Thank you, operator. Thank you, and good day, 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, our outlook for 2026, and other important updates. Prior to opening the line for questions and answers, I'd like to highlight a few important takeaways from the letter.

First, I'm now excited to be fully focused on our water business. As you all have seen in the letter, this is a large, growing, and profitable end market where we have the best pressure exchanger technology and continue to maintain our strong market position.

As you can see from our results and guidance, we have hit an air pocket in 2025 and 2026 due to delays at several large desalination projects. Now this is a great business, but one that remains lumpy.

We know investors find this frustrating, and so do we. The good news is that we are confident in our growth for 2027 based on our pipeline and underlying demand trends.

Second, as we've highlighted, we're winding down our CO2 retail grocery business. As conversations with customers evolved over the last few months, it was clear this business couldn't achieve scaled adoption without significant continued time, investment, and risk.

It's a disappointing outcome, and I'm genuinely grateful for the hard work our team members put into this effort over the past several years. Ultimately, we believe that the $7 million of annual savings was the optimal path for shareholder value creation.

Now against this backdrop, we as a management team will continue focus on optimizing performance and controlling what we can control. We're keeping a high bar for capital allocation, investing in innovation, growing our wastewater business, cutting operating expenses, and buying back stock.

As always, I want to thank our employees here at Energy Recovery. Our progress in 2025 and continued transformation in 2026 cannot be done without the great team that we have.

With that, we'll now move to questions and answer portion of our conference call. Operator, please open the line for questions.

Hi, Larry.

Great. Hey, good afternoon.

Just to quickly summarize, essentially the Q4 shortfall, two projects pushed into '26, and then for '26 essentially you're saying $45 million if I take kind of the midpoint, plus or minus, I realize it's not an exact science, but three particular projects are shifting into '27. Then you're adding kind of another, I'll call wiggle room, but I don't know how you want to term it, but $15 to $20 million to sort of what you call de-risk, really de-risking the revenue outlook.

Is that a good way to summarize it?

That's right. The only clarification I'd say is that the three projects kind of get us to the high end of guidance of things we are highly confident will slip.

Then the additional buffer is, as we scrubbed the pipeline to really look at things that we think could also slip throughout the course of the year, that sort of sets the low end of our guidance.

Gotcha. Gotcha.

Okay. You're assuming those three projects don't occur, right?

And The guidance assumes those three projects slip, correct. That's on the order of $25 to $30 million of projects.

Yeah. Then

you slip another $15 to $25 million in case other things, that kind of creates that wider number, right?

Other things that we think are at risk of slipping throughout the course of the year, yes.

As we've looked at the course—

Yeah. Sorry.

As we've looked at the course over the last 30 days, sort of those are the projects that sort of come up on our radar screen.

You mentioned a bunch of a whole things, construction delays, that's kind of usual stuff. These delays seem a little bit as a percentage of your total business maybe larger than normal?

Is that fair to say? Is there any common theme that they're being all being pushed out?

Sounds like a bunch of things, right?

It did happen kind of surprisingly fast and more widespread. It's only three projects.

There's two things going on. One is that projects are getting bigger, right?

So, 5 years ago, we didn't have many projects that were of this size. Now we do, we will feel the pain on if the large project slips.

Secondly, with those large projects, they're more susceptible to slipping, right? They're just bigger.

A lot of them are in non-Gulf countries. They're sort of newer to desalination.

I think we're seeing that. One is a just very project-specific land issue.

Then generally, if there's a trend, I'd say we see some fewer EPCs bidding on desalination projects given broad-based construction demand, and that can sometimes extend the tendering process for our projects in our pipeline because there's fewer EPCs bidding. That's kind of the only major trend we've seen.

Importantly, no destruction in demand, right? This isn't that people don't need water.

All those underlying demand trends are still in place. It's really just about timing and project complexity and timelines.

Right. No, that's all fair.

The cost savings you spoke about irrespective of the CO2 stuff, you said your OpEx I guess went from 60 from $77 to $64, and I assume, again, to get into the CO2, I have one question on that, but your OpEx 64 core or whatever that is ex-CO2, do you plan further cuts in '26?

It's CO2 cuts. CO2 comes out of that number.

You take the base 64, adjust for CO2. Then I'd say there's some other room for additional cost savings.

We're getting toward the bottom of the curve there of how much. Getting quite efficient,

but

there's still ways for us to improve margins and OpEx. Right.

I guess the big thing eventually we get a little bigger, a lower-hanging fruit is when you relocate some of your manufacturing, I guess, is more of a gross cost not a cost—

There is still in '27 and beyond, there's margin benefit there from lower-cost manufacturing, for sure. We're incurring some of the costs of that this year, yeah, and we'll get it next year.

Right. Do you realize a full 7 this year or maybe not quite from the CO2 exit?

Not quite. Not quite.

Not too far off, but not quite. That is an annualized number.

Gotcha. Okay.

Great. Thanks for the call.

Appreciate it. You're

welcome.

Hi. Hi.

Hi, team. Thanks for taking my question.

I'm asking on behalf of Ryan Siggs from B. Riley Securities.

Yeah. Just on this PX-Q650, your new product, it represents a meaningful step-function improvement over your existing product.

Can you maybe help us understand, how is it priced relative to the existing product, and is it a premium product with ASP uplift, or what's the strategy bringing cost down or improving the revenue? How do we look at that?

Sure. This is Mike.

The way that we think about it is that any given desalination plant, we price more on a sort of a cubic meter per day, the total CapEx for the plant. When we introduce a product that has a higher flow rate, we're assuming we get similar dollars per plant, but then we deliver fewer units.

We end up with a higher effective ASP per product. That effective ASP typically grows more than the cost of the product, the increase in cost of the product.

We see some gross margin expansion. In the past, we have also priced at a premium because these products deliver a better specific energy consumption.

The specific energy consumption, or the amount of energy that the plant uses over its lifetime, is a massive factor in the profitability of a plant. When we can deliver better SEC, we can typically eke out some pricing increases as well by sharing some of that savings with the customer and us.

Got it. Got it.

One more on the manufacturing expansion outside of US. What's the expected timeline on this selection of the new site, and what's the total capital commitment beyond what is given for 2026?

We're working on the site selection now, and we should be able to finalize that by the end of the first half, with the thought that we'd start phasing production by the first quarter of 2027. We'll take this year to plan, to start executing, to start building up equipment, with the idea that we'd be on the ground in first quarter of next year.

I'd say for capital costs, we're recurring a lot of CapEx this year. You saw our guided range.

We've been spending about $1.5 million or less the last 2 years. This year, we're guiding 3 to 6.

Next year, maybe a similar range or a little bit lower next year, and that would be all of the capital we'd need to get into a new facility.

Got it. Got it.

That's helpful. On the revenue cadence for 2026, is that similar to 2025?

We expect heavily back-end weighted?

I would expect similar cadence, yes.

Okay. Okay.

Then just last one for me. On the CO2 business, are there any other applications you guys are looking into potentially developing, or is it too early to say any other potential projects in development other than the CO2 thing?

No, I think in terms of products, nothing. We think there might be application for our current CO2 product, potentially in some other CO2 markets like heat pumps.

We have a long way to go to prove that out. Still more work to do, nothing immediate.

All right. Thank you.

Thank you so much for the follow-up.

You're welcome.

Good evening. Thanks for the expanded guidance.

It's very helpful. A quick one, does the savings from the wind-down of the CO2 represent any further reduction in headcount?

There was about 20 there was about 20 heads associated with the wind-down of CO2. That was both salaried and manufacturing.

Okay.

Going back to the question about the the PX the Q650, I was just wondering, how will it I understand what Mike said about how you market the device and and arrive at your the what you charge and so forth, but I just wondered how is it how is it going to affect the rest of your line, meaning, the PX4 Q400 was the top of the line before. I guess that gets knocked down a peg with the the 650 coming.

Is there a point where some of these more legacy pieces of equipment, do they migrate to wastewater, or do you just quit making them, or how do you manage that?

When we had introduced the Q400 about 2 years ago, we thought that the Q300, the transition out of the Q300 would take us about 2 to 3 years. That's proving out to be the case.

We'll still be making 300 Q300s this year, and should be making much fewer in 2027. We suspect the same sort of transition for the from the 400 to the 650.

We'll start manufacturing the 650 for sale in the second half of the year, and so my guess is we'll start seeing the Q400 ramp down as we get into 20 in the back half of '27, sort of 2028. I think it'll take a couple of years, 2 to 3 years, for us to ramp down the Q400.

Just to add some color on that too, Jeff, is that we sell a fair amount of Q300s in our OEM business—

Our wastewater. —and

in our wastewater business. We sell some Q400s there.

If some systems get bigger, that might be a thing, but I could see the Q400 being lower than the Q300 in a few years when we make that transition. That transition happens mostly in the mega projects space.

Does that imply when you said earlier you thought the Q300 would work itself out in 2 years, is that mainly in the mega projects?

It did in the mega projects. It is doing that in the

mega projects,

yes.

The idea is you may still make it, and it may still find an implementation in wastewater, is that what you're saying?

It already does, yeah. We sell it in our OEM desal business and our wastewater business today, and expect that to continue.

You pointed out that the new device is going to start being manufactured in the second half of 2026, and we're sitting here talking about project delays. Does that create an opportunity to try to move some of these Q650s into some of these projects that haven't quite borne their fruit yet?

That would be the absolute plan is trying to do that.

Okay. With regards to the greater CapEx being spent on manufacturing footprint, I just would like to understand, how does this differ from the moves that you made during that period of tariff uncertainty?

Were they just short-term opportunities, and now you're taking a different tack and going someplace else, or how do we put those two together?

The move to Korea was short-term in nature, and that was to protect our China business over tariffs, right? In 6 months' time, we were able to quickly put that in place.

It's an assembly-only operation. We take advantage of the Korea-China free trade agreement.

That was always meant to be a sort of China, India, and places like that to ensure that the factory that we're looking at going forward, our newest factory, will sort of be holistic in terms of where we can ship product to, and longer term in nature.

You mentioned that Korea was assembly only, but these new facilities you're thinking of, are these still I think in the past you've told me that the stuff that you manufactured overseas was not what you would consider to be rich in IP, is it still going to be that whatever you consider to be more mission-critical is going to stay in the US and then other stuff is overseas, or are you actually thinking about building IP-valuable stuff overseas?

It's a good question. I think to start, it'll be sort of mission-critical, but over time, over the 2- to 3-year period, we'll be full-on manufacturing in that new site.

That's how to think about it. Over a 2- to 3-year period, it'll be a self-sustaining, full-on manufacturing facility.

Okay. Without meaning to suggest any lack of faith, you've invested meaningfully in wastewater, and 2026 doesn't suggest a huge amount of revenue growth on an absolute basis just yet.

I'm just wondering, what are your gating items for deciding if this business is not meeting investment goals similar to what you demonstrated with CO2, or is that just not part of the thinking?

This is Mike, Jeff. No, I think, look, 2025 was a tough year from a tariff standpoint.

Heading into 2026 here, we just hired a lot of sales people in the last few months, right? The key thing for me is it is difficult to know exactly what their ramp-up time will be.

I think we expect significant growth out of that business, and really expect this year to build that flywheel and get that mechanism in place. The wider range is probably more about timing of sales people than our faith in the business.

That said, right, this business has done $10 to $12 million in the past before, is a high 60%, mid-high 60% margin business, and is just a different footing than CO2 was. Still hold beholden to our strict capital allocation policies, but is scoring well on that as we look at it today.

I would say the gating item for the wastewater business over the course of '26 is adding reference cases. As we think about China, we've done that, and we continue to do that because we have an existing wastewater business there today.

As we continue to think about India, about South America, about the US, about Europe, continuing to add reference cases in advance of 2027 is going to be a really important benchmark for us.

That's really helpful. Thank you.

Finally, we've noted that you have taken Flowserve to court for patent infringement. I wondered how you arrived at the decision to move forward here, particularly since Flowserve's flexible device has not, to our knowledge, landed any large contracts to date.

Thanks.

Look, I think the court cases are proceeding, and we're still going through the initial phases of the court proceedings, and that's all I can really say as it relates to that at this point. We're going to protect our IP, that I will say.

This case reflects us protecting our IP.

That's fair. Thank you.

You're welcome.

Thank you, operator. Look, thank you everyone for listening in today.

I want to thank all our stakeholders for your continued support, and we look forward to updating you on our next call after the first quarter. Enjoy the rest of your day.

Thank you, operator.