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Energy Recovery Inc Reports Second Quarter 2011 Financial Results

Energy Recovery Inc (Nasdaq: ERII), a leader in the design and development of energy recovery devices for desalination and industrial processes, announced today the results of its second quarter ended June 30, 2011. ERI achieved net revenue of $6.6 million for the quarter, reflecting a 50% decrease over the same period last year. The revenue decline was caused by decreased shipments of PX devices, turbochargers and pumps, and to a lesser extent, parts and services associated with aftermarket sales. Sales of PX devices and related products and services accounted for approximately 46% of our revenue compared to 69% in the second quarter of 2010, while turbochargers and pumps comprised approximately 54% of our revenue compared to 31% in the same quarter of the prior year. The shift in product mix favoring turbochargers and pumps, along with increased underutilization of our manufacturing facilities, resulted in decreased gross margin of 35% compared to 50% in the second quarter of 2010.

General and administrative expenses increased by $669,000, or 18%, to $4.3 million for the three months ended June 30, 2011 from $3.7 million for the same period in 2010. The increase in general and administrative expenses was caused by costs associated with the CFO transition, recruiting costs to fill other strategic positions, and other compensation expenses. The amortization of intangible assets decreased by $338,000, or 49%, to $345,000 in the current quarter from $683,000 in the same period of 2010 due to the full amortization of backlog acquired in connection with the purchase of Pump Engineering LLC. Non-operating income changed favorably by $154,000 for the three months ended June 30, 2011 primarily due to $58,000 in net foreign currency gains recorded during the second quarter of 2011 compared to ($85,000) in net foreign currency losses recorded during the second quarter of 2010 along with a minor decrease in interest expense.

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