Energy Recovery, Inc.

Good day, ladies and gentlemen, and welcome to the Energy Recovery Third Quarter Earnings Call. Our host for today's call is Lionel McD. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If a question should arise during the presentation, please press star, then the number 1, on your telephone keypad to enter the queue. I would like to now turn the call over to your host, Mr. McD.

Good afternoon, everyone. Welcome to Energy Recovery's 2024 Third Quarter Earnings Conference Call. We appreciate your joining us. I'm Lionel McDee, Director of Investor Relations at Energy Recovery, and I am joined here today by our President and Chief Executive Officer, David Moon, and our Chief Financial Officer, Mike Mancini. The pre-recorded remarks from today's call are available on the investor section of our website and are meant to accompany the Third Quarter Earnings news release, which is posted in the same location. During today's call, we may make projections and other forward-looking statements under the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of the company. These statements may discuss our business, economic and market outlook, growth expectations, new products and their performance, cost structure, and business strategy. Forward-looking statements are based on information currently available to us and on management's beliefs, assumptions, estimates, and projections. Forward-looking statements are not guaranteed a future performance and are subject to certain risks, uncertainties, and other factors. We refer you to documents the company files from time to time with the SEC, specifically the company's Form 10-K and Form 10-Q. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. All statements made during this call are made only as of today, October 30th, 2024, and the company expressly disclaims any intent or obligation to update any forward-looking statements made during this call to reflect subsequent events or circumstances unless otherwise required by law. And lastly, for your planning purposes, please note that our fourth quarter and full-year earnings conference call is scheduled for Wednesday, February 26th, 2025. And with that, I will turn the call over to David.

Thanks, Lionel, and thank you for joining us today. As Lionel mentioned, we are joined today for the first time on our quarterly earnings call by Energy Recovery's new CFO, Mike Mancini, who started on August 5th. I want to say how grateful I am for Mike's partnership and the work he has already done. As I mentioned last quarter, Mike brings a wealth of experience in high-growth engineering and technology companies. He has had executive leadership roles in finance, where he demonstrated his ability to drive financial strategy and performance across the entire enterprise. Additionally, his background with the institutional investment community provides him with a deep understanding of capital markets, which makes them a valuable asset to our leadership team. Now, before I get into the third quarter financial results, I will make a brief comment on our strategic planning process, or the playbook as we call it. Although we won't be getting into any of the specifics of the playbook on this call, we are hosting a live investor webinar on November the 18th. where members of my senior leadership team will present our playbook, including growth plans for desalination, wastewater, and CO2. We will also provide guidance for 2025 and 2026, as well as provide long-term 2029 financial targets. The webinar will take place at 10 a.m. Eastern time and will last approximately two hours, including a live Q&A session. The event will be accessible virtually via the link located on the IR calendar section of Energy Recovery's IR website. And a replay of the event will also be archived there. Additional details can be found in our press release issued on October the 21st. Now, let's move into the third quarter update. First, let me start by saying thank you to our employees for helping deliver another very solid quarter. With total revenue of $38.6 million, we achieved the upper end of our guidance for the quarter and set another quarterly revenue record. Now, while we still have considerable work to do to deliver what stands to be the largest quarter in the company's history in the fourth quarter, Our third quarter performance did create a line of sight to achievement of our four-year guidance of $140 to $150 million. As I've said the last couple of quarters, the demands on the team to deliver on these mega projects are only increasing. With that said, I remain confident in our ability to deliver what will be the biggest quarter in energy recovery's history, capping off what will be the 11th consecutive year of revenue growth and another year of strong market share in our mega projects channel. Let me talk briefly about our high-level segment results before turning it over to Mike for the financial results. Let's start with water. Water revenue came in at $38.3 million, an increase of 4% compared to the third quarter of 2023, and up 42 percent compared to the second quarter of 2024. This reflects the high end of our guidance for the third quarter of $35 to $39 million and continues the prior quarter's solid growth in megaprojects. Results were driven by continued strong demand in the Middle East and North Africa, as well as demand from India. I'd like to highlight several notable desal shipments made during the quarter. First, we completed the second and final shipment of the Purura project in Chennai, India, worth $4.1 million, as we mentioned previously during our July earnings call. Once constructed, this will be the largest desalination plant in India, delivering 400,000 cubic meters per day. Also, as a reminder, the Parur project was just one of the projects included in the $15 million in contracts that we announced in July for several SWRO desalination plants in India. For the remaining four projects under these contracts, we shipped 8.3 million and expect to complete the additional 2.6 million of shipments in the fourth quarter. Altogether, these plants will provide over 670,000 cubic meters of clean drinking water to communities in India each day. We also made progress on the Hacien IPP project in Dubai, UAE during the third quarter, which once constructed will be the largest desalination plant in Dubai, providing 820,000 cubic meters per day. As of our last call in July, we had shipped the first phase. As of today, I'm pleased to report that we shipped a total of $10.5 million year-to-date and expect to ship the final $5.3 million in Q4. In addition to these shipments, we also continue to secure major desalination contracts in recent months. In August, We signed contracts totaling $27.5 million for SWRO desalination projects in Morocco. These projects will supply over 1 million cubic meters per day of potable water for municipal and agricultural use, which represents enough water for more than 600,000 Moroccans. As of today, we have shipped 12.3 million of that total order. The balance of the order is currently expected to be filled in 2024. However, we are closely monitoring this timing, given an end of December target shipping day. North Africa continues to be an important driver of growth for our water business, with secular trends such as ongoing drought, industrial growth, and population growth continuing to generate strong demand for SWRL. desalination plants. Earlier this month, we announced contract awards totaling over $12 million for three SWRO desalination projects in the United Arab Emirates. The plans include capacity totaling close to 1 million cubic meters per day. And as a proof point as to the manufacturing improvements we have made, Our intent is to ship nearly all of these orders in the fourth quarter. Both contract awards and their shipment dates were on our radar and therefore included in our 2024 financial guidance. Based on our strong third quarter results and our expectations for additional shipments in the fourth quarter, we are maintaining our revenue guidance of $140 to $150 million for the year. Now, as we provided in previous quarters, our current 2024 total water revenue, as of the end of the third quarter, which includes revenue recognized in the first nine months of the year, and signed projects under contract yet to be delivered, totals approximately $137 million, or 94% of the midpoint of our guided range for 2024. This compares to roughly $136 million or 100% of the guided range at the same time in 2023. With this substantial progress towards our four-year guidance underpins our confidence in reaffirming our guided range for the full year. We cannot control customer-driven delays or slippage. With that said, we continue to collaborate closely with our customers and we remain focused on strong execution in the fourth quarter to complete our remaining shipments and to deliver our four-year guidance. In the event unforeseen circumstances cause slippage towards the end of the year, I'd like to reiterate that the associated revenue would not be at risk but would simply be recognized in 2025 rather than in the fourth quarter of 2024. Now turning to wastewater. Our wastewater pipeline continues to grow, and we've increased our signed wastewater contracts by almost 46% as compared to last year during the same period. Our strategic diversification strategy for water is underway, and we are making progress in our product portfolio expansion. For the year, We expect to generate revenue towards the lower end of our previous provided guided range of $12 million to $15 million. This is primarily the result of a wastewater megaproject, the NEOM project in Saudi Arabia, that's transitioned to a longer-term phase project over multiple years. However, we expect to offset this impact through continued outperformance that we're seeing in the OEM channel. We will share more details on our progress and our strategy for wastewater during our investor webinar on November the 18th. Overall, we feel that the air pocket created by rapidly rising interest rates, inflationary effects, and concerns around the global economic activity have begun to moderate. Clearly, there are still economic and geopolitical concerns around the globe, the long-term trend for freshwater demand remain intact and we continue to see solid growth ahead now let's move to our co2 business we continue to make progress in the development and commercialization of our second generation pxg as i stated during our last call in the second quarter we completed our first skating item for 2024 which was the successful completion of lab testing. During the third quarter, we turned our focus to our second gating item, which is the installation of 30 to 50 sites by the end of Q4 2024. I am pleased to report that we reached our initial goal of having at least 10 sites installed and operating across the U.S. and Europe. In fact, we've now completed the installation of a total of 11 sites here today. With that site goal reached, we were able to complete the collection of critical summer data. As I discussed during our last call, we partnered with DC Engineering, a highly respected third-party engineering firm, to measure and verify energy savings provided by our second-generation PXG at six of the ten initial sites. I'm pleased to report that in that collaboration with DC Engineering, we recently published a white paper on these results, which we believe will be the catalyst for our OEM partners and for us to accelerate PXG adoption within users in the near term. The white paper can be found on our website. The results were better than expected. showing that the PXG reduces energy consumption, increases cooling capacity, and improves system stability. The findings showed that the PXG improved the leading metric of energy efficiency, or the coefficient of performance, by peaks up to 30%, with as much as 15% in projected annual energy savings. In addition to energy efficiency, findings estimate that the PXG increases cooling capacity for CO2 refrigeration systems by up to 15% in 95 degrees Fahrenheit or 35 degrees centigrade, providing operational flexibility to safeguard against heat waves. Based on the success of the ongoing measurement and verification processes, During the third quarter, multiple OEMs began the process of integrating the PXG into their CO2 transcritical racks. This is a necessary and important step towards full commercialization of the PXG. We are highly encouraged by the test results and the resulting integration by our OEM partners. Adding to our momentum, we currently have 19 additional sites to be commissioned for installation in the coming months. Including the 11 sites already installed and operating, we're on a clear path towards meeting the low end of our target of 30 to 50 sites installed by the end of this year. Additionally, our pipeline of additional sites has grown meaningfully as the industry has gained awareness of the PXG technology. We're hearing discussions with existing customers to expand installed sites and with new OEMs for new sites across the U.S. and Europe. Momentum for the PXG is clearly accelerating. I look forward to sharing additional details on our progress and strategy for CO2 and wastewater during our upcoming webinars. With that, I'd like to hand it over to Mike to discuss our financial results for the quarter.