet and cash position remain sound. Excluding current
and non-current restricted cash of $9.6 million, the Company reported
unrestricted cash of $16.6 million, short-term investments of $9.5 million,
and long term-investments of $4.8 million, all of which represent a combined
total of $30.9 million as of December 31, 2012.Capital expenditures were $2.8
million for the full year of 2012, including costs associated with fixed
assets and testing equipment for oil & gas development along with the
implementation of a new ERP system.For the full year of 2012, the net loss of
$(8.3) million included $10.0 million of non-cash expenses, the largest of
which were depreciation and amortization of $3.8 million, share-based
compensation of $2.6 million, the trademark impairment of $1.0 million, a
valuation adjustment for excess and obsolete inventory of $0.9 million, and a
provision for warranty claims of $0.6 million.

Alex Buehler, Chief Financial Officer, remarked that "we used cash primarily
to fund working capital needs associated with strong revenue growth, and we
expect to convert this revenue to cash in the near future.On this point,
accounts and unbilled receivables increased from $7.6 million as of December
31, 2011 to $19.1 million as of December 31, 2012.In the context of
significant working capital needs, capital expenditures of $2.8 million, and
share repurchases of $4.0 million, our balance sheet remains strong, with
ample cash and effectively no debt, allowing focused implementation of the
long-term strategy as planned."

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are based on information currently available to us and on management's
beliefs, assumptions, estimates, or projections and are not guarantees of
future events or results.When used in this document, the words "anticipate,"
"expect," "estimate," "believe," "plan," "intend," "may," "will," "should,"
and similar expressions are intended to identify forward-looking statements,
but are not exclusive means of identifying such statements.Because such
forward-looking statements involve risks and uncertainties, the Company's
actual results may differ materially from the predictions in these
forward-looking statements. All forward-looking statements are made as of
today, and the Company assumes no obligation to update such statements.In
addition to any other factors that may have been discussed herein regarding
the risks and uncertainties of our business, please see "Risk Factors" in our
Form 10-K to be filed with the U.S. Securities and Exchange Commission ("SEC")
on or about March 12, 2013 as well as other reports filed by the Company with
the SEC from time to time.

Conference Call to Discuss Fourth Quarter and Fiscal Year Results for 2012

The conference call scheduled for tomorrow at 7:30 a.m. PST will be in a
"listen-only" mode for all participants other than the sell-side investment
professionals who regularly follow the Company. The toll-free phone number
for the call is 877-941-0844 or local 480-629-9835, and the access code is
4591703. Callers should dial in approximately 15 minutes prior to the
scheduled start time. A telephonic replay will be available at 800-406-7325
or 303-590-3030 (access code: 4591703) until March 21, 2013. Investors may
also access the live call or the replay over the internet at
www.streetevents.com or www.energyrecovery.com. The replay will be available
approximately three hours after the live call concludes.

About Energy Recovery, Inc.

Energy Recovery, Inc. (Nasdaq:ERII) is the world leader in harnessing energy
from industrial fluid flows and pressure cycles.The Company's innovations
make industrial processes within the water, oil & gas, and chemical industries
environmentally cleaner and economically more profitable.By developing the
highest-efficiency technologies that deliver substantial cost savings, Energy
Recovery's solutions offer the best economics for any industrial
application.In total, the Company has installed 14,000 devices on every
continent, saving its clients more than one billion dollars in energy costs
each year.The company is headquartered in the San Francisco Bay Area with
offices worldwide, including Madrid, Shanghai, and Dubai. For more
information about Energy Recovery, please visit www.energyrecovery.com.

Unaudited Consolidated Financial Results

ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

                                    Three Months Ended Year Ended
                                    December 31,       December 31,
                                    2012    2011     2012    2011
Net revenue                          $15,082  $6,115    $42,632  $28,047
Cost of revenue                      8,583    6,027     22,419   20,248
Gross profit                         6,499    88        20,213   7,799
Operating expenses:                                              
General and administrative           4,247    4,792     15,146   16,745
Sales and marketing                  2,176    1,627     7,290    7,997
Research and development             1,719    900       4,774    3,526
Amortization of intangible assets    257      323       1,042    1,360
Restructuring charges                92       2,824     369      3,294
Impairment of intangibles            1,020    —         1,020    —
Loss on fair value remeasurement     —        171       —        171
Proceeds from litigation settlement  (775)    —         (775)    —
Total operating expenses             8,736    10,637    28,866   33,093
Loss from operations                 (2,237)  (10,549)  (8,653)  (25,294)
Other income (expense):                                          
Interest expense                     —        (4)       (6)      (34)
Other non-operating income           44       56        143      184
Loss before income taxes             (2,193)  (10,497)  (8,516)  (25,144)
(Benefit from) provision for income  (9)      (476)     (262)    1,299
taxes
Net loss                             $(2,184) $ (10,021) $(8,254) $ (26,443)
Loss per share:                                                  
Basic and diluted                    $(0.04)  $(0.19)   $(0.16)  $(0.50)
Number of shares used in per share                               
calculations:
Basic and diluted                    50,900   52,645    51,452   52,612



ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and par value)
(unaudited)
                                                  December 31, December 31,
                                                  2012        2011
ASSETS
Current assets:                                                 
Cash and cash equivalents                          $16,642     $18,507
Restricted cash                                    5,235        5,687
Short-term investments                             9,497        11,706
Accounts receivable, net of allowance for doubtful
accounts of $217 and $248 at December 31, 2012 and 13,240       6,498
2011
Unbilled receivables, current                      5,020        1,059
Inventories                                        5,135        7,824
Deferred tax assets, net                           500          460
Land and building held for sale                    1,345        1,660
Prepaid expenses and other current assets          4,245       4,929
Total current assets                               60,859       58,330
Restricted cash, non-current                       4,366        5,232
Unbilled receivables, non-current                  868          —
Long-term investments                              4,773        11,198
Property and equipment, net                        15,967       16,170
Goodwill                                           12,790       12,790
Other intangible assets, net                       4,929        6,991
Other assets, non-current                          2           2
Total assets                                       $104,554    $110,713

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:                                            
Accounts payable                                   $2,154      $1,506
Accrued expenses and other current liabilities     8,555        6,474
Income taxes payable                               39           21
Accrued warranty reserve                           1,172        852
Deferred revenue                                   918          859
Current portion of long-term debt                  —            85
Current portion of capital lease obligations       18          82
Total current liabilities                          12,856       9,879
Capital lease obligations, non-current             —            18
Deferred tax liabilities, non-current, net         1,706        1,516
Deferred revenue, non-current                      411          261
Other non-current liabilities                      2,200       2,085
Total liabilities                                  17,173      13,759
Commitments and Contingencies (Note 9)                          
Stockholders' equity:                                           
Preferred stock, $0.001 par value; 10,000,000      —            —
shares authorized; no shares issued or outstanding
Common stock, $0.001 par value; 200,000,000 shares
authorized;52,685,129 shares issued and
50,902,526 shares outstanding at December 31, 2012 53           53
and 52,645,129 shares issued and outstanding at
December 31, 2011
Additional paid-in capital                         117,264      114,619
Notes receivable from stockholders                 —            (23)
Accumulated other comprehensive loss               (79)         (92)
Treasury stock, at cost, 1,782,603 and 0 shares    (4,000)      —
repurchased at December 31, 2012 and 2011
Accumulated deficit                                (25,857)    (17,603)
Total stockholders' equity                         87,381      96,954
Total liabilities and stockholders' equity         $104,554    $110,713

CONTACT: Alexander J. Buehler
         Chief Financial Officer
         (510) 483-7370
 
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