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Energy Recovery Reports Unaudited Financial Results for the First Quarter Of 2013

Energy Recovery Reports Unaudited Financial Results for the First Quarter Of
2013

FIRST QUARTER HIGHLIGHTS:

  *Net revenue increased 34% from $4.8 million in the first quarter of 2012
    to $6.4 million in the first quarter of 2013
  *Gross profit margin increased from 26% in the first quarter of 2012 to 47%
    in the current period
  *Operating expenses increased $1.6 million, or 26%, from $5.9 million in
    the first quarter of 2012 to $7.5 million in the first quarter of 2013
  *Net loss was reduced by $0.2 million, or 4%, from $(4.7) million in the
    first quarter of the prior year to $(4.5) million in the current period
  *Loss per share remained stable at $(0.09) from the quarter ended March 31,
    2012 to the quarter ended March 31, 2013

SAN LEANDRO, Calif., May 8, 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 first quarter of 2013. The Company achieved net revenue of
$6.4 million in the current period, representing growth of 34% compared to the
same period of last year. Insofar as both periods contained no shipments for
mega-projects, the revenue growth was entirely attributable to increased OEM
and aftermarket sales. Of the $6.4 million in net revenue, $4.0 million, or
62%, related to PX^® energy recovery devices and related products and
services, while $2.4 million, or 38%, pertained to turbochargers, pumps, and
related products and services.The product mix in the first quarter of 2013
was comparable to the same period of the prior year, although a sequential
comparison to the three preceding quarters demonstrates a higher percentage in
the current period associated with turbochargers and pumps, which command
lower gross profit margins compared to PX devices.Acknowledging normal
seasonality trends that manifest from past performance, revenue in the first
quarter generally represents the lowest volume in the calendar
year.Similarly, the Company anticipates that mega-project shipments will
commence in the second quarter of 2013, starting first with the previously
announced project in Ghana, and then escalate through subsequent quarters of
the year, with the fourth quarter expected to contain a significant volume of
mega-project shipments.Importantly, several of these projects for which
revenue is forecasted are in the final phases of negotiation and should accrue
to backlog in the second quarter of 2013.

On the $1.6 million increase in net revenue, the Company recorded a gross
profit margin of 47% in the first quarter of 2013 compared to 26% in the first
quarter of 2012.The improvement in gross profit margin resulted primarily
from positive operating leverage achieved through increased volume as well as
cost savings realized through enhanced manufacturing yields and other
production efficiencies.The aforementioned product mix, consisting of a
heavier portion of turbochargers and pumps when compared to the previous three
quarters, represented a drag on gross profit margin in the current period due
to the comparatively lower gross profit margin associated with these product
classes.With lighter revenue due to normal seasonality trends and the absence
of mega-project activity along with a less favorable product mix, management
was pleased to generate such levels of gross profit margin, believing that
such profit potential implies strong performance in the ensuing quarters of
the current year.Consequently, the Company expects that gross profit margins
will increase sequentially throughout the year due to greater volume caused by
mega-project shipments, a more favorable product mix that better favors PX
devices, and the continued realization of cost savings and production
efficiencies.

In the context of increased revenue and improved gross profit margin,
operating expenses increased from $5.9 million in the first quarter of 2012 to
$7.5 million in the current period, reflecting an overall increase of $1.6
million, or 26%.Due principally to transition costs caused by personnel
changes in the IT and accounting functions, general and administrative expense
increased $0.7 million, or 20%.Similarly, sales and marketing expense
increased $0.5 million, or 36%, due primarily to increased consulting costs
specific to market research and rebranding.As part of long-range strategic
planning and to facilitate internal growth targets, the Company has engaged a
renowned management consulting firm to map out industrial fluid markets for
subsequent prioritization, planning, and penetration.Also as a component of
operating expenses, research and development costs increased by $0.4 million,
or 56%, as the Company continues its investment in product development for oil
& gas applications.On this point, R&D resources remain focused on technical
validation and commercialization for three new oil & gas solutions in
partnership with high-profile oil & gas companies on different continents.In
the first quarter of 2013, the Company hired its first dedicated sales
professional to support this commercialization, with plans to hire more in the
coming months.While the Company recognized no revenue related to oil & gas
shipments in the current quarter, management remains confident in the
technological feasibility of the product portfolio and the economic viability
of the value proposition.

In the context of increased revenue, improved gross profit margin, and higher
operating expenses, the Company reported a net loss of $(4.5) million, or
$(0.09) per share, in the first quarter of 2013.Comparatively, the Company
reported a net loss of $(4.7) million, or $(0.09) per share, in the first
quarter of 2012.Importantly, management predicts that net loss or income will
improve through subsequent quarters of the current year as revenue increases
and gross profit margin improves.

After operating losses in the first quarter of 2013, the Company's balance
sheet and cash position remain sound. Excluding current and non-current
restricted cash of $9.5 million, the Company reported unrestricted cash of
$13.4 million, short-term investments of $8.0 million, and long
term-investments of $5.4 million, all of which represent a combined total of
$26.8 million as of March 31, 2013.For the current period, the net loss of
$(4.5) million was adjusted to $(2.7) million by non-cash items totaling $1.8
million, the largest of which were depreciation and amortization of $0.9
million and stock-based compensation of $0.7 million.The net cash impact from
changes in working capital was approximately $(1.2) million for the first
quarter of 2013.While accounts receivable and unbilled receivables decreased
by nearly $3.7 million due to collections for large shipments completed in
2012, the increase in inventory used $1.5 million as the Company manufactured
finished product in anticipation of subsequent mega-project
shipments.Additionally, in the first quarter of 2013, the Company paid annual
bonuses and sales commissions in recognition of significantly improved
financial results in 2012 as compared to 2011.Capital expenditures were
modest in the current period, with $0.4 million invested primarily for a new
ERP system designed to enhance managerial reporting.Consequently, although
the first quarter of 2013 saw a decrease in cash of $3.2 million along with a
decrease in short- and long-term investments of $0.9 million, these results
were in keeping with normal seasonality trends, considering that the first
quarter typically demonstrates operating losses and includes cash outflow
items associated with the end of the prior year.Also worth noting is that the
balance sheet includes $15.4 million of accounts receivable and unbilled
receivables, much of which management expects to convert to cash in the second
quarter of 2013.

Tom Rooney, President and Chief Executive Officer, commented, "The first
quarter results were in line with our expectations, as mega-project activity
is expected to commence in the second quarter and increase sequentially
throughout the year.While we anticipate similar revenue levels in 2013 as
compared to those achieved in 2012, with the fourth quarter representing a
significant portion of revenue due to the timing of mega-project shipments, we
expect to drive improved bottom-line performance through ongoing
cost-reduction and efficiency-enhancing initiatives that are estimated to
favorably affect gross profit margins.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.We remain focused on our
strategy to maintain a commanding position in the core desalination market,
marked by strong market share and increasing profitability, while investing
heavily in new market expansion with a preeminent focus on oil & gas
applications.Thus, we remain excited about the prospects of this great
company and our progress against strategic and financial objectives."

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,"
"believe," "estimate," "expect," "imply," "intend," "may," "plan," "predict,"
"remain," "should," "will," 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 filed with the U.S. Securities and
Exchange Commission ("SEC") on March 12, 2013 as well as other reports filed
by the Company with the SEC from time to time.

Conference Call to Discuss First Quarter Results

The conference call scheduled for tomorrow at 7:30 a.m. PDT 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
4611790. Callers should dial in approximately 15 minutes prior to the
scheduled start time. A telephonic replay will be available at 800-406-7325
or local 303-590-3030 (access code: 4611790) until May 23, 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
                                                    March 31,
                                                    2013       2012
Net revenue                                          $6,373     $4,756
Cost of revenue                                      3,356      3,504
Gross profit                                         3,017      1,252
Operating expenses:                                            
General and administrative                           4,170      3,468
Sales and marketing                                  2,011      1,482
Research and development                             1,082      694
Amortization of intangible assets                    230        262
Restructuring charges                                —          31
Total operating expenses                             7,493      5,937
Loss from operations                                 (4,476)    (4,685)
Interest expense                                     —          (4)
Other non-operating income (expense), net            27         72
Loss before income taxes                            (4,449)    (4,617)
Provision for income taxes                           61         66
Net loss                                             $(4,510) $(4,683)
                                                              
Basic and diluted net loss per share                 $(0.09)  $(0.09)
                                                              
Shares used in basic and diluted per share           50,982     52,618
calculation



ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and par value)
(unaudited)
                                                               
                                                      March 31, December 31,
                                                      2013      2012
ASSETS                                                          
Current assets:                                                 
Cash and cash equivalents                              $13,423   $16,642
Restricted cash                                        5,543     5,235
Short-term investments                                 8,029     9,497
Accounts receivable, net of allowance for doubtful
accounts of $184 and $217 at March 31, 2013 and        11,785    13,240
December 31, 2012, respectively
Unbilled receivables                                   3,481     5,020
Inventories                                            6,635     5,135
Deferred tax assets, net                               500       500
Land and building held for sale                        1,345     1,345
Prepaid expenses and other current assets              4,366     4,245
Total current assets                                   55,107    60,859
Restricted cash, non-current                           3,999     4,366
Unbilled receivables, non-current                      178       868
Long-term investments                                  5,355     4,773
Property and equipment, net of accumulated
depreciation of $9,980 and $9,306 at March 31, 2013    15,554    15,967
and December 31, 2012, respectively
Goodwill                                               12,790    12,790
Other intangible assets, net                           4,699     4,929
Other assets, non-current                              2         2
Total assets                                           $97,684   $104,554
LIABILITIES AND STOCKHOLDERS' EQUITY                            
Current liabilities:                                            
Accounts payable                                       $1,939    $2,154
Accrued expenses and other current liabilities         5,764     8,555
Income taxes payable                                   42        39
Accrued warranty reserve                               1,256     1,172
Deferred revenue                                       740       918
Current portion of capital lease obligations           4         18
Total current liabilities                              9,745     12,856
Deferred tax liabilities, non-current, net             1,762     1,706
Deferred revenue, non-current                          255       411
Other non-current liabilities                          2,171     2,200
Total liabilities                                      13,933    17,173
Commitments and Contingencies                                   
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; 52,801,852 and 51,019,249 shares issued
and outstanding at March 31, 2013,respectively; and   53        53
52,685,129 and 50,902,526 shares issued and
outstanding at December 31, 2012, respectively
Additional paid-in capital                             118,150   117,264
Accumulated other comprehensive loss                   (85)      (79)
Treasury stock, at cost, 1,782,603 shares repurchased  (4,000)   (4,000)
at March 31, 2013 and December 31, 2012
Accumulated deficit                                    (30,367)  (25,857)
Total stockholders' equity                             83,751    87,381
Total liabilities and stockholders' equity             $97,684   $104,554



ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
                                                                  
                                                        Three Months Ended
                                                        March 31,
                                                        2013       2012
Cash Flows From Operating Activities                               
Net loss                                                 $(4,510) $(4,683)
Adjustments to reconcile net loss to net cash used in              
operating activities:
Depreciation and amortization                            911        1,000
Loss on disposal of fixed assets                         13         —
Amortization of premiums/discounts on investments        89         154
Interest accrued on notes receivables from stockholders  —          (1)
Share-based compensation                                 687        783
Loss (gain) on foreign currency transactions             10         (51)
Deferred income taxes                                    56         59
Provision for doubtful accounts                          40         31
Provision for warranty claims                            97         41
Valuation adjustments for excess or obsolete inventory   (20)       (18)
Other non-cash adjustments                               (29)       (2)
Changes in operating assets and liabilities:                       
Accounts receivable                                      1,426      172
Unbilled receivables                                     2,232      162
Inventories                                              (1,480)    (508)
Prepaid and other assets                                 (121)      570
Accounts payable                                         (117)      (44)
Accrued expenses and other liabilities                   (2,808)    (2,015)
Income taxes payable                                     4          8
Deferred revenue                                         (334)      602
Net cash used in operating activities                    (3,854)    (3,740)
Cash Flows From Investing Activities                               
Capital expenditures                                     (384)      (1,014)
Purchase of marketable securities                        (3,464)    (861)
Maturities of marketable securities                      4,250      4,305
Restricted cash                                          59         (565)
Net cash provided by investing activities                461        1,865
Cash Flows From Financing Activities                               
Repayment of long-term debt                              —          (32)
Repayment of capital lease obligation                    (14)       (40)
Net proceeds from issuance of common stock               200        5
Repurchase of common stock                               —          (800)
Net cash provided by (used in) financing activities      186        (867)
Effect of exchange rate differences on cash and cash     (12)       (3)
equivalents
Net change in cash and cash equivalents                  (3,219)    (2,745)
Cash and cash equivalents, beginning of period           16,642     18,507
Cash and cash equivalents, end of period                 $13,423    $15,762

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