Attached files
file | filename |
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EX-32.1 - EXHIBIT 32.1 - Energy Recovery, Inc. | ex32-1.htm |
EX-31.2 - EXHIBIT 31.2 - Energy Recovery, Inc. | ex31-2.htm |
EX-31.1 - EXHIBIT 31.1 - Energy Recovery, Inc. | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016 | |
or | |
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to __________ |
Commission File Number: 001-34112
Energy Recovery, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
01-0616867 |
(State or other jurisdiction of incorporation) |
(IRS Employer Identification No.) |
1717 Doolittle Drive, San Leandro, CA |
94577 |
(Address of Principal Executive Offices) |
(Zip Code) |
(510) 483-7370
(Registrant’s Telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ |
Accelerated filer ☑ | |
Non-accelerated filer ☐ |
(Do not check if a smaller reporting company) |
Smaller reporting company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes ☐ No ☑
As of August 1, 2016, there were 52,054,700 shares of the registrant’s common stock outstanding.
ENERGY RECOVERY, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2016
TABLE OF CONTENTS
Page No. | ||
PART I. FINANCIAL INFORMATION | ||
Item 1. |
Financial Statements (unaudited) |
|
Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015 |
3 | |
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015 |
4 | |
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2016 and 2015 |
5 | |
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015 |
6 | |
Notes to Condensed Consolidated Financial Statements |
7 | |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
32 |
Item 4. |
Controls and Procedures |
33 |
PART II. OTHER INFORMATION | ||
Item 1. |
Legal Proceedings |
33 |
Item 1A. |
Risk Factors |
33 |
Item 2. |
Unregistered Sales of Equity Securities and Use Of Proceeds |
33 |
Item 6. |
Exhibits |
34 |
Signatures |
35 |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and par value)
(unaudited)
June 30, 2016 |
December 31, |
|||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 78,987 | $ | 99,931 | ||||
Restricted cash |
1,058 | 1,490 | ||||||
Short-term investments |
15,095 | 257 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $168 and $166 at June 30, 2016 and December 31, 2015, respectively |
8,242 | 11,590 | ||||||
Unbilled receivables, current |
1,804 | 1,879 | ||||||
Inventories |
6,178 | 6,503 | ||||||
Deferred tax assets, net |
— | 938 | ||||||
Prepaid expenses and other current assets |
1,272 | 943 | ||||||
Total current assets |
112,636 | 123,531 | ||||||
Restricted cash, non-current |
3,065 | 2,317 | ||||||
Unbilled receivables, non-current |
— | 6 | ||||||
Deferred tax assets, non-current |
885 | — | ||||||
Property and equipment, net of accumulated depreciation of $19,872 and $18,338 at June 30, 2016 and December 31, 2015, respectively |
9,762 | 10,622 | ||||||
Goodwill |
12,790 | 12,790 | ||||||
Other intangible assets, net |
2,216 | 2,531 | ||||||
Other assets, non-current |
2 | 2 | ||||||
Total assets |
$ | 141,356 | $ | 151,799 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 1,518 | $ | 1,865 | ||||
Accrued expenses and other current liabilities |
5,233 | 7,808 | ||||||
Income taxes payable |
89 | 2 | ||||||
Accrued warranty reserve |
411 | 461 | ||||||
Deferred revenue |
6,772 | 5,878 | ||||||
Current portion of long-term debt |
10 | 10 | ||||||
Total current liabilities |
14,033 | 16,024 | ||||||
Long-term debt, net of current portion |
33 | 38 | ||||||
Deferred tax liabilities, non-current |
2,109 | 2,360 | ||||||
Deferred revenue, non-current |
66,462 | 69,000 | ||||||
Other non-current liabilities |
637 | 718 | ||||||
Total liabilities |
83,274 | 88,140 | ||||||
Commitments and Contingencies (Note 9) |
||||||||
Stockholders’ equity: |
||||||||
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding |
— | — | ||||||
Common stock, $0.001 par value; 200,000,000 shares authorized; 55,731,277 shares issued and 52,124,021 shares outstanding at June 30, 2016, and 54,948,235 shares issued and 52,468,779 shares outstanding at December 31, 2015 |
56 | 55 | ||||||
Additional paid-in capital |
134,156 | 129,809 | ||||||
Accumulated other comprehensive loss |
(101 | ) | (64 | ) | ||||
Treasury stock at cost, 3,607,256 and 2,479,456 shares repurchased at June 30, 2016 and December 31, 2015, respectively |
(15,213 | ) | (6,835 | ) | ||||
Accumulated deficit |
(60,816 | ) | (59,306 | ) | ||||
Total stockholders’ equity |
58,082 | 63,659 | ||||||
Total liabilities and stockholders’ equity |
$ | 141,356 | $ | 151,799 |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2016 |
2015 |
2016 |
2015 |
|||||||||||||
Product revenue |
$ | 11,973 | $ | 10,484 | $ | 22,024 | $ | 16,348 | ||||||||
Product cost of revenue |
4,236 | 4,836 | 7,910 | 7,367 | ||||||||||||
Product gross profit |
7,737 | 5,648 | 14,114 | 8,981 | ||||||||||||
License and development revenue |
1,250 | — | 2,500 | — | ||||||||||||
Operating expenses: |
||||||||||||||||
General and administrative |
3,992 | 5,362 | 8,876 | 11,640 | ||||||||||||
Sales and marketing |
1,935 | 1,994 | 4,005 | 4,427 | ||||||||||||
Research and development |
2,422 | 1,410 | 5,087 | 3,943 | ||||||||||||
Amortization of intangible assets |
158 | 158 | 315 | 317 | ||||||||||||
Total operating expenses |
8,507 | 8,924 | 18,283 | 20,327 | ||||||||||||
Income (loss) from operations |
480 | (3,276 | ) | (1,669 | ) | (11,346 | ) | |||||||||
Other expense: |
||||||||||||||||
Interest expense |
— | — | (1 | ) | (40 | ) | ||||||||||
Other non-operating income (expense) |
79 | 20 | 58 | (82 | ) | |||||||||||
Income (loss) before income taxes |
559 | (3,256 | ) | (1,612 | ) | (11,468 | ) | |||||||||
Provision (benefit) for income taxes |
103 | 71 | (102 | ) | 142 | |||||||||||
Net income (loss) |
$ | 456 | $ | (3,327 | ) | $ | (1,510 | ) | $ | (11,610 | ) | |||||
Net income (loss) per share - basic |
$ | 0.01 | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.22 | ) | |||||
Net income (loss) per share - diluted |
$ | 0.01 | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.22 | ) | |||||
Weighted average shares outstanding - basic |
52,369 | 52,026 | 52,288 | 51,987 | ||||||||||||
Weighted average shares outstanding - diluted |
55,698 | 52,026 | 52,288 | 51,987 |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2016 |
2015 |
2016 |
2015 |
|||||||||||||
Net income (loss) |
$ | 456 | $ | (3,327 | ) | $ | (1,510 | ) | $ | (11,610 | ) | |||||
Other comprehensive (loss) income, net of tax: |
||||||||||||||||
Foreign currency translation adjustments |
6 | (6 | ) | (6 | ) | 25 | ||||||||||
Unrealized (loss) gain on investments |
(32 | ) | (2 | ) | (31 | ) | 1 | |||||||||
Other comprehensive (loss) income |
(26 | ) | (8 | ) | (37 | ) | 26 | |||||||||
Comprehensive income (loss) |
$ | 430 | $ | (3,335 | ) | $ | (1,547 | ) | $ | (11,584 | ) |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended June 30, |
||||||||
2016 |
2015 |
|||||||
Cash Flows From Operating Activities |
||||||||
Net loss |
$ | (1,510 | ) | $ | (11,610 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Stock-based compensation |
1,865 | 3,053 | ||||||
Depreciation and amortization |
1,851 | 1,959 | ||||||
Provision for warranty claims |
96 | 15 | ||||||
Unrealized loss on foreign currency transactions |
52 | 21 | ||||||
Amortization of premiums on investments |
34 | 130 | ||||||
Change in fair value of put options |
33 | — | ||||||
Provision for doubtful accounts |
16 | 59 | ||||||
Valuation adjustments for excess or obsolete inventory |
(42 | ) | 21 | |||||
Other non-cash adjustments |
(49 | ) | 86 | |||||
Reversal of accruals related to expired warranties |
(146 | ) | — | |||||
Deferred income taxes |
(199 | ) | 131 | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
3,333 | 3,472 | ||||||
Deferred revenue, product |
855 | 714 | ||||||
Inventories |
389 | (1,520 | ) | |||||
Income taxes payable |
89 | 4 | ||||||
Unbilled receivables |
81 | 60 | ||||||
Litigation settlement |
— | (1,700 | ) | |||||
Accounts payable |
(347 | ) | 549 | |||||
Prepaid and other assets |
(384 | ) | 239 | |||||
Deferred revenue, SLB license |
(2,500 | ) | — | |||||
Accrued expenses and other liabilities |
(2,668 | ) | (3,633 | ) | ||||
Net cash provided by (used in) operating activities |
849 | (7,950 | ) | |||||
Cash Flows From Investing Activities |
||||||||
Maturities of marketable securities |
— | 8,235 | ||||||
Restricted cash |
(315 | ) | 2,422 | |||||
Capital expenditures |
(613 | ) | (429 | ) | ||||
Purchases of marketable securities |
(14,903 | ) | — | |||||
Net cash (used in) provided by investing activities |
(15,831 | ) | 10,228 | |||||
Cash Flows From Financing Activities |
||||||||
Net proceeds from issuance of common stock |
2,511 | 293 | ||||||
Proceeds from long-term debt |
— | 55 | ||||||
Repayment of long-term debt |
(5 | ) | (2 | ) | ||||
Repurchase of common stock |
(8,378 | ) | — | |||||
Net cash (used in) provided by financing activities |
(5,872 | ) | 346 | |||||
Effect of exchange rate differences on cash and cash equivalents |
(90 | ) | (18 | ) | ||||
Net change in cash and cash equivalents |
(20,944 | ) | 2,606 | |||||
Cash and cash equivalents, beginning of period |
99,931 | 15,501 | ||||||
Cash and cash equivalents, end of period |
$ | 78,987 | $ | 18,107 |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 — The Company and Summary of Significant Accounting Policies
The Company
Energy Recovery, Inc. (the “Company”, “Energy Recovery”, “Our”, “Us”, and “We”) is an energy solutions provider to industrial fluid flow markets worldwide. We make industrial processes more operating and capital expenditure efficient. Our solutions convert wasted pressure energy into a reusable asset and preserve or eliminate pumping technology in hostile processing environments. Our solutions are marketed and sold in fluid flow markets, such as water, oil & gas, and chemical processing, under the trademarks ERI®, PX®, Pressure Exchanger®, PX Pressure Exchanger®, AT™, AquaBold™, VorTeq™, IsoBoost®, and IsoGen®. Our solutions are developed in whole or in part, in the United States of America (“U.S.”), as well as other locations internationally.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires our management to make judgments, assumptions, and estimates that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The accounting policies that reflect our more significant estimates and judgments and that we believe are the most critical to aid in fully understanding and evaluating our reported financial results are revenue recognition; allowance for doubtful accounts; allowance for product warranty; valuation of stock options; valuation and impairment of goodwill, long-lived assets, and acquired intangible assets; useful lives for depreciation and amortization; valuation adjustments for excess and obsolete inventory; and deferred taxes and valuation allowances on deferred tax assets. Actual results could differ materially from those estimates.
Basis of Presentation
The condensed consolidated financial statements include the accounts of Energy Recovery, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
The accompanying condensed consolidated financial statements have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The December 31, 2015 condensed consolidated balance sheet was derived from audited financial statements, and may not include all disclosures required by U.S. GAAP; however, we believe that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2015 included in our Annual Report on Form 10-K filed with the SEC on March 3, 2016.
In the opinion of management, all adjustments, consisting of only normal recurring adjustments that are necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, have been made. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The amendment requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. On July 9, 2015, the FASB voted to approve a one-year deferral of the effective date of ASU 2014-09. Based on the FASB’s decision, ASU 2014-09 will apply to us for annual reporting periods beginning after December 15, 2017, including interim reporting periods within annual reporting periods beginning after December 15, 2017. Additionally, the FASB decided to permit early adoption, but not before the original effective date (that is, annual periods beginning after December 15, 2016). The FASB issued ASU 2015-14 in August 2015, formally deferring the effective date of ASU 2014-09 by one year. We expect to adopt this guidance as of January 1, 2018. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the effect that ASU 2014-09 will have on our financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes. ASU 2015-17 eliminates the current requirement to present deferred tax assets and liabilities as current and noncurrent in a classified statement of financial position. Instead, ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. We early adopted this accounting standard update, on a prospective basis, at the beginning of the second quarter of 2016 to simplify presentation of deferred taxes. The adoption at the beginning of the second quarter resulted in a $1.1 million decrease in current deferred tax assets, a $0.8 million increase in non-current deferred tax assets, and a $0.3 million decrease in non-current deferred tax liabilities. No prior periods were retrospectively adjusted.
In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 modifies certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. For public entities, ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. We do not expect the adoption of this standard to have a material impact on our financial statements.
In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). ASU 2016-02 impacts any entity that enters into a lease with some specified scope exceptions. The guidance updates and supersedes Topic 840, Leases. For public entities, ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the impact of this guidance on our ongoing financial reporting.
In March and April 2016, the FASB issued ASU No. 2016-08 and ASU No. 2016-10, respectively, Revenue from Contracts with Customers (Topic 606). The amendments in the Updates are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and to clarify two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The effective date and transition requirements for both ASU 2016-08 and ASU 2016-10 are the same as those for ASU 2014-09 as deferred by ASU 2015-14.
In March 2016, the FASB issued ASU No. 2016-09 Compensation – Stock Compensation (Topic 718). ASU 2016-09 affects any entity that issues stock-based payment awards to their employees and is intended to simplify several aspects of the accounting for stock-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods with those annual periods. Early adoption is permitted. We have not evaluated the impact of this guidance, but do not expect the adoption of this standard to have a material impact on our financial statements.
Note 2 — Goodwill and Other Intangible Assets
Goodwill as of June 30, 2016 and December 31, 2015 of $12.8 million was the result of our acquisition of Pump Engineering, LLC in December 2009. During the three and six months ended June 30, 2016, there were no changes in the recognized amount of goodwill, and there has been no impairment of goodwill to date.
The components of identifiable other intangible assets, all of which are finite-lived, as of the dates indicated were as follows (in thousands):
June 30, 2016 | ||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Accumulated Impairment Losses |
Net Carrying Amount |
|||||||||||||
Developed technology |
$ | 6,100 | $ | (4,016 | ) | $ | — | $ | 2,084 | |||||||
Non-compete agreements |
1,310 | (1,310 | ) | — | — | |||||||||||
Backlog |
1,300 | (1,300 | ) | — | — | |||||||||||
Trademarks |
1,200 | (180 | ) | (1,020 | ) | — | ||||||||||
Customer relationships |
990 | (990 | ) | — | — | |||||||||||
Patents |
585 | (411 | ) | (42 | ) | 132 | ||||||||||
Total |
$ | 11,485 | $ | (8,207 | ) | $ | (1,062 | ) | $ | 2,216 |
December 31, 2015 |
||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Accumulated Impairment Losses |
Net Carrying Amount |
|||||||||||||
Developed technology |
$ | 6,100 | $ | (3,711 | ) | $ | — | $ | 2,389 | |||||||
Non-compete agreements |
1,310 | (1,310 | ) | — | — | |||||||||||
Backlog |
1,300 | (1,300 | ) | — | — | |||||||||||
Trademarks |
1,200 | (180 | ) | (1,020 | ) | — | ||||||||||
Customer relationships |
990 | (990 | ) | — | — | |||||||||||
Patents |
585 | (401 | ) | (42 | ) | 142 | ||||||||||
Total |
$ | 11,485 | $ | (7,892 | ) | $ | (1,062 | ) | $ | 2,531 |
Accumulated impairment losses at June 30, 2016 include impairment charges for trademarks in 2012 and impairment charges for patents in 2007 and 2010.
Note 3 — Income (loss) per Share
Basic and diluted net income (loss) per share is based on the weighted average number of common shares outstanding during the period. Potential dilutive securities are excluded from the calculation of (loss) per share, as their inclusion would be anti-dilutive.
The following table shows the computation of basic and diluted income (loss) per share (in thousands, except per share data):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2016 |
2015 |
2016 |
2015 |
|||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) |
$ | 456 | $ | (3,327 | ) | $ | (1,510 | ) | $ | (11,610 | ) | |||||
Denominator: |
||||||||||||||||
Basic weighted average common shares outstanding |
52,369 | 52,026 | 52,288 | 51,987 | ||||||||||||
Weighted average effect of dilutive stock awards |
3,329 | — | — | — | ||||||||||||
Diluted weighted average common shares outstanding |
55,698 | 52,026 | 52,288 | 51,987 | ||||||||||||
Net income (loss) per share - basic |
$ | 0.01 | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.22 | ) | |||||
Net income (loss) per share - diluted |
$ | 0.01 | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.22 | ) |
The following potential common shares were excluded from the computation of diluted income (loss) per share because their effect would have been anti-dilutive (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2016 |
2015 |
2016 |
2015 |
|||||||||||||
Stock options |
3,937 | 8,267 | 7,234 | 8,267 | ||||||||||||
Warrants |
— | 200 | — | 200 | ||||||||||||
Restricted stock units |
182 | — | 214 | — |
Note 4 — Other Financial Information
Restricted Cash
We have pledged cash in connection with stand-by letters of credit. We have deposited corresponding amounts into a money market account at a financial institution for these items as follows (in thousands):
June 30, 2016 |
December 31, 2015 |
|||||||
Current collateral for stand-by letters of credit |
$ | 1,058 | $ | 1,490 | ||||
Non-current collateral for stand-by letters of credit |
3,065 | 2,317 | ||||||
Total restricted cash |
$ | 4,123 | $ | 3,807 |
Inventories
Our inventories are stated at the lower of cost (using the first-in, first-out “FIFO” method) or market and consisted of the following (in thousands):
June 30, 2016 |
December 31, 2015 |
|||||||
Raw materials |
$ | 2,174 | $ | 2,590 | ||||
Work in process |
1,896 | 1,689 | ||||||
Finished goods |
2,108 | 2,224 | ||||||
Inventories |
$ | 6,178 | $ | 6,503 |
Prepaid and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
June 30, 2016 |
December 31, 2015 |
|||||||
Foreign currency put option |
$ | — | $ | 33 | ||||
Interest receivable |
108 | 4 | ||||||
Supplier advances |
110 | 171 | ||||||
Prepaid rent |
152 | 7 | ||||||
Other prepaid expenses and current assets |
902 | 728 | ||||||
Total prepaid and other current assets |
$ | 1,272 | $ | 943 |
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
June 30, 2016 |
December 31, 2015 |
|||||||
Payroll and commissions payable |
$ | 2,478 | $ | 5,086 | ||||
Accrued legal expenses |
497 | 217 | ||||||
Other accrued expenses and current liabilities |
2,258 | 2,505 | ||||||
Accrued expenses and other current liabilities |
$ | 5,233 | $ | 7,808 |
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component for the six months ended June 30, 2016, were as follows (in thousands):
Foreign Currency Translation Adjustments Net of Tax Benefit |
Unrealized Losses on Investments |
Total Accumulated Other Comprehensive Loss |
||||||||||
Balance, December 31, 2015 |
$ | (63 | ) | $ | (1 | ) | $ | (64 | ) | |||
Net other comprehensive loss |
(6 | ) | (31 | ) | (37 | ) | ||||||
Balance, June 30, 2016 |
$ | (69 | ) | $ | (32 | ) | $ | (101 | ) |
There were no reclassifications of amounts out of accumulated other comprehensive loss, as there have been no sales of securities or translation adjustments that impacted other comprehensive loss during the quarter. The tax impact of the changes in accumulated other comprehensive loss were not material.
Note 5 — Investments
Our short-term investments are all classified as available-for-sale. There were no sales of available-for-sale securities during the six months ended June 30, 2016.
Available-for-sale securities as of the dates indicated consisted of the following (in thousands):
June 30, 2016 |
||||||||||||||||
Amortized Cost |
Gross Unrealized Holding Gains |
Gross Unrealized Holding Losses |
Fair Value |
|||||||||||||
Corporate notes and bonds |
$ | 15,127 | $ | — | $ | (32 | ) | $ | 15,095 | |||||||
Total short-term investments |
$ | 15,127 | $ | — | $ | (32 | ) | $ | 15,095 |
December 31, 2015 |
||||||||||||||||
Amortized Cost |
Gross Unrealized Holding Gains |
Gross Unrealized Holding Losses |
Fair Value |
|||||||||||||
Corporate notes and bonds |
$ | 258 | $ | — | $ | (1 | ) | $ | 257 | |||||||
Total short-term investments |
$ | 258 | $ | — | $ | (1 | ) | $ | 257 |
Gross unrealized losses and fair values of our investments in an unrealized loss position as of the dates indicated, aggregated by investment category and length of time that the security has been in a continuous loss position, were as follows (in thousands):
June 30, 2016 |
||||||||||||||||||||||||
Less than 12 Months |
12 Months or greater |
Total |
||||||||||||||||||||||
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
|||||||||||||||||||
Corporate notes and bonds |
$ | 14,843 | $ | (32 | ) | $ | 252 | $ | — | $ | 15,095 | $ | (32 | ) | ||||||||||
Total |
$ | 14,843 | $ | (32 | ) | $ | 252 | $ | — | $ | 15,095 | $ | (32 | ) |
December 31, 2015 |
||||||||||||||||||||||||
Less than 12 Months |
12 Months or greater |
Total |
||||||||||||||||||||||
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
|||||||||||||||||||
Corporate notes and bonds |
$ | — | $ | — | $ | 257 | $ | (1 | ) | $ | 257 | $ | (1 | ) | ||||||||||
Total |
$ | — | $ | — | $ | 257 | $ | (1 | ) | $ | 257 | $ | (1 | ) |
Expected maturities can differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. The amortized cost and fair value of available-for-sale securities that had stated maturities as of June 30, 2016 are shown below by contractual maturity (in thousands):
June 30, 2016 |
||||||||
Amortized Cost |
Fair Value |
|||||||
Due in one year or less |
$ | 15,127 | $ | 15,095 | ||||
Total available-for-sale securities |
$ | 15,127 | $ | 15,095 |
Note 6 — Long-Term Debt and Line of Credit
Debt
In March 2015, we entered into a loan agreement with a financial institution for a $55,000 fixed-rate installment loan carrying an annual interest rate of 6.35%. The loan is payable in equal monthly installments and matures on April 2, 2020. The note is secured by the asset purchased.
Long-term debt consisted of the following (in thousands)
June 30, 2016 |
December 31, 2015 |
|||||||
Loan payable |
$ | 43 | $ | 48 | ||||
Less: current portion |
(10 | ) | (10 | ) | ||||
Total long-term debt |
$ | 33 | $ | 38 |
Future minimum principal payments due under long-term debt arrangements consist of the following (in thousands):
June 30, 2016 |
||||
2016 (remaining six months) |
$ | 5 | ||
2017 |
11 | |||
2018 |
11 | |||
2019 |
12 | |||
2020 |
4 | |||
Total debt |
$ | 43 |
Line of Credit
In June 2012, we entered into a loan agreement (the “2012 Agreement”) with a financial institution. The 2012 Agreement was amended in June 2015. The 2012 Agreement, as amended, provides for a total available credit line of $16.0 million. Under the 2012 Agreement, we are allowed to draw advances not to exceed, at any time, $10.0 million as revolving loans. The total stand-by letters of credit issued under the 2012 Agreement may not exceed the lesser of the $16.0 million credit line or the credit line minus all outstanding revolving loans. At no time may the aggregate of the revolving loans and stand-by letters of credit exceed the total available credit line of $16.0 million. Revolving loans may be in the form of a base rate loan that bears interest equal to the prime rate or a Eurodollar loan that bears interest equal to the adjusted LIBOR rate plus 1.25%. Stand-by letters of credit are subject to customary fees and expenses for issuance or renewal. The unused portion of the credit facility is subject to a facility fee in an amount equal to 0.25% per annum of the average unused portion of the revolving line. The 2012 Agreement, as amended, also requires us to maintain a cash collateral balance equal to 101% of all outstanding advances and all outstanding stand-by letters of credit collateralized by the line of credit. The 2012 Agreement, as amended, matures in June 2018 and is collateralized by substantially all of our assets.
As of June 30, 2016 and December 31, 2015, there were no advances drawn under the 2012 Agreement. Stand-by letters of credit collateralized under the 2012 Agreement, as amended, totaled $4.1 million and $3.8 million as of June 30, 2016 and December 31, 2015, respectively. Total cash restricted related to these stand-by letters of credit totaled $4.1 million and $3.8 million as of June 30, 2016 and December 31, 2015, respectively.
We are subject to certain financial and administrative covenants under the 2012 Agreement, as amended. As of June 30, 2016, we were in compliance with these covenants.
Note 7 — Equity
Stock Repurchase Program
In January 2016, the Board of Directors authorized a stock repurchase program under which shares, not to exceed $6.0 million in aggregate cost, of our outstanding common stock can be repurchased through June 30, 2016 at the discretion of management. We account for stock repurchases using the cost method. Cost includes fees charged in connection with acquiring the treasury stock. As of June 30, 2016, 673,700 shares, at an aggregate cost of $4.1 million, had been repurchased under this authorization. This authorization was replaced with a new authorization in May 2016.
In May 2016, the Board of Directors authorized a stock repurchase plan under which shares, not to exceed $10.0 million in aggregate cost, of our outstanding common stock could be repurchased through October 31, 2016 at the discretion of management. As of June 30, 2016, 454,100 shares, at an aggregate cost of $4.3 million, had been repurchased under this authorization.
Stock-based Compensation Expense
For the three and six months ended June 30, 2016 and 2015, we recognized stock-based compensation expense related to employees and consultants as follows (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2016 |
2015 |
2016 |
2015 |
|||||||||||||
Cost of revenue |
$ | 24 | $ | 37 | $ | 62 | $ | 72 | ||||||||
General and administrative |
373 | 1,679 | 1,257 | 2,576 | ||||||||||||
Sales and marketing |
125 | 106 | 284 | 207 | ||||||||||||
Research and development |
155 | 91 | 262 | 198 | ||||||||||||
Total stock-based compensation expense |
$ | 677 | $ | 1,913 | $ | 1,865 | $ | 3,053 |
Stock-based compensation in the three and six months ended June 30, 2015 included modification expenses in connection with the resignation of the former Chief Executive Officer related to the accelerated vesting, extended vesting, and extended exercise period of options previously granted of approximately $1.3 million.
In connection with the resignation of the former General Counsel, Chief Compliance Officer, and Secretary, additional stock based compensation of approximately $0.5 million was recorded in the first quarter of 2016 related to the continued vesting of awards granted prior to the resignation.
Stock Option Plan
On June 23, 2016, our stockholders approved the 2016 Incentive Plan (the “Plan”). Prior to June 23, 2016, we maintained an equity incentive plan, the Amended and Restated 2008 Equity Incentive Plan (the “Prior Plan”). Stock-based awards granted under the Plan generally vest over four years and expire no more than ten years after the date of grant. Subject to adjustments as provided in the Plan, the number of shares of common stock initially authorized for issuance under the Plan is 4,441,083, plus up to 7,635,410 shares subject to outstanding awards under the Prior Plan that subsequently cease to be subject to such awards (other than by reason of exercise or settlement of the awards in shares). On July 27, 2016, we filed a registration statement on Form S-8 with respect to 4,441,083 shares issuable under the Plan. The Plan supersedes all previously issued stock incentive plans and will be the only available plan from which stock related awards may be granted.
Stock Option Activity
The following table summarizes the stock option activity under the Plan and includes options granted under all previous plans:
Options Outstanding |
||||||||||||||||
Options |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (in Years) |
Aggregate Intrinsic Value (2) |
|||||||||||||
Balance December 31, 2015 |
7,198,479 | $ | 3.97 | 7.0 | $ | 22,875,000 | ||||||||||
Granted |
872,017 | $ | 8.49 | — | — | |||||||||||
Exercised |
(783,042 | ) | $ | 3.21 | — | — | ||||||||||
Forfeited |
(53,316 | ) | $ | 5.44 | — | — | ||||||||||
Balance June 30, 2016 |
7,234,138 | $ | 4.58 | 7.2 | $ | 31,185,000 | ||||||||||
Vested and exercisable as of June 30, 2016 |
4,439,757 | $ | 4.20 | 6.1 | $ | 20,838,000 | ||||||||||
Vested and exercisable as of June 30, 2016 and expected to vest thereafter(1) |
6,780,263 | $ | 4.53 | 7.0 | $ | 29,888,000 |
(1) Options that are expected to vest are net of estimated future option forfeitures in accordance with the provisions of ASC 718, “Compensation — Stock Compensation.”
(2) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of our common stock as of June 30, 2016 of $8.89 per share
As of June 30, 2016, total unrecognized compensation cost related to non-vested options, net of estimated forfeitures, was $6.8 million, which is expected to be recognized as an expense over a weighted average period of approximately 2.74 years.
Restricted Stock Unit Activity
The following table summarizes the restricted stock unit activity under the Plan and includes restricted stock units granted under all previous plans:
Units |
Weighted Average Grant-Date Fair Value |
|||||||
(Per unit) | ||||||||
Outstanding at December 31, 2015 |
— | $ | — | |||||
Awarded |
213,514 | $ | 8.65 | |||||
Vested |
— | $ | — | |||||
Forfeited |
— | $ | — | |||||
Outstanding at June 30, 2016 |
213,514 | $ | 8.65 |
As of June 30, 2016, total unrecognized compensation cost related to non-vested restricted stock units, net of estimated forfeitures, was $1.3 million, which is expected to be recognized as an expense over a weighted average period of approximately 3.7 years.
Note 8 — Income Taxes
The effective tax rate for the six months ended June 30, 2016 and 2015 was 6.3% and (1.23%), respectively. As of December 31, 2015, a valuation allowance of approximately $21.4 million had been established to reduce our deferred income tax assets to the amount expected to be realized. The tax expense recognized for the six months ended June 30, 2016, was primarily related to the tax basis amortization of goodwill and federal, state, and other taxes. The tax expenses were offset by a tax benefit related to losses in our Ireland subsidiary.
Note 9 — Commitments and Contingencies
Operating Lease Obligations
We lease facilities under fixed non-cancellable operating leases that expire on various dates through November 2019. Future minimum lease payments consist of the following (in thousands):
June 30, 2016 |
||||
2016 (remaining six months) |
838 | |||
2017 |
1,642 | |||
2018 |
1,603 | |||
2019 |
1,402 | |||
Total future minimum lease payments |
$ | 5,485 |
Product Warranty
The following table summarizes the activity related to the product warranty liability during the three and six months ended June 30, 2016 and 2015 (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2016 |
2015 |
2016 |
2015 |
|||||||||||||
Balance, beginning of period |
$ | 428 | $ | 756 | $ | 461 | $ | 755 | ||||||||
Warranty costs charged to cost of revenue |
54 | (6 | ) | 96 | 15 | |||||||||||
Release of accrual for expired warranties |
(71 | ) | — | (146 | ) | — | ||||||||||
Utilization of warranty |
— | (3 | ) | — | (23 | ) | ||||||||||
Balance, end of period |
$ | 411 | $ | 747 | $ | 411 | $ | 747 |
Purchase Obligations
We enter into purchase order arrangements with our vendors. As of June 30, 2016, there were open purchase orders for which we had not yet received the related goods or services. These arrangements are subject to change based on our sales demand forecasts, and we have the right to cancel the arrangements prior to the date of delivery. As of June 30, 2016, we had approximately $1.4 million of cancellable open purchase order arrangements related primarily to materials and parts.
Guarantees
We enter into indemnification provisions under our agreements with other companies in the ordinary course of business, typically with customers. Under these provisions, we generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of our activities, generally limited to personal injury and property damage caused by our employees at a customer’s desalination plant in proportion to the employee’s percentage of fault for the accident. Damages incurred for these indemnifications would be covered by our general liability insurance to the extent provided by the policy limitations. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the estimated fair value of these agreements is not material. Accordingly, we have no liabilities recorded for these agreements as of June 30, 2016 and December 31, 2015.
In certain cases, we issue warranty and product performance guarantees to our customers for amounts ranging from 5% to 15% of the total sales agreement to endorse the execution of product delivery and the warranty of design work, fabrication, and operating performance. These guarantees, generally in the form of stand-by letters of credit or bank guarantees secured by stand-by letters of credit, typically remain in place for periods ranging up to 24 months and in some cases up to 68 months, and relate to the underlying product warranty period. The stand-by letters of credit are collateralized by restricted cash and our credit facility. The $4.1 million in stand-by letters of credit outstanding at June 30, 2016 were collateralized by restricted cash of $4.1 million.
Litigation
The Company is named in and subject to various proceedings and claims in connection with our business. We are contesting the allegations in these claims, and we believe that there are meritorious defenses in each of these matters. The outcome of matters we have been and currently are 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 adverse effect on our results of operations in any future period and a significant judgment could have a material adverse impact on our financial condition, results of operations and cash flows. We may in the future become involved in additional litigation in the ordinary course of our business, including litigation that could be material to our business. Based on currently available information and review with outside counsel, management does not believe that the currently known actions or threats against the Company will result in any material adverse effect on our financial condition, results of operations, or cash flows.
On September 10, 2014, the Company terminated the employment of its Senior Vice President, Sales, Borja Blanco, on the basis of breach of duty of trust and conduct leading to conflict of interest. On October 24, 2014, Mr. Blanco filed a labor claim against ERI Iberia in Madrid, Spain, challenging the fairness of his dismissal and seeking compensation (“Case 1”). A hearing was held on November 13, 2015, after which the labor court ruled that it did not have jurisdiction over the matter. Mr. Blanco has appealed. Based on currently available information and review with outside counsel, at this time, the Company has not determined that an award to Mr. Blanco is probable.
On November 24, 2014, Mr. Blanco filed a second action based on breach of contract theories in the same court as Case 1, but the cases are separate. In Case 2, Mr. Blanco seeks payment of an unpaid bonus, stock options, and non-compete compensation. The court ruled that this case is stayed until a final ruling is issued in Case 1. Based on currently available information and review with outside counsel, at this time, the Company has not determined that an award to Mr. Blanco is probable.
On January 20 and 27, 2015, two stockholder class action complaints were filed against the Company in the United States District Court of the Northern District of California, on behalf of Energy Recovery stockholders under the captions, Joseph Sabatino v. Energy Recovery, Inc. et al., Case No. 3:15-cv-00265 EMC, and Thomas C. Mowdy v. Energy Recovery, Inc, et al., Case No. 3:15-cv-00374 EMC. The complaints have now been consolidated under the caption, In Re Energy Recovery Inc. Securities Litigation, Case No. 3:15-cv-00265 EMC. The complaint alleges violations of Section 10(b), Rule 10b-5, and Section 20(a) of the Securities Exchange Act of 1934 based upon alleged public misrepresentations and seeks the recovery of unspecified monetary damages. Based on currently available information and review with outside counsel, the Company is not able to estimate the possible loss, if any, due to the early stage of this matter.
On January 27, 2016, a complaint was filed by the Company’s Former Chief Sales Officer, David Barnes, in the United States District Court for the Northern District of California under the caption, David Barnes v. Energy Recovery, Inc., et al. Case No. 3:16-cv-00477 EMC, related to his separation from the Company and alleging numerous legal claims including, but not limited to, wrongful termination, breach of contracts and negligent and/or intentional misrepresentations to induce Mr. Barnes to join the Company. Mr. Barnes is seeking to recover, among other things, relocation and business expenses, back pay, front pay, lost equity, contractual severance, emotional distress damages, punitive damages, damages under the California Private Attorneys General Act, attorneys’ fees, costs, and interest. Based on currently available information and review with outside counsel, the Company is not able to estimate a potential loss, if any, due to the early stage of the matter.
On February 18, 2016, a complaint captioned Goldberg v. Rooney, et al., HG 16804359, was filed in the Superior Court for the State of California, County of Alameda, naming as defendants Thomas Rooney, Alexander J. Buehler, Joel Gay, Ole Peter Lorentzen, Audrey Bold, Arve Hanstveit, Fred Olav Johannessen, Robert Yu Lang Mao, Hans Peter Michelet, Maria Elisabeth Pate-Cornell, Paul Cook, Olav Fjell, and Dominique Trempont (“Individual Defendants”) and naming the Company as a nominal defendant. The complaint is styled as a derivative action being brought on behalf of the Company and generally alleges breach of fiduciary duty, abuse of control, gross mismanagement, and unjust enrichment causes of action against the Individual Defendants. Based on currently available information and review with outside counsel, the Company is not able to estimate a potential loss, if any, due to the early stage of the matter.
Note 10 — Business Segment and Geographic Information
We are an energy solutions provider to industrial fluid flow markets worldwide. We make industrial processes more operating and capital expenditure efficient. Our chief operating decision-maker (“CODM”) is the chief executive officer (“CEO”).
Following the appointment of a new CEO in April 2015, new internal reporting was developed for making operating decisions and assessing financial performance. Beginning July 1, 2015, a new internal organizational and reporting structure was implemented and we began reporting segment information on a basis reflecting this new structure. Prior period amounts have been adjusted retrospectively to reflect this new internal reporting structure.
Our reportable operating segments consist of the Water Segment and the Oil & Gas Segment. These segments are based on the industries in which the products are sold, the type of energy recovery device sold, and the related products and services. The Water Segment consists of revenue associated with products sold for use in reverse osmosis water desalination, as well as the related identifiable expenses. The Oil & Gas Segment consists of product revenue associated with products sold for use in gas processing, chemical processing, and hydraulic fracturing and license and development revenue associated with hydraulic fracturing, as well as related identifiable expenses. Operating income for each segment excludes other income and expenses and certain expenses managed outside the operating segment. Costs excluded from operating income include various corporate expenses such as certain stock-based compensation expenses, income taxes, and other separately managed general and administrative expenses not related to the identified segments. Assets and liabilities are reviewed at the consolidated level by the CODM and are not accounted for by segment. The CODM allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income (loss).
The following summarizes financial information by segment for the periods presented (in thousands):
Three Months Ended June 30, 2016 |
Three Months Ended June 30, 2015 |
|||||||||||||||||||||||
Water |
Oil &Gas |
Total |
Water |
Oil &Gas |
Total |
|||||||||||||||||||
Product revenue |
$ | 11,973 | $ | — | $ | 11,973 | $ | 10,484 | $ | — | $ | 10,484 | ||||||||||||
Product cost of revenue |
4,236 | — | 4,236 | 4,836 | — | 4,836 | ||||||||||||||||||
Product gross profit |
7,737 | — | 7,737 | 5,648 | — | 5,648 | ||||||||||||||||||
License and development revenue |
— | 1,250 | 1,250 | — | — | — | ||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
General and administrative |
263 | 184 | 447 | (17 | ) | 391 | 374 | |||||||||||||||||
Sales and marketing |
1,100 | 576 | 1,676 | 931 | 949 | 1,880 | ||||||||||||||||||
Research and development |
333 | 2,074 | 2,407 | 201 | 1,299 | 1,500 | ||||||||||||||||||
Amortization of intangibles |
158 | — | 158 | 158 | — | 158 | ||||||||||||||||||
Operating expenses |
1,854 | 2,834 | 4,688 | 1,273 | 2,639 | 3,912 | ||||||||||||||||||
Operating income (loss) |
$ | 5,883 | $ | (1,584 | ) | 4,299 | $ | 4,375 | $ | (2,639 | ) | 1,736 | ||||||||||||
Less: |
||||||||||||||||||||||||
Corporate operating expenses |
3,819 | 5,012 | ||||||||||||||||||||||
Consolidated operating income (loss) |
480 | (3,276 | ) | |||||||||||||||||||||
Non-operating income |
79 | 20 | ||||||||||||||||||||||
Income (loss) before income taxes |
$ | 559 | $ | (3,256 | ) |
Six Months Ended June 30, 2016 |
Six Months Ended June 30, 2015 |
|||||||||||||||||||||||
Water |
Oil &Gas |
Total |
Water |
Oil &Gas |
Total |
|||||||||||||||||||
Product revenue |
$ | 22,024 | $ | — | $ | 22,024 | $ | 16,207 | $ | 141 | $ | 16,348 | ||||||||||||
Product cost of revenue |
7,910 | — | 7,910 | 7,339 | 28 | 7,367 | ||||||||||||||||||
Product gross profit |
14,114 | — | 14,114 | 8,868 | 113 | 8,981 | ||||||||||||||||||
License and development revenue |
— | 2,500 | 2,500 | — | — | — | ||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
General and administrative |
482 | 372 | 854 | 587 | 723 | 1,310 | ||||||||||||||||||
Sales and marketing |
2,229 | 1,383 | 3,612 | 2,101 | 2,069 | 4,170 | ||||||||||||||||||
Research and development |
692 | 4,371 | 5,063 | 546 | 3,459 | 4,005 | ||||||||||||||||||
Amortization of intangibles |
315 | — | 315 | 317 | — | 317 | ||||||||||||||||||
Operating expenses |
3,718 | 6,126 | 9,844 | 3,551 | 6,251 | 9,802 | ||||||||||||||||||
Operating income (loss) |
$ | 10,396 | $ | (3,626 | ) | 6,770 | $ | 5,317 | $ | (6,138 | ) | (821 | ) | |||||||||||
Less: |
||||||||||||||||||||||||
Corporate operating expenses |
8,439 | 10,525 | ||||||||||||||||||||||
Consolidated operating loss |
(1,669 | ) | (11,346 | ) | ||||||||||||||||||||
Non-operating income (expenses) |
57 | (122 | ) | |||||||||||||||||||||
Loss before income taxes |
$ | (1,612 | ) | $ | (11,468 | ) |
The following geographic information includes net revenue to our domestic and international customers based on the customers’ requested delivery locations, except for certain cases in which the customer directed us to deliver our products to a location that differs from the known ultimate location of use. In such cases, the ultimate location of use, rather than the delivery location, is reflected in the table below (in thousands, except percentages):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2016 |
2015 |
2016 |
2015 |
|||||||||||||
Domestic product revenue |
$ | 219 | $ | 922 | $ | 404 | $ | 1,186 | ||||||||
International product revenue |
11,754 | 9,562 | 21,620 | 15,162 | ||||||||||||
Total product revenue |
$ | 11,973 | $ | 10,484 | $ | 22,024 | $ | 16,348 | ||||||||
Product revenue by country: |
||||||||||||||||
China |
25 | % | 4 | % | 15 | % | 4 | % | ||||||||
Egypt |
19 | % | 3 | % | 11 | % | 9 | % | ||||||||
United States |
2 | % | 9 | % | 2 | % | 7 | % | ||||||||
UAE |
1 | % | 35 | % | 2 | % | 23 | % | ||||||||
Qatar |
* | % | 0 | % | 18 | % | 0 | % | ||||||||
Others ** |
53 | % | 49 | % | 52 | % | 57 | % | ||||||||
Total |
100 | % | 100 | % | 100 | % | 100 | % |
* |
Less than 1%. |
** |
Includes remaining countries not separately disclosed. No country in this line item accounted for more than 10% of our product revenue during the periods presented. |
All of our long-lived assets were located in the United States at June 30, 2016 and December 31, 2015.
Note 11 — Concentrations
Customers accounting for 10% or more of our accounts receivable and unbilled receivables were as follows:
June 30, 2016 |
December 31, 2015 | |||||||
Customer A |
24 | % | 8 | % | ||||
Customer B |
13 | % | 2 | % | ||||
Customer C |
6 | % | 18 | % | ||||
Customer D |
4 | % | 26 | % |
Revenue from customers representing 10% or more of product revenue varies from period to period. For the periods indicated, customers representing 10% or more of product revenue were:
Three Months Ended June 30, |
Six Months Ended June 30, | |||||||||||||||
2016 |
2015 |
2016 |
2015 | |||||||||||||