Energy Recovery Inc. Q1 2026 Earnings Call - CEO Retirement, Middle East Guidance Withdrawn, New PX Q650 Launches

Operator/Moderator, Energy Recovery Inc.: Good day, ladies and gentlemen, welcome to Energy Recovery’s 1st quarter 2026 earnings call. During today’s call, Energy Recovery may make projections and other forward-looking statements under the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of the company. These statements may discuss our business, economic and market outlook, growth expectations, new products and their performance, cost structure and business strategy. Forward-looking statements are based on important current information currently available to the company and on management’s beliefs, assumptions, estimates, and projections. Forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. We refer you to documents the company files from time to time with the SEC, specifically the company’s annual Form 10-K and quarterly Form 10-Q.

These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. All statements made during this call are made only as of today, May 6, 2026, and the company expressly disclaims any intent or obligation to update any forward-looking statements made during this call to reflect subsequent events or circumstances, unless otherwise required by law. Our hosts for today’s call are David Moon, President and Chief Executive Officer of Energy Recovery, and Aidan Ryan, Interim Chief Financial Officer. I would now like to turn the call over to Mr. Moon.

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Thank you, operator, and good day, everyone. Earlier today, we released a letter to shareholders on the investor relations section of our website that reviews business and financial performance during the quarter. Prior to opening the line for questions and answers, I’d like to highlight a few important takeaways from that letter. First is our new product, the PX Q650. We launched the product in March, have already received our first commercial order, and are working with multiple large customers to design it into large desalination plants. It’s off to a strong start, and we’re excited about the commercial momentum that we’ve achieved in such a short time. Second, 2 leadership updates. I’ve informed the board of my intention to retire and a search for my successor is underway. Until that person is named, I’m fully engaged in my role.

Behind me is a strong bench of talent here at ERII that will ensure a smooth transition. We’re also announcing that Mike Mancini has resigned as CFO. Aidan Ryan, who joined in 2024, will take over as interim CFO and ensure business as usual from a finance and shareholder standpoint. Third is the award in Iran. As we talked about in our letter, we have meaningful exposure to the Middle East, and we know the conflict will impact us. As such, our original financial guidance for 2026 is no longer reliable, and we’re temporarily withdrawing guidance until we have better visibility on the evolving conflict. We’ve seen these situations in the past, and while timing is a key factor, we know the demand is there, and we are building inventory to serve customers when they are ready.

Our strategic direction will not change during this uncertain time. We remain focused on product innovation, cost discipline, manufacturing transformation, and the growth of our wastewater business. With that, we will now move to the question and answer portion of our conference call. Operator, please open the line for questions.

Operator/Moderator, Energy Recovery Inc.: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. One moment please while we poll for a question. Our first question comes from the line of Ryan Connors with Northcoast Research. Please proceed with your question.

Ryan Connors, Analyst, Northcoast Research: Thank you. Good afternoon.

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Hey, Ryan.

Ryan Connors, Analyst, Northcoast Research: Hi, David, and congratulations on the retirement decision. Aidan, congratulations on the elevation. Actually, quick question on that. Will the search lean internal or external, or is that just sort of everything’s on the table in terms of your replacement, David?

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Ryan, everything’s on the table.

Ryan Connors, Analyst, Northcoast Research: Okay. In terms of, you know, just unpacking the Middle East situation a little bit. I think we’ve got two different types of issues, right? One is a short-term delay. A project gets pushed out 6, 9 months. I think everyone’s, that’s totally, that’s not a big deal even from a modeling standpoint. There’s this sort of concern that the nature of this conflict and some of the images that were out there that people are seeing and potential investors in the region are seeing could kind of just sort of deflate confidence in the region for a little longer period and kind of take away some of the growth economically and tourism and whatnot that underpins some of the project activity.

I mean, I know you don’t have a crystal ball either, I’d love to get your take on that issue whether the delays are likely to be the first sort or more of the second sort, which would be a little more concerning.

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Yeah. You know, I think, Ryan, obviously it’s still early days, but what we’re hearing both internally and as we talk externally to others that are in the industry is that, you know, the project delays will be just that. There are likely to be some delays as we move from 2026 into 2027. That the fundamentals that are driving desalination and wastewater, but primarily desalination in the Middle East is water scarcity and water security, right? Populations continue to grow. Those aren’t going away. While we may see some projects delay, you know, we still feel good about the long-term fundamentals of desalination.

Ryan Connors, Analyst, Northcoast Research: Yep. Yeah. Yeah, we’ll have to just keep track of it, I guess, as it plays out.

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Ryan, we’re not hearing anything that would tell us otherwise at this point.

Ryan Connors, Analyst, Northcoast Research: Sure. One of my questions, David, you answered to some extent, which is I was, I was gonna ask how you’re managing inventory and production schedules given that kind of uncertainty. You did mention just there at the end of your prepared remarks that, you know, you’re building inventory to be ready to serve customers. I guess my question is twofold there. One is, you know, what gives you confidence to be building that inventory when things, you know, could push further right or not on a certain project? B, given the good news on the, on the Q650 gaining traction, how do you know which inventory to build?

if some of these things are delayed, you know, a year or so, might you actually have the opportunity to try to spec in some of the 650s in place of what was supposed to go in, or is that just not feasible?

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Yeah, I think the answer to that is yes, we already know projects that are on the board over the next 12-24 months that are Q400 spec and frankly are so far along in the design phases, it’s unlikely that those projects will change product. We’ve got a pretty good, you know, given where we’re at today, we’ve got a pretty good crystal ball of sort of the Q650 transition time. That’s sort of number 1. Number 2 is that, you know, we saw the Q300, Q400 transition sort of take sort of 2-plus years to play out to get it to where, you know, the Q400 is our primary product today.

You know, we think it’s going to take, even with sort of this early momentum around the Q650, we think it’s gonna take a couple of years for the Q650 to become our primary product. That’s, you know, that’s probably 2028 before we see that. You know, we feel pretty good about how many Q400s we need to be building over the next couple of years and how many Q650s that we should be building as well.

Ryan Connors, Analyst, Northcoast Research: Yep. Okay. My last one, and then I’ll pass it on, is just obviously the, you know, the delays, are focused on the Middle East and the conflict, but the conflict itself has led energy prices higher. Obviously, desal is very energy intensive, no matter where on the globe people are doing it. Now, the PX device is gonna lower that energy footprint, but still, versus a few months ago, any project’s gonna look a little more expensive. Is there any sign that there’s, you know, any kinds of delays outside of the Middle East, just given the higher energy, cost spike?

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Yeah, that’s a really good question. The answer is, no, not to this point. We have seen a few delays in some wastewater projects because of the cost, input cost of materials, but they’ve been small projects and pretty small scale. Nothing really at this point that would say desal projects in general globally are being impacted, even given sort of the high energy price at this point, are being impacted by the war. Now, TBD, right? If it continues. So far, the answer is no.

Ryan Connors, Analyst, Northcoast Research: Understood. Very clear. Thanks for your time.

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Thank you, Ryan.

Operator/Moderator, Energy Recovery Inc.: Thank you. Our next question comes from the line of Ryan Pfingst with B. Riley Securities. Please proceed with your question.

Ryan Pfingst, Analyst, B. Riley Securities: Hey, David. Thanks for taking my questions.

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Hi, Ryan. Sure bud.

Ryan Pfingst, Analyst, B. Riley Securities: Hey. Maybe just a follow-up to the last one. On the flip side, you know, with the Middle East uncertainty, are there other geographic regions where you’re particularly enthusiastic about project development on the mega project side?

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Yeah. I think if you think about sort of the next 2 years, we’re excited about China, and some of the desal activity that looks to be ramping up there. I would say South America, which would be the sort of 2nd area where we see some activity that’s starting to pick up there. I’d say those are the sort of the 2 general areas. The 3rd I would say is a wild card would be Texas. You know, there’s been a lot of talk about desal projects for the last couple years. Should some of those projects really start to prove out and start to happen, that could be some really nice business for us. I would say those are sort of the 3 areas that we’re watching pretty closely.

Ryan Pfingst, Analyst, B. Riley Securities: Got it. Has there been any change or updates how you’re thinking about your manufacturing footprint expansion globally, just given the recent geopolitical events?

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: No. I think, you know, the strategic reasons for us looking in the Middle East are still the same regardless of conflicts, right? First and foremost, it’s our biggest base of business and looks like it will be over the next 5 to 10 years. That’s sort of reason number 1, right? Reason number 2 is we’ve got customers there that are really pulling us for local content as it relates to building PXs on the ground. We’re really, you know, that’s not going away in the near term. I think the third thing is that, you know, the sort of the icing on the cake would be the low cost benefits that we get by moving a manufacturing facility to the Middle East.

Look, we continue to be full speed ahead, in our planning. You know, it’s still our target by Q1 to be able to start manufacturing Q400s, assembling Q400s, overseas. We continue to push down that path.

Ryan Pfingst, Analyst, B. Riley Securities: Appreciate that. Maybe just one more on wastewater. The prior 2026 outlook was $10 million-$15 million in revenue. Is that still how you’re thinking about wastewater revenue for this year, or should we consider that on hold as well?

Aidan Ryan, Interim Chief Financial Officer, Energy Recovery Inc.: We are pausing. Hey, hey Ryan, this is Aidan. We are pausing our guidance on both desalination and wastewater. We’re not gonna comment specifically, but there’s a lot of good things going on in wastewater. We also have some challenges, like David mentioned. We look to update that when we update our overall guidance, hopefully here, in Q2 or Q3.

Ryan Pfingst, Analyst, B. Riley Securities: Got it. Appreciate it, guys. I’ll turn it back.

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Thank you.

Operator/Moderator, Energy Recovery Inc.: Thank you. Our next question comes from the line of Larry Solow with CJS Securities. Please proceed with your question.

Peter Lukas, Analyst, CJS Securities (on behalf of Larry Solow): Yes. Hi, it’s Peter Lukas, on for Larry.

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Hi, Pete.

Peter Lukas, Analyst, CJS Securities (on behalf of Larry Solow): You covered a lot in your previous answers. I guess just one from me. Given the short-term uncertainty, how do you think about cost-cutting as a lever to pull to maintain, you know, free cash flow? How should we think about that as an option for you?

Aidan Ryan, Interim Chief Financial Officer, Energy Recovery Inc.: Yeah, some of those things are definitely part of the existing plans. As we highlighted in the shareholder letter, focus is on maintaining cost discipline. We’ve talked about reducing manufacturing costs domestically with lean and Kaizen programs. David just talked about the manufacturing footprint strategy. That is part of our plans to reduce cost and we’re always focused on that.

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: I would say the other thing, Peter Lukas, is that, you know, we did a major reduction in force last year. We did a reduction in force to start the beginning of this year. You know, as we think about further cost-cutting and SG&A, other than the belt-tightening and continuing to sort of trim around the edges, there’s not a lot of big one-time opportunities left. I think we’ve done a pretty good job of reducing there where we had the opportunity. I think where we see opportunities going forward is really, you know, productivity gains at the factory and sort of continuing to get smarter where we work in our SG&A to the extent that there are opportunities. Sort of no big time opportunities left.

Peter Lukas, Analyst, CJS Securities (on behalf of Larry Solow): Very helpful. That’s it for me. Thanks.

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Thank you.

Operator/Moderator, Energy Recovery Inc.: Thank you. We have reached the end of the question and answer session. I would like to turn the floor back over to CEO David Moon for closing remarks.

David Moon, President and Chief Executive Officer, Energy Recovery Inc.: Thank you, operator. I just want to repeat what I had said in my opening remarks. You know, our strategic direction will not change during this uncertain time. We will remain focused on product innovation. I think we’ve proven that with the Q650. We’ve got more products on the drawing board as we move forward. Cost discipline, our manufacturing transformation efforts both here and overseas, and then the growth of our wastewater business are all things that we’ll remain focused on as we move throughout the year. Thank you, operator.

Operator/Moderator, Energy Recovery Inc.: Thank you. This concludes today’s conference, and you may disconnect your line at this time. We thank you for your participation.