Energy Recovery Inc (ERII) 2025 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to Energy Recovery's third 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 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 other 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-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, November 5, 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.

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.

Prior to the opening the line for questions and answers, I'd like to highlight a few important takeaways from that letter.

First, we had a strong quarter of sales execution. Mega project shipments improved during the quarter and wastewater revenue continued to rebound such that we are reiterating our four-year revenue guidance.

Second, the team has done a nice job this year controlling costs, and we are reducing our 4-year OpEx guidance even further. We have made a number of decisions to drive efficiency and lower cost while still investing in our growing wastewater business. We expect growth in Q4 and next year to be achievable with only modest increases in operating expenses.

And finally, our CO2 business had a nice summer season of testing. While OEM engagement is strong, we remain in the very early days for commercialization. We are focused on gaining traction in 2026 and plan to provide clear updates on our progress.

As always, I want to thank our employees here at Energy Recovery. Our sales execution and cost control were strong this quarter, and this could not have been done without a lot of great teamwork.

With that, we'll now move to the question-and-answer portion of our conference call.

Operator, please open the line for questions.

(Operator Instructions)

Ryan Pfingst, B. Riley Securities.

Hey guys, thanks for, hey David, thanks for taking my questions. I'll start where you left off there on CO2. Just curious, what were some of the main takeaways, from the recent white paper that you think customers and investors should be aware of?

Yeah, so I think there are 3. So the first, similar to the white paper from Last year we just validated the fact that we save energy and up to 15% at peak at peak times and so strong energy savings performance. So that's number one. Second is to the extent that a store is located in a part of the country or in Europe in Southern Europe where adiabatic coolers are required, we can save tremendous amounts of water. So that's number two, and we and we validated that as part of our summer season of testing here in California. And then I think the 3rd and a really important part of our value proposition that we didn't talk about. We should have talked about more last year was the fact that we provide an increase performance during high heat load days.

So, when the system is working its hardest, the PXG allows for additional capacity during those high heat load days. And so those are the three critical parts of the value proposition that we proved out over the course of this summer.

Appreciate that. And then you touched on this and maybe you want to save it for your next update, but I was wondering if you could tell us about your progress with OEMs and your confidence in signing a commercial agreement with an OEM partner over the next few months.

Yeah, so I think, so, look, this summer season of testing was about working closely with OEMs to prove our value proposition in the field, and I think we checked the box on that.

So where, so what's the next step? So, what is happening now is that OEMs are now beginning to have conversations with some of their largest end users about the PXG and to the extent that they already haven't done so. And what's going to happen, Ryan, is that most likely those customers are going to want to test the PXG themselves over the course of next summer.

So I think we have another summer season of testing in front of us, and I think because of that we're probably a year away from being able to sign a commercial agreement with a large OEM. I think the large OEMs are going to want to see that summer season of testing, a successful testing season with some of their larger customers before they're going to sign a commercial agreement.

Now we've signed an MOU with Hill Phoenix already and so we're on a path to being able to sign a commercial agreement with them, but it's likely going to be 2026.

Got it. I appreciate that. And then turning to the water side, we've seen that the US administration kickstart efforts across different industries, such as nuclear energy or critical minerals. Do you think there's a possibility that we could see something like that on the waterfront maybe for desalination?

Yeah Ryan, this is Mike. Look, I think that all of the AI and the energy that's going to serve it only goes to improve our long-term water trends, right? There's a long-term desalination trend already, and I think it does help the long-term trends. I think what we're really cautious about is translating that to near term.

Near term results for us as this infrastructure takes a long time to build, so I think we're highly encouraged with the long-term trends and some additive stuff there. We want to be cautious about near term expectations on it.

Appreciate that Mike, and then I'll just sneak in one more somewhat related to your comments there on the data center opportunity. Curious if there's anything new to report there either on the wastewater front or Refrigeration.

No, look, Ryan, we continue to monitor it closely. So, and I think we said on the last call that That because CO2 is still a very small part of the refrigeration portion of data centers that there likely wasn't going to be any near-term opportunity for us. I should CO2 jump to the front of the refrigeration line, then that could change. And so I think as it relates to refrigeration, still nothing near term that we see.

I think it relates to water reuse and water treatment for data centers. That's something that we're just starting to better understand, and I think we'll have a better view of that over the next couple of quarters.

Great. I appreciate it guys.

Larry Solow, CJS.

Great, thank you. Hey, good afternoon. I guess just to follow-up on the CO2 question first, so it sounds like the white paper takeaways in the data, were in line or, with your expectations and good, so your maybe your confidence in the adoption hasn't changed or maybe even better, but timing sounds less certain. I'm just curious that, and I know it's more that you change your strategy more to a top down OEM, to customer versus vice versa, but I guess at the end of the day some of these larger customers still do they normally make the decision or is it in conjunction with the OEM, or do the OEMs, since they, their reputation is on the line on a big switch like this, do they, is it just taking them more time and they just need to, they want their customers to be on board as well, or is it just anything that's holding up the adoption or pushing out a little bit?

No, it's a good question. Look, large retailers both in the US and Europe, rely on OEMs not only for the design of the equipment design, but the install and in some cases the service. And so, they really want to pull along their OEMs, especially when it comes to new technology. And so, as we and so that's what we're, we knew that was going to be the case, and that's certainly what we're finding. And so our path to a large retailer like a Walmart is going to go through a large OEM like Hill Phoenix and so the two are going to have to be in lockstep. And so, what we expect to happen is the next step now that we've gotten to a successful summer season of testing is that we expect Hill Phoenix will now start promoting us to the likes of a Walmart and we'll get test stores in the first half of the year with them. And so, we'll start that process with confirming the technology with, a couple of these larger retailers over the course of next year, but it's going to be with these large retailers pulling the OEMs along in lockstep. That's just the way it's going to work.

Okay, so it doesn't sound like your confidence has changed at all, right? Or the inevitable, listen, the ROI I guess goes down a little bit because it's pushed out one year, but it doesn't feel like, right, that's kind of the one change, I guess. I know you're not ready to make any major decisions today, but it sounds like you're not going to get to that sort of 4 or 5 customer adoption next year, but that doesn't necessarily mean your confidence in the overall program has changed that affair.

No, I think, look, I think we had a good summer season of testing. That's what we know, and we know that if we know that OEMs are now starting to talk to some of their larger customers, which is a good thing. We know that we're going to have another season of testing in front of us in 2026 and that real commercialization is likely going to happen in 2027. So our view, OEMs are still very interested in the product, still very interested in the product. We're getting pulled and so it's just a question of speed.

Okay. That's fair. No, I appreciate that. Just quickly on the on the detail, it sounds like, I know the longer-term fundamentals don't change much. Just so fast that is just curious, where someone new as a name. Your visibility, I know, always could move around a little bit from quarter to quarter, but this time of year, as you look out to the next year, the 26th without giving us numbers, but does your visibility start to fill in, as we look out on a 12 month rolling basis, even though I know quarters could slip a little bit.

Yeah, we should start to see backlog building now for 2026. So now it'll be relatively small because if you think about our last now what's going on in year three, the sort of the pattern of backlog built for us has been sort of slow first half, very heavy second half, and that's not going to change for 2026. We expect the same sort of pattern. So, we should enter the year with some backlog. It's likely not going to be significant but the second half is where the story will be told, and it's, that's been the BMO for the last 3 years.

Great, thank you for all the color. I appreciate it.

Jeffrey Campbell, Seaport Research Partners

Hey Jeff.

Good afternoon and congratulations on the solid results. I wondered, David, I wondered if the impressive operating cost reduction that, you have highlighted, did it benefit in some way from your efforts to establish an international footprint or did they occur in spite of those changes or were they just completely unrelated to each other?

Yeah, they're unrelated, to each other, Jeff, we were able we were able to reduce cost, and we've been very mindful of cost, since, starting last year. And so, we've been able to really watch our costs over the course of the year, especially when tariffs hit us so hard in the first quarter, so we took action very quickly. That's why we've been able to be so successful this year to be able to drive OpEx down, but it hasn't stopped us from investing in growing wastewater, nor did it stop us from investing in this manufacturing option to be able to circum forgo the tariffs in China. So we've been able to do both.

Okay, the announced lithium project, is an application of PX that I was excited to see progressing from a pilot to a project. I just wondered, is there enough potential work in this area to make it a meaningful niche and wastewater treatment?

Yeah, I mean this lithium attraction project that we just won, which is in Argentina, that's a USD350,000 project and that that should hit us this quarter. And so, we think this is the first and the, we've had several projects in China already where we've been able to win lithium extraction projects and so we think there are more to come here.

I was just curious; you've talked intermittently about hiring new people for the wastewater effort as your confidence in its growth is increased. I just wonder what do you look for in these kind of hires are you looking for existing relationships or industrial knowledge or something else?

Yeah, so we're looking for people that have a track record in the wastewater space that's number one. Number two a track record within at least one or two of the five verticals that we're focusing on.

So that they bring experience, they bring relationships with OEMs within users, and so those are the two primary attributes that we're looking for when we're hiring these, hiring new salespeople and technical support people.

And I, the last question regarding this retailer test, for next year that you kind of laid out for us and CO2, are these likely to be skid installations as you, as you've done in the past?

Yeah, more than likely, Jeff, there'll be, I would say majority will be skids. Existing CO2 locations with the skid with the skid installed.

Okay. Great, thank you.

You're welcome.

Thank you. There are no further questions at this time, and I'd like to turn the call back to David Moon for closing remarks.

So, thank you operator. So, thank you to all of our stakeholders for your continued support and we look forward to updating you on our next call. Enjoy the rest of your day.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Goodbye.