Energy Recovery, Inc. (NASDAQ:ERII) Q2 2020 Earnings Conference Call - Final Transcript

Jul 30, 2020 • 05:00 pm ET

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Energy Recovery, Inc. (NASDAQ:ERII) Q2 2020 Earnings Conference Call - Final Transcript

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Executive
Robert Mao

into approximately $0.5 billion in additional addressable market to Energy Recovery, just to maintain existing capacity.

As I turn to our oil and gas business, I would like to repeat what I said at our general shareholders' meeting two weeks ago. The VorTeq is in a fundamentally stronger position than it was when I was named interim CEO in November. We have cleared every technical hurdle we have faced. Our late June simulated frac test with Liberty has proved to others what we have long believed, we are ready for live well testing.

Let me restate exactly what that has done and was important. We did not look at this test as indication that the VorTeq worked because we had long ago proven that fact. This test, one, proved to us that the VorTeq should not impede frac operations nor cause failure to a job, which will satisfy end customer safety and quality concerns; two, proved to us that the VorTeq can integrate with another team's software, equipment and frac crews. These are important accomplishments when introducing a new technology to a vastly competitive, mature industry. We are proud of our success during this test.

The VorTeq skid we tested with Liberty will be our production model 1.0. It is an elegant, simple, single PX skid solution, which takes advantage of the higher sand concentrations we can now handle. The more compact solution is less costly to produce with greatly reduced lead times and has a smaller footprint, making it less intrusive to frac operations. In addition, this model allows operators the freedom to scale the VorTeq up or down to configure their jobs depending on their flow rate, pressure and overall job configuration needs.

The question for all our shareholders now is, what's next? As we mentioned at the AGM, three hurdles remain. We must pass each hurdle or we will seize investment in VorTeq. First, we must successfully complete at least two or three life frac wells -- live well fracs. As we have mentioned, we are working actively with Liberty together to do so. I think all of us understand the current challenges in North America pressure pumping. Our preference is to achieve this with our partner, Liberty. However, now that we are free to approach the whole market, we will also explore opportunities with other operators to expand our search if needed. We cannot wait for the frac market to return to accomplish these live well beta tests. Second and related is that we must prove to our customer the value proposition with data from the live well fracs. We must validate whether we can achieve our calculated savings of up to $6 million per frac fleet per year. While we have vetted this data with industry experts, live data will validate our assumptions and calculations.

We should note that the value of our customers extends -- the value to our customers extends beyond the direct opex savings on a frac site that we have calculated,