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| 8-K - FORM 8-K - MARCH 2018 - Energy Recovery, Inc. | form8-kxregfd2018x03x21doc.htm |
ERI INVESTOR PRESENTATION
(NASDAQ: ERII)
2018
This presentation contains forward-looking statements within the “Safe Harbor” provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements in this report include, but are not limited to, statements about our
expectations, objectives, anticipations, plans, hopes, beliefs, intentions, or strategies regarding the future. Forward-looking
statements that represent our current expectations about future events are based on assumptions and involve risks and
uncertainties. If the risks or uncertainties occur or the assumptions prove incorrect, then our results may differ materially from
those set forth or implied by the forward-looking statements. Our forward-looking statements are not guarantees of future
performance or events. Words such as “expects,” “anticipates,” “believes,” “estimates,” variations of such words, and similar
expressions are also intended to identify such forward-looking statements.
These forward-looking statements are subject to risks, uncertainties, and assumptions that are difficult to predict; therefore,
actual results may differ materially and adversely from those expressed in any forward-looking statements. You should not
place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date of this
presentation. All forward-looking statements included in this presentation are subject to certain risks and uncertainties, which
could cause actual results to differ materially from those projected in the forward-looking statements, as disclosed from time to
time in our reports on Forms 10-K, 10-Q, and 8-K as well as in our Annual Reports to Stockholders and, if necessary, updated in
our quarterly reports on Form 10 Q or in other filings. We assume no obligation to update any such forward-looking
statements. It is important to note that our actual results could differ materially from the results set forth or implied by our
forward-looking statements.
FORWARD LOOKING STATEMENT
Page 2
Page 3
VORTEQ UPDATE
o Significant internal lab testing on harder-grade components
• Performed 9600 psi, 45,000 lbs proppant test on single cartridge with one end cover
in harder-grade and one end cover in softer-grade
• Harder-grade performed as expected showing no signs of material degradation
• Softer-grade showed degradation consistent with observations made during
December field testing
Harder grade showed no signs of material
degradation despite being on the high-pressure
out or “dirty” side of the PX
Softer grade showed similar material
degradation as witnessed in December field
testing
Page 4
VORTEQ UPDATE - CONTINUED
o Based on internal testing, Company opts to utilize harder-grade for all cartridge
components
o Cartridge components have arrived and will continue to arrive into April
o Final machining and qualification of received components to continue in parallel
o Timing of comprehensive field testing, up to and including M1 testing could be
affected by:
Current field tests on missile to optimize flow
Project review with product licensee upon completion of all internal testing
o Next update will occur during conference call to discuss Q1 results
ENERGY RECOVERY SNAPSHOT
Page 5
What We Do/Product Strategy
An energy solutions provider and technology
leader in applying fluid dynamics and
advanced materials science
Who We Are
Create markets to preserve or eliminate
pumps that are subject to and destroyed by
hostile process fluids
Convert wasted pressure energy into a
reusable asset
Pressure Energy is our Arbitrage
MATERIAL SCIENCE ARBITRAGE – PUMP PRESERVATION
Page 6
Typical pumps present design and material
composition challenges:
Multiple moving parts, multiple potential points
of failure
Components chiefly comprised of alloys, coated
alloys and polymers
Susceptible to abrasion, erosion, fatigue and corrosion
The pressure exchanger is elegant in design
and robust in material composition:
One moving part (rotor)
Components are cermet or ceramic
(tungsten carbide or alumina)
Hybrid bearing technology
(hydrostatic and hydrodynamic)
Design and Material Science Superiority Yields:
Increased life expectancy
Increased reliability
Lower R&M expenses
Lower CAPEX (less required redundancy)
Pressure Exchanger Advantage Status Quo Challenge
Value Arbitrage
PRESSURE ENERGY RECYCLING - CONVERT WASTED PRESSURE TO ELECTRICITY
Page 7
Pressure energy is being needlessly wasted:
Dissipation of energy through valves, chokes
or geological mass wastes valuable energy
Wasted pressure energy = wasted electricity
and $$$
We recycle otherwise wasted pressure energy:
Pressure energy can be recovered and utilized to
pressurize other fluids or create electricity
Our energy recovery devices are capable of
transferring up to 99% of a stream’s
pressure energy
Pressure Energy Recycling Yields:
Less specific energy consumed
Less pumping capacity required
Increased process reliability
Pressure Exchanger Advantage Status Quo Challenge
Value Arbitrage
CORE TECHNOLOGY – THE PRESSURE EXCHANGER
Page 8
Fluid Flows in Pressure Exchanger Hydraulic Piston Concept
Pressure Exchange Snapshot
PUMP PRESERVATION – PRESSURE PUMPING
Page 9
Status Quo With VorTeq
NO SAND OR CHEMICALS ENTER THE PUMPS
PUMP PRESERVATION – VORTEQ CREATES SIGNIFICANT VALUE
Page 10
Existing Pumping Model
with 15 to 20 PD Pumps
New Pumping Model with 3 to 4
Centrifugal Pumps
Centrifugal Pump Model
$8M to $12M p/yr p/fleet*
Reduced Maintenance:
$3M to $4M p/yr p/fleet*
Decreased Pump
Redundancy / Lower CAPEX:
$1M to $2M p/yr p/fleet*
With VorTeq Status Quo Centrifugal Pump Model
1
2
3
*ERI estimates
Page 11
VORTEQ COMMERCIALIZATION PATH
Commercialization is twofold:
Schlumberger Licensing Agreement
• Acceptance standards inclusive of M1 & M2 as well as other performance tests
• SLB responsible for missile manufacturing, ERII to provide PXs, housing and
motors
• Five years from first unit to full deployment of SLB fleet
• $1.5MM per VorTeq per year
Liberty has rights for up to 20 VorTeq units
• ERII provides full missile and cartridges – vendors have been qualified
• Pricing based on contractual ROIC
• Performance standards differ and thus speed to market may be faster
PUMP PRESERVATION – MTEQ MUD PUMPING SOLUTION
Page 12
Status Quo With MTeq
NO MUD PASSES THROUGH THE PUMPS
PUMP PRESERVATION – MTEQ UNLOCKS VALUE FOR OPERATORS
Page 13
Drilling Configuration with MTeq & Centrifugal Pumps
Reduced Operating Cost
Reduced R&M
Increased pump life
Fewer pumps
Reduced Logistics
Lower load requirements
Less rig-up and rig-down
time
Increased Productivity
Reduction in planned and
unplanned rig downtime
Higher Reliability & Safety
Less risk of injury
SAVINGS UP TO $600K PER RIG PER ANNUM*
*ERI estimates
PRESSURE ENERGY RECYCLING – DESALINATION
Page 14
Status Quo With Pressure Exchanger
From first sale to 90% market share in under 10 years*
18,000 PX devices installed worldwide
Up to 25-year life with virtually no maintenance
60%+ gross margins
Wasted
Pressure
Energy
Toward Geologic Mass
60% reduction in size and subsequent energy reduction
Dominating the Energy Recycling Market in Desalination –
Our First Market Disrupted
Investment Highlights
*MPD market share only
INDUSTRY AGNOSTIC R&D ALLOCATION PROCESS
Page 15
What criteria
qualifies a
market
opportunity?
High rates of flow
High pressure differentials
High capital intensity
Hostile process fluids
Fracing
Upstream Drilling
Desalination
Page 16
EXECUTION OF STRATEGIC R&D
Evaluation Criteria to
Determine Funding
Value to Customer
Market Size
Net Present Value
IP Potential
Technical Difficulty
Strategic Fit
Internal Competency
Time to Market
Ease of Entry
Concept Uniqueness
DISRUPTING GLOBAL PUMPING MARKET
Page 17
Global Pumping Market
Exceeded $53B in 2017
Significant Arbitrage Opportunity
in the Pumping Market
Pump aftermarket components cost industries $9 billion in 2017
Replacement pump sales exceed $25 billion in 2017
Source: McIlvaine Pump Report and Management Estimates
PUMP PRESERVATION OPPORTUNITY EXCEEDS $4B PER ANNUM
US
d
o
lla
rs
in
milli
o
n
s
WASTED PRESSURE ENERGY MARKET OPPORTUNITY
Page 18 Source: McIlvaine Pump Report and Management Estimates
Energy Recovery Devices Target
Control Valve and High Performance
Pump Applications
Wasted Pressure Energy Opportunity in
Excess of $5.5B in 2017
TOTAL MARKET OPPORTUNITY IS SEVERAL ORDERS OF MAGNITUDE
GREATER THAN COMPANY REVENUES
Page 19
UBIQUITOUS TECHNOLOGY WITH SIGNIFICANT GROWTH
*Pro Forma
Water Business Provides Funding
Mechanism for Future R&D
Future
Derivative
Applications
Annual R&D Spend:
$9.7MM (27.5% of OPEX) in 2014
$7.6MM (20.5% of OPEX) in 2015
$10.1MM (27.8% of OPEX) in 2016
$11.5MM (30.6% of OPEX) in 2017*
THANK YOU