Energy Recovery ERII Form 10-Q filing Q2 FY2025

Page No.

PART I

FINANCIAL INFORMATION

Item 1 Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets — June 30, 2025 and December 31, 2024 1

Condensed Consolidated Statements of Operations — Three and Six Months Ended June 30, 2025 and 2024 2

Condensed Consolidated Statements of ComprehensiveIncome (Loss) — Three and Six Months Ended June 30, 2025 and 2024 3

Condensed Consolidated Statements of Stockholders’Equity — Three and Six Months Ended June 30, 2025 and 2024 4

Condensed Consolidated Statements of Cash Flows — Six Months Ended June 30, 2025 and 2024 5

Notes to Condensed Consolidated Financial Statements 6

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 22

Item 3 Quantitative and Qualitative Disclosures About Market Risk 33

Item 4 Controls and Procedures 34

PART II

OTHER INFORMATION

Item 1 Legal Proceedings 35

Item 1A Risk Factors 35

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 35

Item 3 Defaults Upon Senior Securities 35

Item 4 Mine Safety Disclosures 35

Item 5 Other Information 35

Item 6 Exhibits 37

Exhibit Index 37

Signatures 38

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | FLS 1

Report on Form 10-Q.

PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements (unaudited)

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

See Accompanying Notes to Condensed Consolidated Financial Statements

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 2

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See Accompanying Notes to Condensed Consolidated Financial Statements

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 3

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

See Accompanying Notes to Condensed Consolidated Financial Statements

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 4

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

See Accompanying Notes to Condensed Consolidated Financial Statements

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 5

See Accompanying Notes to Condensed Consolidated Financial Statements

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 6

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Description of Business and Significant Accounting Policies

Energy Recovery, Inc. and its wholly-owned subsidiaries (the “Company” or “Energy Recovery”) designs and manufactures reliable,

high-performance solutions that generate cost savings by increasing energy efficiency and reducing carbon emissions across several

industries. Leveraging the Company’s pressure exchanger technology, which generates little to no emissions when operating, the Company

believes its solutions lower costs, save energy, reduce waste, and minimize emissions for companies across a variety of commercial and

industrial processes. As the world coalesces around the urgent need to address climate change and its impacts, the Company is helping

companies reduce their energy consumption in their industrial processes, which in turn, reduces their carbon footprint. The Company

believes that its customers do not have to sacrifice quality and cost savings for sustainability and the Company is committed to developing

solutions that drive long-term value – both financial and environmental. The Company’s solutions are marketed, sold in, and developed for,

the fluid-flow and gas markets, such as seawater and wastewater desalination, natural gas, chemical processing and CO2-based refrigeration

systems, under the trademarks ERI®, PX®, Pressure Exchanger®, PX® Pressure Exchanger® (“PX”), Ultra PX™, PX G™, PX G1300®,

PX PowerTrain™, AT™, and Aquabold™. The Company owns, manufactures and/or develops its solutions, in whole or in part, in the United

States of America (the “U.S.”).

Basis of Presentation

The Condensed Consolidated Financial Statements include the accounts of Energy Recovery, Inc. and its wholly-owned subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the

Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the financial statements

prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules

and regulations. The December 31, 2024 Condensed Consolidated Balance Sheet was derived from audited financial statements and may

not include all disclosures required by GAAP; however, the Company believes that the disclosures are adequate to make the information

presented not misleading.

The June 30, 2025 unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited

Consolidated Financial Statements and the notes thereto for the fiscal year ended December 31, 2024 included in the Company’s Annual

Report on Form 10-K filed with the SEC on February 26, 2025 (the “2024 Annual Report”).

The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any

future periods.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 7

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Use of Estimates

The preparation of Condensed Consolidated Financial Statements, in conformity with GAAP, requires the Company’s management to

make judgments, assumptions and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and

accompanying notes.

The accounting policies that reflect the Company’s significant estimates and judgments and that the Company believes are the most

critical to aid in fully understanding and evaluating its reported financial results are revenue recognition; stock-based compensation expense;

equipment useful life and valuation; goodwill valuation and impairment; inventory valuation and allowances, deferred taxes and valuation

allowances on deferred tax assets; and evaluation and measurement of contingencies. Those estimates could change, and as a result,

actual results could differ materially from those estimates.

The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a

revision of the carrying value of its assets or liabilities as of August 6, 2025, the date of issuance of this Quarterly Report on Form 10-Q.

These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these

estimates under different assumptions or conditions. The Company undertakes no obligation to publicly update these estimates for any

reason after the date of this Quarterly Report on Form 10-Q, except as required by law.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies in Note 1, “Description of Business and

Significant Accounting Policies - Significant Accounting Policies,” of the Notes to Consolidated Financial Statements included in Item 8,

“Financial Statements and Supplementary Data,” of the 2024 Annual Report. See Note 12, “Stock-Based Compensation - Performance

Restricted Stock Units” for further discussion regarding the Company’s Performance Restricted Stock Units (“PRSUs”) issued during the six

months ended June 30, 2025.

Recently Issued Accounting Pronouncement Not Yet Adopted

There have been no issued accounting pronouncements that have not yet been adopted during the six months ended June 30, 2025

that apply to the Company other than the pronouncements disclosed in Note 1, “Description of Business and Significant Accounting Policies -

Recently Issued Accounting Pronouncement Not Yet Adopted,” of the Notes to Consolidated Financial Statements included in Item 8,

“Financial Statements and Supplementary Data,” of the 2024 Annual Report.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 8

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 — Revenue

Disaggregation of Revenue

The following tables present the disaggregated revenues by segment, and within each segment, by geographical market based on the

customer “shipped to” address, and by channel customers. Sales and usage-based taxes are excluded from revenues. See Note 9,

“Segment Reporting,” forfurtherdiscussion related to the Company’s segments.

1 Within the Middle East and Africa market, Oman represented revenue of $5,994, or 21% and $6,009, or 17% of total revenue during the

three and six months ended June 30, 2025, respectively.

2 Within the Asia market, China represented revenue of $3,484, or 12% and $4,052, or 11% of total revenue during the three and six months

ended June 30, 2025, respectively.

3 Within the Europe market, Spain represented revenue of $8,013, or 29% and $8,734, or 24% of total revenue during the three and six

months ended June 30, 2025, respectively.

1 Within the Middle East and Africa market, Morocco represented revenue of $4,831, or 18% of total revenue and $6,236 or 16% of total

revenue during the three and six months ended June 30, 2024, respectively and the United Arab Emirates represented revenue of $5,424, or

20% of total revenue and $5,654 or 14% of total revenue during the three and six months ended June 30, 2024, respectively.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 9

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2 Within the Asia market, India represented revenue of $4,456, or 16% of total revenue and $4,633 or 12% of total revenue during the three

and six months ended June 30, 2024, respectively.

Contract Balances

The following table presents contract balances by category.

Contract Liabilities

The Company records contract liabilities, which consist of customer deposits and deferred revenue, when cash payments are

received in advance of the Company’s performance. The following table presents the change in contract liability balances during the reported

periods.

Remaining Performance Obligations

As of June 30, 2025, the following table presents the revenue that is expected to be recognized related to performance obligations

that are unsatisfied or partially unsatisfied.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 10

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3 — Net Income (Loss) Per Share

Net income (loss) for the reported period is divided by the weighted average number of basic and diluted common shares outstanding

during the reported period to calculate the basic and diluted net income (loss) per share, respectively. Outstanding stock options to purchase

common shares, unvested restricted stock units (“RSUs”), and unvested performance restricted stock units (“PRSUs”) are collectively

referred to as “equity awards.”

• Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the

period.

• Diluted net income (loss) per share is computed using the weighted average number of common and potentially dilutive shares

outstanding during the period, using the treasury stock method. Any anti-dilutive effect of equity awards outstanding is not

included in the computation of diluted net income (loss) per share.

The following tables present the computation of basic and diluted net income (loss) per share.

The following tables present the equity awards that are excluded from diluted net income (loss) per share because their effect would

have been anti-dilutive.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 11

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4 — Other Financial Information

Cash, Cash Equivalents and Restricted Cash

The Condensed Consolidated Statements of Cash Flows explain the changes in the total of cash, cash equivalents and restricted

cash, such as cash amounts deposited in restricted cash accounts in connection with the Company’s credit cards. The following table

presents a reconciliation of cash, cash equivalents and restricted cash, reported for each period within the Condensed Consolidated Balance#ie887cffe8bb24cf3b6331febbc760f8b_28

Sheets and the Condensed Consolidated Statements of Cash Flows that sum to the total of such amounts.

Accounts Receivable, net

Inventories, net

Inventory amounts are stated at the lower of cost or net realizable value, using the first-in, first-out method.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 12

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accrued Expenses and Other Liabilities

Restructuring

During the fourth quarter of fiscal year 2024, the Company implemented a restructuring plan which included reductions in its

workforce in all functions of the organization, primarily in its San Leandro location, in order to lower the Company’s operating cost structure,

and to position the Company for profitable growth. The Company recorded a restructuring charge of approximately $3.0 million in total, of

which $0.5 million was recorded during the six months ended June 30, 2025. The Company did not record any restructuring charge during

the three months ended June 30, 2025. The total restructuring charge recorded relates to severance and benefits, including reemployment

assistance, for 38 terminated employees, which was approximately 15% of the Company’s workforce. The implementation of the

restructuring plan was substantially complete by the end of the first quarter of fiscal year 2025 and the Company does not expect to incur

significant additional expenses related to the restructuring. All expenses associated with the Company’s restructuring plan are included in

“Restructuring charges” in the Condensed Consolidated Statements of Operations.

The following table presents the change in the Company’s restructuring accrual balances during the reported period:

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 13

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 5 — Investments and Fair Value Measurements

Fair Value of Financial Instruments

The following table presents the Company’s financial assets measured on a recurring basis by contractual maturity, including pricing

category, amortized cost, gross unrealized gains and losses, and fair value. As of June 30, 2025 and December 31, 2024, the Company had

no financial liabilities and no Level 3 financial assets.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 14

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents a summary of the fair value and gross unrealized losses on the available-for-sale securities that have

been in a continuous unrealized loss position, aggregated by type of investment instrument. The available-for-sale securities that were in an

unrealized gain position have been excluded from the table.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 15

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 6 — Lines of Credit

Credit Agreement

The Company entered into a credit agreement with JPMorgan Chase Bank, N.A. on December 22, 2021 (as amended, the “Credit

Agreement”). The Credit Agreement, which will expire on December 21, 2026, provides a committed revolving credit line of $50.0 million and

includes both a revolving loan and a letters of credit (“LCs”) component.

Under the Credit Agreement, as of June 30, 2025, there were no revolving loans outstanding. In addition, under the LCs component,

the Company utilized $16.8 million of the maximum allowable credit line of $30.0 million, which includes newly issued LCs and previously

issued and unexpired stand-by letters of credit (“SBLCs”).

Letters of Credit

The following table presents the total outstanding LCs and SBLCs issued by the Company to its customers related to product

warranty and performance guarantees.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 16

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 7 — Commitments and Contingencies

Sublease

On March 10, 2025, the Company entered into an agreement to sublease its Katy, Texas operating lease. The sublease commenced

on March 10, 2025 and will expire on December 31, 2029. The sublease is classified as an operating lease and has a remaining lease term

of 4.5 years as of June 30, 2025. Sublease income was immaterial during the three and six months ended June 30, 2025 and is recorded as

a reduction of lease expense in general and administrative within the Company’s Condensed Consolidated Statements of Operations.

The Company considered the sublease to be an indicator of impairment of the original lease. The Company compared the

undiscounted cash flows from the sublease to the carrying value of the Katy, Texas operating lease, which included the associated right-of-

use asset and leasehold improvements. The Company concluded that the carrying value was not recoverable as it exceeded the estimated

undiscounted cash flows.

The Company calculated the impairment charge by comparing the carrying value of the Katy, Texas operating lease to its fair value,

which was calculated based on the net discounted cash flows associated with the sublease. The Company recorded a total impairment

charge of $0.4 million during the six months ended June 30, 2025, of which $0.2 million and $0.2 million was recorded against the right-of-

use asset and the associated leasehold improvements, respectively. No impairment charges were recorded during the three months ended

June 30, 2025. The allocation of the impairment charge was based on the relative carrying value of the assets. The impairment charge was

recorded in general and administrative within the Company’s Condensed Consolidated Statements of Operations.

Litigation

From time-to-time, the Company has been named in and subject to various proceedings and claims in connection with its business.

The Company may in the future become involved in litigation in the ordinary course of business, including litigation that could be material to

its business. The Company considers all claims, if any, on a quarterly basis and, based on known facts, assesses whether potential losses

are considered reasonably possible, probable and estimable. Based upon this assessment, the Company then evaluates disclosure

requirements and whether to accrue for such claims in its consolidated financial statements. The Company records a provision for a liability

when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are

reviewed at least quarterly and are adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other

information and events pertaining to a particular case. As of June 30, 2025, the Company was not involved in any lawsuits, legal

proceedings or claims that would have a material effect on the Company’s financial position, results of operations, or cash flows. Therefore,

there were no material losses which were probable or reasonably possible.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 17

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8 — Income Taxes

The Company’s interim period tax provision for (benefit from) income taxes is determined using an estimate of its annual effective tax

rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective

tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The

Company’s quarterly tax provision and estimate of its annual effective tax rate are subject to variation due to several factors, including

variability in accurately predicting its pre-tax income or loss and the mix of jurisdictions to which they relate, the applicability of special tax

regimes, and changes in how the Company does business.

For the three and six months ended June 30, 2025, the recognized provision for and (benefit from) income taxes, respectively,

resulted from the tax projection based on the full year forecasted profit and included benefits related to the U.S. federal foreign-derived

intangible income (“FDII”), federal research and development (“R&D”) tax credit, certain permanent differences, such as stock-based

compensation shortfalls, and partial release of California valuation allowance.

For the three and six months ended June 30, 2024, the recognized provision for and (benefit from) income taxes, respectively,

resulted from the tax projection based on the full year forecasted profit and included benefits related to the U.S. FDII, federal R&D tax credit,

and certain permanent differences, such as share-based compensation windfalls.

The effective tax rate excluding discrete items for the six months ended June 30, 2025, as compared to the prior year, differed

primarily due to lower projected R&D tax credits, increased non-deductible officer stock-based compensation, and lower projected U.S. FDII

benefits.

On July 4, 2025, the One Big Beautiful Bill (“OBBA”) Act, which includes a broad range of tax reform provisions, was signed into law in

the United States. The OBBA has multiple effective dates, and the Company is currently assessing the impact of these tax law changes on its

financial statements.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 18

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9 — Segment Reporting

The Company’s Chief Operating Decision-Maker (“CODM”) is its President and Chief Executive Officer. The Company continues to

monitor and review its segment reporting structure in accordance with authoritative guidance to determine whether any changes have

occurred that would impact its reportable segments.

The following tables present a summary of the Company’s financial information by segment, including significant segment expenses,

and corporate operating expenses.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 19

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 10 — Concentrations

Customer Revenue Concentration

The following tables present the customers that account for 10% or more of the Company’s revenue and their related segment for

each of the periods presented. Although certain customers might account for greater than 10% of the Company’s revenue at any one point in

time, the concentration of revenue between a limited number of customers shifts regularly, depending on when revenue is recognized. The

percentages by customer reflect specific relationships or contracts that would concentrate revenue for the periods presented and do not

indicate a trend specific to any one customer.

**Zero or less than 10%.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 20

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 11 — Stockholders’ Equity

Share Repurchase Program

The Company’s Board, from time-to-time, has authorized a share repurchase program under which the Company may, at the

discretion of management, repurchase its outstanding common stock in the open market, or in privately negotiated transactions, in

compliance with applicable state and federal securities laws. The timing and amounts of any purchase under the Company’s share

repurchase program is based on market conditions and other factors including price, regulatory requirements, and capital availability. The

Company accounts for stock repurchases under these programs using the cost method. As of June 30, 2025, the Company has repurchased

13.0 million shares of its common stock at an aggregate cost of $152.1 million under all share repurchase programs.

February 2025 Authorization

On February 26, 2025, the Company announced that the Board authorized a share repurchase program under which the Company

may repurchase its outstanding common stock, at the discretion of management, for up to $30.0 million in aggregate cost, which includes

both the share value of the acquired common stock and the fees charged in connection with acquiring the common stock (the “February 2025

Authorization”). The February 2025 Authorization will expire in February 2026.

The following table presents the share repurchase activities under the February 2025 Authorization as of June 30, 2025.

(1) Excluding commissions

Of the 1,557,208 shares purchased, 1,277,913 and 1,557,208 were purchased during the three and six months ended June 30, 2025

for $17.1 million and $21.6 million, respectively.

August 2025 Authorization

On August 6, 2025, the Board announced a share repurchase program under which the Company may repurchase its outstanding

common stock, at the discretion of management, for up to $25.0 million in aggregate cost, which includes both the share value of the

acquired common stock and the fees charged in connection with acquiring the common stock (the “August 2025 Authorization”). The August

2025 Authorization will expire in May 2026.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 21

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 12 — Stock-based Compensation

Performance Restricted Stock Units

On January 23, 2025, the Compensation Committee of the Board adopted a new form of PRSU award agreement under the 2020

Equity Incentive Plan (the “2020 Plan”), to among other things, define the terms of the performance metrics and performance period for such

PRSUs. During the three and six months ended June 30, 2025, the Company granted 13,455 and 300,753 PRSUs, respectively.

PRSUs outstanding as of June 30, 2025 generally vest over 3 years and are dependent upon continued employment and meeting

certain cumulative revenue and cumulative adjusted EBITDA targets. Adjusted EBITDA is a non-GAAP financial measure that the Company

defines as net income (loss) which excludes i) depreciation and amortization; ii) stock-based compensation; iii) executive transition costs; iv)

restructuring charges; v) impairment of long-lived assets; vi) other income, net, such as interest income and other non-operating expense,

net; and vii) provision for (benefit from) income taxes. As PRSUs vest, the units will be settled in shares of common stock. The number of

potential shares issued based on PRSUs granted during the three and six months ended June 30, 2025 is dependent on the level of

achievement of the performance targets discussed above, which ranges from 0 shares to up to 38,961 and 902,259 shares of common stock,

respectively. The units are valued based on the Company’s market price on the date of grant. As of June 30, 2025, no expense has been

recognized in relation to the PRSUs as the performance conditions are not considered probable.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 22

Item 1F. Financial Statements (Unaudited)

Item 1 — Financial Statements (unaudited)

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

See Accompanying Notes to Condensed Consolidated Financial Statements

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 2

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See Accompanying Notes to Condensed Consolidated Financial Statements

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 3

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

See Accompanying Notes to Condensed Consolidated Financial Statements

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 4

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

See Accompanying Notes to Condensed Consolidated Financial Statements

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 5

See Accompanying Notes to Condensed Consolidated Financial Statements

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 6

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Description of Business and Significant Accounting Policies

Energy Recovery, Inc. and its wholly-owned subsidiaries (the “Company” or “Energy Recovery”) designs and manufactures reliable,

high-performance solutions that generate cost savings by increasing energy efficiency and reducing carbon emissions across several

industries. Leveraging the Company’s pressure exchanger technology, which generates little to no emissions when operating, the Company

believes its solutions lower costs, save energy, reduce waste, and minimize emissions for companies across a variety of commercial and

industrial processes. As the world coalesces around the urgent need to address climate change and its impacts, the Company is helping

companies reduce their energy consumption in their industrial processes, which in turn, reduces their carbon footprint. The Company

believes that its customers do not have to sacrifice quality and cost savings for sustainability and the Company is committed to developing

solutions that drive long-term value – both financial and environmental. The Company’s solutions are marketed, sold in, and developed for,

the fluid-flow and gas markets, such as seawater and wastewater desalination, natural gas, chemical processing and CO2-based refrigeration

systems, under the trademarks ERI®, PX®, Pressure Exchanger®, PX® Pressure Exchanger® (“PX”), Ultra PX™, PX G™, PX G1300®,

PX PowerTrain™, AT™, and Aquabold™. The Company owns, manufactures and/or develops its solutions, in whole or in part, in the United

States of America (the “U.S.”).

Basis of Presentation

The Condensed Consolidated Financial Statements include the accounts of Energy Recovery, Inc. and its wholly-owned subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the

Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the financial statements

prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules

and regulations. The December 31, 2024 Condensed Consolidated Balance Sheet was derived from audited financial statements and may

not include all disclosures required by GAAP; however, the Company believes that the disclosures are adequate to make the information

presented not misleading.

The June 30, 2025 unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited

Consolidated Financial Statements and the notes thereto for the fiscal year ended December 31, 2024 included in the Company’s Annual

Report on Form 10-K filed with the SEC on February 26, 2025 (the “2024 Annual Report”).

The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any

future periods.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 7

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Use of Estimates

The preparation of Condensed Consolidated Financial Statements, in conformity with GAAP, requires the Company’s management to

make judgments, assumptions and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and

accompanying notes.

The accounting policies that reflect the Company’s significant estimates and judgments and that the Company believes are the most

critical to aid in fully understanding and evaluating its reported financial results are revenue recognition; stock-based compensation expense;

equipment useful life and valuation; goodwill valuation and impairment; inventory valuation and allowances, deferred taxes and valuation

allowances on deferred tax assets; and evaluation and measurement of contingencies. Those estimates could change, and as a result,

actual results could differ materially from those estimates.

The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a

revision of the carrying value of its assets or liabilities as of August 6, 2025, the date of issuance of this Quarterly Report on Form 10-Q.

These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these

estimates under different assumptions or conditions. The Company undertakes no obligation to publicly update these estimates for any

reason after the date of this Quarterly Report on Form 10-Q, except as required by law.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies in Note 1, “Description of Business and

Significant Accounting Policies - Significant Accounting Policies,” of the Notes to Consolidated Financial Statements included in Item 8,

“Financial Statements and Supplementary Data,” of the 2024 Annual Report. See Note 12, “Stock-Based Compensation - Performance

Restricted Stock Units” for further discussion regarding the Company’s Performance Restricted Stock Units (“PRSUs”) issued during the six

months ended June 30, 2025.

Recently Issued Accounting Pronouncement Not Yet Adopted

There have been no issued accounting pronouncements that have not yet been adopted during the six months ended June 30, 2025

that apply to the Company other than the pronouncements disclosed in Note 1, “Description of Business and Significant Accounting Policies -

Recently Issued Accounting Pronouncement Not Yet Adopted,” of the Notes to Consolidated Financial Statements included in Item 8,

“Financial Statements and Supplementary Data,” of the 2024 Annual Report.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 8

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 — Revenue

Disaggregation of Revenue

The following tables present the disaggregated revenues by segment, and within each segment, by geographical market based on the

customer “shipped to” address, and by channel customers. Sales and usage-based taxes are excluded from revenues. See Note 9,

“Segment Reporting,” forfurtherdiscussion related to the Company’s segments.

1 Within the Middle East and Africa market, Oman represented revenue of $5,994, or 21% and $6,009, or 17% of total revenue during the

three and six months ended June 30, 2025, respectively.

2 Within the Asia market, China represented revenue of $3,484, or 12% and $4,052, or 11% of total revenue during the three and six months

ended June 30, 2025, respectively.

3 Within the Europe market, Spain represented revenue of $8,013, or 29% and $8,734, or 24% of total revenue during the three and six

months ended June 30, 2025, respectively.

1 Within the Middle East and Africa market, Morocco represented revenue of $4,831, or 18% of total revenue and $6,236 or 16% of total

revenue during the three and six months ended June 30, 2024, respectively and the United Arab Emirates represented revenue of $5,424, or

20% of total revenue and $5,654 or 14% of total revenue during the three and six months ended June 30, 2024, respectively.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 9

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2 Within the Asia market, India represented revenue of $4,456, or 16% of total revenue and $4,633 or 12% of total revenue during the three

and six months ended June 30, 2024, respectively.

Contract Balances

The following table presents contract balances by category.

Contract Liabilities

The Company records contract liabilities, which consist of customer deposits and deferred revenue, when cash payments are

received in advance of the Company’s performance. The following table presents the change in contract liability balances during the reported

periods.

Remaining Performance Obligations

As of June 30, 2025, the following table presents the revenue that is expected to be recognized related to performance obligations

that are unsatisfied or partially unsatisfied.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 10

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3 — Net Income (Loss) Per Share

Net income (loss) for the reported period is divided by the weighted average number of basic and diluted common shares outstanding

during the reported period to calculate the basic and diluted net income (loss) per share, respectively. Outstanding stock options to purchase

common shares, unvested restricted stock units (“RSUs”), and unvested performance restricted stock units (“PRSUs”) are collectively

referred to as “equity awards.”

• Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the

period.

• Diluted net income (loss) per share is computed using the weighted average number of common and potentially dilutive shares

outstanding during the period, using the treasury stock method. Any anti-dilutive effect of equity awards outstanding is not

included in the computation of diluted net income (loss) per share.

The following tables present the computation of basic and diluted net income (loss) per share.

The following tables present the equity awards that are excluded from diluted net income (loss) per share because their effect would

have been anti-dilutive.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 11

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4 — Other Financial Information

Cash, Cash Equivalents and Restricted Cash

The Condensed Consolidated Statements of Cash Flows explain the changes in the total of cash, cash equivalents and restricted

cash, such as cash amounts deposited in restricted cash accounts in connection with the Company’s credit cards. The following table

presents a reconciliation of cash, cash equivalents and restricted cash, reported for each period within the Condensed Consolidated Balance#ie887cffe8bb24cf3b6331febbc760f8b_28

Sheets and the Condensed Consolidated Statements of Cash Flows that sum to the total of such amounts.

Accounts Receivable, net

Inventories, net

Inventory amounts are stated at the lower of cost or net realizable value, using the first-in, first-out method.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 12

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accrued Expenses and Other Liabilities

Restructuring

During the fourth quarter of fiscal year 2024, the Company implemented a restructuring plan which included reductions in its

workforce in all functions of the organization, primarily in its San Leandro location, in order to lower the Company’s operating cost structure,

and to position the Company for profitable growth. The Company recorded a restructuring charge of approximately $3.0 million in total, of

which $0.5 million was recorded during the six months ended June 30, 2025. The Company did not record any restructuring charge during

the three months ended June 30, 2025. The total restructuring charge recorded relates to severance and benefits, including reemployment

assistance, for 38 terminated employees, which was approximately 15% of the Company’s workforce. The implementation of the

restructuring plan was substantially complete by the end of the first quarter of fiscal year 2025 and the Company does not expect to incur

significant additional expenses related to the restructuring. All expenses associated with the Company’s restructuring plan are included in

“Restructuring charges” in the Condensed Consolidated Statements of Operations.

The following table presents the change in the Company’s restructuring accrual balances during the reported period:

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 13

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 5 — Investments and Fair Value Measurements

Fair Value of Financial Instruments

The following table presents the Company’s financial assets measured on a recurring basis by contractual maturity, including pricing

category, amortized cost, gross unrealized gains and losses, and fair value. As of June 30, 2025 and December 31, 2024, the Company had

no financial liabilities and no Level 3 financial assets.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 14

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents a summary of the fair value and gross unrealized losses on the available-for-sale securities that have

been in a continuous unrealized loss position, aggregated by type of investment instrument. The available-for-sale securities that were in an

unrealized gain position have been excluded from the table.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 15

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 6 — Lines of Credit

Credit Agreement

The Company entered into a credit agreement with JPMorgan Chase Bank, N.A. on December 22, 2021 (as amended, the “Credit

Agreement”). The Credit Agreement, which will expire on December 21, 2026, provides a committed revolving credit line of $50.0 million and

includes both a revolving loan and a letters of credit (“LCs”) component.

Under the Credit Agreement, as of June 30, 2025, there were no revolving loans outstanding. In addition, under the LCs component,

the Company utilized $16.8 million of the maximum allowable credit line of $30.0 million, which includes newly issued LCs and previously

issued and unexpired stand-by letters of credit (“SBLCs”).

Letters of Credit

The following table presents the total outstanding LCs and SBLCs issued by the Company to its customers related to product

warranty and performance guarantees.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 16

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 7 — Commitments and Contingencies

Sublease

On March 10, 2025, the Company entered into an agreement to sublease its Katy, Texas operating lease. The sublease commenced

on March 10, 2025 and will expire on December 31, 2029. The sublease is classified as an operating lease and has a remaining lease term

of 4.5 years as of June 30, 2025. Sublease income was immaterial during the three and six months ended June 30, 2025 and is recorded as

a reduction of lease expense in general and administrative within the Company’s Condensed Consolidated Statements of Operations.

The Company considered the sublease to be an indicator of impairment of the original lease. The Company compared the

undiscounted cash flows from the sublease to the carrying value of the Katy, Texas operating lease, which included the associated right-of-

use asset and leasehold improvements. The Company concluded that the carrying value was not recoverable as it exceeded the estimated

undiscounted cash flows.

The Company calculated the impairment charge by comparing the carrying value of the Katy, Texas operating lease to its fair value,

which was calculated based on the net discounted cash flows associated with the sublease. The Company recorded a total impairment

charge of $0.4 million during the six months ended June 30, 2025, of which $0.2 million and $0.2 million was recorded against the right-of-

use asset and the associated leasehold improvements, respectively. No impairment charges were recorded during the three months ended

June 30, 2025. The allocation of the impairment charge was based on the relative carrying value of the assets. The impairment charge was

recorded in general and administrative within the Company’s Condensed Consolidated Statements of Operations.

Litigation

From time-to-time, the Company has been named in and subject to various proceedings and claims in connection with its business.

The Company may in the future become involved in litigation in the ordinary course of business, including litigation that could be material to

its business. The Company considers all claims, if any, on a quarterly basis and, based on known facts, assesses whether potential losses

are considered reasonably possible, probable and estimable. Based upon this assessment, the Company then evaluates disclosure

requirements and whether to accrue for such claims in its consolidated financial statements. The Company records a provision for a liability

when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are

reviewed at least quarterly and are adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other

information and events pertaining to a particular case. As of June 30, 2025, the Company was not involved in any lawsuits, legal

proceedings or claims that would have a material effect on the Company’s financial position, results of operations, or cash flows. Therefore,

there were no material losses which were probable or reasonably possible.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 17

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8 — Income Taxes

The Company’s interim period tax provision for (benefit from) income taxes is determined using an estimate of its annual effective tax

rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective

tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The

Company’s quarterly tax provision and estimate of its annual effective tax rate are subject to variation due to several factors, including

variability in accurately predicting its pre-tax income or loss and the mix of jurisdictions to which they relate, the applicability of special tax

regimes, and changes in how the Company does business.

For the three and six months ended June 30, 2025, the recognized provision for and (benefit from) income taxes, respectively,

resulted from the tax projection based on the full year forecasted profit and included benefits related to the U.S. federal foreign-derived

intangible income (“FDII”), federal research and development (“R&D”) tax credit, certain permanent differences, such as stock-based

compensation shortfalls, and partial release of California valuation allowance.

For the three and six months ended June 30, 2024, the recognized provision for and (benefit from) income taxes, respectively,

resulted from the tax projection based on the full year forecasted profit and included benefits related to the U.S. FDII, federal R&D tax credit,

and certain permanent differences, such as share-based compensation windfalls.

The effective tax rate excluding discrete items for the six months ended June 30, 2025, as compared to the prior year, differed

primarily due to lower projected R&D tax credits, increased non-deductible officer stock-based compensation, and lower projected U.S. FDII

benefits.

On July 4, 2025, the One Big Beautiful Bill (“OBBA”) Act, which includes a broad range of tax reform provisions, was signed into law in

the United States. The OBBA has multiple effective dates, and the Company is currently assessing the impact of these tax law changes on its

financial statements.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 18

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9 — Segment Reporting

The Company’s Chief Operating Decision-Maker (“CODM”) is its President and Chief Executive Officer. The Company continues to

monitor and review its segment reporting structure in accordance with authoritative guidance to determine whether any changes have

occurred that would impact its reportable segments.

The following tables present a summary of the Company’s financial information by segment, including significant segment expenses,

and corporate operating expenses.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 19

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 10 — Concentrations

Customer Revenue Concentration

The following tables present the customers that account for 10% or more of the Company’s revenue and their related segment for

each of the periods presented. Although certain customers might account for greater than 10% of the Company’s revenue at any one point in

time, the concentration of revenue between a limited number of customers shifts regularly, depending on when revenue is recognized. The

percentages by customer reflect specific relationships or contracts that would concentrate revenue for the periods presented and do not

indicate a trend specific to any one customer.

**Zero or less than 10%.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 20

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 11 — Stockholders’ Equity

Share Repurchase Program

The Company’s Board, from time-to-time, has authorized a share repurchase program under which the Company may, at the

discretion of management, repurchase its outstanding common stock in the open market, or in privately negotiated transactions, in

compliance with applicable state and federal securities laws. The timing and amounts of any purchase under the Company’s share

repurchase program is based on market conditions and other factors including price, regulatory requirements, and capital availability. The

Company accounts for stock repurchases under these programs using the cost method. As of June 30, 2025, the Company has repurchased

13.0 million shares of its common stock at an aggregate cost of $152.1 million under all share repurchase programs.

February 2025 Authorization

On February 26, 2025, the Company announced that the Board authorized a share repurchase program under which the Company

may repurchase its outstanding common stock, at the discretion of management, for up to $30.0 million in aggregate cost, which includes

both the share value of the acquired common stock and the fees charged in connection with acquiring the common stock (the “February 2025

Authorization”). The February 2025 Authorization will expire in February 2026.

The following table presents the share repurchase activities under the February 2025 Authorization as of June 30, 2025.

(1) Excluding commissions

Of the 1,557,208 shares purchased, 1,277,913 and 1,557,208 were purchased during the three and six months ended June 30, 2025

for $17.1 million and $21.6 million, respectively.

August 2025 Authorization

On August 6, 2025, the Board announced a share repurchase program under which the Company may repurchase its outstanding

common stock, at the discretion of management, for up to $25.0 million in aggregate cost, which includes both the share value of the

acquired common stock and the fees charged in connection with acquiring the common stock (the “August 2025 Authorization”). The August

2025 Authorization will expire in May 2026.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 21

ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 12 — Stock-based Compensation

Performance Restricted Stock Units

On January 23, 2025, the Compensation Committee of the Board adopted a new form of PRSU award agreement under the 2020

Equity Incentive Plan (the “2020 Plan”), to among other things, define the terms of the performance metrics and performance period for such

PRSUs. During the three and six months ended June 30, 2025, the Company granted 13,455 and 300,753 PRSUs, respectively.

PRSUs outstanding as of June 30, 2025 generally vest over 3 years and are dependent upon continued employment and meeting

certain cumulative revenue and cumulative adjusted EBITDA targets. Adjusted EBITDA is a non-GAAP financial measure that the Company

defines as net income (loss) which excludes i) depreciation and amortization; ii) stock-based compensation; iii) executive transition costs; iv)

restructuring charges; v) impairment of long-lived assets; vi) other income, net, such as interest income and other non-operating expense,

net; and vii) provision for (benefit from) income taxes. As PRSUs vest, the units will be settled in shares of common stock. The number of

potential shares issued based on PRSUs granted during the three and six months ended June 30, 2025 is dependent on the level of

achievement of the performance targets discussed above, which ranges from 0 shares to up to 38,961 and 902,259 shares of common stock,

respectively. The units are valued based on the Company’s market price on the date of grant. As of June 30, 2025, no expense has been

recognized in relation to the PRSUs as the performance conditions are not considered probable.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 22

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of

Operations

Overview

Energy Recovery, Inc. (the “Company”, “Energy Recovery”, “we”, “our” and “us”) designs and manufactures solutions that make

industrial processes more efficient and sustainable. Leveraging our pressure exchanger technology, which generates little to no emissions

when operating, we believe our solutions lower costs, save energy, reduce waste, and minimize emissions for companies across a variety of

commercial and industrial processes. As the world coalesces around the urgent need to address climate change and its impacts, we are

helping companies reduce their energy consumption in their industrial processes, which in turn, reduces their carbon footprint. We believe

that our customers do not have to sacrifice quality and cost savings for sustainability and we are committed to developing solutions that drive

long-term value – both financial and environmental.

The original product application of our technology, the PX® Pressure Exchanger® (“PX”) energy recovery device, was a major

contributor to the advancement of seawater reverse osmosis desalination (“SWRO”), significantly lowering the energy intensity and cost of

water production globally from SWRO. Our pressure exchanger technology is being applied to the wastewater filtration market, such as

battery manufacturers, mining operations, municipalities, and other manufacturing plants that discharge wastewater with significant levels of

metals and pollutants, and has also been applied to the development of our PX G1300® for use in the CO2 market.

Engineering, and research and development (“R&D”), have been, and remain, an essential part of our history, culture and corporate

strategy. Since our formation, we have developed leading technology and engineering expertise through the continual evolution of our

pressure exchanger technology, which can enhance environmental sustainability and improve productivity by reducing waste and energy

consumption in high-pressure industrial fluid-flow systems. This versatile technology works as a platform to build product applications and is

at the heart of many of our products. In addition, we have engineered and developed ancillary devices, such as our hydraulic turbochargers

and circulation “booster” pumps, that complement our energy recovery devices.

Segments

Our reportable operating segments consist of the water and emerging technologies segments. These segments are based on the

industries in which the technology solutions are sold, the type of energy recovery device or other technology sold and the related solution and

service or, in the case of emerging technologies, where revenues from new and/or potential devices utilizing our pressure exchanger

technology can be brought to market. Other factors for determining the reportable operating segments include the manner in which our Chief

Operating Decision Maker (“CODM”), our President and Chief Executive Officer, evaluates our performance combined with the nature of the

individual business activities. In addition, our corporate operating expenses include expenditures in support of the water and emerging

technologies segments. We continue to monitor and review our segment reporting structure in accordance with authoritative guidance to

determine whether any changes have occurred that would impact our reportable segments.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 23

Results of Operations

A discussion regarding our financial condition and results of operations for the three and six months ended June 30, 2025, compared

to the three and six months ended June 30, 2024, is presented below.

Revenue

As a significant portion of our revenue is derived from large project contract deliveries that are between 16 to 36 months from contract

date, variability in revenue from quarter to quarter is typical, therefore year-on-year comparisons are not necessarily indicative of the trend for

the full year due to these variations. There is no specific seasonality in our revenues to highlight.

We generally track our revenues by channels. The channels we recognize and channel definitions we utilize are as follows:

• Megaproject (“MPD”) channel: The MPD channel has been the main driver of our long-term growth as revenue from this channel

benefits from a growing number of projects as well as an increase in the capacity of these projects in some cases. MPD projects

are large-scale in nature and generally have shipment timelines from 16 to 36 months from contract date. Recognition of

revenue is dependent on customers’ project timing and execution of these projects.

• Original Equipment Manufacturer (“OEM”) channel: The OEM channel reflects sales to a wide variety of industries in the

desalination, wastewater, and the refrigeration markets. This channel contains projects smaller in size and revenue, and of

shorter duration compared to those projects in the MPD channel.

• Aftermarket (“AM”) channel: The AM channel represents support and services rendered to our installed customer base. AM

revenue generally fluctuates from year-to-year and is dependent on our customers’ timing of product upgrades, as well as their

replenishment of spare parts and supplies.

Revenue by Channel Customers

Revenue Attributable to Primary Geographical Markets by Segments

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 24

1 Within the Middle East and Africa market, the following countries represented revenue in excess of 10%.

2 Within the Asia market, the following countries represented revenue in excess of 10%.

3 Within the Europe market, the following countries represented revenue in excess of 10%.

**Zero or less than 10%.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 25

1 Within the Middle East and Africa market, the following countries represented revenue in excess of 10%.

2 Within the Asia market, the following countries represented revenue in excess of 10%.

3 Within the Europe market, the following countries represented revenue in excess of 10%.

**Zero or less than 10%.

Three months ended June 30, 2025, as compared to the three months ended June 30, 2024

The decrease in MPD revenue of $1.0 million was due primarily to lower shipments of products to the Middle East and Africa (“MEA”)

and Asia markets, partially offset by higher shipments of products to the Europe market.

The increase in OEM revenue of $1.4 million was due primarily to:

• Wastewater: The increase in revenue of $1.7 million was due primarily to higher shipments of products to the Asia and Europe

markets, partially offset by lower shipments of products to the Americas market.

• Desalination: The decrease in revenue of $0.4 million was due primarily to lower shipments of products to the Europe, MEA, and

Americas markets, partially offset by higher shipments of products to the Asia market.

The increase in AM revenue of $0.5 million was due primarily to higher shipments of products to the Europe and Asia markets.

Six months ended June 30, 2025, as compared to the six months ended June 30, 2024

The decrease in MPD revenue of $5.1 million was due primarily to lower shipments to the MEA, Asia, and Americas markets, partially

offset by higher shipments of products to the Europe market.

The increase in OEM revenue of $2.1 million was primarily due:

• Wastewater: The increase in revenue of $1.7 million was due primarily to higher shipments of products to the Asia and Europe

markets.

• Desalination: The increase in revenue of $0.3 million was due primarily to higher shipments to the Asia market, partially offset by

lower shipments to the Americas, Europe, and MEA markets.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 26

The decrease in AM revenue of $0.2 million was due primarily to lower shipments to the Americas market, partially offset by higher

shipments of products to the Europe and Asia markets.

Concentration of Revenue

See Note10, “Concentrations,” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Statements

(unaudited),” of this Quarterly Report on Form 10-Q (the “Notes”) for further discussion regarding our concentration of revenue.

Gross Profit and Gross Margin

Gross profit represents revenue less cost of revenue. Cost of revenue consists primarily of raw materials, personnel costs (including

stock-based compensation), manufacturing overhead, warranty costs, and depreciation expense.

The increase in gross profit and decrease in gross margin for the three months ended June 30, 2025, as compared to the prior year,

was due primarily to costs related to product mix and tariffs.

The decrease in gross profit and gross margin for the six months ended June 30, 2025, as compared to the prior year, was due

primarily to costs related to product mix and tariffs during the six months ended June 30, 2025.

Operating Expenses

The total material changes of general and administrative (“G&A”), sales and marketing (“S&M”) and R&D operating expenses for the

three and six months ended June 30, 2025, as compared to the comparable periods in the prior year, are discussed within the following

overall operating expenditures, and the segment and corporate operating expenses discussions below.

Three months ended June 30, 2025, as compared to the three months ended June 30, 2024

Overall Operating Expenditures. Overall operating expenditures decreased $3.1 million, or (15.8%). This decrease was due primarily

to lower employee compensation costs, a severance charge in the three months ended June 30, 2024 that did not recur and higher

consulting costs incurred in the previous year related to our corporate strategy.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 27

Water Segment. Water segment operating expenses decreased by $0.6 million, or (9.0)%. This decrease was due primarily to lower

employee compensation costs, including stock-based compensation.

Emerging Technologies Segment. Emerging Technologies segment operating expenses decreased by $1.6 million, or (28.2%). This

decrease was due primarily to lower employee compensation costs.

Corporate Operating Expenses. Corporate operating expenses decreased by $0.9 million, or (12.7%). This decrease was due

primarily to higher consulting costs incurred in the previous year related to our corporate strategy.

Six months ended June 30, 2025, as compared to the six months ended June 30, 2024

Overall Operating Expenditures. Overall operating expenditures decreased by $4.1 million, or (11.0%). This decrease was due

primarily to a decrease in employee costs, such as employee compensation and stock-based compensation as well as severance charges

incurred during the six months ended June 30, 2024 that did not recur, partially offset by restructuring charges, and an increase in consulting

costs. Changes in non-employee costs included:

• G&A: higher consulting costs related to the enhancement of our corporate strategy as well as $0.4 million of impairment costs

associated with the sublease of our Katy, Texas lease.

• R&D: lower Emerging Technologies segment development costs.

Water Segment. Water segment operating expenses decreased by $1.3 million, or (9.4%). This decrease was due primarily to lower

employee costs, including stock-based compensation costs.

Emerging Technologies Segment. Emerging Technologies operating expenses decreased by $3.7 million, or (31.6%). This decrease

was due primarily to lower employee costs, including stock-based compensation, as well as lower development costs.

Corporate Operating Expenses. Corporate operating expenses increased by $0.8 million, or 6.4%. This increase was primarily due

to higher consulting costs, restructuring charges and impairment costs associated with the sublease of the Katy, Texas lease incurred during

the six months ended June 30, 2025, partially offset by lower employee costs.

Restructuring Charges. During the fourth quarter of fiscal year 2024, we implemented a restructuring plan which included reductions

in our workforce in all functions of the organization, primarily in our San Leandro location, in order to lower our operating cost structure, and

to position the Company for profitable growth. We recorded a restructuring charge of approximately $3.0 million, of which $0.5 million was

recorded during the six months ended June 30, 2025, respectively. The company did not record a restructuring charge during the three

months ended June 30, 2025. The total restructuring charge relates to severance and benefits, including reemployment assistance, for

38 terminated employees, which was approximately 15% of our workforce. The implementation of the restructuring plan was substantially

complete by the end of the first quarter of fiscal year 2025 and the Company does not expect to incur significant additional expenses related

to the restructuring. See Note 4, “Other Financial Information – Restructuring,” of the Notes for further discussion and disclosure on our#ie887cffe8bb24cf3b6331febbc760f8b_298

restructuring program.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 28

Other Income, Net

The decrease in “Total other income, net” in the three and six months ended June 30, 2025, as compared to the comparable period in

the prior year, was primarily due to a decrease in short- and long-term investments.

Income Taxes

The interim period tax provision for (benefit from) income taxes is determined using an estimate of our annual effective tax rate,

adjusted for discrete items, if any, that arise during the period. Each quarter, we update our estimate of the annual effective tax rate, and if

the estimated annual effective tax rate changes, we make a cumulative adjustment in such period. The quarterly tax provision and estimate

of our annual effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax income

or loss and the mix of jurisdictions to which they relate, the applicability of special tax regimes, and changes in how we do business.

For the three and six months ended June 30, 2025, the recognized provision for and (benefit from) income taxes, respectively,

resulted from the tax projection based on the full year forecasted profit and included benefits related to the U.S. federal foreign-derived

intangible income (“FDII”), federal R&D tax credit, certain permanent differences, such as stock-based compensation shortfalls, and partial

release of California valuation allowance.

For the three and six months ended June 30, 2024, the recognized provision for and (benefit from) income taxes, respectively,

resulted from the tax projection based on the full year forecasted profit and included benefits related to the U.S. FDII, federal R&D tax credit,

and certain permanent differences, such as share-based compensation windfalls.

The effective tax rate excluding discrete items for the six months ended June 30, 2025, as compared to the prior year, differed

primarily due to lower projected R&D tax credits, increased non-deductible officer stock-based compensation, and lower projected U.S. FDII

benefits.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 29

Liquidity and Capital Resources

Overview

From time-to-time, management and our Board of Directors (the “Board”) review our liquidity and future cash needs and may make a

decision to (1) return capital to our shareholders through a share repurchase program or dividend payout; or (2) seek additional debt or equity

financing. As of June 30, 2025, our principal sources of liquidity consisted of (i) unrestricted cash and cash equivalents of $57.1 million that

are primarily invested in money market funds and U.S. treasury securities; (ii) investment-grade short-term and long-term marketable debt

instruments of $36.6 million that are primarily invested in U.S. treasury securities, corporate notes and bonds, and municipal and agency

notes and bonds; and (iii) accounts receivable, net of allowances, of $32.6 million. As of June 30, 2025, there was unrestricted cash of

$0.9 million held outside the U.S. We invest cash not needed for current operations predominantly in investment-grade, marketable debt

instruments with the intent to make such funds available for future operating purposes, as needed. Although these securities are available for

sale, we generally hold these securities to maturity, and therefore, do not currently see a need to trade these securities in order to support our

liquidity needs in the foreseeable future. We believe the risk of this portfolio to us is in the ability of the underlying companies or government

agencies to cover their obligations at maturity, not in our ability to trade these securities at a profit. Based on current projections, we believe

existing cash balances and future cash inflows from this portfolio will meet our liquidity needs for at least the next 12 months.

Credit Agreement

We entered into a credit agreement with JPMorgan Chase Bank, N.A. on December 22, 2021 (as amended, the “Credit Agreement”).

The Credit Agreement, which will expire on December 21, 2026, provides a committed revolving credit line of $50.0 million and includes both

a revolving loan and a letters of credit (“LCs”) component. The maximum allowable LCs under the credit line component of the Credit

Agreement is $30.0 million. As of June 30, 2025, we were in compliance with all covenants under the Credit Agreement.

Under the Credit Agreement, as of June 30, 2025, there were no revolving loans outstanding. In addition, as of June 30, 2025, under

the LCs component, we utilized $16.8 million of the maximum allowable credit line of $30.0 million, which included newly issued LCs, and

previously issued and unexpired stand-by letters of credits (“SBLCs”). As of June 30, 2025, there was $16.8 million of outstanding LCs.

These LCs had a weighted average remaining life of approximately 19 months.

See Note 6, “Lines of Credit,” of the Notes for further discussion related to the Credit Agreement.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 30

Share Repurchase Program

The Board, from time-to-time, has authorized a share repurchase program under which we may, at our discretion, repurchase the

Company’s outstanding common stock in the open market, or in privately negotiated transactions, in compliance with applicable state and

federal securities laws. The timing and amounts of any purchase under the share repurchase programs are based on market conditions and

other factors including price, regulatory requirements, and capital availability. We account for stock repurchases under these programs using

the cost method. As of June 30, 2025, we have cumulatively repurchased 13.0 million shares of the Company’s common stock at an

aggregate cost of $152.1 million under all closed share repurchase programs. The following is a discussion of the current share repurchase

program during the three and six months ended June 30, 2025. See Note 11, “Stockholders’ Equity – Share Repurchase Program,” of the

Notes for further discussion related to share repurchase programs and a reconciliation of the latest share repurchase plan balance.

On February 26, 2025, we announced that the Board authorized a share repurchase program under which we may repurchase our

outstanding common stock, at the discretion of management, up to $30.0 million in aggregate cost, which includes both the share value of the

acquired common stock and the fees charged in connection with acquiring the common stock (the “February 2025 Authorization”). We began

repurchasing our outstanding common stock in March 2025. The February 2025 Authorization will expire in February 2026.

On August 6, 2025, the Board announced a share repurchase program under which we may repurchase our outstanding common

stock, at the discretion of management, up to $25.0 million in aggregate cost, which includes both the share value of the acquired common

stock and the fees charged in connection with acquiring the common stock (the “August 2025 Authorization”). We expect to commence

repurchasing our outstanding common stock under the August 2025 Authorization during the third quarter of fiscal year 2025. The August

2025 Authorization will expire in May 2026.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 31

Cash Flows

Cash Flows from Operating Activities

Net cash provided by operating activities is subject to the project driven, non-cyclical nature of our business. Operating cash flow can

fluctuate significantly from reporting period to reporting period, due to the timing of receipts of large project orders. Operating cash flow may

be negative in one reporting period and significantly positive in the next. Consequently, individual reporting period results and comparisons

may not necessarily indicate a significant trend, either positive or negative.

The higher net cash provided by operating assets and liabilities for the six months ended June 30, 2025, as compared to the prior

year, was due primarily to the following factors:

• Accounts receivable: an increase in cash due to an increase in collections related to revenues earned late in the fourth quarter of

2024; partially offset by

• Accounts payables: a decrease in cash due to the timing of the payments made on our outstanding payables.

Cash Flows from Investing Activities

Net cash provided by (used in) investing activities primarily relates to maturities and purchases of investment-grade marketable debt

instruments, such as corporate notes and bonds, and capital expenditures supporting our growth. We believe our investments in marketable

debt instruments are structured to preserve principal and liquidity while at the same time maximizing yields without significantly increasing

risk. The increase in net cash provided by investing activities of $77.4 million in the six months ended June 30, 2025, as compared to the

prior year, was primarily driven by less cash used for purchases of marketable debt instruments, net of cash proceeds from maturities of

marketable debt instruments, of $76.8 million and a decrease in capital expenditures of $0.7 million.

Cash Flows from Financing Activities

Net cash used in financing activities for the six months ended June 30, 2025 was lower as compared to the cash provided by

financing activities in the prior year, due primarily to cash used for the repurchase of our common stock under the February 2025

Authorization and payment of associated excise tax, as well as a decrease in cash from exercises of employee stock options granted under

our equity incentive plans.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 32

Liquidity and Capital Resource Requirements

We believe that our existing resources and cash generated from our operations will be sufficient to meet our anticipated capital

requirements for at least the next 12 months. However, we may need to raise additional capital or incur additional indebtedness to continue

to fund our operations or to support acquisitions in the future and/or to fund investments in our latest technology arising from rapid market

adoption. These needs could require us to seek additional equity or debt financing. Our future capital requirements will depend on many

factors including the continuing market acceptance of our products, our rate of revenue growth, the timing of new product introductions, the

expansion of our R&D, manufacturing and S&M activities, and the timing and extent of our expansion into new geographic territories. In

addition, we may enter into potential material investments in, or acquisitions of, complementary businesses, services or technologies in the

future which could also require us to seek additional equity or debt financing. Should we need additional liquidity or capital funds, these funds

may not be available to us on favorable terms, or at all.

Recent Accounting Pronouncements

Refer to Note 1, “Description of Business and Significant Accounting Policies – Significant Accounting Policies,” of the Notes to

Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Statements (unaudited),” of this Quarterly Report on Form 10-Q.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 33

Item 2M. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of

Operations

Overview

Energy Recovery, Inc. (the “Company”, “Energy Recovery”, “we”, “our” and “us”) designs and manufactures solutions that make

industrial processes more efficient and sustainable. Leveraging our pressure exchanger technology, which generates little to no emissions

when operating, we believe our solutions lower costs, save energy, reduce waste, and minimize emissions for companies across a variety of

commercial and industrial processes. As the world coalesces around the urgent need to address climate change and its impacts, we are

helping companies reduce their energy consumption in their industrial processes, which in turn, reduces their carbon footprint. We believe

that our customers do not have to sacrifice quality and cost savings for sustainability and we are committed to developing solutions that drive

long-term value – both financial and environmental.

The original product application of our technology, the PX® Pressure Exchanger® (“PX”) energy recovery device, was a major

contributor to the advancement of seawater reverse osmosis desalination (“SWRO”), significantly lowering the energy intensity and cost of

water production globally from SWRO. Our pressure exchanger technology is being applied to the wastewater filtration market, such as

battery manufacturers, mining operations, municipalities, and other manufacturing plants that discharge wastewater with significant levels of

metals and pollutants, and has also been applied to the development of our PX G1300® for use in the CO2 market.

Engineering, and research and development (“R&D”), have been, and remain, an essential part of our history, culture and corporate

strategy. Since our formation, we have developed leading technology and engineering expertise through the continual evolution of our

pressure exchanger technology, which can enhance environmental sustainability and improve productivity by reducing waste and energy

consumption in high-pressure industrial fluid-flow systems. This versatile technology works as a platform to build product applications and is

at the heart of many of our products. In addition, we have engineered and developed ancillary devices, such as our hydraulic turbochargers

and circulation “booster” pumps, that complement our energy recovery devices.

Segments

Our reportable operating segments consist of the water and emerging technologies segments. These segments are based on the

industries in which the technology solutions are sold, the type of energy recovery device or other technology sold and the related solution and

service or, in the case of emerging technologies, where revenues from new and/or potential devices utilizing our pressure exchanger

technology can be brought to market. Other factors for determining the reportable operating segments include the manner in which our Chief

Operating Decision Maker (“CODM”), our President and Chief Executive Officer, evaluates our performance combined with the nature of the

individual business activities. In addition, our corporate operating expenses include expenditures in support of the water and emerging

technologies segments. We continue to monitor and review our segment reporting structure in accordance with authoritative guidance to

determine whether any changes have occurred that would impact our reportable segments.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 23

Results of Operations

A discussion regarding our financial condition and results of operations for the three and six months ended June 30, 2025, compared

to the three and six months ended June 30, 2024, is presented below.

Revenue

As a significant portion of our revenue is derived from large project contract deliveries that are between 16 to 36 months from contract

date, variability in revenue from quarter to quarter is typical, therefore year-on-year comparisons are not necessarily indicative of the trend for

the full year due to these variations. There is no specific seasonality in our revenues to highlight.

We generally track our revenues by channels. The channels we recognize and channel definitions we utilize are as follows:

• Megaproject (“MPD”) channel: The MPD channel has been the main driver of our long-term growth as revenue from this channel

benefits from a growing number of projects as well as an increase in the capacity of these projects in some cases. MPD projects

are large-scale in nature and generally have shipment timelines from 16 to 36 months from contract date. Recognition of

revenue is dependent on customers’ project timing and execution of these projects.

• Original Equipment Manufacturer (“OEM”) channel: The OEM channel reflects sales to a wide variety of industries in the

desalination, wastewater, and the refrigeration markets. This channel contains projects smaller in size and revenue, and of

shorter duration compared to those projects in the MPD channel.

• Aftermarket (“AM”) channel: The AM channel represents support and services rendered to our installed customer base. AM

revenue generally fluctuates from year-to-year and is dependent on our customers’ timing of product upgrades, as well as their

replenishment of spare parts and supplies.

Revenue by Channel Customers

Revenue Attributable to Primary Geographical Markets by Segments

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 24

1 Within the Middle East and Africa market, the following countries represented revenue in excess of 10%.

2 Within the Asia market, the following countries represented revenue in excess of 10%.

3 Within the Europe market, the following countries represented revenue in excess of 10%.

**Zero or less than 10%.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 25

1 Within the Middle East and Africa market, the following countries represented revenue in excess of 10%.

2 Within the Asia market, the following countries represented revenue in excess of 10%.

3 Within the Europe market, the following countries represented revenue in excess of 10%.

**Zero or less than 10%.

Three months ended June 30, 2025, as compared to the three months ended June 30, 2024

The decrease in MPD revenue of $1.0 million was due primarily to lower shipments of products to the Middle East and Africa (“MEA”)

and Asia markets, partially offset by higher shipments of products to the Europe market.

The increase in OEM revenue of $1.4 million was due primarily to:

• Wastewater: The increase in revenue of $1.7 million was due primarily to higher shipments of products to the Asia and Europe

markets, partially offset by lower shipments of products to the Americas market.

• Desalination: The decrease in revenue of $0.4 million was due primarily to lower shipments of products to the Europe, MEA, and

Americas markets, partially offset by higher shipments of products to the Asia market.

The increase in AM revenue of $0.5 million was due primarily to higher shipments of products to the Europe and Asia markets.

Six months ended June 30, 2025, as compared to the six months ended June 30, 2024

The decrease in MPD revenue of $5.1 million was due primarily to lower shipments to the MEA, Asia, and Americas markets, partially

offset by higher shipments of products to the Europe market.

The increase in OEM revenue of $2.1 million was primarily due:

• Wastewater: The increase in revenue of $1.7 million was due primarily to higher shipments of products to the Asia and Europe

markets.

• Desalination: The increase in revenue of $0.3 million was due primarily to higher shipments to the Asia market, partially offset by

lower shipments to the Americas, Europe, and MEA markets.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 26

The decrease in AM revenue of $0.2 million was due primarily to lower shipments to the Americas market, partially offset by higher

shipments of products to the Europe and Asia markets.

Concentration of Revenue

See Note10, “Concentrations,” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Statements

(unaudited),” of this Quarterly Report on Form 10-Q (the “Notes”) for further discussion regarding our concentration of revenue.

Gross Profit and Gross Margin

Gross profit represents revenue less cost of revenue. Cost of revenue consists primarily of raw materials, personnel costs (including

stock-based compensation), manufacturing overhead, warranty costs, and depreciation expense.

The increase in gross profit and decrease in gross margin for the three months ended June 30, 2025, as compared to the prior year,

was due primarily to costs related to product mix and tariffs.

The decrease in gross profit and gross margin for the six months ended June 30, 2025, as compared to the prior year, was due

primarily to costs related to product mix and tariffs during the six months ended June 30, 2025.

Operating Expenses

The total material changes of general and administrative (“G&A”), sales and marketing (“S&M”) and R&D operating expenses for the

three and six months ended June 30, 2025, as compared to the comparable periods in the prior year, are discussed within the following

overall operating expenditures, and the segment and corporate operating expenses discussions below.

Three months ended June 30, 2025, as compared to the three months ended June 30, 2024

Overall Operating Expenditures. Overall operating expenditures decreased $3.1 million, or (15.8%). This decrease was due primarily

to lower employee compensation costs, a severance charge in the three months ended June 30, 2024 that did not recur and higher

consulting costs incurred in the previous year related to our corporate strategy.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 27

Water Segment. Water segment operating expenses decreased by $0.6 million, or (9.0)%. This decrease was due primarily to lower

employee compensation costs, including stock-based compensation.

Emerging Technologies Segment. Emerging Technologies segment operating expenses decreased by $1.6 million, or (28.2%). This

decrease was due primarily to lower employee compensation costs.

Corporate Operating Expenses. Corporate operating expenses decreased by $0.9 million, or (12.7%). This decrease was due

primarily to higher consulting costs incurred in the previous year related to our corporate strategy.

Six months ended June 30, 2025, as compared to the six months ended June 30, 2024

Overall Operating Expenditures. Overall operating expenditures decreased by $4.1 million, or (11.0%). This decrease was due

primarily to a decrease in employee costs, such as employee compensation and stock-based compensation as well as severance charges

incurred during the six months ended June 30, 2024 that did not recur, partially offset by restructuring charges, and an increase in consulting

costs. Changes in non-employee costs included:

• G&A: higher consulting costs related to the enhancement of our corporate strategy as well as $0.4 million of impairment costs

associated with the sublease of our Katy, Texas lease.

• R&D: lower Emerging Technologies segment development costs.

Water Segment. Water segment operating expenses decreased by $1.3 million, or (9.4%). This decrease was due primarily to lower

employee costs, including stock-based compensation costs.

Emerging Technologies Segment. Emerging Technologies operating expenses decreased by $3.7 million, or (31.6%). This decrease

was due primarily to lower employee costs, including stock-based compensation, as well as lower development costs.

Corporate Operating Expenses. Corporate operating expenses increased by $0.8 million, or 6.4%. This increase was primarily due

to higher consulting costs, restructuring charges and impairment costs associated with the sublease of the Katy, Texas lease incurred during

the six months ended June 30, 2025, partially offset by lower employee costs.

Restructuring Charges. During the fourth quarter of fiscal year 2024, we implemented a restructuring plan which included reductions

in our workforce in all functions of the organization, primarily in our San Leandro location, in order to lower our operating cost structure, and

to position the Company for profitable growth. We recorded a restructuring charge of approximately $3.0 million, of which $0.5 million was

recorded during the six months ended June 30, 2025, respectively. The company did not record a restructuring charge during the three

months ended June 30, 2025. The total restructuring charge relates to severance and benefits, including reemployment assistance, for

38 terminated employees, which was approximately 15% of our workforce. The implementation of the restructuring plan was substantially

complete by the end of the first quarter of fiscal year 2025 and the Company does not expect to incur significant additional expenses related

to the restructuring. See Note 4, “Other Financial Information – Restructuring,” of the Notes for further discussion and disclosure on our#ie887cffe8bb24cf3b6331febbc760f8b_298

restructuring program.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 28

Other Income, Net

The decrease in “Total other income, net” in the three and six months ended June 30, 2025, as compared to the comparable period in

the prior year, was primarily due to a decrease in short- and long-term investments.

Income Taxes

The interim period tax provision for (benefit from) income taxes is determined using an estimate of our annual effective tax rate,

adjusted for discrete items, if any, that arise during the period. Each quarter, we update our estimate of the annual effective tax rate, and if

the estimated annual effective tax rate changes, we make a cumulative adjustment in such period. The quarterly tax provision and estimate

of our annual effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax income

or loss and the mix of jurisdictions to which they relate, the applicability of special tax regimes, and changes in how we do business.

For the three and six months ended June 30, 2025, the recognized provision for and (benefit from) income taxes, respectively,

resulted from the tax projection based on the full year forecasted profit and included benefits related to the U.S. federal foreign-derived

intangible income (“FDII”), federal R&D tax credit, certain permanent differences, such as stock-based compensation shortfalls, and partial

release of California valuation allowance.

For the three and six months ended June 30, 2024, the recognized provision for and (benefit from) income taxes, respectively,

resulted from the tax projection based on the full year forecasted profit and included benefits related to the U.S. FDII, federal R&D tax credit,

and certain permanent differences, such as share-based compensation windfalls.

The effective tax rate excluding discrete items for the six months ended June 30, 2025, as compared to the prior year, differed

primarily due to lower projected R&D tax credits, increased non-deductible officer stock-based compensation, and lower projected U.S. FDII

benefits.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 29

Liquidity and Capital Resources

Overview

From time-to-time, management and our Board of Directors (the “Board”) review our liquidity and future cash needs and may make a

decision to (1) return capital to our shareholders through a share repurchase program or dividend payout; or (2) seek additional debt or equity

financing. As of June 30, 2025, our principal sources of liquidity consisted of (i) unrestricted cash and cash equivalents of $57.1 million that

are primarily invested in money market funds and U.S. treasury securities; (ii) investment-grade short-term and long-term marketable debt

instruments of $36.6 million that are primarily invested in U.S. treasury securities, corporate notes and bonds, and municipal and agency

notes and bonds; and (iii) accounts receivable, net of allowances, of $32.6 million. As of June 30, 2025, there was unrestricted cash of

$0.9 million held outside the U.S. We invest cash not needed for current operations predominantly in investment-grade, marketable debt

instruments with the intent to make such funds available for future operating purposes, as needed. Although these securities are available for

sale, we generally hold these securities to maturity, and therefore, do not currently see a need to trade these securities in order to support our

liquidity needs in the foreseeable future. We believe the risk of this portfolio to us is in the ability of the underlying companies or government

agencies to cover their obligations at maturity, not in our ability to trade these securities at a profit. Based on current projections, we believe

existing cash balances and future cash inflows from this portfolio will meet our liquidity needs for at least the next 12 months.

Credit Agreement

We entered into a credit agreement with JPMorgan Chase Bank, N.A. on December 22, 2021 (as amended, the “Credit Agreement”).

The Credit Agreement, which will expire on December 21, 2026, provides a committed revolving credit line of $50.0 million and includes both

a revolving loan and a letters of credit (“LCs”) component. The maximum allowable LCs under the credit line component of the Credit

Agreement is $30.0 million. As of June 30, 2025, we were in compliance with all covenants under the Credit Agreement.

Under the Credit Agreement, as of June 30, 2025, there were no revolving loans outstanding. In addition, as of June 30, 2025, under

the LCs component, we utilized $16.8 million of the maximum allowable credit line of $30.0 million, which included newly issued LCs, and

previously issued and unexpired stand-by letters of credits (“SBLCs”). As of June 30, 2025, there was $16.8 million of outstanding LCs.

These LCs had a weighted average remaining life of approximately 19 months.

See Note 6, “Lines of Credit,” of the Notes for further discussion related to the Credit Agreement.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 30

Share Repurchase Program

The Board, from time-to-time, has authorized a share repurchase program under which we may, at our discretion, repurchase the

Company’s outstanding common stock in the open market, or in privately negotiated transactions, in compliance with applicable state and

federal securities laws. The timing and amounts of any purchase under the share repurchase programs are based on market conditions and

other factors including price, regulatory requirements, and capital availability. We account for stock repurchases under these programs using

the cost method. As of June 30, 2025, we have cumulatively repurchased 13.0 million shares of the Company’s common stock at an

aggregate cost of $152.1 million under all closed share repurchase programs. The following is a discussion of the current share repurchase

program during the three and six months ended June 30, 2025. See Note 11, “Stockholders’ Equity – Share Repurchase Program,” of the

Notes for further discussion related to share repurchase programs and a reconciliation of the latest share repurchase plan balance.

On February 26, 2025, we announced that the Board authorized a share repurchase program under which we may repurchase our

outstanding common stock, at the discretion of management, up to $30.0 million in aggregate cost, which includes both the share value of the

acquired common stock and the fees charged in connection with acquiring the common stock (the “February 2025 Authorization”). We began

repurchasing our outstanding common stock in March 2025. The February 2025 Authorization will expire in February 2026.

On August 6, 2025, the Board announced a share repurchase program under which we may repurchase our outstanding common

stock, at the discretion of management, up to $25.0 million in aggregate cost, which includes both the share value of the acquired common

stock and the fees charged in connection with acquiring the common stock (the “August 2025 Authorization”). We expect to commence

repurchasing our outstanding common stock under the August 2025 Authorization during the third quarter of fiscal year 2025. The August

2025 Authorization will expire in May 2026.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 31

Cash Flows

Cash Flows from Operating Activities

Net cash provided by operating activities is subject to the project driven, non-cyclical nature of our business. Operating cash flow can

fluctuate significantly from reporting period to reporting period, due to the timing of receipts of large project orders. Operating cash flow may

be negative in one reporting period and significantly positive in the next. Consequently, individual reporting period results and comparisons

may not necessarily indicate a significant trend, either positive or negative.

The higher net cash provided by operating assets and liabilities for the six months ended June 30, 2025, as compared to the prior

year, was due primarily to the following factors:

• Accounts receivable: an increase in cash due to an increase in collections related to revenues earned late in the fourth quarter of

2024; partially offset by

• Accounts payables: a decrease in cash due to the timing of the payments made on our outstanding payables.

Cash Flows from Investing Activities

Net cash provided by (used in) investing activities primarily relates to maturities and purchases of investment-grade marketable debt

instruments, such as corporate notes and bonds, and capital expenditures supporting our growth. We believe our investments in marketable

debt instruments are structured to preserve principal and liquidity while at the same time maximizing yields without significantly increasing

risk. The increase in net cash provided by investing activities of $77.4 million in the six months ended June 30, 2025, as compared to the

prior year, was primarily driven by less cash used for purchases of marketable debt instruments, net of cash proceeds from maturities of

marketable debt instruments, of $76.8 million and a decrease in capital expenditures of $0.7 million.

Cash Flows from Financing Activities

Net cash used in financing activities for the six months ended June 30, 2025 was lower as compared to the cash provided by

financing activities in the prior year, due primarily to cash used for the repurchase of our common stock under the February 2025

Authorization and payment of associated excise tax, as well as a decrease in cash from exercises of employee stock options granted under

our equity incentive plans.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 32

Liquidity and Capital Resource Requirements

We believe that our existing resources and cash generated from our operations will be sufficient to meet our anticipated capital

requirements for at least the next 12 months. However, we may need to raise additional capital or incur additional indebtedness to continue

to fund our operations or to support acquisitions in the future and/or to fund investments in our latest technology arising from rapid market

adoption. These needs could require us to seek additional equity or debt financing. Our future capital requirements will depend on many

factors including the continuing market acceptance of our products, our rate of revenue growth, the timing of new product introductions, the

expansion of our R&D, manufacturing and S&M activities, and the timing and extent of our expansion into new geographic territories. In

addition, we may enter into potential material investments in, or acquisitions of, complementary businesses, services or technologies in the

future which could also require us to seek additional equity or debt financing. Should we need additional liquidity or capital funds, these funds

may not be available to us on favorable terms, or at all.

Recent Accounting Pronouncements

Refer to Note 1, “Description of Business and Significant Accounting Policies – Significant Accounting Policies,” of the Notes to

Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Statements (unaudited),” of this Quarterly Report on Form 10-Q.

Energy Recovery, Inc. | Q2'2025 Quarterly Report (Form 10-Q) | 33