Greetings. And welcome to the Energy Recovery Fourth Quarter and Full Year 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow a formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Siccardi, Vice President of Investor Relations. Thank you. You may begin.

Hello, everyone. And welcome to Energy Recovery’s 2023 fourth quarter and full year earnings conference call. My name is Jim Siccardi, Vice President of Investor Relations at Energy Recovery. I am here today with our President and Chief Executive Officer, David Moon; and our Chief Financial Officer, Joshua Ballard. During today’s call, we may make projections and other forward-looking statements under the Safe Harbor provisions contained in the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of the company. These statements may discuss our business, economic and market outlook, growth expectations, new products and their performance, cost structure and business strategy. Forward-looking statements are based on information currently available to us and on management’s beliefs, assumptions, estimates or projections. Forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. We refer you to documents the company files from time-to-time with the SEC, specifically the company’s Form 10-K and Form 10-Q. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. All statements made during this call are made only as of today, February 21, 2024, and the company expressly disclaims any intent or obligation to update any forward-looking statements made during this call to reflect subsequent events or circumstances, unless otherwise required by law. At this point, I will turn the call over to our President and Chief Executive Officer, David Moon.

Thank you, Jim. First off, I want to thank my fellow Board members for appointing me the permanent CEO. I look forward to working with our shareholders, the Board, my leadership team and our employees as we enter this next phase of Energy Recovery’s growth. I also want to thank Bob Mao for his grace, assistance and advice these past four months. As we announced today, Josh Ballard has decided to step down at the end of June as our CFO. He and I are working together with Korn Ferry to conduct our CFO search. I want to thank Josh for his commitment to an orderly CFO transition and for his continued leadership throughout this transition. He and the Energy Recovery leadership team have given me a great foundation to build on, which is a healthy business with nine years of consecutive revenue growth, a strong balance sheet, and a technology that is showing promise outside of our core desal business. I’m excited to be here and I look forward to our future at Energy Recovery. I have now been in the seat for approximately four months. Over this period, I have taken a deeper dive into our technology and products, our diversification strategy around our pressure exchanger and wastewater technology, and where we are executing that strategy. I have a better understanding of our markets and customers, where we sit in the product development cycle and commercialization of these new products, as well as the challenges ahead of us. I would like to start with a few observations and how I will approach this role. First, to be clear, my number one focus is to rebuild the shareholder value that we have seen decline in recent months and then to grow it further. There is nothing more important than…

Thanks, David, and good afternoon, everyone. I want to start off by saying how much I have enjoyed my nearly six years here at Energy Recovery. As I will get into shortly, Energy Recovery is financially in very good shape and I feel really positive about the company’s future. Before I get to that, I want to make clear that I have been in full support of David since he made the decision to put his hat in the ring for CEO and I’m pleased the Board thought the same. David has done a great job right out the gate and it’s frankly been really enjoyable working with him. This is a decision I personally came to some time ago, which was unrelated to who our future CEO would be. Now that we have our CEO, I decided it was the right time to formalize my plans. It is important to both David and I that we have a smooth transition and I look forward to fully supporting David with the CFO search process and with the upcoming transition. Now, I’ll turn to our financial results, and as usual, we’ll start with revenue. First, I’d like to close the loop on some of my commentary from last quarter. We mentioned three risks to revenue from projects shipping to Israel, Algeria and India. We were able to ship off all projects to Israel and Algeria successfully within the quarter and of the highlighted risks only the India project of $8 million was delayed to this year. Despite achieving slightly lower revenue than projected in 2023, we had a great fourth quarter, a record one as a matter of fact. We recognized 35% more revenue than our previous highest quarter in Q4 2022. The team continues to prove that we can operationally…

Thank you. [Operator Instructions] Our first question comes from Pavel Molchanov with Raymond James. Please state your question.

Thanks for the detailed narrative, and as well as taking the question. So, maybe first one on the delayed India project. Is there a clear timetable for when that product will be delivered to India? Is it happening this quarter?

Hey, Pavel. This is Josh. It’s not likely to happen this quarter. We’re shooting for the first half of the year, but we’re confident it will be this year.

Okay. Any sense of why the project was delayed? Was it permitting or currency or just labor?

No. It’s been delayed in construction and building it. Oh, weather related specifically.

Weather issues. Okay. Maybe on the CO2 refrigeration opportunity, I know you’re not giving numerical revenue guidance for that line item. If we look at last year, $700,000 or so, do you expect to exceed that in 2024, bearing in mind this kind of reengineering of the product?

I think -- good afternoon. This is David Moon. Nice to talk to you again. Look, I think, it’s going to be $1 million to $2 million. And I think that’s a reasonable target, as you think about 30 to 50 locations. Margin-wise, it’s not going to be much to the margin line if we’re going to continue to see some of these validation sites to continue to get traction. So $1 million to $2 million is probably the range at this point.

Okay. That’s helpful. And then lastly, you talked about kind of rebuilding shareholder value and improving confidence. Given the amount of cash you have on the balance sheet, what are your thoughts about buyback, which you have a history of doing?

Yeah. So good question. And so we’re mindful of the amount of cash that we’ve got. What I’d like to be able to do is to get through the Playbook development to better determine how much cash we’re going to need to accelerate not only growth in wastewater and those verticals, but also continue to drive our CO2 acceleration. And we’re going to -- as we do this and it’s part of the Playbook development, we’re going to be closely analyzing the ROIC, obviously, to ensure that we pick the best projects for our investors. And so, I would ask that you give us this year to be able to develop that plan and determine how much we’re going to need and then once we do that, then I think we’ll be in a good position to talk about what we’re going to do with the cash and what we don’t do with the cash.

Fair enough. Thanks very much.

Thank you. [Operator Instructions] Our next question comes from Ryan Pfingst with B. Riley Securities. Please state your question.

Hey, guys. Thanks for taking my questions. Can you just talk about what you’re seeing in the market for 2025 and if you think high-teens desal revenue growth is achievable based on the visibility you have today?

Hey, Ryan. Yeah. I’d reference my commentary or our commentary last quarter, and we are seeing the potential, again, for double-digit growth in 2025. But there’s a lot of moving parts in the world today. We’ve been talking about a lot of them on our calls and we’ve seen some of them with some of the projects moving here and there. So we’re not getting too firm on giving targets for 2025 yet. But we are seeing some good potential there.

Got it. And then going back to something else from the last call, do you have an update on the macro environment in terms of the misalignment we’ve spoken about recently between developers, EPCs and end users regarding water tariff expectations?

Yeah. I think we’re still seeing some of that play out. Obviously not everywhere, because we still have a really strong pipeline for this year. But we do know that a couple of projects that have shifted out have been due to that. We heard of one project that literally had one bidder initially, because the costs were too low versus what EPCs felt like they could build at, for example. So we are seeing some of that play out still, but we’re not expecting massive movements in our pipeline at this stage.

Got it. Thanks for that. And if I could just sneak in one more. Do you see the possibility for the PX Q400 to perhaps replace some of your existing devices operating today ahead of schedule given its performance?

I doubt it, Ryan. It is a better device. But that’s a tall ask to replace, for example, the Q300 that’s out there already this week, which is also a really good device. I’m not sure the payback would be there for whatever the life of a plant might be and you’d have to reconfigure it because these are much bigger devices, right? So it’s not exactly just a switch them out type of play.

Got it. Makes sense. I’ll hop back in the queue. Thanks.

Thanks, Ryan.

Thank you. There are no further questions at this time. So I would like to turn the floor back to James Siccardi for closing remarks.

Thank you, Diego, and thank you everybody for joining us today. We look forward to talking to you next quarter, which is only a few months away. Take care, everyone.

Thank you. And ladies and gentlemen, that concludes today’s call. All parties may now disconnect. Have a good evening.