Energy Recovery (NASDAQ:ERII) used its fourth-quarter and full-year 2025 earnings call to outline a more concentrated strategic focus on its core water business, while acknowledging near-term revenue pressure from timing shifts at several large desalination projects. Management also reiterated that it is winding down its CO2 retail grocery initiative, citing the need for significant additional time, investment, and risk to reach scaled adoption.
Management refocuses on water amid “lumpy” project timing
Chief Executive Officer David Moon said he is “fully focused” on the company’s water business, describing it as a “large, growing, and profitable end market” where Energy Recovery believes it maintains a strong position with its Pressure Exchanger technology.
Project delays drive 2026 guidance conservatism
In the question-and-answer session, management addressed investor questions about the scale and nature of project timing shifts. Moon confirmed that 2026 guidance assumes three specific desalination projects will slip into 2027, which management said would have otherwise brought results toward the high end of the 2026 outlook.
Management also discussed an additional buffer built into guidance. Moon described it as a further “scrub” of the pipeline to identify other projects that could slip during the year, which helps define the low end of the revenue range.
Moon said the delays appeared “surprisingly fast and more widespread,” but still involve “only three projects.” He attributed the increased impact to the growing size of individual desalination projects compared with five years ago, noting that larger projects are more susceptible to schedule shifts and can have a more pronounced effect on results when they move.
He also said some large projects are in “non-gulf countries” that are newer to desalination, which can add complexity. One delay was attributed to a “project-specific land issue.” More broadly, Moon said the company has observed fewer engineering, procurement, and construction (EPC) firms bidding on desalination projects amid broad construction demand, which can extend tendering timelines.
Moon stressed that management has not seen demand disruption. “This isn’t that people don’t need water,” he said, characterizing the issue as one of timing and project execution rather than end-market need.
New PX Q650 product expected to support margins as product mix evolves
Management also discussed the company’s new PX Q650 product. Executives said the company typically prices equipment based on a desalination plant’s overall capacity (cubic meters per day) and total plant capital expenditure, rather than simply pricing per unit.
As a result, when Energy Recovery introduces a higher-flow product, it expects to earn similar dollars per plant while delivering fewer units, leading to a higher effective average selling price per device. Management said the increase in effective pricing typically exceeds the increase in product cost, which they believe supports gross margin expansion.
Executives added that products delivering improved specific energy consumption (SEC) can sometimes command premium pricing, since energy use over a plant’s lifetime is a major driver of plant economics. They said Energy Recovery may share some of those savings with customers through pricing.
On product lifecycle, management compared the coming Q400-to-Q650 transition to the earlier shift from the Q300 to the Q400. They said the Q300 transition in megaprojects is playing out over about two to three years, and they expect a similar two-to-three-year ramp-down for the Q400 after Q650 manufacturing begins. Management said it plans to begin manufacturing Q650 for sale in the second half of 2026, and that the company would aim to place Q650 units into projects that have been delayed.
Manufacturing footprint changes and CO2 wind-down reduce costs
On cost structure, management discussed operating expense reductions tied to the CO2 exit and other efficiency efforts. Moon told analysts that the company expects to realize most, but not all, of an approximately $7 million annualized benefit in 2026 from the CO2 wind-down. In response to questions on staffing, management said the CO2 wind-down involved about 20 headcount reductions across salaried and manufacturing roles.
Separately, executives provided an update on plans to expand manufacturing outside the U.S. They said site selection is underway and should be finalized by the end of the first half of 2026, with production expected to begin phasing in during the first quarter of 2027. Management guided 2026 capital spending at $3 million to $6 million, compared with roughly $1.5 million or less in each of the prior two years, and said 2027 spending could be in a similar range or slightly lower as the facility buildout continues.
Management contrasted the planned facility with a prior move to Korea, which it described as a short-term, assembly-only response to tariff uncertainty intended to support China-related business through trade agreements. For the new facility, executives indicated an intent to move toward full manufacturing over a two- to three-year period, starting with mission-critical items and expanding over time.
Wastewater outlook and patent litigation comments
Executives said the company continues to invest in wastewater, noting recent additions to the sales team and describing variability in 2026 expectations as partly driven by the ramp-up time for new sales hires. Management said the wastewater business previously generated $10 million to $12 million in revenue and carries gross margins in the “mid-high 60%” range, which they said puts it on a different footing than the CO2 effort.
They also identified building additional “reference cases” in regions including India, South America, the U.S., and Europe as a key benchmark during 2026, while noting that the company already has an existing wastewater business in China.
Finally, asked about litigation involving Flowserve, management said the case is in early phases and declined to provide detail beyond stating the company intends to protect its intellectual property.
About Energy Recovery (NASDAQ:ERII)
Energy Recovery, Inc (NASDAQ: ERII) is an energy technology company specializing in the design and manufacture of high-efficiency devices that capture and repurpose energy in fluid-handling applications. The company’s core offering, the Pressure Exchanger® (PX®) device, enables seawater reverse osmosis (SWRO) desalination plants to recover and reuse hydraulic energy that would otherwise be lost during brine discharge. By integrating PX technology into desalination processes, Energy Recovery helps operators significantly reduce the energy consumption and operating costs of producing fresh water from seawater or brackish sources.
In addition to desalination solutions, Energy Recovery has expanded its portfolio to serve the oil and gas sector through turbocharger systems that improve the energy efficiency of hydraulic fracturing operations.
