What Energy Recovery (ERII) Said on Its Q3 Earnings Call

Energy Recovery (NASDAQ:ERII) said desalination megaproject contracting has rebounded in the Middle East, with more than $30 million in new contracts signed over the past 30 days and a record project pipeline of about $525 million.

Interim President and CEO Alex Buehler said construction has resumed on multiple large plants in Persian Gulf countries where work was paused earlier this year. Still, the company has not reinstated financial guidance because the timing of individual project shipments remains difficult to predict.

“Shipment is what drives rev rec for us,” Buehler said on the company’s third-quarter earnings call. While project activity is improving, he said, Energy Recovery needs greater certainty about the month and quarter in which large orders will ship before restoring guidance.

Backlog and Project Pipeline Grow

Energy Recovery’s total backlog stands at more than $60 million, Buehler said. Based on contracts already executed and others under negotiation, management has “line of sight” to at least $50 million of megaproject revenue in 2027.

Interim CFO Aidan Ryan said the $17 million in fourth-quarter megaproject backlog should be considered a floor expectation for the quarter, adding that additional contracts could be signed in the coming months. He declined to say how much of that backlog had already been delivered.

The company’s megaproject pipeline increased from $500 million to $525 million quarter over quarter. Buehler said the opportunity is becoming more geographically diverse, with projects in North Africa, Asia and South America supplementing its historically concentrated business in Gulf Cooperation Council countries.

Management builds the pipeline from individually identified projects at various stages of development, estimating potential device needs and prices, Buehler said. Ryan noted that new additions tend to be toward the back end of the pipeline because desalination projects take a long time to plan and contract. The company does not disclose the pipeline by individual year.

Buehler said customers have not changed their long-term investment decisions and that the company is not aware of any canceled desalination projects. He estimated that approximately $30 billion in desalination and reuse capital spending is expected from 2027 through 2030, increasingly through multiyear national programs.

New Products and Wastewater Strategy

Buehler said Energy Recovery’s PX Q650, launched six months ago, has been specified at several large desalination sites. The company signed its first contract for the product at Jubail, a plant with capacity of 600,000 cubic meters per day.

He said Energy Recovery has won every megaproject above 100,000 cubic meters per day in 2026 and has accelerated its technology roadmap by more than 12 months. The company expects a faster pace of product innovation in 2027 and 2028.

In wastewater, Energy Recovery has combined previously separate sales organizations into one water sales and service operation, reflecting overlap among customers. Buehler said the company was dissatisfied with the business’s quarterly performance but expects a pickup in the fourth quarter.

He added that wastewater opportunities are becoming less concentrated in China as the company pursues markets including India, North America and Europe. The business has approximately 300 reference cases worldwide, he said.

Cash Flow and Cost Actions

Following the closure of its CO₂ business, Energy Recovery is focused solely on water technology, Buehler said. The company had no debt and nearly $86 million in cash and investments, and generated about $26 million in free cash flow year to date.

Cost actions reduced quarterly operating expenses by 17% from a year earlier and nearly 23% from two years earlier, Buehler said. Energy Recovery has repurchased nearly $109 million of stock since the fourth quarter of 2024. Its new facility in Dammam, Saudi Arabia, is expected to begin manufacturing next year.

Asked about aftermarket destocking, Ryan said some customers with constrained budgets may reduce the number of spare parts they keep on hand. Over the longer term, he said, the company sees potential in replacement demand and ancillary products and services.

About Energy Recovery (NASDAQ:ERII)

Energy Recovery, Inc develops and manufactures energy-efficiency technologies for industrial fluid-flow applications. The company is best known for its pressure exchanger systems, which capture hydraulic energy from high-pressure fluid streams and transfer it to lower-pressure incoming fluids. This process can reduce energy consumption and operating costs in demanding industrial environments.

Energy Recovery’s products are used extensively in seawater and brackish-water reverse-osmosis desalination, where its PX Pressure Exchanger technology helps recover energy from the high-pressure reject stream.