Good day and welcome to the Energy Recovery Year End 2015 Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Chris Gannon, Chief Financial Officer of Energy Recovery. Please go ahead sir.

Good afternoon everyone and welcome to Energy Recovery's earnings conference call for the fourth quarter and and welcome to the Energy Recovery's Earnings Conference Call for the fourth quarter and the full year 2015. My name is Chris Gannon, Chief Financial Officer of Energy Recovery. And I'm here today with our President and Chief Executive Officer, Mr. Joel Gay. To begin, some of our comments and responses to questions may contain forward-looking statements about market trends, future revenue including VAT from the Schlumberger agreement, growth expectations, cost structure, gross profit margins, new products and our performance, and business strategy including strategic partnerships. Such forward-looking statements are based on current expectations about future events and are subject to the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act. Forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed. A detailed discussion of these factors and uncertainties is contained in the reports that the company files with the U.S. Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements made during this call except as required by law. In addition, some of our comments include certain non-GAAP financial measures which do not reflect the comprehensive systems of accounting. Generally, a non-GAAP financial measure is a numerical measure of company’s performance, financial position or cash flows that either exclude or include amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP measure should be considered as a supplement to and not as the substitute for or superior to financial measures calculated in accordance with GAAP. The company uses these non-GAAP financial measures to analyze it's operating…

Thank you, Chris. While our core competencies of fluid dynamics and advanced material science are essential to our corporate existence. Our competitive advantages of world class engineering talent, the pressure exchanger technology and speed and agility equally contribute to our success. As we reviewed 2015 of all of our performance attributes speed and agility were most central to forging the most successful year in the company’s history. 2014 was challenging. In fact it was the second worst fiscal performance since our IPO. And our business was caught within the energy and water nexus down draft. How did we respond, we reloaded our strategy and operating tactics as a necessary response to the early days of the continuing economic melees and more importantly as a rebuttal to historical and sub-optimal returns to our shareholders. Let’s briefly recap the timeline of events. In January austerity measures were implemented resulting in the elimination of $6 million of non-mission critical OpEx, and two; we’ve redefined our go-to-market strategy for emerging products. By February the Board was reconstructed to welcome our largest shareholder Mr. Oley Peter Laurence in and former energy recovery CFO and current oil and gas midstream CEO Mr. Alex Bueler. In March Saudi Aramco put the IsoGen turbogenerator system a unit which was sold in 2013 into production in one of their larger plants in the South Eastern Province of Kingdom representing the first bonafide commercial installation of the product. By April, we initiated field trials with Liberty Oil Field services for the VorTeq hydraulic pumping solution and the Board concluded its CEO search resulting in my appointment after having managed the company since January in an interim capacity. By June, the Board welcomed the former CEO of Statoil the 6th largest energy company globally Mr. Olav Fjell and management was top…

[Operator Instructions] And we'll go ahead and take our first question from Patrick Jobin with Credit Suisse. Please go ahead. Your line is open.

Hi, thanks for taking the question and congrats on the quarter and all the progress. Few questions from my side. First, I guess when you think about breakeven profitability in 2016, I guess maybe help us with some of the inputs into that. I think you said revenue growth the same if not higher than 2015. Any other context there will be helpful. And then on the cost front and OpEx. And then I guess the side question to that as, are you including any of the milestones in that revenue forecast? I’d assume it would be recognized all at once for those. Thanks.

Yeah hey thanks Patrick and great to talk to you again. So when we think about breakeven profitability, let’s bifurcate the analysis which is to say profitability with either of the milestones, because as you know as we achieve one milestone at $25 million and 100% margin by default we would not only be breakeven, but we will be significantly into the black. So let’s just think about the business excluding the milestones. So excluding the potential of $50 million. The steady state business I stated that revenue prospects for 2016 for the declination business should be as good as 2015 if not better. Once you contemplate the $5 million associated with the $75 million exclusivity fee you’re going to get to a revenue number with an assumed gross margin and an OpEx estimate of anywhere from $31 million to $32 million where we will be very close to breakeven profitability if not moderately in the black. So then now when you contemplate the milestone payments. If we achieve either milestone and we recognize that revenue as per GAAP then yeah it will be significantly into the black.

Got it that’s helpful to clarify. My second question just thinking about the status of the [indiscernible]. I know Gen 2 has that been tooled out or is that on its way down to Schlumberger or just any context on timing of that? And then one other follow-up. Thanks.

Yeah sure. So we’re right on schedule in terms of our internal timeline as to beginning and hopefully successfully concluding the first milestone test. Our focus is really on milestone 1 if we achieve milestone 1, I won’t say that milestone 2 is a [indiscernible] but the probability of success would increase exponentially. We are in the process right now of retrofitting the missile that was utilized with Liberty during our fuel trials last year. It is being retrofitted to accommodate the Gen 2 cartridge. But more importantly Patrick it is being redesigned to contemplate the many lessons that we learned in the oil patch last year and the several lessons that we continue to learn in our R&D facility here in San Leandro and most importantly through the interaction with the Schlumberger team. We’ve had a tremendous amount of synergy that arose immediately after signing the agreement and they brought a great deal of value to how we’re designing this second generation of the prototype if you will. And so I’m not going to provide quarterly guidance or even semi-annual guidance as to when we expect to achieve those milestones. What I can tell you is from where I sit today we believe that it’s quite possible that we could achieve both milestones in 2016. Now whether or not both milestones happened in November or December or sometimes before that’s the uncertainty around the process that I’m comfortable of speaking to.

Understood. And then just last question appreciating that it’s I guess speculative on your behalf, but maybe just your best guess should be helpful here. Liberty had Gen 1 in the field and certainly completed successfully. Any thoughts as to potential timeframe of additional orders considering they have a certain carve out now subject to exclusivity you have with Schlumberger are they waiting for the milestones to be met with Schlumberger or is Gen 1 enough to make them interested in potentially adopting to a fleet or so? Thanks.

Sure, what I can tell you about our relationship with Liberty is that it’s fantastic. They were very pleased with the performance of our technology throughout the field trial process in particular. How it performed at the well that we fraced in December. And they’re expecting delivery of the first commercialized unit in 2017 assuming of course we keep to the same timeline that we’ve articulated since we announced the deal with Schlumberger back in October. So in terms of the timing of orders, I’m not necessarily focused on that for the VorTeq our focus is really just on milestone one getting through that, then milestone two and once we get through those two stages of this development process. The orders will be -- they will naturally flow. In terms of other commercial milestones within our oil and gas business without exclusively focusing on the VorTeq. I’ll spend a minute talking about gas processing and chemical processing specifically our centrifugal product line namely IsoBoost and IsoGen. As I stated in my prepared remarks we are bullish on the prospect of generating meaningful purchase orders against those two product lines this year. So in terms of the timing in the cadence we are going to focus on milestone one and milestone two without really worrying about orders from either liberty or Schlumberger and in terms of commercial milestones and in eminent purchase orders we are very much mobilizing around the gas processing and chemical processing opportunity.

Got it, thanks so much.

Thank you. [Operator Instructions] We’ll go next to Brian Uhlmer with GMP securities. Please go ahead. Your line is open.

Hey, good afternoon gentlemen.

Good afternoon, Brian.

Yeah I wanted to stick on the gas processing for a little bit here. I was curious A; do you have orders in hand and could we expect revenue in the front half of the year for that based on the cycle time we get through, what would it take in terms of the order front to see something flow through on the revenue line in the front half of the year? That’s the first part of the question and second part of question is talking about Aramco and generally slow moving machine over there and talking about some large potential development. Is that something that you foresee happening in ‘16 in terms of some purchase orders or something that is more testing and what not more of a 2017 event?

Great question. So let’s start with the question of purchase orders. No, we don’t have any purchase orders in hand. If we did I would have been most pleased to make an announcement because our investors have been waiting very patiently for those purchase orders. But if you look at how we restructured our emerging market sales team under the leadership of Eric Siebert and frankly how we changed our go-to-market strategy coupled with the very successful performance of our IsoGen unit within one of their larger plant in the Southeastern Province of Kingdom. All of those indicators as well as the activity within our pipeline, all of those indicators bode well for a purchase order in 2016. Now that could be with Aramco or it could be with another customer in the broader GCC. We speak about Aramco, Aramco simply because we have been able to establish something of a beachhead with that company. Given that we’ve been developing that relationship for the better part of three or four years and finally last year in March we were able to put one of our IsoGen systems into production. And that IsoGen installation has been the subject of a lot of media coverage within kingdom and so also what I referred to in my prepared remarks was this portfolio concept, which is to say there is interest within Aramco of deploying our technology throughout their production base, which is to say within their acid gas removal trains or their gas processing plants as well as some select pipeline terminals. Now, in terms of the timing you stated it Aramco is a phenomenal company. But they do have the habit of moving at a glacial pace and we’ve experienced that over the last four years. So I can’t give you the timing on that deployment. All I can say is the indicators look good for some meaningful purchase orders this year when they convert into revenue that’s a different question because you have to think about is this is a greenfield opportunity or is it a retrofit opportunity. If it’s a greenfield opportunity and you understand the cadence at which these large plants are built just because we receive a purchase order in ‘16 doesn’t necessarily mean that we are going to monetize that in record as revenue in ‘16. It very well could be a ‘17 event. But what we are focused on is crawling before we walk and certainly walking before we run. So before I begin pontificating about revenue I’d like to get a purchase order in hand.

Fair enough, good answer. Very helpful. Slowing up on that when we look at the balance sheet now and we think about North America, which definitely issues any type of CapEx that is not something that is entirely prove or entirely necessary at this point in time. Is the strategy there to go towards if you’re talking $3 million for a unit I guess processing plant to those structure more as a lease and potentially start gaining part of the market share that way or is there a way around this current doldrums we have in North America do you guys actually start getting some product in the field there.

Yeah so let’s talk about North America. Definitely the most challenging market and environment that we are attempting to penetrate. But when you think about Energy Recovery’s value proposition. So just go ahead and consider all of our products to be a mono lift per say. We have an omnicyclical value proposition, which is to say we can play often at every point of the cycle, why, because our products offer cost efficiency to the end users. Now we’ve seen evidence of that in the form of the Schlumberger agreement okay, but hydraulic fracturing is markedly different from gas processing. So what we’re doing in North America in gas processing as I stated in my comments is, we are in discussions with several would be strategic partners. And these are strategic partners that play in the upstream, not the upstream conventionally as you think about upstream, midstream, downstream. But these are the licensors or packagers who design the plant technology and intern sell them to an end user. And so we are attempting to define a framework that would allow for us to penetrate the value chain with the licensor or packager making the decision to adopt our technology by the end user much less of an issue than it has been historically. And so as those discussions progress, I look forward to providing a more subjective update. But so our market penetration is twofold we do have boots on the ground, we are doing your typical prospecting and business development, but we’re also attacking the market from a corporate strategic relation perspective like I said in attempting to define a strategic vehicle with one of these licensors or packagers that could help us more broadly proliferate our technology in the marketplace.

Okay thanks. And one quick one for Chris. I apologized, did you give G&A, R&D guidance for the quarter and the year.

No we did not.

Okay. you did mentioned adding more engineering heads et cetera. What’s the good run rate to you off of the Q4 number and what is the expectation for some continued growth in maybe 5% or 10% range or is that a good ballpark?

Let's just say maybe $31 million, $32 million for the year. We’re really not going to give quarter-by-quarter guidance.

Okay, that’s good. that helps. I’ll turn it back over.

Thank you so much.

Thank you [Operator Instructions]. And we’ll go ahead and take another question from Patrick Jobin with Credit Suisse. Please go ahead, your line is open.

Hi thanks for the follow-up. Just going back to my notes here, I think you said $26 million of projects awarded in 2015 for large scale desalination plans. How much of that’s been recognized and I guess of those orders how much would be -- would fall into 2016’s plan? Thanks.

Yeah Patrick we’ll follow-up with the with a précised number. But I think we recognize about 14 of that in 2015, which would mean of course that we carry about 12 of that into the current year. So we don’t report backlog, but we do report contract awards we do announce contract award. So we’re in a very good position as it relates to desalination for 2016.

Got it, great visibility. Okay, thanks for the follow-up.

Thank you. [Operator Instructions]. We’ll take our next question from Dan Davis with Stifel. Please go ahead. Your line is open.

You mentioned in a news release for about month or so ago that you’re going to be buying back some shares. Have you bought any back during the quarter?

Yeah we did. So the Board approved the share repurchase plan for a gross amount of $6 million. And to-date at least through the end of February, I believe we’ve repurchased approximately 678,000, is that right Chris?

Yeah $4.1 million worth.

Thank you.

Thank you. [Operator Instructions] And speakers it does appears we have no further question at this time. I will now hand it back over to you for any additional or closing remarks.

Alright, well thank you for joining us on this call and we will look forward to speaking with you all again in May. Thank you.