Sentiment Analysis of the earnings transcript to help figure out if there are any bullish or bearish sentiments that could be gathered from it. We're doing ML and AI based analysis on the earnings call to get some more insights.
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| Statement |
|---|
| We achieved $37 million in revenue, exceeding the upper end of our guidance by almost 6% with a nearly 70% gross margin and over 32% adjusted EBITDA margin |
| The team is making tremendous progress in a mature, competitive industry and have made a name for ourselves in the market within a very short period |
| We continued to innovate within the desalinization industry with our Q400, the highest efficiency energy recovery device in the world |
| One very positive development in desalination comes from our new PX Q400, which is the highest performing energy recovery device available on the market |
| And you're right, we would still -- we should still -- even with that if those were to move out have a record quarter a record quarter, if I remember right about $42 million last year, we should still beat that regardless |
| Thus, we have a large established potential brownfield market in Europe, and a strong annual base of greenfield installations that we can tackle |
| In addition, our wastewater business, owing to our expanded product line and sales team, continues to surprise to the upside as our pipeline strengthens and evolves, the interest and participation in our webinars grow, and early-stage signs in regions outside of Asia, and in industries such as municipal wastewater, begin to show promise |
| Before I start I want to emphasize that Energy Recovery's fundamentals remain strong |
| We feel good about where we are the company |
| This adoption further strengthens our position in the market vis-à-vis our competitors |
| Where we sit today, we believe the market has the potential to regain its double-digit growth trajectory in 2025, where we could return to growth in the low to mid-teens, with further accelerated growth by 2026 to the high teens or even up to 20% |
| Year-to-date we've beaten our guidance of 64% to 66% with the gross margin just shy of 67% |
| Most importantly, I want to reiterate that we remain confident in our long-term strategy, which we are not deviating from and in our financial performance in 2023 and in the coming years |
| This means that we again anticipate record-breaking Desalination revenues and what will be nearly a decade of consecutive growth |
| We successfully shipped one of the two projects that are at risk for the third quarter and we were able to recognize revenue from our existing pipeline to make up the difference |
| As you've likely seen from our press release, despite a few tactical challenges we faced in the third quarter, our team was able to deliver a great quarter |
| This performance points to the strength of our water and operational teams |
| Overall, I and the rest of the Board are extremely bullish on our base water markets |
| The long-term secular story in desal and our broader water strategy remains as strong as ever |
| Our wastewater business continues to show real strength and we are guiding $12 million to $15 million in revenue in 2024, which will mean we have the potential to once again roughly double our revenue in this segment from this year |
| Our Water business will continue to grow in 2024, and we remain well-positioned at the core of a significant secular shift in water demand |
| Over the last several years, we have introduced our PX G and created a tremendous opportunity in CO2, built an established and growing business in wastewater and launched a family of new products to grow that business |
| We had a great third quarter, beating expectations across the board |
| Our secular story has not changed in desalination and we are seeing tremendous success in our Wastewater business |
| Before I get started, I want to be clear – That my opinion we remain a fundamentally solid company with a clear growth strategy and a base cash-generating Water business that remains strong |
| So, you can see, regardless of the short-term headwinds we see in desalination, our Water business remains robust |
| We have done the following: established strong relationships with major OEMs in Europe and the US; executed on installations with great OEM and grocery partners on both continents; and we’ve won two industry awards, the latest being the RAC Innovation of the Year award together with our good partner Epta Group in September of this year |
| So the timing of regulatory action the fact that the planet gets hotter it plays right into our PX G story and a really, really good payback story |
| In short, while the CO2 refrigeration market is still fairly nascent in the US, the regulatory momentum is strong, which means that we should see considerable uptick in the US greenfield market in the coming years |
| From my perspective, this is impressive progress for a new technology in this industry |
| Statement |
|---|
| It seems that the stock's reaction was due to a lack of communication by management especially with the CEO transition |
| Note that, due to slowing growth in revenue, somewhat weaker water gross margin and growing sales and marketing spend, we could see a softening of operating margin next year |
| We are now seeing some projects being delayed due to the rising costs to produce water, as well as the challenges of end users reaching financial closure in a higher interest rate environment |
| We are also seeing delays in the release of tenders of over $7 million in Saudi Arabia |
| Any deviation or shutdown in a refrigeration system can generate large losses for end users, like supermarkets and cold storage facilities, and the rest of the value chain |
| This slowdown is entirely due to our mega project space, which we now expect will flatten next year, and possibly even fall by a few percentage points, compared to 2023 |
| Although we have short-term challenges in our desalination mega project channel, we believe we remain on the path to achieve at least the lower end of our $230 million to $270 million targets for our Water business by end of 2026 |
| We're seeing a slowdown in the Middle East in 2024 and we're seeing other areas especially Asia and South America make up that difference |
| Second, we must deliver a PX G with meaningful payback to the end users |
| And so it's a very cautious industry |
| Needless to say, the stock has been cut in half from its highs |
| It is clear that we are growing at a slower pace than originally envisioned |
| People were just thinking the worse obviously because their stock is down over 50% |
| Our CO2 gross margin will largely depend on how we achieve sales, meaning whether by direct PX G1300 sales or by a skid solution, and could show losses in 2024, as we grow into the profitability of our brownfield market product |
| I believe we have the potential to disrupt this market |
| In today’s macro environment, water tariff expectations between large scale developers, EPCs, and end users are misaligned |
| However, we do have a few specific risks in the fourth quarter, which I would like to address |
| While we do not believe these dynamics will permanently alter the trajectory of the desalination market, they will likely slow our rate of growth in the near term, especially in more susceptible emerging markets |
| And third, of course, our PX G must deliver the performance needed to generate that meaningful payback |
| As smaller emerging market countries make up a larger portion of our sales such as those we have described in recent calls, our short-term execution risk within a given quarter also increases due to the complexity of managing and shipping to these countries |
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