Energy Recovery, Inc. | Q2'2021 Form 10-Q | 7
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 — Revenue
Disaggregation of Revenue
The following tables present the disaggregated revenues by product and service line, product revenue by geography based on the “shipped to” addresses of the Company’s customers, product revenue by channel, and product revenue by segment (Water and Emerging Technologies segment). Sales and usage-based taxes are excluded from revenues. See Note 10, “Segment Reporting,” for further discussion related to the Company’s segments.
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|
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|
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|
|
Three Months Ended June 30, 2021
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Six Months Ended June 30, 2021
|
|
Water
|
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Emerging Technologies
|
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Total
|
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Water
|
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Emerging Technologies
|
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Total
|
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(In thousands)
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Revenue by product and service line
|
PXs, pumps and turbo devices, and other
|
$
|
20,568
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|
|
$
|
39
|
|
|
$
|
20,607
|
|
|
|
|
|
|
|
|
$
|
49,508
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|
|
$
|
39
|
|
|
$
|
49,547
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|
|
|
|
|
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|
|
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|
|
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|
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|
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|
Revenue by primary geographical markets
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Middle East and Africa
|
$
|
16,401
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|
|
$
|
39
|
|
|
$
|
16,440
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|
|
|
|
|
|
|
|
$
|
37,361
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|
|
$
|
39
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|
|
$
|
37,400
|
|
Asia
|
2,325
|
|
|
—
|
|
|
2,325
|
|
|
|
|
|
|
|
|
9,503
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|
|
—
|
|
|
9,503
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Americas
|
945
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|
|
—
|
|
|
945
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|
|
|
|
|
|
|
|
1,368
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|
|
—
|
|
|
1,368
|
|
Europe
|
897
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|
|
—
|
|
|
897
|
|
|
|
|
|
|
|
|
1,276
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|
|
—
|
|
|
1,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
20,568
|
|
|
$
|
39
|
|
|
$
|
20,607
|
|
|
|
|
|
|
|
|
$
|
49,508
|
|
|
$
|
39
|
|
|
$
|
49,547
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Product revenue by channel
|
Megaproject
|
$
|
13,236
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|
|
$
|
39
|
|
|
$
|
13,275
|
|
|
|
|
|
|
|
|
$
|
36,993
|
|
|
$
|
39
|
|
|
$
|
37,032
|
|
Original equipment manufacturer
|
4,274
|
|
|
—
|
|
|
4,274
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|
|
|
|
|
|
|
|
7,065
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|
|
—
|
|
|
7,065
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|
Aftermarket
|
3,058
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|
|
—
|
|
|
3,058
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|
|
|
|
|
|
|
|
5,450
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|
|
—
|
|
|
5,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenue
|
$
|
20,568
|
|
|
$
|
39
|
|
|
$
|
20,607
|
|
|
|
|
|
|
|
|
$
|
49,508
|
|
|
$
|
39
|
|
|
$
|
49,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 8
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2020
|
|
Water
|
|
Emerging Technologies
|
|
Total
|
|
Water
|
|
Emerging Technologies
|
|
Total
|
|
(In thousands)
|
Revenue by product and service line
|
PXs, pumps and turbo devices, and other
|
$
|
19,256
|
|
|
$
|
—
|
|
|
$
|
19,256
|
|
|
$
|
38,257
|
|
|
$
|
—
|
|
|
$
|
38,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License and development
|
—
|
|
|
24,352
|
|
|
24,352
|
|
|
—
|
|
|
26,895
|
|
|
26,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
19,256
|
|
|
$
|
24,352
|
|
|
$
|
43,608
|
|
|
$
|
38,257
|
|
|
$
|
26,895
|
|
|
$
|
65,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by primary geographical markets
|
Middle East and Africa
|
$
|
16,504
|
|
|
$
|
—
|
|
|
$
|
16,504
|
|
|
$
|
32,735
|
|
|
$
|
—
|
|
|
$
|
32,735
|
|
Asia
|
617
|
|
|
—
|
|
|
617
|
|
|
1,392
|
|
|
—
|
|
|
1,392
|
|
Americas
|
1,161
|
|
|
24,352
|
|
|
25,513
|
|
|
2,362
|
|
|
26,895
|
|
|
29,257
|
|
Europe
|
974
|
|
|
—
|
|
|
974
|
|
|
1,768
|
|
|
—
|
|
|
1,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenue
|
$
|
19,256
|
|
|
$
|
24,352
|
|
|
$
|
43,608
|
|
|
$
|
38,257
|
|
|
$
|
26,895
|
|
|
$
|
65,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue by channel
|
Megaproject
|
$
|
11,965
|
|
|
$
|
—
|
|
|
$
|
11,965
|
|
|
$
|
26,422
|
|
|
$
|
—
|
|
|
$
|
26,422
|
|
Original equipment manufacturer
|
4,050
|
|
|
—
|
|
|
4,050
|
|
|
7,606
|
|
|
—
|
|
|
7,606
|
|
Aftermarket
|
3,241
|
|
|
—
|
|
|
3,241
|
|
|
4,229
|
|
|
—
|
|
|
4,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenue
|
$
|
19,256
|
|
|
$
|
—
|
|
|
$
|
19,256
|
|
|
$
|
38,257
|
|
|
$
|
—
|
|
|
$
|
38,257
|
|
In June 2020, the Company and Schlumberger Technology Corporation (“Schlumberger”) entered into an agreement to terminate the 2015 license agreement between the Company and Schlumberger (the “VorTeq License Agreement”) to provide Schlumberger with the exclusive worldwide rights to the VorTeq technology. The termination of the VorTeq License Agreement was effective June 1, 2020. As there were no future performance obligations to be recognized under the VorTeq License Agreement after the effective date, the Company recognized in full the remaining deferred revenue balance of $24.4 million in the second quarter of fiscal year 2020. In addition, no future license and development revenue was recognized under the VorTeq License Agreement after the second quarter of fiscal year 2020.
Contract Balances
The following table presents contract balances by category.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
(In thousands)
|
Accounts receivable, net
|
$
|
7,599
|
|
|
$
|
11,792
|
|
Contract assets:
|
|
|
|
Contract assets, current (included in prepaid expenses and other assets, current)
|
$
|
536
|
|
|
$
|
1,309
|
|
Contract assets, non-current (included in other assets, non-current)
|
—
|
|
|
583
|
|
Total contract assets
|
$
|
536
|
|
|
$
|
1,892
|
|
|
|
|
|
Contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities, current
|
$
|
1,117
|
|
|
$
|
1,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities, non-current (included in other liabilities, non-current)
|
89
|
|
|
88
|
|
Total contract liabilities
|
$
|
1,206
|
|
|
$
|
1,640
|
|
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 9
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company records contract liabilities when cash payments are received in advance of the Company’s performance. The following table presents significant changes in contract liabilities during the period.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
|
|
|
|
|
|
(In thousands)
|
Contract liabilities balance, beginning of year
|
|
|
|
|
$
|
1,640
|
|
|
$
|
28,866
|
|
|
|
Revenue recognized
|
|
|
|
|
(1,232)
|
|
|
(28,414)
|
|
|
|
Cash received, excluding amounts recognized as revenue during the period
|
|
|
|
|
798
|
|
|
1,188
|
|
|
|
Contract liabilities balance, end of period
|
|
|
|
|
$
|
1,206
|
|
|
$
|
1,640
|
|
|
|
Transaction Price Allocated to the Remaining Performance Obligations
The following table presents the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied.
|
|
|
|
|
|
|
June 30,
2021
|
|
(In thousands)
|
Future performance obligations by year
|
|
2021 (remaining six months)
|
$
|
4,036
|
|
2022
|
12,191
|
|
|
|
|
|
|
|
Total future performance obligations
|
$
|
16,227
|
|
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 10
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 — Net Income Per Share
Net income for the reported period is divided by the weighted average number of common shares outstanding during the reported period to calculate basic net income per common share. Basic net income per share excludes any dilutive effect of stock options and restricted stock units ("RSU").
Diluted net income per common share reflects the potential dilution that would occur if outstanding stock options to purchase common stock were exercised for shares of common stock, using the treasury stock method, and the shares of common stock underlying each outstanding RSU were issued (outstanding stock options to purchase common stock and RSUs collectively referred to as, “stock awards”).
The following table presents the computation of basic and diluted net income per share.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
(In thousands, except per share amounts)
|
Numerator
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
1,069
|
|
|
$
|
16,926
|
|
|
$
|
7,935
|
|
|
$
|
17,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator (weighted average shares)
|
|
|
|
|
|
|
|
|
|
Basic common shares outstanding
|
57,253
|
|
|
55,614
|
|
|
57,066
|
|
|
55,513
|
|
|
|
Dilutive stock awards
|
1,746
|
|
|
757
|
|
|
1,756
|
|
|
925
|
|
|
|
Diluted common shares outstanding
|
58,999
|
|
|
56,371
|
|
|
58,822
|
|
|
56,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.02
|
|
|
$
|
0.30
|
|
|
$
|
0.14
|
|
|
$
|
0.32
|
|
|
|
Diluted
|
$
|
0.02
|
|
|
$
|
0.30
|
|
|
$
|
0.13
|
|
|
$
|
0.31
|
|
|
|
Certain shares of common stock issuable under stock awards have been omitted from the diluted net income per share calculations because their inclusion is considered anti-dilutive. The following table presents the weighted potential common shares issuable under stock awards that were excluded from the computation of diluted net income per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock awards
|
6
|
|
|
2,893
|
|
|
457
|
|
|
1,989
|
|
|
|
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 11
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 — Other Financial Information
Cash, Cash Equivalents and Restricted Cash
The Condensed Consolidated Statements of Cash Flows explain the changes in the total of cash, cash equivalents and restricted cash. The following table presents a reconciliation of cash, cash equivalents and restricted cash(1) reported within the Condensed Consolidated Balance Sheets that sum to the total of such amounts presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
June 30,
2020
|
|
|
|
(In thousands)
|
Cash and cash equivalents
|
$
|
103,302
|
|
|
$
|
94,255
|
|
|
$
|
62,970
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash, non-current (included in other assets, non-current)
|
103
|
|
|
103
|
|
|
102
|
|
|
|
Total cash, cash equivalents and restricted cash
|
$
|
103,405
|
|
|
$
|
94,358
|
|
|
$
|
63,072
|
|
|
|
(1) The Company pledged and deposited cash amounts into restricted cash accounts in connection with the Company’s credit cards.
Accounts Receivable, net
The following table presents the components of accounts receivable, net.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
(In thousands)
|
Accounts receivable, gross
|
$
|
7,716
|
|
|
$
|
12,189
|
|
Allowance for doubtful accounts (1)
|
(117)
|
|
|
(397)
|
|
Accounts receivable, net
|
$
|
7,599
|
|
|
$
|
11,792
|
|
(1) The Company wrote-off $0.3 million of uncollectible receivables, which had been previously reserved as of December 31, 2020, during the second quarter of 2021.
Inventories
Inventories are stated at the lower of cost or net realizable value, using the first-in, first-out method. The following table presents inventory by category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
(In thousands)
|
Raw materials
|
$
|
5,161
|
|
|
$
|
4,260
|
|
Work in process
|
2,740
|
|
|
2,360
|
|
Finished goods
|
7,388
|
|
|
5,128
|
|
Inventories, net
|
$
|
15,289
|
|
|
$
|
11,748
|
|
|
|
|
|
Valuation adjustments for excess and obsolete inventory reflected as a reduction of inventory was $0.6 million and $0.5 million at June 30, 2021 and December 31, 2020, respectively.
Prepaid and Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
(In thousands)
|
Contract assets, current
|
$
|
536
|
|
|
$
|
1,309
|
|
Cloud computing arrangement implementation costs
|
1,095
|
|
|
1,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other prepaid expenses and current assets
|
2,634
|
|
|
2,554
|
|
Total prepaid and other current assets
|
$
|
4,265
|
|
|
$
|
4,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 12
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Goodwill and Other Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
(In thousands)
|
Goodwill
|
$
|
12,790
|
|
|
$
|
12,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets
|
43
|
|
|
49
|
|
Total goodwill and other intangible assets
|
$
|
12,833
|
|
|
$
|
12,839
|
|
|
|
|
|
Accrued Expenses and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
(In thousands)
|
Payroll, incentives and commissions payable
|
$
|
5,614
|
|
|
$
|
8,400
|
|
Warranty reserve
|
809
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other accrued expenses and current liabilities
|
1,974
|
|
|
2,656
|
|
Total accrued expenses and other current liabilities
|
$
|
8,397
|
|
|
$
|
11,816
|
|
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 13
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 — Investments and Fair Value Measurements
Available-for-Sale Investments
The Company’s investments in investment-grade short-term high-quality marketable debt instruments, such as U.S. treasury securities, and corporate notes and bonds, are classified as available-for-sale. As of June 30, 2021 and December 31, 2020, available-for-sale investments were classified on the Condensed Consolidated Balance Sheet as short-term investments.
The classification of available-for-sale investments on the Condensed Consolidated Balance Sheet and definition of each of these classifications are provided in Note 1, “Description of Business and Significant Accounting Policies - Significant Accounting Policies,” subsections “Cash and Cash Equivalents” and “Short-term and Long-term Investments,” of the Notes to Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data,” in the 2020 Annual Report.
Expected maturities can differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. The Company generally holds available-for-sale investments until maturity; however, from time-to-time, the Company may elect to sell certain available-for-sale investments prior to contractual maturity.
Fair Value of Financial Instruments
All of the Company’s financial assets and liabilities are remeasured and reported at fair value at each reporting period; and are classified and disclosed in one of the following three pricing category levels:
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 — Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
Level 3 — Unobservable inputs in which little or no market activity exists, thereby requiring an entity to develop its own assumptions that market participants would use in pricing.
The following table presents the Company’s financial assets measured on a recurring basis by contractual maturity, including their pricing category, amortized cost, gross unrealized holding gains and losses, and fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
|
Pricing Category
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
|
|
|
(In thousands)
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market securities
|
|
|
|
Level 1
|
|
$
|
62,224
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
62,224
|
|
|
$
|
59,132
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents
|
|
|
|
|
|
62,224
|
|
|
—
|
|
|
—
|
|
|
62,224
|
|
|
59,132
|
|
|
—
|
|
|
—
|
|
|
59,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
|
|
Level 2
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,614
|
|
|
7
|
|
|
—
|
|
|
1,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate notes and bonds
|
|
|
|
Level 2
|
|
17,387
|
|
|
21
|
|
|
(14)
|
|
|
17,394
|
|
|
18,708
|
|
|
117
|
|
|
—
|
|
|
18,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
|
|
|
17,387
|
|
|
21
|
|
|
(14)
|
|
|
17,394
|
|
|
20,322
|
|
|
124
|
|
|
—
|
|
|
20,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
79,611
|
|
|
$
|
21
|
|
|
$
|
(14)
|
|
|
$
|
79,618
|
|
|
$
|
79,454
|
|
|
$
|
124
|
|
|
$
|
—
|
|
|
$
|
79,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021 and December 31, 2020, the Company had no financial liabilities and no Level 3 financial assets. During the six months ended June 30, 2021, the Company had no transfers of financial assets between any levels.
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 14
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents a summary of the fair value and gross unrealized holding losses on the available-for-sale securities that have been in a continuous unrealized loss position, aggregated by type of investment instrument. The available-for-sale securities that were in an unrealized gain position have been excluded from the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate notes and bonds
|
$
|
13,246
|
|
|
$
|
(14)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of Available-for-Sale Investments
The following table presents the sales of available-for-sale investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate notes and bonds
|
$
|
—
|
|
|
$
|
4,793
|
|
|
$
|
—
|
|
|
$
|
9,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains on sales of securities were immaterial during the three and six months ended June 30, 2020.
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 15
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 — Lines of Credit
Stand-By Letters of Credit
The Company entered into a loan and pledge agreement with a financial institution during January 2017, which has been amended multiple times to accommodate the growth of the Company (the original loan and pledge agreement and its subsequent amendments are hereinafter referred to as the “Loan and Pledge Agreement”). Under the Loan and Pledge Agreement, the Company is allowed to issue stand-by letters of credit (“SBLCs”) up to one year past the expiration date of the Loan and Pledge Agreement and to hold SBLCs with other financial institutions up to an aggregate amount of $5.1 million. SBLCs have a term limit of three years, are secured by pledged U.S. investments, and do not have any cash collateral balance requirements. SBLCs are deducted from the total revolving credit line under the Loan and Pledge Agreement and are subject to a non-refundable quarterly fee that is in an amount equal to 0.7% per annum of the face amount of the outstanding SBLCs.
As of June 30, 2021 and December 31, 2020, there were outstanding SBLCs of $12.2 million and $13.3 million, respectively.
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 16
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 — Commitments and Contingencies
Operating Lease Obligations
The following table presents a summary of operating lease, right of use assets and lease liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
(In thousands)
|
Operating lease, right of use asset
|
$
|
15,383
|
|
|
$
|
16,090
|
|
|
|
|
|
Lease liabilities, current
|
$
|
1,473
|
|
|
$
|
1,243
|
|
Lease liabilities, non-current
|
15,682
|
|
|
16,443
|
|
Total lease liability
|
$
|
17,155
|
|
|
$
|
17,686
|
|
The Company leases office, warehouse and manufacturing facilities under operating leases that expire on various dates through fiscal year 2030.
The following table presents operating lease activities related to all leased properties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
(In thousands)
|
Operating lease expense
|
$
|
642
|
|
|
$
|
668
|
|
|
$
|
1,285
|
|
|
$
|
1,271
|
|
|
|
Cash payments
|
647
|
|
|
618
|
|
|
1,136
|
|
|
1,108
|
|
|
|
Non-cash lease liabilities arising from obtaining right-of-use assets
|
—
|
|
|
—
|
|
|
—
|
|
|
6,384
|
|
|
|
The following table presents other information related to outstanding operating leases as of June 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term
|
7.9 years
|
|
|
|
|
Weighted average discount rate
|
7.0%
|
|
|
|
|
The following table presents the minimum lease payments under noncancelable operating leases, exclusive of executory costs as of June 30, 2021.
|
|
|
|
|
|
|
Lease Amounts
|
|
(In thousands)
|
Future minimum lease payments by year
|
|
2021 (remaining six months)
|
$
|
1,295
|
|
2022
|
2,650
|
|
2023
|
2,580
|
|
2024
|
2,812
|
|
2025
|
2,736
|
|
2026 and thereafter
|
10,461
|
|
Total future minimum lease payments
|
22,534
|
|
Less imputed lease interest
|
(5,379)
|
|
Total lease liabilities
|
$
|
17,155
|
|
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 17
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Warranty
The following table presents the changes in the Company’s accrued product warranty reserve.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
(In thousands)
|
Warranty reserve balance, beginning of period
|
$
|
811
|
|
|
$
|
665
|
|
|
$
|
760
|
|
|
$
|
631
|
|
|
|
Warranty costs charged to cost of revenue
|
81
|
|
|
75
|
|
|
208
|
|
|
173
|
|
|
|
Utilization charges against reserve
|
(13)
|
|
|
(1)
|
|
|
(13)
|
|
|
(2)
|
|
|
|
Release of accrual related to expired warranties
|
(70)
|
|
|
(66)
|
|
|
(146)
|
|
|
(129)
|
|
|
|
Warranty reserve balance, end of period
|
$
|
809
|
|
|
$
|
673
|
|
|
$
|
809
|
|
|
$
|
673
|
|
|
|
Purchase Obligations
The Company has purchase order arrangements with its vendors for which the Company has not received the related goods or services as of June 30, 2021. These arrangements are subject to change based on the Company’s sales demand forecasts. The Company has the right to cancel the arrangements prior to the date of delivery. The purchase order arrangements are related to various raw materials and component parts, as well as capital equipment. As of June 30, 2021, the Company had approximately $6.7 million of such open cancellable purchase order arrangements.
Litigation
The Company is named in and subject to various proceedings and claims in connection with its business. The outcome of matters the Company has been, and currently is, involved in cannot be determined at this time, and the results cannot be predicted with certainty. There can be no assurance that these matters will not have a material effect on the Company’s results of operations in any future period, and a significant judgment could have a material impact on the Company’s financial condition, results of operations and cash flows. The Company may in the future become involved in additional litigation in the ordinary course of business, including litigation that could be material to its business.
The Company considers all claims on a quarterly basis and, based on known facts, assesses whether potential losses are considered reasonably possible, probable and estimable. Based upon this assessment, the Company then evaluates disclosure requirements and whether to accrue for such claims in its consolidated financial statements. The Company records a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and are adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. As of June 30, 2021, there were no material losses which were probable or reasonably possible.
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 18
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8 — Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
(In thousands, except percentages)
|
|
|
(Benefit from) provision for income taxes
|
$
|
(743)
|
|
|
$
|
4,586
|
|
|
$
|
(1,383)
|
|
|
$
|
4,501
|
|
|
|
Discrete items
|
728
|
|
|
(272)
|
|
|
2,355
|
|
|
(82)
|
|
|
|
Provision for (benefit from) income taxes, excluding discrete items
|
$
|
(15)
|
|
|
$
|
4,314
|
|
|
$
|
972
|
|
|
$
|
4,419
|
|
|
|
Effective tax rate
|
(227.9
|
%)
|
|
21.3
|
%
|
|
(21.1
|
%)
|
|
20.4
|
%
|
|
|
Effective tax rate, excluding discrete items
|
(5.1
|
%)
|
|
20.1
|
%
|
|
14.8
|
%
|
|
20.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The Company’s quarterly tax provision and estimate of its annual effective tax rate are subject to variation due to several factors, including variability in accurately predicting its pre-tax income or loss and the mix of jurisdictions to which they relate, intercompany transactions, the applicability of special tax regimes, and changes in how the Company does business.
For the three and six months ended June 30, 2021, the recognized income tax benefit included a benefit primarily related to the U.S. federal research and development tax credit and a discrete tax benefit due primarily to stock-based compensation windfalls. For the three and six months ended June 30, 2020, the recognized income tax charge included a discrete tax charge related to the termination of the VorTeq License Agreement, partially offset by a discrete tax benefit due primarily to stock-based compensation windfalls.
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 19
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 — Stockholders’ Equity
Stock Repurchase Program
On March 9, 2021, the Board of Directors authorized a stock repurchase program under which the Company may repurchase, at the discretion of management, up to $50.0 million in aggregate cost of the Company’s outstanding common stock (the “March 2021 Authorization”). Under the March 2021 Authorization, purchases of shares of common stock may be made from time to time in the open market, or in privately negotiated transactions, in compliance with applicable state and federal securities laws. The timing and amounts of any purchases will be based on market conditions and other factors including price, regulatory requirements, and capital availability. The March 2021 Authorization does not obligate the Company to acquire any specific number of shares in any period, and may be expanded, extended, modified or discontinued at any time without prior notice. The Company accounts for stock repurchases using the cost method. The aggregate cost includes fees charged in connection with acquiring the shares. As of June 30, 2021, 656,938 shares at an aggregate cost of $11.6 million had been repurchased under the March 2021 Authorization.
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 20
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10 — Segment Reporting
The Company’s chief operating decision-maker (“CODM”) is its chief executive officer. The Company continues to monitor and review its segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact its reportable segments. As a result of the evolution of the Company’s products, operations and research and development (“R&D”) efforts in new product development, and the way in which the CODM manages and assesses the performance of the business, starting in the first quarter of fiscal year 2021, the Company realigned its segment reporting and has recast the prior year amounts for comparability. In addition, to better align the activities of the segments, the Company has re-allocated certain corporate resources to the segments’ operations.
Income and type of expense activities that are included in the Water and Emerging Technologies segments and corporate operating expenses are as follows:
Water segment: The continued development, sales and support of the PX, hydraulic turbochargers and pumps used in our seawater desalination and industrial wastewater activities.
Emerging Technologies segment: The continued development, sales and support of activities related to emerging technologies, such as the VorTeq used in the oil and gas market, the ISOBoost used in natural gas processing, the PX G1300 used in industrial and commercial refrigeration applications, and certain other new products.
Corporate operating expenses: Corporate activities outside of the operating segments, such as audit and accounting expenses, general legal costs, board of director fees and expenses, and other separately managed general expenses not related to the identified segments.
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 21
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Segment Financial Information
For each of the periods presented in the following tables, operating income (loss) for each segment excludes other income and expenses, and corporate operating expenses not included in how the CODM assesses the performance of the operating segments, such as income taxes and other separately managed general and administrative expenses not attributed to the operating segments. Assets and liabilities are reviewed at the consolidated level by the CODM and are not attributed to the segments. The CODM allocates resources to, and assesses the performance of, each operating segment using information about its revenue and operating income.
The following tables present a summary of the Company’s financial information by segment and corporate operating expenses.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
Six Months Ended June 30, 2021
|
|
|
|
|
|
Water
|
|
Emerging Technologies
|
|
Total
|
|
Water
|
|
Emerging Technologies
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Product revenue
|
$
|
20,568
|
|
|
$
|
39
|
|
|
$
|
20,607
|
|
|
$
|
49,508
|
|
|
$
|
39
|
|
|
$
|
49,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product cost of revenue
|
7,181
|
|
|
—
|
|
|
7,181
|
|
|
16,162
|
|
|
—
|
|
|
16,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product gross profit
|
13,387
|
|
|
39
|
|
|
13,426
|
|
|
33,346
|
|
|
39
|
|
|
33,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
1,776
|
|
|
1,315
|
|
|
3,091
|
|
|
3,333
|
|
|
2,481
|
|
|
5,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
2,121
|
|
|
229
|
|
|
2,350
|
|
|
4,285
|
|
|
408
|
|
|
4,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
595
|
|
|
3,829
|
|
|
4,424
|
|
|
1,096
|
|
|
7,830
|
|
|
8,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
3
|
|
|
—
|
|
|
3
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
4,495
|
|
|
5,373
|
|
|
9,868
|
|
|
8,721
|
|
|
10,719
|
|
|
19,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
$
|
8,892
|
|
|
$
|
(5,334)
|
|
|
3,558
|
|
|
$
|
24,625
|
|
|
$
|
(10,680)
|
|
|
13,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Corporate operating expenses
|
|
|
|
|
3,271
|
|
|
|
|
|
|
7,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
287
|
|
|
|
|
|
|
6,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
|
|
39
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
$
|
326
|
|
|
|
|
|
|
$
|
6,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 22
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020 (Recast)
|
|
Six Months Ended June 30, 2020 (Recast)
|
|
Water
|
|
Emerging Technologies
|
|
Total
|
|
Water
|
|
Emerging Technologies
|
|
Total
|
|
(In thousands)
|
Product revenue
|
$
|
19,256
|
|
|
$
|
—
|
|
|
$
|
19,256
|
|
|
$
|
38,257
|
|
|
$
|
—
|
|
|
$
|
38,257
|
|
Product cost of revenue
|
6,549
|
|
|
—
|
|
|
6,549
|
|
|
12,233
|
|
|
—
|
|
|
12,233
|
|
Product gross profit
|
12,707
|
|
|
—
|
|
|
12,707
|
|
|
26,024
|
|
|
—
|
|
|
26,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License and development revenue (1)
|
—
|
|
|
24,352
|
|
|
24,352
|
|
|
—
|
|
|
26,895
|
|
|
26,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
1,967
|
|
|
1,150
|
|
|
3,117
|
|
|
4,046
|
|
|
2,642
|
|
|
6,688
|
|
Sales and marketing
|
1,124
|
|
|
262
|
|
|
1,386
|
|
|
2,800
|
|
|
574
|
|
|
3,374
|
|
Research and development
|
960
|
|
|
5,392
|
|
|
6,352
|
|
|
1,862
|
|
|
11,199
|
|
|
13,061
|
|
Amortization of intangible assets
|
4
|
|
|
—
|
|
|
4
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Impairment of long-lived assets
|
—
|
|
|
2,332
|
|
|
2,332
|
|
|
—
|
|
|
2,332
|
|
|
2,332
|
|
Total operating expenses
|
4,055
|
|
|
9,136
|
|
|
13,191
|
|
|
8,716
|
|
|
16,747
|
|
|
25,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
$
|
8,652
|
|
|
$
|
15,216
|
|
|
23,868
|
|
|
$
|
17,308
|
|
|
$
|
10,148
|
|
|
27,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Corporate operating expenses
|
|
|
|
|
2,593
|
|
|
|
|
|
|
6,053
|
|
Income from operations
|
|
|
|
|
21,275
|
|
|
|
|
|
|
21,403
|
|
Other income, net
|
|
|
|
|
237
|
|
|
|
|
|
|
645
|
|
Income before income taxes
|
|
|
|
|
$
|
21,512
|
|
|
|
|
|
|
$
|
22,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) In June 2020, the Company and Schlumberger entered into an agreement to terminate the VorTeq License Agreement. The termination of the VorTeq License Agreement was effective June 1, 2020. As there were no future performance obligations to be recognized under the VorTeq License Agreement after the effective date, the Company recognized in full the remaining deferred revenue balance of $24.4 million in the second quarter of fiscal year 2020. In addition, no future license and development revenue was recognized under the VorTeq License Agreement after the second quarter of fiscal year 2020.
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 23
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11 — Concentrations
Product Revenue
The following table presents customers accounting for 10% or more of product revenue by segment. Although certain customers might account for greater than 10% of product revenue at any one point in time, the concentration of product revenue between a limited number of customers shifts regularly, depending on contract negotiations. The percentages by customer reflect specific relationships or contracts that would concentrate product revenue for the periods presented and does not indicate a trend specific to any one customer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
Segment
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
Customer A
|
|
|
Water
|
|
30%
|
|
22%
|
|
22%
|
|
15%
|
|
|
Customer B
|
|
|
Water
|
|
22%
|
|
19%
|
|
19%
|
|
24%
|
|
|
Customer C
|
|
|
Water
|
|
**
|
|
**
|
|
12%
|
|
**
|
|
|
Customer D
|
|
|
Water
|
|
**
|
|
22%
|
|
11%
|
|
21%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** Zero or less than 10%.
License and Development Revenue
There was no Emerging Technologies segment customer license and development revenue for the three and six months ended June 30, 2021. The Emerging Technologies segment had one international customer, Schlumberger, which accounted for 100% of the license and development revenue for the three and six months ended June 30, 2020. See Note 2, “Revenue,” for further discussion related to the termination of the VorTeq License Agreement.
Energy Recovery, Inc. | Q2'2021 Form 10-Q | 24