Energy Recovery Reports Unaudited Financial Results for the Third Quarter of 2013

Energy Recovery Reports Unaudited Financial Results for the Third Quarter of


  *Continued gains in manufacturing efficiency and strong prices achieved
    through market leadership drove gross profit margin to 60%, up from 55% in
    the third quarter of 2012
  *Disciplined cost management reduced operating expenses by 11% compared to
    the third quarter of 2012
  *Strong order flow and existing backlog reinforce expectations of full-year
    revenue for 2013 that is in line with previous guidance

SAN LEANDRO, Calif., Nov. 6, 2013 (GLOBE NEWSWIRE) -- Energy Recovery, Inc.
(Nasdaq:ERII), a global leader in harnessing reusable energy from industrial
fluid flows and pressure cycles, today announced its unaudited financial
results for the third quarter of 2013.

For the current quarter, the Company reported net revenue of $4.9 million and
a net loss of $(3.9) million, or $(0.08) per share. For the third quarter of
2012, the Company reported net revenue of $10.5 million and a net loss of
$(1.8) million, or $(0.04) per share.

Tom Rooney, President and Chief Executive Officer, commented, "Results for the
third quarter reflect the significant progress achieved from our focused
efforts to improve manufacturing efficiency, drive out costs, and realize the
benefits of operating leverage through increased production volume. For the
current quarter, gross profit margin increased and operating expenses
decreased relative to the same quarter a year ago.Just as importantly, we
have robust demand for our products, with a large backlog of projects
scheduled to ship in the fourth quarter, some of which were delayed from the
third quarter including one multi-million-dollar order already shipped during
the first week of October.Prices on projects shipped and in backlog remain
strong, while we continue to command a substantial share of the global
desalination market. Although the timing of mega-project shipments may
introduce some variability into our quarterly results, the innovation,
manufacturing efficiencies, and disciplined cost control implemented
throughout the organization over the past several years provide us with a
solid foundation to capitalize on the growing demand for energy recovery
equipment in the desalination industry and anticipated demand in other
emerging markets, such as oil and gas, over the long term to create value for
our shareholders."

The Company achieved significant improvement in key profitability drivers, as
gross profit margin increased from 55% in the third quarter of 2012 to 60% in
the current quarter despite lower revenue.The company has undertaken
substantial cost reduction efforts over the last two years, which include
plant consolidation, vertical integration, targeted cost-out and value
engineering exercises, and efficiency-enhancing initiatives to achieve lower
unit costs and better production yields.Due to the successful implementation
of these initiatives, the Company is able to enjoy, and even improve, gross
profit margin to the extent that volume continues to grow and product mix and
pricing remain stable.

Operating expenses decreased 11% from $7.6 million in the third quarter of
2012 to $6.8 million in the current quarter and were relatively flat compared
to $6.6 million in the second quarter of this year.The Company maintained
disciplined cost control, even as it funded increased investment in the oil
and gas initiative, with research and development resources primarily focused
on technical validation and commercialization of three oil and gas pilot
programs with high-profile companies, all of which are on different

The decrease in revenue was largely attributable to the timing of mega-project
shipments, including one project that shipped during the first week of
October. Consequently, due to a one-week delay in the scheduled shipment
date, the Company recognized no revenue associated with mega-project shipments
in the current quarter, whereas the third quarter of 2012 contained over $5
million of revenue pertaining to mega-project shipments.Based on scheduled
shipment dates for projects currently in backlog, the Company anticipates
uniquely strong revenue in the fourth quarter of 2013, which should generate
full-year revenue results that are in line with previous guidance.

Of the $4.9 million in revenue reported for the third quarter of 2013,
products and services related to PX devices comprised 73%, while products and
services related to pumps and turbochargers represented 27%.Comparatively,
for the third quarter of 2012, PX devices comprised 83% of total net revenue,
while pumps and turbochargers represented the balance of 17%.Insofar as PX
devices command higher gross profit margin than do pumps and turbochargers,
the year-over-year shift in product mix was unfavorable, yet the Company still
drove increased gross profit margin due to the reasons mentioned above.

The Company's balance sheet and cash position remain healthy. Excluding
current and non-current restricted cash of $8.5 million, the Company at
September 30, 2013 reported unrestricted cash of $15.8 million, short-term
investments of $6.0 million, and long term-investments of $13.1 million, all
of which represent a combined total of $34.9 million compared to $27.6 million
at June 30, 2013.Cash flow in the third quarter of 2013 was enabled by strong
collection activity, the sale of the land and building in Michigan generating
net proceeds of $1.2 million, and refunds for federal income taxes paid in
prior-year periods of $3.1 million. The quarter's net loss of $3.9 million
included certain non-cash items totaling $2.0 million, the largest of which
were depreciation and amortization of $1.0 million and stock-based
compensation of $0.5 million. For the nine months ended September 30, 2013,
cash flow provided by operating activities was $2.7 million, caused by strong
billing and collection activity offset by a build-up in inventories in
anticipation of heavy shipment volume in the fourth quarter of 2013.

Alex Buehler, Chief Financial Officer, commented, "In the context of
historically strong market share, we have positioned the Company with a far
more efficient cost structure, allowing us to invest in growth opportunities
tied to the application of energy recovery technologies in new end markets
such as oil and gas. Results in the third quarter continue to demonstrate the
significant progress achieved toward these strategic initiatives.At the same
time, we maintain a highly liquid, unlevered financial position and operate
with a 'capital light' strategy, which give us great confidence in the
earnings potential and cash flow characteristics of this business over time."

Mr. Rooney concluded, "The past few years have represented an investment in
strengthening and positioning the company to optimize the value of our
proprietary technology, and the strong market share enjoyed in the
desalination market and significant improvement in gross profit margin are
evidence of decisive success.We are excited by the growth prospects regarding
the commercial introduction of our new oil and gas products.Field trials with
three oil and gas customers are progressing, providing us with confidence that
we will generate meaningful long-term revenue in a market where there are
already 1,200 eligible facilities.Finally, we are the market leader in China,
where the government has decreed desalination as the primary strategy to
expand the supply of potable water, creating another growth opportunity.
These are exciting times, and we are anxious to continue to strengthen the
Energy Recovery franchise in the desalination market and to extend that
franchise into the many other growth markets that can benefit from a
technology that is both clean and economical."

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,"
"can," "expect," "may," "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 Third Quarter Results

The conference call scheduled for tomorrow, November 7, 2013 at 7:30 a.m. PT
will be in a "listen-only" mode for all participants other than the sell-side
investment professionals who regularly follow the Company. The phone numbers
for the call are 800-762-8779 (toll-free) or 480-629-9645 (local), and the
access code is 4643373. Callers should dial in approximately 15 minutes prior
to the scheduled start time. A telephonic replay will be available at
800-406-7325 (toll-free) or 303-590-3030 (local), access code 4643373, until
November 21, 2013. Investors may also access the live call or the replay over
the internet at or The replay
will be available approximately three hours after the live call concludes.

About Energy Recovery, Inc.

Energy Recovery, Inc. (Nasdaq:ERII) technology harvests power from
high-pressure fluid flows and pressure cycles. Through collaboration with
industry, Energy Recovery helps make industrial processes within water, oil &
gas, and other industries more profitable and environmentally sustainable.
With over 15,000 energy recovery devices installed worldwide, Energy Recovery
sets the standard for engineering excellence, cost savings, and technical
services to clients across the globe. Year after year, the Company's clean
technologies save clients over $1.4 Billion (USD) in energy costs.
Headquartered in the San Francisco Bay Area, Energy Recovery has offices in
Madrid, Shanghai, and Dubai. For more information about Energy Recovery,
please visit

Unaudited Consolidated Financial Results

(in thousands, except per share data)
                                         Three Months Ended Nine Months Ended
                                          September 30,     September 30,
                                         2013      2012     2013     2012
Net revenue                               $4,868    $10,498  $19,810  $27,550
Cost of revenue                           1,966     4,696    8,615    13,836
Gross profit                              2,902     5,802    11,195   13,714
Operating expenses:                                                
General and administrative                3,625     3,825    11,121   10,899
Sales and marketing                       1,737     1,860    5,607    5,114
Research and development                  1,027     1,495    3,246    3,055
Amortization of intangible assets         230       262      691      785
Restructuring charges                     140       167      184      277
Total operating expenses                  6,759     7,609    20,849   20,130
Loss from operations                      (3,857)   (1,807)  (9,654)  (6,416)
Interest expense                          —         (1)      —        (6)
Other non-operating income (expense), net 27        36       79       99
Loss before income taxes                 (3,830)   (1,772)  (9,575)  (6,323)
Provision (benefit) for income taxes      36        54       258      (253)
Net loss                                  $(3,866)  $(1,826) $(9,833) $(6,070)
Basic and diluted loss per share          $(0.08)   $(0.04)  $(0.19)  $(0.12)
Basic and diluted shares used in per      51,052    50,872   51,020   51,638
share calculation

(in thousands, except share data and par value)
                                             September 30, December 31, 2012
Current assets:                                             
Cash and cash equivalents                     $15,815        $16,642
Restricted cash                               4,633          5,235
Short-term investments                        5,997          9,497
Accounts receivable, net of allowance for
doubtful accounts of $269 and $217 at         6,132          13,240
September 30, 2013 and December 31, 2012,
Unbilled receivables                          1,040          5,020
Inventories                                   8,960          5,135
Deferred tax assets, net                      500            500
Land and building held for sale               —              1,345
Prepaid expenses and other current assets     1,313          4,245
Total current assets                          44,390         60,859
Restricted cash, non-current                  3,900          4,366
Unbilled receivables, non-current             —              868
Long-term investments                         13,078         4,773
Property and equipment, net of accumulated
depreciation of $11,399 and $9,306 at         14,654         15,967
September 30, 2013 and December 31, 2012,
Goodwill                                      12,790         12,790
Other intangible assets, net                  4,238          4,929
Other assets, non-current                     2              2
Total assets                                  $93,052        $104,554
Current liabilities:                                        
Accounts payable                              $1,336         $2,154
Accrued expenses and other current            6,101          8,555
Income taxes payable                          24             39
Accrued warranty reserve                      1,036          1,172
Deferred revenue                              788            918
Current portion of capital lease obligations  —              18
Total current liabilities                     9,285          12,856
Deferred tax liabilities, non-current, net    1,873          1,706
Deferred revenue, non-current                 154            411
Other non-current liabilities                 2,112          2,200
Total liabilities                             13,424         17,173
Commitments and Contingencies (Note 9)                      
Stockholders' equity:                                       
Preferred stock, $0.001 par value; 10,000,000
shares authorized; no shares issued or        —              —
Common stock, $0.001 par value; 200,000,000
shares authorized; 52,891,423 and 51,108,820
shares issued and outstanding, respectively,  53             53
at September 30, 2013; and 52,685,129 and
50,902,526 shares issued and outstanding,
respectively, at December 31, 2012
Additional paid-in capital                    119,372        117,264
Accumulated other comprehensive loss          (107)          (79)
Treasury stock, at cost, 1,782,603 shares
repurchased at September 30, 2013 and         (4,000)        (4,000)
December 31, 2012
Accumulated deficit                           (35,690)       (25,857)
Total stockholders' equity                    79,628         87,381
Total liabilities and stockholders' equity    $93,052        $104,554

(in thousands)
                                                            Nine Months Ended
                                                             September 30,
                                                            2013     2012
Cash Flows From Operating Activities                                 
Net loss                                                     $(9,833) $(6,070)
Adjustments to reconcile net loss to net cash used in                
operating activities:
Depreciation and amortization                                2,801    2,945
Loss on disposal of fixed assets                             19       —
Non-cash restructuring charges                               184      243
Amortization of premiums/discounts on investments            279      402
Interest accrued on notes receivables from stockholders      —        (1)
Share-based compensation                                     1,717    2,097
(Gain) loss on foreign currency transactions                 (5)      3
Deferred income taxes                                        167      162
Provision for (recovery of) doubtful accounts                248      (69)
Provision for warranty claims                                177      283
Valuation adjustments for inventory reserves                 81       20
Other non-cash adjustments                                   (88)     45
Changes in operating assets and liabilities:                         
Accounts receivable                                          6,869    (3,674)
Unbilled receivables                                         4,848    (1,361)
Inventories                                                  (3,906)  1,283
Prepaid and other assets                                     2,933    405
Accounts payable                                             (718)    60
Accrued expenses and other liabilities                       (2,635)  30
Income taxes payable                                         (17)     13
Deferred revenue                                             (387)    1,198
Net cash provided by (used in) operating activities          2,734    (1,986)
Cash Flows From Investing Activities                                 
Capital expenditures                                         (1,077)  (2,105)
Proceeds from sale of assets held for sale                   1,161    —
Purchase of marketable securities                            (13,104) (861)
Maturities of marketable securities                          8,000    8,261
Decrease in restricted cash                                  1,068    611
Net cash (used in) provided by investing activities          (3,952)  5,906
Cash Flows From Financing Activities                                 
Repayment of long-term debt                                  —        (85)
Repayment of capital lease obligation                        (18)     (76)
Net proceeds from issuance of common stock                   425      7
Repurchase of common stock                                   —        (4,000)
Net cash provided by (used in) financing activities          407      (4,154)
Effect of exchange rate differences on cash and cash         (16)     14
Net change in cash and cash equivalents                      (827)    (220)
Cash and cash equivalents, beginning of period               16,642   18,507
Cash and cash equivalents, end of period                     $15,815  $18,287

CONTACT: Investor Relations Contact:
         Joe Hassett
         Gregory FCA Communications
         Media Contact:
         Kristan Kirsh
         Energy Recovery
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