Energy Recovery (ERII) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 5, 2026

Source: earnings call transcript

Executive summary

Energy Recovery Q2 FY26 — Strong Long-Term Pipeline Amid Geopolitical Headwinds

Energy Recovery navigates Q2 FY26 with a strong long-term project pipeline and product leadership, particularly with the new PX Q650. However, geopolitical conflicts are causing temporary project delays and clouding near-term visibility, impacting revenue conversion from backlog. The company is focused on operational efficiency and strategic manufacturing expansion in Saudi Arabia, while also addressing soft performance in the wastewater market.

Highlights

Uniquely strong long-term project pipeline with visibility extending up to 5 years.
Successful launch of PX Q650 product with commercial uptake from key customers, strengthening competitive position.
Ongoing manufacturing transformation with a new facility in Saudi Arabia expected to provide future cost improvements.
Demonstrated discipline in operating costs and steady improvements in overhead efficiency.

Concerns

Geopolitical conflict has temporarily impacted the business and clouded near-term visibility.
Formalized project delays due to financing challenges, procurement issues, and logistics in the current environment.
Soft results in the wastewater market, despite continued investment and product diversification.
OEM and aftermarket business experienced some choppiness and was slightly down in the first half of FY26.

Guidance & targets

Category	Target	Timeline	Confidence
Total Capital Expenditures	$3 million to $6 million medium materiality	FY26	High

Orderbook & backlog

Total Backlog $27 million Q2 FY26

Expected to drive growth starting in 2027 and beyond; limited read-through for the remainder of FY26.

Product announcements

Product	Type	Timeline	Details
PX Q650	launch	—

Capital programs

Saudi Arabia Manufacturing Facility underway

Period spend: $3 million to $6 million

Benefit:get us closer to customers; minimize freight and shipping costs; build a local presence; source of margin improvement

Leasing a space, not greenfielding. Incremental capital cost is for equipment and fixed assets. Complementary to California facilities.

Risks & headwinds

Geopolitical Conflict (Iran) current environment

temporarily impacted us and clouded our visibility

Mitigation:confident in our long-term pipeline and a return to growth as these headwinds pass

Project Delays current environment

some formalized and communicated

Mitigation:monitoring project milestones and timing; strong long-term pipeline

Financing Challenges current environment

risk premiums go up

Mitigation:strong long-term pipeline with named projects

Procurement Challenges current environment

unquantified

Mitigation:strong long-term pipeline with named projects

Logistic Challenges current environment

unquantified

Mitigation:strong long-term pipeline with named projects

What to watch in Q3 FY26

Geopolitical Conflict Resolution

next quarter

Current on again, off again nature

Target projects moving to financing, EPC appointments, and execution

Why it matters

Resolution of the conflict is key to reducing risk premiums and unblocking project execution, directly impacting revenue conversion.

What I can tell you we'll know it when we see it in our project pipeline as we measure those key project milestones and then timing between those milestones.

Find out whether ERII delivers this. Inve re-checks your case every morning.

Q&A highlights

Are Megaproject delays still informal or have they been formalized, and what are the causes?

The pipeline is uniquely strong with 5-year visibility, but delays are occurring, some formalized, due to financing challenges, procurement issues, and logistics. The timing of recovery is uncertain.

“Some of those delays to your specific question have in fact been formalized and communicated. Obviously those are caused by financing challenges in this current environment of geopolitical risk where risk premiums go up. Obviously we have procurement challenges from our EPCs. And then we just have logistic challenges as well in terms of getting things started and proceeding into the execution phases of these things.”

asked by Ryan Pfingst · answered by Alexander J. Buehler

2 min read 7 chapters

Detailed narrative

CEO Search and Leadership Continuity

The company is actively progressing its CEO search, attracting accomplished leaders due to its long-term tailwinds and technology leadership. Interim CEO Alex Buehler, with over a decade on the board, is focused on ensuring successful execution of business initiatives, innovation, manufacturing transformation, and capital discipline during this transition.

Geopolitical Impact and Market Visibility

The ongoing geopolitical conflict, particularly the Iran conflict, has temporarily impacted the business and clouded near-term visibility. Project delays, some formalized, are attributed to financing challenges, procurement issues, and logistics, making it difficult to predict a market recovery timeline. Management notes they will know the market is opening when project milestones show normal timing and velocity.

Strong Long-Term Pipeline and Backlog

Despite short-term headwinds, Energy Recovery maintains a "uniquely strong" long-term pipeline with visibility extending up to five years, including named projects and EPCs. The disclosed backlog of $27 million is expected to drive growth starting in 2027 and beyond, though its immediate read-through for the remainder of FY26 is limited.

Strategic Saudi Arabia Facility

The new manufacturing facility in Saudi Arabia is primarily strategic, aiming to reduce freight costs, build local presence, and complement existing California operations. It is expected to contribute to margin improvement gradually from 2027 onwards, with minimal capital expenditure of $3 million to $6 million for FY26, as the company is leasing the space rather than greenfielding.

Wastewater Market Strategy

The company continues to invest in the wastewater market, expanding its product portfolio (high/ultra-high/low/ultra-low pressure) and achieving product success in reference projects. Efforts are focused on accelerating market adoption through better resource allocation in key regions like Asia (China, India) and optimizing go-to-market strategies with OEM partners, while also seeking sales management efficiencies.

PX Q650 Product Launch

The PX Q650 product has been successfully launched and is seeing commercial uptake from key customers. This product is designed to address larger volumetric flows in multiyear national water programs, strengthening the company's competitive position through improved efficiency, specific energy consumption, and useful life. Its launch is not impacted by current geopolitical delays.

OEM and Aftermarket Resilience

The OEM and aftermarket businesses, while experiencing some choppiness and being slightly down in the first half of FY26, are expected to remain resilient for the full year. This segment provides a stable counterpoint to the more volatile Megaproject segment, which is currently affected by geopolitical factors.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.