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ER

Energy Recovery, Inc. (ERII)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue was $28.1M (+3% y/y), gross margin 64.0% (-60 bps y/y) and operating expenses $16.5M (-15.8% y/y), driving operating income of $1.5M and net income of $2.1M .
  • Results were a significant beat versus Wall Street consensus: Primary EPS $0.07* vs $0.02* and revenue $28.05M vs $25.44M*, with three estimates contributing to the consensus*. Values retrieved from S&P Global.
  • Management reiterated full‑year 2025 guidance across all metrics and reinstated wastewater guidance; they highlighted improving tariff dynamics enabling shipments to China and maintained conviction in long‑term trends across desalination, wastewater reuse, and CO2 refrigeration .
  • Capital return remains a catalyst: a new $25M buyback was authorized, bringing total authorizations to $105M since Nov 2024 (4.8M shares repurchased at a $14.90 average) .

What Went Well and What Went Wrong

What Went Well

  • Order execution and cadence: “Q2’2025 financial results were in‑line with internal expectations and consistent with our communicated expectations for quarterly revenue cadence in 2025” .
  • Desalination pipeline and awards: Management has “line of sight to full year revenue based on our contracts and pipeline,” and reiterated 2025 guidance while reinstating wastewater guidance .
  • China tariff relief unlocked shipments: “As soon as tariff rates dropped, we were able to execute on those projects and ship more than $2,000,000 in the quarter” .

What Went Wrong

  • Gross margin compression: Gross margin fell 60 bps y/y to 64.0% due to product mix and tariffs .
  • Emerging Technologies loss: ET segment posted a $3.95M operating loss in Q2 2025 (vs $5.56M loss in Q2 2024), reflecting ongoing commercialization and testing costs in CO2 PX G .
  • Lower adjusted profitability y/y: Adjusted EBITDA was $4.4M vs $5.2M in Q2 2024 and adjusted EPS $0.07 vs $0.09, reflecting margin headwinds and mix .

Financial Results

GAAP and Non‑GAAP Summary (y/y and q/q)

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD Millions)$27.199 $8.065 $28.051
Gross Margin (%)64.6% 55.3% 64.0%
Operating Margin (%)-7.4% -155.8% 5.3%
Net Income ($USD Millions)-$0.642 -$9.880 $2.054
Diluted EPS ($)-$0.01 -$0.18 $0.04
Adjusted EBITDA ($USD Millions)$5.2 -$8.7 $4.4
Adjusted EPS ($)$0.09 -$0.13 $0.07
Operating Expenses ($USD Millions)$19.580 $17.020 $16.480
Cash Provided by Operations ($USD Millions)$8.1 $10.678 $4.1

Q2 2025 Actual vs Wall Street Consensus (S&P Global)

MetricQ2 2025 ActualQ2 2025 Consensus
Primary EPS ($)$0.07*$0.02*
Revenue ($USD Millions)$28.051 $25.44*
# of EPS Estimates—3*
# of Revenue Estimates—3*
Values retrieved from S&P Global.

Segment and Channel Breakdown

ChannelQ2 2024 ($USD Thousands)Q2 2025 ($USD Thousands)y/y Change
Megaproject$15,815 $14,802 -6%
OEM$6,945 $8,357 +20%
Aftermarket$4,439 $4,892 +10%
Total$27,199 $28,051 +3%
Segment (Q2)2024 Revenue ($K)2025 Revenue ($K)2024 Op Inc/Loss ($K)2025 Op Inc/Loss ($K)
Water$26,918 $27,839 $10,751 $11,706
Emerging Technologies$281 $212 -$5,562 -$3,946
Corporate——-$7,203 -$6,286
Total$27,199 $28,051 -$2,014 $1,474

KPIs and Balance Sheet Highlights

KPIQ2 2024Q1 2025Q2 2025
Cash & Investments ($USD Millions)$99.851 $106.730 $93.650
Inventories, net ($USD Thousands)$24,906 $32,410 $32,660
Accounts Receivable & Contract Assets ($USD Thousands)$66,842 $34,787 $35,548
Stock‑based Compensation (Q) ($USD Thousands)$2,817 $1,963 $1,936
Free Cash Flow (Q) ($USD Millions)$7.9 $10.5 $4.0

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Wastewater revenueFY 2025$13–$16M (provided in Nov; reaffirmed context in Q4 Q&A) Guidance reinstated; range not disclosed on Q2 call Reinstated
All other FY 2025 metricsFY 2025As previously guided (details not in available docs)Reiterated on Q2 call Maintained

Note: Specific numeric ranges for non‑wastewater guidance were not provided in the Q2 release/call materials reviewed.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Desalination demand/pipelineManagement expected similar geographic mix to 2024 and highlighted MENA strength “Line of sight to full year revenue… contracted capacity… awards this quarter; confident about 2026” Strengthening pipeline
Wastewater vertical focusMining, heavy manufacturing, chemical, textile: applicability and case studies emphasized Targeting 5 verticals (municipal, chemical, textile, manufacturing, mining); reference cases broadening, goal of two per vertical in 2025 Execution progressing
China tariffs/macroTariff impact risk flagged for wastewater exports to China Tariff pause enabled >$2M shipments; 10% rate reduction “a big deal” Improving environment
CO2 PX G commercializationInterest beyond core geographies (Japan, South Africa) and ongoing testing 7 new sites added in Q2; OEM engagement high; reliability focus in summer tests Advancing tests/engagement
Manufacturing transformationExpected to improve gross margins via process efficiencies Gross margin headwinds from mix/tariffs offset some improvements; OpEx down y/y Mixed near‑term; long‑term positive
Capital returns$30M add‑on buyback after $50M in Q4 2024 New $25M buyback; total $105M authorized since Nov 2024 Continued buybacks

Management Commentary

  • “We are reiterating our 2025 guidance on all metrics and reinstating our wastewater guidance… We have line of sight to full year revenue based on our contracts and pipeline.” — David Moon, CEO .
  • “We announced three share repurchase authorizations totaling $105,000,000… enable us to repurchase over 10% of our outstanding shares in aggregate, while still executing our playbook and reinvesting for growth.” — David Moon, CEO .
  • “As soon as tariff rates dropped, we were able to execute on those projects and ship more than $2,000,000 in the quarter… at 125% tariffs, it’s difficult to do business in China… the reduction to 10% was a big deal.” — David Moon and Mike Mancini .
  • “We typically price on a capacity basis… you’ll need fewer units to fill a plant, but we will charge based on capacity, not unit.” — Mike Mancini, CFO (Next‑gen PX) .
  • “Data centers is not going to be an opportunity for us… heat pumps is looking promising.” — David Moon, CEO .

Q&A Highlights

  • Desalination trajectory: Confidence in 2026 outlook tied to awards and contracted capacity; more guidance expected at Q3 call .
  • Product strategy/pricing: Next‑gen PX pricing to reflect capacity delivered, supporting economics despite fewer units per plant .
  • CO2 PX G: 7 new sites added; OEM engagement high; reliability is the key focus this season; Hillphoenix agreement discussions ongoing .
  • China tariffs: Tariff relief enabled ~$2M shipments; team maintained customer engagement through higher‑tariff period .
  • Wastewater strategy: Focused push across five verticals; reference cases accumulating ahead of year‑end goal .

Estimates Context

  • Q2 2025 beat: Primary EPS $0.07* vs $0.02* consensus; revenue $28.05M vs $25.44M*, with 3 estimates in each consensus*. Values retrieved from S&P Global.
  • Note: S&P Global “Primary EPS” may reflect adjusted EPS; ERII’s GAAP diluted EPS was $0.04 in Q2 2025 .
  • Implication: Material beat on EPS and revenue suggests upward estimate revisions for H2 cadence and adjusted profitability, while GAAP margin headwinds from mix/tariffs warrant caution.

Key Takeaways for Investors

  • Q2 showed resilient execution and strong y/y revenue growth with controlled OpEx, yielding positive GAAP/adjusted profitability despite margin headwinds from mix/tariffs .
  • Estimate beat: The combination of EPS and revenue beats versus consensus points to positive near‑term sentiment and potential upward revisions*. Values retrieved from S&P Global.
  • Desalination pipeline momentum and wastewater guidance reinstatement underpin the medium‑term growth narrative; watch for Q3 visibility updates on 2026 .
  • CO2 PX G program is progressing with expanded tests and OEM engagement; reliability validation over the summer is the next commercialization milestone .
  • China tariff relief is a near‑term tailwind for wastewater exports; sustained policy stability would support continued shipments .
  • Ongoing buybacks ($25M new authorization; $105M total since Nov 2024) provide share count support and signal confidence in cash generation .
  • Monitor mix/tariff impacts on gross margins and Emerging Technologies losses; manufacturing transformation remains a margin lever over time .