Energy Recovery Reports its Second Quarter 2026 Financial Results

About this update from Energy Recovery, Inc.

Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery”, “Company”, “we”, and “our”) today announced its financial results for the second quarter and six months ended June 30, 2026. Management has released a letter to shareholders reviewing business and financial updates from the second quarter and discussing our outlook for 2026. This letter is located under “News and Events” in the “Investors” section on the Energy Recovery website ( https://ir.energyrecovery.com/news-events/shareholder-letters ). Second Quarter Highlights Revenue of $12.0 million, a decrease of $16.1 million, as compared to Q2’2025. Gross margin of 74.7%, as compared to gross margin of 64.0% in Q2’2025 primarily due to indirect manufacturing costs and channel mix, partially offset by lower volume. Operating expenses of $14.8 million, a decrease of 10.0%, as compared to Q2’2025, primarily due to lower employee compensation costs, including stock-based compensation expense, and lower consulting costs, partially offset by restructuring charges incurred in Q2’2026. Loss from operations of $5.9 million, a decrease of $7.4 million as compared to income from operations of $1.5 million during Q2’2025, due primarily to lower revenue due to the war in Iran. Net loss of $3.2 million and adjusted EBITDA (1) loss of $2.6 million. Cash and investments of $98.1 million, which includes cash, cash equivalents, and short- and long-term investments. Financial Highlights   Quarter to Date     Year to Date   Q2’2026   Q2’2025   vs. Q2’2025     2026   2025   2026 vs. 2025   (In millions, except net income (loss) per share, percentages and basis points) Revenue $12.0   $28.1   down 57%     $21.7   $36.1   down 40% Gross margin 74.7%   64.0%   up 1070 bps     53.7%   62.1%   down 840 bps Operating margin (49.0%)   5.3%   NM     (95.6%)   (30.7%)   NM Net income (loss) ($3.2)   $2.1   down 256%     ($15.4)   ($7.8)   down 97% Diluted earnings (loss) per share ($0.06)   $0.04   down $0.10     ($0.30)   ($0.14)   down $0.16 Effective tax rate               19.1%   14.0%     Cash provided by operations $16.3   $4.1         $37.3   $14.8     Non-GAAP Financial Highlights (1)   Quarter to Date     Year to Date   Q2’2026   Q2’2025   vs. Q2’2025     2026   2025   2026 vs. 2025   (In millions, except adjusted net income (loss) per share, percentages and basis points) Adjusted operating margin (30.4%)   12.2%   down 4260 bps     (54.0%)   (17.4%)   NM Adjusted net income (loss) ($1.4)   $3.7   down 136%     ($7.1)   ($3.3)   down 116% Adjusted earnings (loss) per share ($0.03)   $0.07   down $0.10     ($0.14)   ($0.06)   down $0.08 Adjusted EBITDA ($2.6)   $4.4         ($9.7)   ($4.4)     Free cash flow $15.4   $4.0         $35.7   $14.5     ---------- (1) Refer to the sections “Use of Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” for definitions of our non-GAAP financial measures and reconciliations of GAAP to non-GAAP amounts, respectively. Forward-Looking Statements Certain matters discussed in this press release and on the conference call are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on information currently available to the Company and on management’s beliefs, assumptions, estimates, or projections and are not guarantees of future events or results. Potential risks and uncertainties include risks relating to the future demand for the Company’s products, risks relating to performance by our customers and third-party partners, risks relating to the timing of revenue, and any other factors that may have been discussed herein regarding the risks and uncertainties of the Company’s business, and the risks discussed under “Risk Factors” in the Company’s Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) for the year ended December 31, 2025, as well as other reports filed by the Company with the SEC from time to time. Because such forward-looking statements involve risks and uncertainties, the Company’s actual results may differ materially from the predictions in these forward-looking statements. All forward-looking statements are made as of today, and the Company assumes no obligation to update such statements. Use of Non-GAAP Financial Measures This press release includes certain non-GAAP financial measures, including adjusted operating margin, adjusted net income (loss), adjusted earnings (loss) per share, adjusted EBITDA and free cash flow. Generally, a non-GAAP financial measure is a numerical measure of a 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 generally accepted accounting principles in the United States of America, or GAAP. These non-GAAP financial measures do not reflect a comprehensive system of accounting, differ from GAAP measures with the same captions, and may differ from non-GAAP financial measures with the same or similar captions that are used by other companies. As such, these non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company uses these non-GAAP financial measures to analyze its operating performance and future prospects, develop internal budgets and financial goals, and to facilitate period-to-period comparisons. The Company believes these non-GAAP financial measures reflect an additional way of viewing aspects of its operations that, when viewed with its GAAP results, provide a more complete understanding of factors and trends affecting its business. Notes to the Financial Results Adjusted operating margin is a non-GAAP financial measure that the Company defines as income (loss) from operations which excludes i) stock-based compensation; ii) restructuring charges, iii) restructuring - inventory reserve, iv) impairment of long-lived assets, and v) impairment of goodwill, divided by revenues. Adjusted net income (loss) is a non-GAAP financial measure that the Company defines as net income (loss) which excludes i) stock-based compensation; ii) restructuring charges; iii) restructuring - inventory reserve, iv) impairment of long-lived assets; v) impairment of goodwill and vi) the applicable tax effect of the excluded items including the stock-based compensation discrete tax item. Adjusted earnings (loss) per share is a non-GAAP financial measure that the Company defines as net income (loss), which excludes i) stock-based compensation; ii) restructuring charges; iii) restructuring - inventory reserve, iv) impairment of long-lived assets; v) impairment of goodwill and vi) the applicable tax effect of the excluded items including the stock-based compensation discrete tax item, divided by basic shares outstanding. Adjusted EBITDA is a non-GAAP financial measure that the Company defines as net income (loss) which excludes i) depreciation and amortization; ii) stock-based compensation; iii) restructuring charges; iv) restructuring - inventory reserve, v) impairment of long-lived assets; vi) impairment of goodwill vii) other income, net, such as interest income and other non-operating income (expense), net; and viii) provision for (benefit from) income taxes. Free cash flow is a non-GAAP financial measure that the Company defines as net cash provided by operating activities less capital expenditures. Conference Call to Discuss Financial Results LIVE CONFERENCE Q&A CALL: Wednesday, August 5, 2026, 2:00 PM PT / 5:00 PM ET US / Canada Toll-Free: +1 (877) 709-8150 Local / International Toll: +1 (201) 689-8354 CONFERENCE Q&A CALL REPLAY: Available approximately three hours after conclusion of the live call. Expiration: Saturday, September 5, 2026 US / Canada Toll-Free: +1 (877) 660-6853 Local / International Toll: +1 (201) 612-7415 Access code: 13760218 Investors may also access the live call and the replay over the internet on the “Events” page of the Company’s website located at https://ir.energyrecovery.com/news-events/ir-calendar . Disclosure Information Energy Recovery uses the investor relations section on its website as means of complying with its disclosure obligations under Regulation FD. Accordingly, investors should monitor Energy Recovery’s investor relations website in addition to following Energy Recovery’s press releases, SEC filings, and public conference calls and webcasts. About Energy Recovery Energy Recovery (Nasdaq: ERII) designs and manufactures world-class energy-saving technology for critical infrastructure that communities rely on every day, driving a more resilient and sustainable future. Grounded in more than 30 years of leadership in the desalination industry, today we use our proprietary pressure exchanger technology to help customers in multiple industries improve their operations and lower their emissions. Headquartered in the San Francisco Bay Area, we operate manufacturing and R&D facilities throughout California, with sales and on-site technical support available globally. For more information, please visit www.energyrecovery.com ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)   June 30, 2026   December 31, 2025   (In thousands) ASSETS       Cash, cash equivalents and investments $ 98,074   $ 83,283 Accounts receivable and contract assets   14,237     78,286 Inventories, net   38,242     24,260 Prepaid expenses and other assets   3,888     3,416 Property, equipment and operating leases   19,298     20,635 Goodwill   11,128     12,790 Deferred tax assets and other assets   12,869     8,844 TOTAL ASSETS $ 197,736   $ 231,514         LIABILITIES AND STOCKHOLDERS’ EQUITY       Liabilities       Accounts payable, accrued expenses, and other liabilities, current $ 14,791   $ 13,784 Contract liabilities and other liabilities, non-current   2,234     2,109 Lease liabilities   8,233     9,429 Total liabilities   25,258     25,322         Stockholders’ equity   172,478     206,192 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 197,736   $ 231,514 ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)   Three Months Ended June 30,   Six Months Ended June 30,   2026   2025   2026   2025   (In thousands, except per share data) Revenue $ 11,996     $ 28,051   $ 21,702     $ 36,116   Cost of revenue   3,039       10,097     8,411       13,704   Restructuring - inventory reserve   —       —     1,632       —   Gross profit   8,957       17,954     11,659       22,412                                   Operating expenses               General and administrative   6,801       7,669     13,256       16,243   Sales and marketing   4,336       5,360     9,455       10,266   Research and development   2,849       3,451     5,638       6,452   Restructuring charges   855       —     2,391       539   Impairment of goodwill   —       —     1,662       —   Total operating expenses   14,841       16,480     32,402       33,500   Income (loss) from operations   (5,884 )     1,474     (20,743 )     (11,088 )                 Other income, net   802       914     1,635       1,993   Income (loss) before income taxes   (5,082 )     2,388     (19,108 )     (9,095 ) Provision for (benefit from) income taxes   (1,884 )     334     (3,659 )     (1,269 ) Net income (loss) $ (3,198 )   $ 2,054   $ (15,449 )   $ (7,826 )                 Net income (loss) per share               Basic $ (0.06 )   $ 0.04   $ (0.30 )   $ (0.14 ) Diluted $ (0.06 )   $ 0.04   $ (0.30 )   $ (0.14 )                 Number of shares used in per share calculations               Basic   51,463       54,257     52,058       54,578   Diluted   51,463       54,486     52,058       54,578   ENERGY RECOVERY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)   Six Months Ended June 30,   2026   2025   (In thousands) Cash flows from operating activities:       Net loss $ (15,449 )   $ (7,826 ) Non-cash adjustments   4,979       4,706   Net cash provided by operating assets and liabilities   47,813       17,944   Net cash provided by operating activities   37,343       14,824           Cash flows from investing activities:       Net investment in marketable securities   (1,303 )     33,882   Capital expenditures   (1,689 )     (326 ) Proceeds from sales of fixed assets   13       10   Net cash (used in) provided by investing activities   (2,979 )     33,566           Cash flows from financing activities:       Net proceeds from issuance of common stock   132       1,459   Tax payment for employee shares withheld   (682 )     (476 ) Repurchase of common stock and net excise tax activity   (20,432 )     (22,009 ) Net cash used in financing activities   (20,982 )     (21,026 )         Effect of exchange rate differences   (20 )     60   Net change in cash, cash equivalents and restricted cash $ 13,362     $ 27,424   Cash, cash equivalents and restricted cash, end of period $ 61,438     $ 57,181   ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Channel Revenue   Three Months Ended June 30,   Six Months Ended June 30,   2026   2025   vs. 2025   2026   2025   vs. 2025   (In thousands, except percentages) Original equipment manufacturer $ 5,178   $ 8,357   down 38%   $ 11,766   $ 12,358   down 5% Aftermarket   4,112     4,892   down 16%     6,866     8,920   down 23% Megaproject   2,706     14,802   down 82%     3,070     14,838   down 79% Total revenue $ 11,996   $ 28,051   down 57%   $ 21,702   $ 36,116   down 40% Segment Activity   Three Months Ended June 30,   2026     2025   Desalination   Wastewater   Corporate and Other   Total   Desalination   Wastewater   Corporate and Other   Total   (In thousands) Revenue $ 11,483   $ 513     $ —     $ 11,996     $ 25,500   $ 2,339     $ 212     $ 28,051 Cost of revenue   2,781     258       —       3,039       9,259     667       171       10,097 Restructuring - inventory reserve   —     —       —       —       —     —       —       — Gross profit   8,702     255       —       8,957       16,241     1,672       41       17,954                                 Operating expenses                               General and administrative   1,025     872       4,904       6,801       788     535       6,346       7,669 Sales and marketing   2,453     1,209       674       4,336       2,183     1,097       2,080       5,360 Research and development   2,391     262       196       2,849       1,370     234       1,847       3,451 Restructuring charges   —     —       855       855       —     —       —       — Total operating expenses   5,869     2,343       6,629       14,841       4,341     1,866       10,273       16,480 Operating income (loss) $ 2,833   $ (2,088 )   $ (6,629 )     (5,884 )   $ 11,900   $ (194 )   $ (10,232 )     1,474 Other income, net               802                   914 Income (loss) before income taxes             $ (5,082 )               $ 2,388 ENERGY RECOVERY, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Segment Activity   Six Months Ended June 30,   2026   2025   Desalination   Wastewater   Corporate and Other   Total   Desalination   Wastewater   Corporate and Other   Total   (In thousands) Revenue $ 20,390   $ 1,114     $ 198     $ 21,702     $ 33,259   $ 2,644     $ 213     $ 36,116   Cost of revenue   7,723     628       60       8,411       12,641     846       217       13,704   Restructuring - inventory reserve   —     —       1,632       1,632       —     —       —       —   Gross profit (loss)   12,667     486       (1,494 )     11,659       20,618     1,798       (4 )     22,412                                   Operating expenses                               General and administrative   1,781     1,853       9,622       13,256       1,633     1,263       13,347       16,243   Sales and marketing   4,938     2,372       2,145       9,455       4,291     2,134       3,841       10,266   Research and development   4,007     398       1,233       5,638       2,219     563       3,670       6,452   Restructuring charges   335     18       2,038       2,391       107     103       329       539   Impairment of goodwill   —     —       1,662       1,662       —     —       —       —   Total operating expenses   11,061     4,641       16,700       32,402       8,250     4,063       21,187       33,500   Operating income (loss) $ 1,606   $ (4,155 )   $ (18,194 )     (20,743 )   $ 12,368   $ (2,265 )   $ (21,191 )     (11,088 ) Other income, net               1,635                   1,993   Income before income taxes             $ (19,108 )               $ (9,095 ) Stock-based Compensation   Three Months Ended June 30,   Six Months Ended June 30,   2026   2025   2026   2025   (In thousands) Stock-based compensation expense charged to:               Cost of revenue $ 145   $ 148   $ 243   $ 296 General and administrative   429     728     1,398     1,598 Sales and marketing   582     701     1,253     1,380 Research and development   230     359     455     625 Total stock-based compensation expense $ 1,386   $ 1,936   $ 3,349   $ 3,899 ENERGY RECOVERY, INC. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (1) (Unaudited)   This press release includes certain non-GAAP financial information because we plan and manage our business using such information. The following table reconciles the GAAP financial information to the non-GAAP financial information.     Quarter to Date   Year to Date   Q2'2026   Q2'2025   Q2'2026   Q2'2025   (In millions, except shares, per share and percentages) Operating margin   (49.0 )%     5.3 %     (95.6 )%     (30.7 )% Stock-based compensation   11.6       6.9       15.4       10.8   Restructuring charges   7.1       —       11.0       1.5   Impairment of long-lived assets   —       —       —       1.0   Restructuring - inventory reserve   —       —       7.5       —   Impairment of goodwill   —       —       7.7       —   Adjusted operating margin   (30.4 )%     12.2 %     (54.0 )%     (17.4 )%                 Net income (loss) $ (3.2 )   $ 2.1     $ (15.4 )   $ (7.8 ) Stock-based compensation   1.4       1.9       3.3       3.9   Restructuring charges (2)   0.5       —       2.1       0.5   Impairment of long-lived assets (2)   —       —       —       0.3   Restructuring - inventory reserve (2)   —       —       1.4       —   Impairment of goodwill (2)   —       —       1.4       —   Stock-based compensation discrete tax item   (0.1 )     (0.3 )     0.1       (0.2 ) Adjusted net income (loss) $ (1.4 )   $ 3.7     $ (7.1 )   $ (3.3 )                 Net income (loss) per share $ (0.06 )   $ 0.04     $ (0.30 )   $ (0.14 ) Adjustments to net income (loss) per share (3)   0.03       0.03       0.16       0.08   Adjusted earnings (loss) per share $ (0.03 )   $ 0.07     $ (0.14 )   $ (0.06 )                 Net income (loss) $ (3.2 )   $ 2.1     $ (15.4 )   $ (7.8 ) Stock-based compensation   1.4       1.9       3.3       3.9   Depreciation and amortization   1.0       0.9       2.0       1.9   Restructuring charges   0.9       —       2.4       0.5   Impairment of long-lived assets   —       —       —       0.4   Restructuring - inventory reserve   —       —       1.6       —   Impairment of goodwill   —       —       1.7       —   Other income, net   (0.8 )     (0.9 )     (1.6 )     (2.0 ) Provision for (benefit from) income taxes   (1.9 )     0.3       (3.7 )     (1.3 ) Adjusted EBITDA $ (2.6 )   $ 4.4     $ (9.7 )   $ (4.4 )                 Free cash flow               Net cash provided by operating activities $ 16.3     $ 4.1     $ 37.3     $ 14.8   Capital expenditures   (0.9 )     (0.1 )     (1.7 )     (0.3 ) Free cash flow $ 15.4     $ 4.0     $ 35.7     $ 14.5   __________ (1) Amounts may not total due to rounding. (2) Amounts presented are net of tax. (3) Refer to the sections “Use of Non-GAAP Financial Measures” for description of items included in adjustments.   View source version on businesswire.com: https://www.businesswire.com/news/home/20260805275820/en/

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