Earnings call transcript: Energy Recovery Q2 2025 beats forecasts, stock steady

Energy Recovery Inc. (ERII) reported its second-quarter 2025 earnings, surpassing analyst expectations with an earnings per share (EPS) of $0.07, significantly higher than the forecasted loss of $0.01. This surprise, alongside a revenue beat, did little to move the stock, which showed a slight decline of 0.07% in after-hours trading, closing at $13.62. According to InvestingPro analysis, the company maintains a "GOOD" overall financial health score, though current trading levels suggest the stock may be overvalued. The company maintained its guidance for 2025, signaling confidence in its strategic direction.

Key Takeaways

• EPS of $0.07 beat forecast by $0.08, reversing expected loss.
• Revenue reached $28.1 million, exceeding expectations by 10.5%.
• Stock remained stable despite earnings beat, reflecting market caution.
• Company announced $105 million in share repurchase authorizations.
• Maintained 2025 guidance, reinstated wastewater guidance.

Company Performance

Energy Recovery demonstrated strong performance in Q2 2025, with significant gains in both EPS and revenue compared to forecasts. The company’s strategic initiatives in desalination and wastewater treatment continue to drive growth, supported by ongoing innovations in CO2 refrigeration technology. Despite the positive earnings surprise, the stock’s minimal movement suggests that investors may be awaiting further developments or guidance updates.

Financial Highlights

• Revenue: $28.1 million, up from forecasted $25.43 million.
• Earnings per share: $0.07, beating the expected -$0.01.
• Share repurchase authorizations totaling $105 million announced.

Earnings vs. Forecast

Energy Recovery’s Q2 2025 earnings per share of $0.07 surpassed the forecasted -$0.01, marking an 800% surprise. Revenue also exceeded expectations, coming in at $28.1 million against a forecast of $25.43 million, a 10.5% surprise. This positive deviation from forecasts highlights the company’s strong operational execution and market positioning.

Market Reaction

Following the earnings announcement, Energy Recovery’s stock showed a minor decrease of 0.07%, closing at $13.62 in after-hours trading. This stability, despite the earnings beat, suggests that investors are cautiously optimistic, potentially looking for further clarity on future guidance and market conditions. Analyst targets range from $12.50 to $19.00, with consensus suggesting potential upside. The stock’s current price remains within its 52-week range of $10.86 to $20.27, trading at a P/E ratio of 36.09x.

Outlook & Guidance

The company maintained its 2025 guidance across all metrics and reinstated its wastewater guidance, reflecting confidence in its strategic initiatives. InvestingPro analysis indicates the company has been profitable over the last twelve months with impressive gross margins, supporting its growth trajectory. Energy Recovery is targeting long-term goals for 2029, with a focus on expanding its presence in the water scarcity and reuse markets. The company plans to provide 2026 guidance in its Q3 earnings call.

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Executive Commentary

CEO David Moon expressed increasing conviction in the long-term trends driving the business, while CFO Mike Mancini highlighted the positive impact of water scarcity trends on long-term growth. Mancini also noted that regulatory drivers, influenced by water scarcity issues, are critical to the company’s market opportunities.

Risks and Challenges

• Regulatory changes could impact market conditions.
• Economic pressures may affect customer investment in new projects.
• Supply chain disruptions could hinder product development and delivery.
• Market saturation in key segments may limit growth potential.
• Competition in CO2 refrigeration technology could impact market share.

Q&A

During the earnings call, analysts inquired about the impact of tariff reductions in China, which have enabled project execution, and the company’s ongoing summer testing of CO2 refrigeration technology. Questions also focused on the wastewater strategy, with the company emphasizing its focus on five key verticals and building reference cases for future growth.

Full transcript - Energy Recovery Inc (ERII) Q2 2025:

Operator/Moderator: Good day, ladies and gentlemen, and welcome to Energy Recovery’s Second Quarter twenty twenty five Earnings Call. During today’s call, Energy Recovery may make projections and other forward looking statements under the Safe Harbor provisions contained in the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of the company. These statements may discuss our business, economic and market outlook, growth expectations, new products and their performance, cost structure and business strategy. Forward looking statements are based on information currently available to the company and on management’s beliefs, assumptions, estimates and projections. Forward looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors.

We refer you to documents the company files from time to time with the SEC, specifically the company’s annual Form 10 ks and quarterly Form 10 Q. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward looking statements. All statements made during this call are made only as of today, 08/06/2025, and the company expressly disclaims any intent or obligation to update any forward looking statements made during this call to reflect subsequent events or circumstances unless otherwise required by law. Our hosts for today’s call are David Moon, President and Chief Executive Officer of Energy Recovery and Mike Mancini, Chief Financial Officer. I would now like to turn the call over to Mr.

Moon.

David Moon, President and Chief Executive Officer, Energy Recovery: Thank you, operator, and good afternoon, everyone. Earlier today, we released a letter to shareholders on the Investor Relations section of our website that reviews business and financial performance during the quarter. Prior to opening the line for questions and answers, I’d like to highlight a few important takeaways from that letter. First, we are reiterating our 2025 guidance on all metrics and reinstating our wastewater guidance. Our core desalination business is proving resilient to the macro environment.

We signed multiple large deals in the period and we have line of sight to full year revenue based on our contracts and pipeline. In wastewater, the tariff impacts are expected to be better than we initially indicated in Q1 and we are comfortable issuing guidance despite remaining tariff uncertainty. Second, today we announced an additional share repurchase program. In the past ten months, we’ve announced three share repurchase authorizations totaling $105,000,000 We believe these programs will enable us to repurchase over 10% of our outstanding shares in aggregate, while still executing our playbook and reinvesting for growth. And lastly, our conviction in the long term trends driving our business is increasing.

Contracted desalination capacity, water reuse capacity, and CO2 refrigeration installations are all growing at high rates. We are poised to capture the upside of these trends as we march towards our 2029 goals. I’d also like to say thank you to our employees here at Energy Recovery. The team was creative and decisive this quarter in executing during an environment of high volatility. With that, we will now move to the question and answer portion of our conference call.

Operator, please open the line for questions.

Operator/Moderator: Your first question comes from Ryan Pfingst with B. Riley. Your line is open.

Ryan Pfingst, Analyst, B. Riley: Guys. Thanks for taking my question and congrats on hey, David, and congrats on the strong update here. Appreciate the color around annual desalination contracted capacity in the shareholder letter just now, David. Does that kind of expected capacity growth in addition to your recent awards give you confidence perhaps in achieving the higher end of the longer term ranges you set in November for decel revenue, particularly if we’re thinking about 2026?

David Moon, President and Chief Executive Officer, Energy Recovery: Yes. I think so. That’s a good question. I think it’s too early to tell. And just a reminder, that contracted capacity, those are projects that are we believe will be tendered during that time period, but making water could be two or three years out in terms of when the projects are ready.

So we’re still getting clarity around the content of that $550,000,000 pipeline. But I think with the awards that we saw this quarter and what we’re seeing early in 2026, we’re feeling confident about 2026. And we’ll be able to give you some guidance around 2026 as we get into the third quarter earnings call.

Mike Mancini, Chief Financial Officer, Energy Recovery: Yes. And Ryan, just to add there, I think it’s more indicative of the increasing pace of desalination that the water scarcity trends are driving action and that is really good for our long term growth. It’s hard to pinpoint that and make that any specific annual growth, but it is just a coming wave.

David Moon, President and Chief Executive Officer, Energy Recovery: I think and I think that’s a coming wave for desal and I also think it bodes well for wastewater as well.

Ryan Pfingst, Analyst, B. Riley: Great. Yes, it makes sense. I appreciate all that. And then for the next gen PX, sounds like you expect some meaningful improvements compared to the Q400, which already appears to be performing extremely well. Do you expect this new product to carry a higher selling price?

Or is the key here to maintain or even increase market share to the extent you’re able to?

Mike Mancini, Chief Financial Officer, Energy Recovery: Yes, Ryan. This is Mike. So, yes, I’d say the general trend here and what we saw from going from Q300 to Q400 and then Q400 to something, greater than 500 is that we typically price on a capacity basis, so a cubic meters per day basis. So you can have an increasing price per unit as we try to price per capacity. So that is a trend that we have seen in the past and I think we’ll continue to see exactly how much is still TBD, but in general, yes, you’ll need fewer units to fill a plant, but we will charge based on capacity, not unit.

That makes sense.

Ryan Pfingst, Analyst, B. Riley: Yes, that does. Appreciate that, Mike. And then on CO2, do you have a broader update on your work with Hill Phoenix or some of the other OEMs that you’re working with today?

David Moon, President and Chief Executive Officer, Energy Recovery: No. So Hill Phoenix, the discussions around the commercial agreement are ongoing. So I’d say we continue to make progress there. We’re in the middle of our summer testing season, and we continue to add new sites. We added seven new sites in the quarter.

In the second quarter, we will add new sites in the third quarter as well. So I’d say the summer testing season is going as expected and engagement with OEMs remains high as we move through this testing season.

Ryan Pfingst, Analyst, B. Riley: Got it. Great. And then last one for me. It might still be early days, but you’ve talked about potentially developing a business case for data center markets. Curious if that has progressed at all?

David Moon, President and Chief Executive Officer, Energy Recovery: Yes. So we’ve been working on a business case for data centers and for heat pumps, both. I’d say the early read on data centers is that CO2 is still a very nascent, of very small part of that market. So unless if that is going to grow at some keynote, some sort of increased pace, then it’s looking like data centers is not going to be an opportunity for us. You know, we’ll we’ll finalize that view here over the next few months, but that’s the early read on data centers.

Now, pumps is looking promising, but more to come over the next couple of months.

Ryan Pfingst, Analyst, B. Riley: Got it. Thanks for taking my questions guys.

Mike Mancini, Chief Financial Officer, Energy Recovery: Welcome.

Operator/Moderator: Your next question comes from Jeffrey Campbell with Seaport Research Partners. Your line is open.

Jeffrey Campbell, Analyst, Seaport Research Partners: Good evening and congratulations on a pretty strong quarter, all things considered.

Mike Mancini, Chief Financial Officer, Energy Recovery: Thank you. Thank David,

Jeffrey Campbell, Analyst, Seaport Research Partners: letter described a much better result in China than worst case scenario that was provided last quarter. Is this because the tariffs have touched your work less than anticipated? Or has it emerged that there’s more commitment to your product at a higher price than you anticipated or some combination of the two?

David Moon, President and Chief Executive Officer, Energy Recovery: Yes. So I’d say that pause in tariffs back in May really opened up projects that were sitting there on the Board that we have been working on through that period where they were 100% plus tariffs for products going into China. Our team continued to work on, continued to nurse those projects along. And as soon as tariff rates dropped, we were able to able to execute on those projects and ship more than $2,000,000 in the quarter. We continue to ship now.

And so I just I chopped that up to a very focused sales team in China who never stopped pushing, and deposit tariffs really helped our really helped us. Would you add anything, Mike?

Mike Mancini, Chief Financial Officer, Energy Recovery: No, I’d say at 125% tariffs, it’s difficult to do business in China. And so I think the reduction of 10% was a big deal.

David Moon, President and Chief Executive Officer, Energy Recovery: Okay.

Jeffrey Campbell, Analyst, Seaport Research Partners: It seems like that you’ve broadened your wastewater footprint meaningfully in the last quarter when I look at some of the other countries that you cited. Did that meet your expectations or did it exceed them?

David Moon, President and Chief Executive Officer, Energy Recovery: No. I think look, we set ourselves a goal. So there are five verticals, right? There are five verticals in wastewater that we’re focused on, right? It’s municipal, it’s chemical, it’s textile, it’s manufacturing and it’s mining.

So those are the five out of the 20 or so wastewater verticals that we could be focused on, those are the five those were the five with the largest share of market size and where we think we have the right to win. And so we’ve been ultra focused on the Spy over the last eighteen months or so. And so the fact that we’ve really broadened our reference case list over the second quarter the first and second quarter, that’s just a great effort by the sales team to really go after those five verticals. And so it was expected, maybe not as soon, as we got the reference cases, but we’ve been working hard to focus on those five verticals. And there’s more to come.

So we gave ourselves a goal. We said back in November, had two reference cases in each of those five verticals by the end of the year. And so we’re well on track to be able to do that.

Jeffrey Campbell, Analyst, Seaport Research Partners: Okay. You mentioned that the liability is a key issue for the PXG related to current testing. I just wondered how much time on task do you think is likely required to contest testers to become dedicated users?

David Moon, President and Chief Executive Officer, Energy Recovery: Yes. So last season was about proving the value proposition, right? And so our the white paper that we published in September laid out the value proposition. We got good response from OEMs. And so OEMs told us, great, now let’s move on to another testing season.

And this season, we’re going to focus on reliability, right? And so that’s what we’re in the middle of now. We’ve got a couple we’ve got the rest of August and September in terms of testing time. And so, so far so good. And so I think what will happen is we’ll get through this summer testing season, OEMs and the select number of end users that we’ve been working with will then step back and take a look and understand whether has that been enough or whether they’re going to want to see an increased sample size next time around for the following summer.

And so that’s TBD. And we’ll know a lot more about this as we get into the September beginning to watch over.

Jeffrey Campbell, Analyst, Seaport Research Partners: And my last question, I’ll go back to wastewater. In the shareholder letter, it increasing water reuse across industries and geographies, which is a trend you called out. Do you see this as more of a push for industrial reuse of their water or trying to treat it all the way to being potable water? I just asked because potables presumably would require more treatment than industrial effluent. Just sort of trying to get an idea of what’s going on and also is the motivation here more economic or is it environmental regulations or environmental stewardship?

Mike Mancini, Chief Financial Officer, Energy Recovery: Yes. This is Mike, Jeff. So I’d say that it’s all the above. So especially with our some of our new products we came out, especially the low pressure PX, when we say the municipal end market, that is really tertiary treatment for potable reuse. I think that’s kind of going to increasing the geography as well, is that as we expand municipalities, that those reference cases can then expand to other geographies.

So I think it’s sort of all of the above for wastewater that we have a broad product portfolio that can reach lots of things. And the main driver typically is regulatory, but what’s driving the regulatory is a serious water scarcity issue. And so I think it really it’s hard to say it’s regulatory driven, but it’s for economic and growth reasons and water scarcity reasons. So we’re encouraged with the long term trends.

Jeffrey Campbell, Analyst, Seaport Research Partners: Okay, great. Thanks for answering my questions. Thanks, Jeff.

Operator/Moderator: At this time, there are no further questions in queue. I’d like to turn the call back to our presenters for any further remarks.

David Moon, President and Chief Executive Officer, Energy Recovery: So thank you, operator. So thank you to all of our stakeholders for joining us today on the call. We appreciate all of you very much. We look forward to updating you on our next call after the Q3 after Q3. Thank you, operator.

Operator/Moderator: This concludes today’s call. Thank you for attending and have a wonderful rest of your day.

Mike Mancini, Chief Financial Officer, Energy Recovery: Goodbye.

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