Q2 2025 Energy Recovery Inc Earnings Call

Good day, ladies and gentlemen, and welcome to energy Recovery's second quarter 2025 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.

Shipments 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-K and quarterly form 10.

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 August six 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.

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Our host for today's call are David Moon, President and Chief Executive Officer of Energy recovery, and Mike <unk>, Chief Financial Officer, I would now like to turn the call over to Mr. Moon.

Thank you operator, and good afternoon, everyone.

Earlier today, we released our letter to shareholders on the Investor Relations section of our website ever.

That reviews business and financial performance during the quarter.

Prior to opening the line for questions and answers I would 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 in pipeline.

And 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 10 months, we've announced three share repurchase authorization totaled totaling $105 million.

We believe these programs will enable us to repurchase over 10% of our outstanding shares in aggregate.

I'll 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 Seo to refrigeration installations are all growing at high rates.

We are poised to capture the upside of these trends as we March toward our 2000 20 million goal.

I'd also like to say, thank you to our employees here at energy recovery.

The team much creative and decisive this quarter and 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.

At this time, we will conduct the question and answer session. If you would like to ask a question. Please press Star then the number one on your telephone keypad now and you will be placed in the queue in the order received once again to ask a question Press Star then the number one on your telephone keypad.

Now.

Your first question comes from Ryan <unk> with B Riley Your line is open.

Hey, guys. Thanks for taking my questions and congrats on Hey, David and congrats on the strong strong updates here.

I appreciate the color around annual desalination contracted capacity in the shareholder letter and 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.

The longer term ranges you said November for Dci revenue, particularly if we're thinking about 2026.

Yes, I think so thats a good question I think it's too early to tell.

Hum.

And just to remind you that contracted capacity those are projects that are we believe will be tendered during that time period, but making water, we could be two or three years out.

In terms of.

When the projects are ready.

So we're still getting clarity around that.

Content of that $550 million pipeline.

But I think with the awards that we saw this quarter and what we're seeing early in 46, we're feeling confident about 2006, and we'll be able to give you some guidance around 2046, as we get into the third quarter earnings call.

Yes, Brian 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.

Coming wave.

I think and I think thats coming way for <unk>, but I also think it bodes well for wastewater as well.

Great Yes, it makes sense I appreciate all that.

And then for the Nexgen PX it sounds like you expect some meaningful improvements compared to the Q4 hundred 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.

Sure.

So that's that and Youre able to.

Yes, Ryan this is Mike so.

Yes, I would say the general trend here and what we saw from going from Q3 hundred Q4 hundred and then Q4 hundred to something greater than 500.

Typically price on a capacity basis, so cubic meters per day basis. So you can have an increasing.

Price per unit as we try to price per capacity.

That's a trend that we have seen in the past and I think we will continue to see exactly how much is still TBD, but in general yes.

So the fewer units to fill up plans.

But we will charge based on capacity not unit that makes sense.

Yeah that does I appreciate that Mike.

And then on Seo to do you have a broader update.

On your work with Hill, Phoenix or some of the other Oems that youre working with today.

So Hill Phoenix.

Discussions around the commercial agreement are ongoing.

So I'd say, we continue to make progress there we're in the middle of or 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 soon.

Got it great and then last one for me.

It might still be early days, but you talked about potentially developing a business case.

For data center markets curious if that has progressed at all.

Yes so.

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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 <unk> is still a very nascent in sort of a very small part of that market.

So unless that is going to grow.

Some sort of.

Kris pace then it's looking like data centers is not going to be an opportunity for us.

We'll finalize that view here over the next few months, but that's the early read on data centers.

Now he pumps is looking promising.

But more to come over the next couple of months.

Got it thanks for taking my questions guys.

Welcome.

Once again, if you would like to ask a question at this time. Please press Star then the number one on your telephone keypad.

Your next question comes from Jeffrey Campbell with Seaport Research Partners. Your line is open.

Good evening and congratulations on.

Yes.

Very strong quarter, all things considered.

Thank you.

David.

The letter described are much better results in China that worst case scenario provided last quarter.

Is this because of the tariffs and test your work less than anticipated or has that emerge that theres more commitment to your product at a higher price than anticipated or some combination of the data.

Yes.

Say that.

That pause and 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 there were 100% plus Clarence.

For products going into China. Our team continued to work on continued to nurse those projects along and as soon as tariff rates drop we were ranked.

Tables attached secured on those projects and ship.

For the $2 million in the quarter, we continue to ship now and so.

As you know.

I would chalk that up to a very focused sales team in China, who never stop pushing and deposit tariffs really helped our really helped US would you add anything Mike.

Thank you.

At 125% tariffs, it's difficult to do business in China.

So I think the <unk>.

Adoption of 10% was a big deal.

Okay.

It seems like that you have.

Broadened your wastewater footprint meaningfully in the last quarter, because some of the other countries.

Got it.

Did that meet your expectations or did it exceed them.

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 chemicals, it's textile.

Manufacturing and its mining so those are the five out of the 20 years or so wastewater verticals that we can be focused on.

So just a thought it was worth a five with the largest.

Sure market size, and where we think we have the right to win and so we've been.

We've been ultra focused on spine.

For the last 18 months or so and so the fact that we.

We really.

Broaden our reference case, a list over the second quarter, the first and second quarter.

That's just a Greg that's a great sales team really go after those five verticals and so we are as expected maybe not as soon.

We got we got.

As a reference cases, but we've been working hard to focus on those five verticals and theres more to come. So we gave ourselves. The goal we set back in November to reference cases in each of those five verticals.

Hi.

At the end of the year and so we're well on track to be able to do that.

Okay.

You mentioned that.

A liability as a key issue for the Bx G related to current testing.

I'm just wondering how much time on task.

It is likely to acquire to invest testers to become dedicated users.

Yes, so so.

Last season's what's about proving the value proposition right and so our WAC for Wi Fi that we published.

In September of last year laid out the value proposition. We got good response from Oems into Oems told US great now, let's move on to another testing season and this season is we're going to focused on reliability.

And so that's what we're in the middle of now.

Got a couple we've got the rest of August and September in terms of testing time.

So so far so good.

And so I think what will happen is we'll get through this summer testing season.

Hams and a select number of end users that we've been working with.

Step back and take a look and understand whether that been enough.

But when they are going to want to see an increase Sam.

Next time around for the following some and so that's TBD.

No a lot more positives as we did.

The end of September beginning of October.

And my last question and I'll go back to wastewater and.

And the.

Shareholder letter.

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Increasing water reuse across industries and geographies.

And you called out.

Do you see this.

As more of a.

Push for industrial reuse of.

Water or or trying to treat them all the way to being potable water and SaaS, because portables, presumably would require more treatment.

And then industrial affluence is sort of trying to get an idea of what what's going on and also is the motivation here more economic or is it environmental regulations.

Environmental stewardship.

Yeah.

Yes. This is Mike, Jeff So I would say that.

It's all it's all the above so, especially with our some of our new products, we came out, especially the low pressure PX, we say the municipal end market that is really.

Tertiary treatment for potable reuse I think thats kind of going to increasingly geography as well as it is we as we expand use of holidays 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 is regulatory.

What's driving the regulatory is a serious water scarcity issue.

So I think it really is hard to say it is regulatory driven but it's for economic growth.

Growth reasons and water scarcity reasons. So we're encouraged with the long term trends.

Okay, great. Thanks for answering my questions.

Thanks Chip.

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.

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.

This concludes today's call. Thank you for attending and have a wonderful rest of your day.

Goodbye.

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