Energy Recovery Q3 2026 Earnings Call Transcript

Energy Recovery (NASDAQ:ERII) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Energy Recovery has signed over $30 million in new megaproject contracts recently, with a total backlog of over $60 million and a pipeline of about $525 million, indicating robust growth potential.

The company is focused on technology leadership with the launch of the PX Q650, which has already been contracted for major desalination projects, and is expanding its product portfolio with new turbochargers and Ultra Low Pressure PX.

Energy Recovery is now a pure-play water technology company, having closed its CO2 business, and reports zero debt with nearly $86 million in cash and investments.

Cost management efforts have resulted in a 17% reduction in quarterly operating expenses compared to last year, and the company has repurchased $109 million of stock since late 2024.

Management remains cautious about providing near-term guidance due to uncertainties in project shipment timing, despite a strong pipeline and growing project diversification beyond the Middle East.

Full Transcript

OPERATOR (Moderator)

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 information currently available to the company and on the management’s beliefs, assumptions, estimates, and projections.

Forward-looking statements are not guarantees of future performance and are subject to certain risks and 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, November 4, 2026, and the company expressly disclaims any intent or obligation to update any forward-looking statements made during the call to reflect subsequent events or circumstances unless otherwise requested.

Our hosts for today’s call are Alex Buehler, Interim 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. Buehler.

Alex Buehler (Interim President & CEO)

Thank you, operator, and good afternoon, 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. Before we open the line for questions, I would like to share a few business highlights that reinforce important updates in the shareholder letter. First, megaproject contracting is back and our pipeline is uniquely strong. Contracting and construction activity in the Middle East has resumed with construction now underway on multiple large plants in Persian Gulf countries where work was paused earlier this year. In the last 30 days alone, we have signed over $30 million in new megaproject contracts. Our total backlog now stands at over $60 million and, based on contracts executed and in current negotiation, we have line of sight to at least $50 million of megaproject revenue in 2027.

In short, a strong megaproject rebound is already taking shape. At the same time, our megaproject pipeline has grown to a record of about $525 million. Zooming out, the picture gets even better. Our market is entering its largest buildout ever, with roughly $30 billion of desalination and reuse capital spending expected from 2027 through 2030, increasingly flowing through multi-year national programs and spreading well beyond the GCC countries, and our customers are staying the course.

Not one has changed a long-term investment decision and we are not aware of a single desalination project that has been canceled. Second, I am especially excited about our position of technology leadership. The PX is the gold standard in desalination, with more than 40,000 devices installed in virtually every major desalination plant around the world, many of them operating for decades with minimal or no failure. This year we extended that lead with the launch of the PX Q650, which delivers the highest capacity and lowest specific energy consumption of any product available.

Just six months after launch, it is already specified at several large desal sites and we have signed our first PX Q650 contract at Jubail, a 600,000 cubic meter per day plant. Beyond the Q650, we have also broadened our portfolio with new standardized turbochargers and our Ultra Low Pressure PX. In 2026, we have won every single megaproject above 100,000 cubic meters per day. And by accelerating our technology roadmap by more than 12 months, we aim to provide our customers with premium products to support the largest plants in the world through this next buildout cycle.

Third, we are attacking this opportunity from a position of real strength. With the closure of our CO2 business, we are now a pure-play water technology company with zero debt and almost $86 million of cash and investments. And we have generated about $26 million of free cash flow year to date. Our operations are executing at a very high level and our new facility in Dammam, Saudi Arabia will start manufacturing next year, putting lower-cost capacity in close proximity to our largest customers.

And with our technology roadmap pulled forward, you will see an accelerated pace of new product innovation in 2027 and 2028. Finally, we are running the business with cost discipline and returning capital to our shareholders. Cost actions taken this year reduced quarterly operating expenses by 17% versus last year and almost 23% versus two years ago. And we have repurchased nearly $109 million of stock since the fourth quarter of 2024. We remain ready to take additional action as needed to protect shareholder value and position the company for continued success.

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)

Thank you. 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 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Brian Fince with B. Riley Securities. Please proceed.

Brian Fince (Analyst)

Hey, guys, thanks for taking the questions. For the $50 million of megaproject revenue visibility for next year and the growing pipeline more broadly, is that primarily driven by the Middle East still, or are you seeing some of the other regions enhance more of the near-term opportunities for you guys?

Alex Buehler (Interim President & CEO)

No, I mean it’s great to see that the pipeline is becoming increasingly well diversified. Obviously, I think you realize that we’ve been well concentrated historically in the Middle East or GCC countries. As we look out five years and assess the pipeline—and we did report that it jumped from $500 to $525 million quarter over quarter—so we are seeing that continue to materialize and increase. We are seeing more projects, larger size per project, and a better diversified pipeline.

When you look at sort of GCC versus non-GCC, that’s inclusive especially of other sort of dry climates like North Africa, but even beyond that, some Asian countries and South American countries as well. So I would say larger pipeline, bigger projects, more projects, and better diversification as we look out.

Brian Fince (Analyst)

Got it. Appreciate that. And then for the 4Q megaproject backlog of $17 million, could you size how much, if any, of that has been delivered quarter to date, or if there’s a portion of it that you think is at risk of slipping into next year?

Aidan Ryan (Interim Chief Financial Officer)

Yeah, that $17 million in Q4—without commenting how much has already been delivered—I’ll say we expect and hope that there may also be other contracting activity that happens in the next few months. So I’d think about that $17 million as a floor expectation for Q4 in megaprojects.

Brian Fince (Analyst)

Got it. I appreciate that, Aidan. And then maybe just lastly, can you remind us what the changes are that you’re implementing in wastewater and that organization, and how we should think about the revenue ramp more broadly as we head into 2027 for that business?

Alex Buehler (Interim President & CEO)

Yeah, I think historically, or at least for the last couple of years, we were running with two entirely separate divisions, which kind of assumed or implied that there was limited overlap in customer sharing. I think what we learned over the course was that there is a lot of customer overlap and you can get a little bit more efficient on the sales and sales management side by merging those organizations. That’s what we announced last quarter. We have merged those sales organizations, so we’ve got one sort of water organization now from a sales and service perspective.

That organization does have a renewed and more focused go-to-market strategy, segmentation, identification of target accounts, and they are hitting the market hard. Obviously we’re not happy with the level of quarterly performance; however, we are expecting a nice tick-up in Q4, which should support us into next year and beyond as well. So the other thing I’ll say about wastewater: it, too, is becoming increasingly well diversified. Historically we’ve been highly concentrated in China, especially in a couple of—call it—large end markets or segments. I think we’re seeing China as a percent of total opportunity go down as we diversify to other markets like India, like North America, Europe, and other places. So we still believe in the market. Obviously we’ve got a very strong value proposition.

We benefit from about 300 reference cases around the world working across end markets. So now, with this new organization intact and that go-to-market strategy, we’re focused on driving pipeline and growth in Q4 and subsequent years.

Brian Fince (Analyst)

Understood. I appreciate the detail, guys.

OPERATOR (Moderator)

As a reminder, press star one on your telephone keypad if you would like to ask a question. Our next question is from Ryan Connors with North Coast Research. Please proceed.

Ryan Connors (Analyst)

Thank you, and good afternoon, gentlemen. I wanted to keep on the theme of the contracting and construction activity rebounding in the Middle East. That’s obviously very encouraging, but I wonder if you could kind of elaborate on that, what exactly that looks like. For example, are there more contingencies being built in and things like that? And why it was that that wasn’t enough, you didn’t feel, to get you over the hump in terms of reinstating guidance?

Alex Buehler (Interim President & CEO)

Yeah, I mean I guess the uncertainty is still trying to call the date of shipment—or the month or quarter of shipment more specifically. As you know, Ryan, shipment is what drives rev rec for us. So as we look at the pipeline, we do see real visibility, but timing is still a little bit uncertain and difficult to call. I think as we watch project evolution and—call it—velocity becomes a little bit more definitive and predictable, at that point we’ll shift our position on guidance.

But right now we are not seeing project cancellations. People are moving forward with projects, I guess probably acknowledging and accepting that maybe this is the new normal with the situation in the Middle East, and we can’t just hold and wait. We’ve got work to do; we’ve got demand to meet. So we have to progress. So I think that is shifting. So insofar as there was any interruption, that was probably the reason for that interruption. We’re trying to get back to business now and start building capacity to satisfy known demand as part of these multi-year national programs.

And that’s very good news for us. However, the timing is still difficult to predict. Obviously we’re signing contracts, we’re building backlog, we can see our pipeline years in advance. But to restore guidance on an annual or quarterly basis, you still need to put a large project shipment in a month and a quarter, right? And it’s just hard—it’s still a little bit hard to do that at the moment. However, it is improving and hopefully that will continue to improve, and then we could shift our position on guidance in the not too distant future.

Ryan Connors (Analyst)

Understood. And then in a sort of related question, you talk about the pipeline expanding to $525 million. That also is encouraging. But can you just remind us how that pipeline is calculated? Is there any timing component to that in terms of being capped with things that are going to ship within three years or five years or something like that? Or is that just sort of things that are on the drawing boards, period?

Aidan Ryan (Interim Chief Financial Officer)

No, I mean this is specific identification by project, by customer, by geo-market. These projects are at various stages of maturity, and you can think through kind of the stages and cycles of a large capital project. So we have identified them, we are in close communication with the customer and stakeholders, and we are able to put that project in a year. We have capacity for those projects. Based on that capacity, we understand the number of PXs we could put on those projects as well as the ASPs that we normally charge to those customers.

So I’d say the pipeline is very scientific. It’s built on a bottom-up basis, and then we are updating it weekly in our business. So that’s how we speak of the pipeline with a high level of conviction, because these are known projects that occur years in advance. We do some reality checks on the pipeline, like all these projects have a make-water date, and then we compare that to the contract date or the shipment date just to make sure that we’re not getting out of whack in terms of our timing expectations.

We also validate our pipeline through independent research using third parties, trying to triangulate that way. We talk to lenders to try to sort of backdoor and get another channel of communication. So we are working that NPD pipeline very heavily at multiple levels, and that is increasing our level of conviction.

Ryan Connors (Analyst)

Yep. Okay. Yeah, I mean, what I’m trying to figure out is it’s encouraging in the abstract and obviously we’re not, you know, modeling ’27 is difficult, but I’m trying to figure out if there’s a way to use that number and that growth in that number as some kind of—from a modeling perspective—about a two- to three-year horizon, if we still think that the 12-month horizon is very limited in terms of visibility. That’s kind of why I asked the question.

It sounds like you do have things put into individual years, but you just don’t necessarily disclose at that level.

Aidan Ryan (Interim Chief Financial Officer)

Yeah, we don’t disclose at that level. And, Ryan, as you can imagine, the things that are being added to the pipeline are being added toward the back end of the pipeline because these desalination projects take so long to plan for and contract for. So we don’t see a lot of change in the near term in the pipeline, which is good, with conditions coming at the very end. As we continue to progress year by year, we’ll see more of that.

Ryan Connors (Analyst)

Yep. Okay. And then last one for me. You know, I did notice there was a comment in the letter about aftermarket destocking, which is not necessarily material in its own right. But I’m curious what’s driving that because, on the surface, it does seem to run somewhat counter to, you know, all the other really positive things we have to say here about, you know, the landscape kind of getting a little better out there.

Aidan Ryan (Interim Chief Financial Officer)

Yeah, I’d say over the long term, we’re quite excited about our aftermarket business. We see a lot of potential there for replacement demand as well as for ancillary products and services. In the near term, when we are serving customers with constrained budgets, they may decide to have one spare part on the shelf instead of two—something like that.

Ryan Connors (Analyst)

Got it. Okay. Thanks for your time.

Aidan Ryan (Interim Chief Financial Officer)

Thank you, Ryan.

OPERATOR (Moderator)

There are no further questions at this time. I would like to turn the floor back over to Alex for closing comments.

Alex Buehler (Interim President & CEO)

Thank you, operator. Just in summary, with megaproject contracting back, a record pipeline of about $525 million, product leadership that continues to set the standard, and the largest buildout our industry has ever seen just getting started, we are increasingly excited about the road ahead for Energy Recovery. Thank you all for your continued support, and we look forward to updating you on our next call in February.

OPERATOR (Moderator)

Thank you. This does conclude today’s conference. You may disconnect your lines at this time, and thank you for your participation.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.