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    ERII
    Earnings call· Jun 2026(Q2 FY26)

    Energy Recovery Q2 FY26 earnings call ERII

    Aug 5, 2026 Source

    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

    4

    • 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

    4

    • 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

    1
    CategoryTargetConfidence
    Total Capital Expenditures
    $3 million to $6 million
    medium materiality
    High

    Operational metrics

    5
    OEM and Aftermarket Business Growth
    resilientdown a little bit below prior year in H1
    FY26

    Expected to remain resilient for the full year despite H1 choppiness.

    Wastewater Market Performance
    soft
    Q2 FY26

    Results were soft despite continued investment and product diversification.

    Overhead Efficiency
    steady pace of improvements
    FY26

    Ongoing practice to continue.

    Manufacturing Cost Improvement
    significant cost improvement
    future

    Expected from the new Saudi Arabia facility, primarily from freight, shipping, and procurement.

    Low-pressure PX Energy Savings
    23% and 25%pretty similar to prior offerings
    real-world applications

    These products expand the TAM for wastewater use cases.

    Industry KPIs

    3
    MetricValueDetails
    Capacity expansion—
    Parts aftermarket businessresilient
    Order backlog order intake by segment$27 millionUSD

    Orderbook & backlog

    1
    Total Backlog$27 millionQ2 FY26

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

    Product announcements

    1
    ProductTypeDetails
    PX Q650launch

    Capital programs

    1
    Saudi Arabia Manufacturing Facilityunderway
    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

    5
    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 Delayscurrent environment

    some formalized and communicated

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

    Financing Challengescurrent environment

    risk premiums go up

    Mitigation: strong long-term pipeline with named projects

    Procurement Challengescurrent environment

    unquantified

    Mitigation: strong long-term pipeline with named projects

    Logistic Challengescurrent environment

    unquantified

    Mitigation: strong long-term pipeline with named projects

    What to watch in Q3 FY26

    5

    Geopolitical Conflict Resolution

    next quarter
    Currenton again, off again nature
    Targetprojects 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.

    Q&A highlights

    8

    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 read7 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    07

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.