ER
Energy Recovery, Inc. (ERII)·Q3 2025 Earnings Summary
Executive Summary
- Q3 2025 revenue of $32.0M and gross margin of 64.2% were consistent with internal cadence; mix and tariffs pressured margins while OpEx fell 6.4% YoY to $16.9M . GAAP diluted EPS was $0.07; adjusted EBITDA was $6.8M .
- Revenue beat Wall Street consensus, while GAAP EPS likely missed; adjusted EBITDA came in below S&P Global EBITDA consensus, reflecting mix/tariff headwinds and timing of megaprojects. Estimates context below (S&P Global)*
- Management reiterated full-year revenue guidance and further reduced full-year OpEx guidance; wastewater continued to rebound and OEM engagement in CO2 remained strong, but commercialization timing pushed to 2026–2027 testing/traction .
- Potential stock reaction catalysts: revenue beat vs consensus; cost discipline with lowered OpEx guidance; wastewater momentum; balanced by CO2 commercialization pushed out and tariff/mix margin headwinds .
What Went Well and What Went Wrong
What Went Well
- Strong sales execution: Q3 revenue $32.0M, OEM channel up 82% YoY; wastewater revenue “continued to rebound” supporting reiterated full-year revenue guidance .
- Cost control: Operating expenses down 6.4% YoY to $16.9M; management further reduced full-year OpEx guidance; adjusted EBITDA of $6.8M on lower OpEx .
- CO2 PXG value proposition validated again: “we save energy up to 15% at peak times,” “save tremendous amounts of water,” and “additional capacity during high heat load days” .
What Went Wrong
- Margins compressed: gross margin fell 90 bps YoY to 64.2% primarily due to product mix and tariffs; operating margin fell 690 bps YoY to 11.4% .
- CO2 timeline pushed: management now expects “another summer season of testing” before large OEM commercial agreements; real commercialization likely 2027 .
- Mega project timing: Q3 revenue down 17% YoY due to timing of contracted projects; megaproject channel down 37% YoY .
Financial Results
Consolidated Performance (Q1 → Q2 → Q3 2025)
Q3 2025 Segment Activity
Channel Revenue (Q1 → Q2 → Q3 2025)
Guidance Changes
Note: Numeric ranges were not disclosed in Q3 press materials; management reiterated revenue and reduced OpEx guidance directionally .
Earnings Call Themes & Trends
Management Commentary
- “We had a strong quarter of sales execution… wastewater revenue continued to rebound such that we are reiterating our full-year revenue guidance… we are reducing our full-year OPEX guidance even further.” — David Moon, President & CEO .
- “We save energy up to 15% at peak times… can save tremendous amounts of water… [and] provide increased performance during high heat load days” — David Moon on PXG value proposition .
- “We were able to… drive OpEx down… especially when tariffs hit us so hard in the first quarter. We took action very quickly… [without] stopping investment in growing wastewater or manufacturing options to forgo tariffs in China.” — David Moon .
- “We should start to see backlog building now for 2026… pattern of backlog build… slow first half, very heavy second half… the second half is where the story will be told.” — David Moon .
Q&A Highlights
- CO2 commercialization path: OEMs engaging large retailers (e.g., Walmart via Hillphoenix) for 2026 store tests; commercial agreements likely in 2026 with broader commercialization in 2027 .
- Tariffs and costs: Rapid actions to manage tariffs and reduce OpEx; exploring manufacturing options to avoid China tariffs while maintaining wastewater investment .
- Wastewater growth: Expanding reference cases across municipal, chemical, textile, manufacturing, and mining; hiring criteria emphasize vertical experience and OEM/end-user relationships .
- Data center exposure: CO2 refrigeration still small in data centers; evaluating water reuse/treatment opportunities in coming quarters .
- Lithium project: First Argentina lithium extraction PX project (~$350k) expected to hit in Q4; prior wins in China; potential niche emerging .
Estimates Context
Consensus vs Reported (S&P Global)*
Notes:
- Primary EPS and Revenue consensus means and counts: Q1 EPS (3 est.), Q2 EPS (3), Q3 EPS (3); Q1 Rev (3), Q2 Rev (3), Q3 Rev (4)*.
- The company reports Adjusted EBITDA; S&P Global consensus “EBITDA” may not be directly comparable to Adjusted EBITDA. We compare for directional context only.
- Values retrieved from S&P Global.*
Implications:
- Q3 revenue beat consensus; GAAP EPS was below consensus; adjusted EBITDA below consensus level (non-like-for-like). Estimate models may lift revenue but trim EPS/EBITDA near term to reflect mix/tariffs and CO2 pushout timeline.
Key Takeaways for Investors
- Revenue cadence intact with a Q3 revenue beat vs consensus; wastewater momentum and OEM channel strength offset megaproject timing variability .*
- Margin pressure from product mix/tariffs persists; however, OpEx discipline is improving profitability trajectory and management cut full-year OpEx guidance .
- CO2 PXG thesis strengthening technically (energy/water/capacity), but commercialization defers to 2026 testing and likely 2027 scaling; adjust near-term CO2 contribution expectations .
- Backlog expected to build into 2026 with the usual heavy second-half pattern; position sizing should consider intra-year timing risk .
- Wastewater diversification across five verticals and geographies provides medium-term growth optionality, partially offsetting China tariff impacts .
- Near-term estimate revisions likely: raise revenue, trim GAAP EPS/EBITDA on mix/tariff headwinds; monitor margin guidance and Q4 delivery .*
- Tactical: Post-earnings setups favor companies beating on revenue with improving cost control; watch for catalysts (shareholder letter details, wastewater wins, Hillphoenix tests, tariff mitigation manufacturing update) .
*Values retrieved from S&P Global.