ENERGY RECOVERY, INC. Overview
We create technologies that solve complex challenges for industrial fluid-flow
markets worldwide. Building on our pressure exchanger technology platform, we
design and manufacture solutions that improve operational efficiency by reducing
waste, energy consumption and costs across a range of industrial processes. What
began as a game-changing invention for desalination has grown into a global
business advancing the environmental sustainability of our customers' operations
in multiple industries. We are a global team with sales and on-site technical
support available worldwide, and we maintain international direct sales offices
and technical support centers to service the European, Middle Eastern and Asian
markets.
Our core technology is the pressure exchanger. Our pressure exchanger technology
efficiently transfers energy between high-pressure and low-pressure liquid or
gas through continuously rotating ducts. Our PX® Pressure Exchanger® ("PX") can
operate in both low-pressure and high-pressure environments between 1,000 pounds
per square inch ("psi"), or 70 bar, and up to approximately 10,000 psi, or
700 bar. Our pressure exchanger technology can also handle a variety of
relatively clean to dirty liquids, and we are actively developing capabilities
to handle gases. When applied to industrial systems with pressure differentials,
our pressure exchanger technology can provide certain benefits including our
customers' ability to reduce capital expenditures and energy use, which leads to
lower carbon emissions, as well as lower operating costs.
Engineering and research and development ("R&D") have been, and remain, an
essential part of our history, culture and corporate strategy. Since our
formation, we have developed leading technology and engineering expertise
through the continual evolution of our pressure exchanger technology, which can
improve productivity by reducing waste and energy consumption in high-pressure
industrial fluid-flow systems. This versatile technology powers several of our
products, including our flagship PX energy recovery device ("ERD"), which we
believe is the industry standard for energy recovery in the seawater reverse
osmosis desalination ("SWRO") industry. Today, we continue to push the
boundaries of our pressure exchanger technology to handle different operating
environments and industrial applications. Leveraging our proven pressure
exchanger technology platform, we are identifying new ways to solve and
developing new solutions for solving challenges for critical industries, such as
industrial wastewater treatment, commercial and industrial refrigeration,
natural gas processing and hydraulic fracturing.
Quarterly Highlights
The decrease in product revenues during the quarter, as compared to the same
period in 2020, was as expected due primarily to the project timeline of
megaproject ("MPD") channel shipments, which can fluctuate from
quarter-to-quarter. Management anticipates continued growth based on existing
backlog, as well as the increasing need to expand potential water production
globally and the increased purchases of product for continued plant maintenance
in advance of the anticipation of an economic recovery and greenfield projects
in industries affected by the novel coronavirus ("COVID-19") pandemic, such as
travel and hospitality. The 2021 year-to-date total revenues, as compared to the
2020 year-to-date total revenues, was lower due primarily to the elimination of
license and development revenue in 2021, of which none was recognized after the
termination of the VorTeq License Agreement in the second quarter of 2020.
Our PX G1300™ has moved into the next phase of development, which will involve
holding field trials at commercial refrigeration sites. During the quarter, we
have had many fruitful conversations with U.S. and international grocery chains
and manufacturers, and have recently entered into an agreement to deploy our
PX G1300 energy recovery device to a grocery store in California . We expect
increased sales and marketing ("S&M") expenditures for the balance of 2021 and
2022 related to these endeavors.
The world has been experiencing significant inflationary and supply chain issues
in recent months. To date, we have remained materially unaffected by these
events. We cannot protect ourselves from all risks but have been proactively
working to mitigate risks where possible. We are working with customers to
ensure timely delivery of product, by adjusting shipping schedules, where
necessary, to avoid disruptions to our end customers. In addition, in
anticipation of such issues, we have increased our raw material inventory to
alleviate or avoid any external shocks on our ability to manufacture and ship
products to customers. These decisions have increased inventory levels above
historic trends, nearly doubling inventory values. This has not only alleviated
supply chain issues, but has also had the positive effect of delaying the impact
of raw material inflation, and in some cases, reduce raw material costs due to
higher volume purchases.
Energy Recovery, Inc. | Q3'2021 Form 10-Q | 25 -------------------------------------------------------------------------------- Table of Contents During the quarter, we released our second annual Environmental, Social and Governance ("ESG") report, which details our efforts to accelerate the environmental sustainability of our customers' operations and enhance management of ESG issues in our own operations. We understand the importance of being a responsible corporate citizen and believe our ESG program provides us with a strategic roadmap to become a more sustainable and resilient business. Our ESG report outlines our ESG commitments and aligns to leading sustainability frameworks and reporting standards, including theSustainability Accounting Standards Board as well as select disclosures from theGlobal Reporting Initiative and the United Nations Sustainable Development Goals. As part of our efforts to transparently communicate our ESG performance to our stakeholders, inSeptember 2021 , we hosted an ESG-focused webinar, "Charting Sustainable Growth with ESG Principles," in which our Company leaders reviewed highlights of our ESG program and how ESG is linked to driving long-term, sustainable growth for us and our stakeholders.
Our complete 2020 ESG report can be found on our website at: https://energyrecovery.com/about-us/environmental-social-governance/.
Segments
We continue to monitor and review our segment reporting structure in accordance
with authoritative guidance to determine whether any changes have occurred that
would impact our reportable segments. As a result of the evolution of our
products, operations and R&D efforts in new product development, such as
industrial and commercial refrigeration applications, and the way in which our
chief operating decision maker ("CODM") manages and assesses the performance of
the business, starting in the first quarter of fiscal year 2021, we realigned
our segment reporting and have recast the prior year amounts for comparability.
In addition, to better align the activities of the segments, we have
re-allocated certain corporate resources to the segments' operations.
Water
Our Water segment includes the continued development, sales and support of the
PX, hydraulic turbochargers and pumps used in seawater desalination and
industrial wastewater activities. Our Water segment revenue is principally
derived from the sale of ERDs and high-pressure and circulation pumps to the
MPD, original equipment manufacturer ("OEM") and aftermarket ("AM") channels.
MPD sales are typically made to global engineering, procurement and construction
("EPC") firms to build very large desalination plants worldwide. Our typical MPD
sale primarily consists of our PX ERD. Each MPD sale represents revenue
opportunities generally ranging from $1 million to $18 million . Our packaged
solutions to OEMs include our PX, hydraulic turbochargers, high-pressure pumps
and circulation booster pumps for integration and use in small to medium-sized
desalination plants. OEM projects typically represent revenue opportunities of
up to $1 million . Our existing and expanding installed base of ERD and pump
products in water plants has created a growing customer base comprised of plant
operators and service providers who purchase spare parts, replacement parts and
service contracts through the AM channel.
During the quarter, we announced:
•Contract awards totaling over $6.0 million for our PX ERDs and related
equipment and services to multiple SWRO desalination facilities in Asia . Asia's
need for clean water is intensifying, driven by population growth,
industrialization, rapid urbanization, and climate change.
•New awards to support the industrial wastewater treatment operations of
lithium-ion battery manufacturing, chemical manufacturing and landfill leachate
facilities in China . All three industrial wastewater treatment facilities will
purchase our Ultra PX™ ERD, while the lithium-ion battery facility will also
purchase our PX ERDs. In countries that are adopting stringent liquid discharge
limits, such as China , the Ultra PX enables customers to optimize their
wastewater treatment process for Minimal Liquid Discharge and Zero Liquid
Discharge.
Energy Recovery, Inc. | Q3'2021 Form 10-Q | 26
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Table of Contents
Emerging Technologies
Our Emerging Technologies segment includes the continued development, sales and
support of activities related to emerging technologies, such as the PX G1300
used in industrial and commercial refrigeration applications; the VorTeq used in
the oil and gas markets; the ISOBoost used in natural gas processing; and
certain other new products.
Commercial and Industrial Refrigeration. The global refrigeration industry is a
leading user and emitter of hydrofluorocarbons ("HFCs"), which are a group of
powerful man-made greenhouse gases that can impact global warming thousands of
times more than carbon dioxide ("CO2"). More than 120 countries have signed on
to the Kigali Amendment, an amendment to the Montreal Protocol, which states the
goal of reducing the production and consumption of HFCs. In 2021, the United
States of America (the "U.S.") and China have publicly committed to signing the
Kigali Amendment. In addition, the U.S. Environmental Protection Agency
announced on May 3, 2021 its intention to reduce the production and consumption
of HFCs within the timeline indicated in the Montreal Protocol for developed
nations. For the refrigeration industry, phasing out HFCs means moving to
natural refrigerants such as ammonia or CO2. CO2 is stable and more benign, and
therefore the safer choice; however CO2 works at much higher pressures and
requires more energy than HFCs, thereby increasing the operating cost of a CO2
refrigeration system. The challenge today is to make the CO2 refrigeration
systems less costly and more efficient in order to compete economically with
incumbent refrigerants.
We believe our pressure exchanger technology can significantly help reduce the
operating costs of CO2 refrigeration systems by recycling the pressure energy of
CO2 gas, much as we do with seawater in SWRO, thereby significantly reducing the
energy needed to operate these systems. Based upon results from our testing, we
believe that we will be able to achieve efficiencies across a wider range of
temperatures that exceed incumbent CO2 refrigeration technologies, thereby
easing this transition to CO2 in the coming years. We will continue development
of this technology throughout 2021 with the goal of placing our product in a
commercial setting as soon as R&D and testing is completed.
In September 2021 , we joined the North American Sustainable Refrigeration
Council (the "NASRC"). The NASRC is an action-oriented non-profit charity, as
defined under the U.S. Internal Revenue Code 501(c)(3), working in partnership
with the supermarket industry to create a climate-friendly future for
refrigeration by eliminating the barriers to natural refrigerant adoption in
supermarkets. Natural refrigerants, such as ammonia, hydrocarbons, and CO2, have
near-zero Global Warming Potential ("GWP"), making it the safest
climate-friendly alternative to HFCs, which have a GWP into the thousands.
Energy Recovery, Inc. | Q3'2021 Form 10-Q | 27
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Results of Operations
A discussion regarding our financial condition and results of operations for the
three and nine months ended September 30, 2021 , compared to the three and nine
months ended September 30, 2020 , is presented below.
Total Revenue
Three Months Ended September 30,
2021 2020
% of Total % of Total
$ Revenue $ Revenue Change
(Inthousands, except percentages)
Product revenue$ 20,781 100 %$ 27,408 100 %$ (6,627) (24 %) Nine Months Ended September 30, 2021 2020 % of Total % of Total $ Revenue $ Revenue Change
(In thousands, except percentages)
Product revenue$ 70,328 100 %$ 65,665 71 %$ 4,663 7 % License and development revenue - - % 26,895 29 % (26,895) (100 %) Total revenue$ 70,328 100 %$ 92,560 100 %$ (22,232) (24 %) Energy Recovery, Inc. | Q3'2021 Form 10-Q | 28
-------------------------------------------------------------------------------- Table of Contents Product Revenue
Variability in product revenue from quarter to quarter is typical, therefore year-on-year quarterly and year-to-date comparisons are not necessarily indicative of the trend for the full year due to these variations. Product revenues by channel customers are presented in the following tables.
Three Months Ended September 30,
2021 2020
% of Product % of Product
$ Revenue $ Revenue Change
(Inthousands, except percentages)
Megaproject$ 13,275 64 %$ 20,725 76 %$ (7,450) (36 %) Original equipment manufacturer 4,844 23 % 4,081 15 % 763 19 % Aftermarket 2,662 13 % 2,602 9 % 60 2 % Total product revenue$ 20,781 100 %$ 27,408 100 %$ (6,627) (24 %) Nine Months Ended September 30, 2021 2020 % of Product % of Product $ Revenue $ Revenue Change (In
thousands, except percentages)
Megaproject$ 50,307 72 %$ 47,147 72 %$ 3,160 7 % Original equipment manufacturer 11,909 17 % 11,687 18 % 222 2 % Aftermarket 8,112 12 % 6,831 10 % 1,281 19 % Total product revenue$ 70,328 100 %$ 65,665 100 %$ 4,663 7 % The MPD channel continues to be the main driver of our long-term growth as revenue from this channel benefits from the higher quantity of larger projects as well as long project cycles. Comparative differences over the prior year's revenue are subject to timing of delivery of PXs, which is dependent on the MPD project shipment cycle. The OEM channel, where we sell into a number of industries, including tourism and hospitality, and which contains projects of shorter duration, saw a continued increase since the onset of the COVID-19 pandemic. The increases in OEM channel revenues over the prior year were due primarily to certain new large greenfield plant installations and brownfield retrofits, which include upgrades to existing operations leveraging our pressure exchanger technology and ancillary equipment. In addition, we are starting to recognize revenues from industrial wastewater, albeit minimal in this early stage. In fiscal year 2020, OEM channel revenues were negatively affected by delayed new plant construction related to the COVID-19 pandemic. The AM channel revenues fluctuate from quarter-to-quarter depending on support and services rendered to our customers; however, on a year-to-date basis, revenue from this channel has been steady due to our large installation base. During the first three quarters of the year, we experienced a marked increase in AM activity, which we believe is a result of our customers consuming their existing spare parts inventory and strategically increasing their stock of critical components in advance of greater expected water needs in the second half of 2021 and early 2022. In fiscal year 2020, AM channel revenues were affected by the COVID-19 pandemic as budgets tightened and companies braced for the unknown.
License and Development Revenue
The change in license and development revenue was due to the termination of the 2015 license agreement (the "VorTeq License Agreement") between us andSchlumberger Technology Corporation ("Schlumberger"), with an effective date ofJune 1, 2020 . As there were no future performance obligations to be recognized under the VorTeq License Agreement after the effective date, we recognized in full the remaining deferred revenue balance of$24.4 million in the second quarter of fiscal year 2020. In addition, no future license and development revenue was recognized under the VorTeq License Agreement after the second quarter of fiscal year 2020. Energy Recovery, Inc. | Q3'2021 Form 10-Q | 29 -------------------------------------------------------------------------------- Table of Contents Product Gross Profit and Gross Margin Product gross profit represents our product revenue less our product cost of revenue. Our product cost of revenue consists primarily of raw materials, personnel costs (including share-based compensation), manufacturing overhead, warranty costs, depreciation expense and manufactured components. Three Months Ended September 30, 2021 2020 $ Gross Margin $ Gross Margin Change in Product Gross Profit (In
thousands, except percentages)
Product gross profit and gross margin$ 14,692 70.6 %$ 19,592 71.5 %$ (4,900) (25.0 %) Nine Months Ended September 30, 2021 2020 $ Gross Margin $ Gross Margin Change in Product Gross Profit (In
thousands, except percentages)
Product gross profit and gross margin$ 48,077 68.4 %$ 45,616 69.5 %$ 2,461 5.4 % The decrease in product gross profit during the three months endedSeptember 30, 2021 , as compared to the same period in the prior year, was due primarily to lower sales to MPD customers, lower revenues partially related to the mix in products shipped, and a decrease in product gross margin. The increase in product gross profit during the nine months endedSeptember 30, 2021 , as compared to the same period in the prior year, was due primarily to higher revenues related to increased units of PXs, pumps and turbochargers sold, partially offset by a decrease in product gross margin. The gross margin gains from the lower COVID-19 pandemic costs and the operational efficiencies we implemented in 2021 were more than offset by rising labor and overhead costs, and product mix.
Energy Recovery, Inc. | Q3'2021 Form 10-Q | 30 --------------------------------------------------------------------------------
Table of Contents Operating Expenses Total Operating Expenses Operating expenses as a percentage of total revenue was higher in the three and nine months endedSeptember 30, 2021 , as compared to the same periods in the prior year, due primarily to the acceleration of license and development revenue related to the termination of the VorTeq License Agreement in the second quarter of fiscal year 2020. Three Months Ended September 30, 2021 2020 % of Total % of Total $ Revenue $ Revenue Change
(In thousands, except percentages)
General and administrative$ 5,851 28 %$ 6,271 23 %$ (420) (7 %) Sales and marketing 2,996 14 % 2,141 8 % 855 40 % Research and development 4,416 21 % 5,098 19 % (682) (13 %) Amortization of intangible assets 2 - % 4 - % (2) (50 %) Total operating expenses$ 13,265 64 %$ 13,514 49 %$ (249) (2 %) General and Administrative Expenses. The decrease in general and administrative ("G&A") expenses was due primarily to lower employee incentive compensation expense and consultant costs. Sales and Marketing Expenses. The increase in S&M expenses was due primarily to higher employee-related expenses, marketing and other costs. The higher employee-related costs were due to an increase in employee compensation cost, share-based compensation expense and other employee-related expenses, partially offset by a decrease in sales commissions. Research and Development Expenses. The decrease in R&D expenses was due primarily to lower testing supplies expenditures of$0.5 million as we decreased testing activities on VorTeq, partially offset by testing activities related to refrigeration and other new initiatives, and lower employee compensation and incentive expenses. Amortization of Intangible Assets. Amortization of intangible assets was comparable to the prior year. Nine Months Ended September 30, 2021 2020 % of Total % of Total $ Revenue $ Revenue Change
(In thousands, except percentages)
General and administrative$ 18,632 27 %$ 18,751 20 %$ (119) (1 %) Sales and marketing 8,236 12 % 5,776 6 % 2,460 43 % Research and development 13,342 19 % 18,159 20 % (4,817) (27 %) Amortization of intangible assets 9 - % 12 - % (3) (25 %) Impairment of long-lived assets - - % 2,332 3 % (2,332) (100 %) Total operating expenses$ 40,219 57 %$ 45,030 49 %$ (4,811) (11 %)
General and Administrative Expenses. The decrease in G&A expenses was due primarily to lower employee-related costs and professional service costs, partially offset by higher legal fees and other costs.
Sales and Marketing Expenses. The increase in S&M expenses was due primarily to higher employee-related costs of$1.5 million and higher marketing costs, including trade shows and marketing materials, and an increase in other costs. The higher employee-related costs were due primarily to higher employee compensation costs, share-based compensation expense, incentive compensation expenses, and other employee-related expenses.Energy Recovery, Inc. | Q3'2021 Form 10-Q | 31 -------------------------------------------------------------------------------- Table of Contents Research and Development Expenses. The decrease in R&D expenses was due primarily to lower testing supplies expenditures of$4.0 million related to the reduced development of the VorTeq technology, which had been reduced since the second half of 2020. The lower VorTeq-related expenditures in 2021 were partially offset by increased costs to support our incubation initiatives. In addition, R&D expenses in the current year, as compared to the prior year, included a decrease in employee compensation costs, and lower depreciation expenses primarily related to the impairment of certain VorTeq-related assets in 2020.
Amortization of Intangible Assets. Amortization of intangible assets was comparable to the prior year.
Impairment of Long-lived Assets. During the three months endedJune 30, 2020 , we conducted an analysis on certain VorTeq long-lived assets that were directly related to obligations under the VorTeq License Agreement and determined that certain of those assets were impaired. The net carrying value of the impaired VorTeq-related machinery and equipment of$2.3 million was recognized in the nine months endedSeptember 30, 2020 .
Segment and Corporate Operating Expenses
Expense activities that are included in our Water and Emerging Technologies segments and corporate operating expenses for the three and nine months endedSeptember 30, 2021 are presented below. See Note 10, "Segment Reporting," of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, "Financial Statements (unaudited)," of this Quarterly Report on Form 10-Q (the "Notes") for further discussion regarding our segments. Three Months Ended September 30, 2021 Three Months Ended September 30, 2020 (Recast) Emerging Emerging Water Technologies Corporate Total Water Technologies Corporate Total (In thousands) General and administrative$ 1,435 $ 1,373 $
3,043
$ 2,541 $ 6,271 Sales and marketing 2,250 327 419 2,996 1,507 327 307 2,141 Research and development 762 3,654 - 4,416 723 4,375 - 5,098 Amortization of intangible assets 2 - - 2 4 - - 4 Total operating expenses$ 4,449 $ 5,354 $ 3,462 $ 13,265 $ 4,605 $ 6,061 $ 2,848 $ 13,514
Water Segment. The decrease in the Water segment operating expenses was due primarily to lower G&A expenses, partially offset by an increase in S&M expenses, related to lower employee-related costs.
Emerging Technologies Segment. The decrease in the Emerging Technologies segment operating expenses was due primarily to lower R&D expenses, specifically lower VorTeq-related expenditures of$1.4 million , which was partially offset by higher expenditures for development of industrial and commercial refrigeration of$0.7 million . Corporate Operating Expenses. The increase of corporate operating expenses was due primarily to higher share-based compensation expense, and legal, consulting and other costs.
Energy Recovery, Inc. | Q3'2021 Form 10-Q | 32 --------------------------------------------------------------------------------
Table of Contents
Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020 (Recast)
Emerging Emerging
Water Technologies Corporate Total Water Technologies Corporate Total
(In thousands)
General and
administrative $ 4,768 $ 3,854 $
10,010
$ 8,333 $ 18,751 Sales and marketing 6,535 735 966 8,236 4,307 901 568 5,776 Research and development 1,858 11,484 - 13,342 2,585 15,574 - 18,159 Amortization of intangible assets 9 - - 9 12 - - 12 Impairment of long-lived assets - - - - - 2,332 - 2,332 Total operating expenses$ 13,170 $ 16,073 $ 10,976 $ 40,219 $ 13,321 $ 22,808 $ 8,901 $ 45,030
Water Segment. The decrease in the Water segment operating expenses was due primarily to lower overall G&A and R&D costs, driven by a decrease in employee-related costs and share-based compensation. These costs were partially offset by higher overall S&M costs, driven primarily by higher employee compensation and employee benefits costs, and share-based compensation and incentive compensation expense.
Emerging Technologies Segment. The decrease of Emerging Technologies segment operating expenses was due primarily to reduced VorTeq-related expense of$6.8 million , which was partially offset by an increase of expenditures for development of industrial and commercial refrigeration of$2.4 million . Total VorTeq-related expense was$9.4 million during 2021, including R&D expenditures of$7.2 million . Corporate Operating Expenses. The increase of corporate operating expenses was due primarily to higher share-based compensation expense, employee compensation costs, incentive compensation expense, legal costs, and other costs, partially offset by lower recruiting costs related to our chief executive officer search in fiscal year 2020. Other Income, Net Three Months Ended June 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands) Interest income $ 36$ 134 $ 179 $ 809 Other non-operating expense, net 1 (29) (21) (59) Total other income, net $ 37$ 105 $ 158 $ 750 Total other income, net decreased in the three and nine months endedSeptember 30, 2021 , compared to the three and nine months endedSeptember 30, 2020 , due primarily to lower interest income. Our investment strategy, starting in the first quarter of fiscal year 2020 through the second quarter of 2021, shifted from debt investments to investments in money market funds due primarily to the uncertainty caused by the COVID-19 pandemic. Starting in the third quarter of 2021, we shifted our investments in money market funds back to debt investments due to the strengthening of the economic environment. Energy Recovery, Inc. | Q3'2021 Form 10-Q | 33 -------------------------------------------------------------------------------- Table of Contents Income Taxes Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands, except percentages) (Benefit from) provision for income taxes $ 393$ 796 $ (990) $ 5,297 Discrete items 9 28 2,364 (54) Provision for income taxes, excluding discrete items $ 402$ 824 $ 1,374 $ 5,243 Effective tax rate 26.8 % 12.9 % (12.4 %) 18.8 % Effective tax rate, excluding discrete items 27.5 % 13.4 % 17.2 % 18.6 % The tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, we update our estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, we make a cumulative adjustment in such period. The quarterly tax provision and estimate of our annual effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax income or loss and the mix of jurisdictions to which they relate, intercompany transactions, the applicability of special tax regimes, and changes in how we do business. For the nine months endedSeptember 30, 2021 , the recognized income tax benefit included a benefit primarily related to theU.S. federal R&D tax credit and a discrete tax benefit due primarily to stock-based compensation windfalls. For the nine months endedSeptember 30, 2020 , the recognized income tax charge included a discrete tax charge related to the termination of the VorTeq License Agreement, partially offset by a benefit primarily related to theU.S. federal R&D tax credit and a discrete tax benefit due primarily to stock-based compensation windfalls. The decrease in the effective tax rate for the nine months endedSeptember 30, 2021 , as compared to the nine months endedSeptember 30, 2020 , is largely related to the discrete tax benefit from stock-based compensation windfall tax deductions. Excluding the discrete tax benefit in both nine month periods presented, the effective tax rate was comparable. Energy Recovery, Inc. | Q3'2021 Form 10-Q | 34 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources
Overview
From time to time, management and our Board of Directors reviews our liquidity and future cash needs and may make a decision on (1) the return of capital to our shareholders through a share repurchase program or dividend payout; or (2) seek additional debt or equity financing. As ofSeptember 30, 2021 , our principal sources of liquidity consisted of (i) unrestricted cash and cash equivalents of$65.7 million ; (ii) investment-grade short-term and long-term high-quality marketable debt instruments of$42.7 million that are primarily invested inU.S. treasury securities, and corporate notes and bonds; and (iii) accounts receivable, net of allowances, of$13.1 million . As ofSeptember 30, 2021 , there were unrestricted cash and cash equivalents of$0.9 million held outside theU.S. We invest cash not needed for current operations predominantly in high-quality, investment-grade, marketable debt instruments with the intent to make such funds available for operating purposes as needed. Although these securities are available for sale, we generally hold these securities to maturity, and therefore, do not currently see a need to trade these securities in order to support our liquidity needs in the foreseeable future. The risk of this portfolio to us is in the ability of the underlying companies to cover their obligations at maturity, not in our ability to trade these securities at a profit. Based on current projections, we believe existing cash balances and future cash inflows from this portfolio will meet our liquidity needs for at least the next 12 months.
Stand-by Letters of Credit
From time-to-time, we enter into stand-by letters of credit ("SBLCs") related to
our product warranty and performance guarantees. As of September 30, 2021 ,
outstanding SBLCs totaled $14.1 million . See Note 6, "Lines of Credit - Stand-by
Letters of Credit," of the Notes for further discussion on outstanding SBLCs.
Share Repurchase Program
OnMarch 9, 2021 , our Board of Directors authorized a share repurchase program (the "March 2021 Authorization") which we may repurchase, under management's discretion, up to$50.0 million in aggregate cost of our outstanding common stock. As ofSeptember 30, 2021 , under theMarch 2021 Authorization, we may repurchase additional shares of our outstanding common stock at an aggregate cost of approximately$32.8 million . During the quarter endedSeptember 30, 2021 , we repurchased 295,728 shares at an aggregate cost of approximately$5.6 million . See Note 9, "Stockholders' Equity - Share Repurchase Program," of the Notes for further discussion regarding theMarch 2021 Authorization.
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