DEF 14A: Energy Recovery Aims for Continued Growth in Water and CO2 Refrigeration Markets

Energy Recovery reports a record year in 2023 with revenue exceeding $128 million and outlines strategies for continued growth in desalination, wastewater, and CO2 refrigeration.

Summary

• Energy Recovery had a record year in 2023, achieving over $128 million in annual revenue, marking its ninth consecutive year of revenue growth.
• The company's wastewater business nearly doubled in size in 2023 and is expected to continue to grow.
• For 2024, Energy Recovery anticipates revenue between $140 to $150 million in its water business.
• The company expects up to half of its mega-project desalination revenue to come from the PX Q400 this year, double its initial projection.
• In CO2 refrigeration, the company aims for performance testing improvements to the PX G1300 design and 30 to 50 new installations in the U.S. and Europe in 2024.
• The company plans to publish new sustainability goals by the end of the year, incorporating feedback from stakeholders.
• The company is developing a long-term growth strategy, or 'playbook', for the next three to five years, focusing on diversification and growth in desalination, wastewater, and CO2 refrigeration markets.

Sentiment

Score: 8

Explanation: The document expresses optimism about the company's future, highlighting record revenue, growth in key business segments, and strategic initiatives for continued expansion. The tone is positive and confident.

Positives

• The company has a healthy core business in desalination.
• The company is strengthening its balance sheet by generating more cash.
• The company's PX Pressure Exchanger creates substantial financial and environmental value for customers.
• The company has found tremendous initial success in wastewater.
• The company has achieved several of its major sustainability goals.
• The company received the Refrigeration Innovation of the Year Award for the PX G1300 at the ATMO Awards Ceremony of the Atmosphere America Summit 2023.
• The company received the Innovation of the Year award with its partner, Epta Group, from the Refrigeration & Air Conditioning Magazine.
• MSCI ESG Research LLC (MSCI) upgraded the Company from an ESG rating of AA to its highest rating of AAA.

Risks

• The desalination market is evolving, creating new risks and opportunities for the company's foundational business.
• The company faces an evolving competitive landscape.
• The company must take a hard look at how the CO2 refrigeration business will develop and grow in the next three years.

Future Outlook

The company anticipates a 10th year of growth in its water business with expected revenue between $140 to $150 million in 2024 and aims to potentially double its wastewater revenue.

Management Comments

• I firmly believe our strategy of PX-based diversification and growth is the right path forward, and I have been focused squarely on making sure we continue to capitalize on this potential since taking on the CEO role last Fall. David W. Moon, President and Chief Executive Officer
• Energy Recovery was built upon a solid foundation of groundbreaking technology 30 years ago, and today we are poised for decades of innovation and delivering financial and environmental value to our customers, investors, and all of our stakeholders. David W. Moon, President and Chief Executive Officer

Industry Context

The company is competing in new geographies within an evolving competitive landscape, creating new risks and opportunities for its foundational business. The company is building relationships with manufacturers and large, influential supermarket chains in both the U.S. and Europe for CO2 refrigeration.

Comparison to Industry Standards

• The company's peer group consists of companies in industrial machinery, clean technology, energy, and broader technology and health care equipment industries that are comparable to the company in terms of revenue, market capitalization, headcount and location, where possible.
• The company's peers had median revenue of approximately $190 million and a median market cap of approximately $1.04 billion at the time of the company's 2023 executive officer compensation assessment.

Management Changes

Corporate Governance

Stakeholder Impact

• The company aims to deliver financial and environmental value to customers, investors, and all stakeholders.
• The company is committed to creating a work environment that engages all the viewpoints and styles that its diverse teams have to offer.
• The company believes that strong corporate governance includes consistent engagement with its stockholders.

Next Steps

• The company plans to publish new sustainability goals by the end of the year.
• The company is working on moving into the next phase of its sustainability strategy.
• The company is focused on further building out the long-term growth strategy that will guide it for the next three to five years.
• The Board has commenced a search for a new Board member as part of the Company’s focus on ongoing board refreshment.

Key Dates

Keywords

Energy Recovery, desalination, wastewater, CO2 refrigeration, PX Pressure Exchanger, revenue, sustainability, growth, financial performance, executive compensation