Energy Recovery, Inc.
Lead Plaintiff Deadline: 09/21/2020
SUMMARY OF CASE:
A securities class action has been filed against Energy Recovery, Inc. (ERII) on behalf of a class consisting of all persons other than Defendants who purchased or otherwise acquired common shares of Energy Recovery stock between August 2, 2017 through June 29, 2020. This case has been filed in the USDC – S.D.N.Y.
Energy Recovery is a Delaware corporation headquartered in San Leandro, California. The Company develops and manufactures technologies utilized in the water desalination industry. In December 2014, Energy Recovery announced the launch of VorTeq hydraulic pumping system, which was designed to increase runtime and reduce maintenance costs associated with pump failures. The VorTeq technology is intended to reroute the abrasive frac fluid away from existing hydraulic fracturing pumps, and thereby, reduce frequent failures in the high-pressure hydraulic fracturing.
On October 19, 2015, the Company announced that it has signed a fifteen-year deal with Schlumberger Technology Corp. (“Schlumberger”), which gave Schlumberger the exclusive right to the use of the Company’s VorTeq technology (the “Schlumberger Licensing Agreement”). Under the terms of the Schlumberger Licensing Agreement, Schlumberger paid $75 million exclusivity fee and was to pay an additional $50 million milestone payments in 2016. The terms also dictated that Schlumberger would pay continuing annual royalties for the duration of the license agreement, subject to the satisfaction of certain key performance indicators.
At all relevant times, the Schlumberger Licensing Agreement represented one of two critical business relationships, on which the Company solely depended in achieving the commercialization of its leading VorTeq technology and securing a stream of revenue. In fact, license revenue from VorTeq was projected to reach $12 to $14 million in 2020, and thus, represented a significant portion of the Company’s total revenues.
The Complaint alleges that throughout the Class Period, Defendants made materially false and misleading statements, and failed to disclose material adverse facts about the Company’s business, operations, and financial health. Specifically, Defendants made false and/or misleading statements and failed to disclose to investors that: (i) the Company and Schlumberger had different strategic perspectives regarding commercialization of VorTeq; (ii) which created substantial risk of early termination of the Company’s exclusive licensing agreement with Schlumberger; (iii) accordingly, the revenue guidance and expectations of future license revenue was false and lacked reasonable basis; and (iv) as a result, Defendants’ public statements were materially false and misleading at all relevant times or lacked a reasonable basis and omitted material facts.
On June 29, 2020 — not even five years into the Schlumberger License Agreement — the Company issued a press release, announcing the termination of the licensing agreement with Schlumberger, citing to “different strategic perspectives as to the path to VorTeq commercialization.” The Company further announced that following the termination, “no further payments will be made by either party” and that “Energy Recovery will now be fully responsible for commercialization of the VorTeq technology globally.”
This news caused a precipitous decline in the price of Energy Recovery shares, which fell 15.8%, to close at $7.59 on June 30, 2020, on unusually high trading volume. Several securities analysts downgraded Energy Recovery’s rating and significantly lowered the Company’s price target. As one analyst commented, “[the Company] should have been able to perceive in advance and then explicitly warn about the significant, and likely rising, odds of this outcome.”
As a result of Energy Recovery’s wrongful acts and omissions, and the precipitous decline in the market value of its common shares, Plaintiff and other Class members have suffered significant losses and damages.