Energy Recovery's second quarter results were met with a positive market reaction, as the company delivered sales and profitability that exceeded Wall Street expectations. Management attributed the quarter’s performance to continued strength in its core desalination business, noting several large deal signings and a resilient project pipeline. CEO David Moon highlighted that the company’s focus on both contract execution and new market opportunities helped offset macroeconomic volatility, stating, “Our core desalination business is proving resilient to the macro environment.” The leadership team also pointed to nimble operations in China, where a reduction in tariffs allowed delayed projects to proceed, further supporting revenue growth.
Is now the time to buy ERII? Find out in our full research report (it’s free).
Energy Recovery (ERII) Q2 CY2025 Highlights:
- Revenue: $28.05 million vs analyst estimates of $25.44 million (3.1% year-on-year growth, 10.3% beat)
- Adjusted EPS: $0.07 vs analyst estimates of $0.02 (significant beat)
- Adjusted EBITDA: $4.4 million vs analyst estimates of $1 million (15.7% margin, significant beat)
- Operating Margin: 5.3%, up from -7.4% in the same quarter last year
- Market Capitalization: $760.7 million
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Energy Recovery’s Q2 Earnings Call
- Ryan James Pfingst (B. Riley): Asked if the pace of contracted desalination capacity growth could help achieve the higher end of management’s long-term revenue targets for 2026. CEO David Moon responded it is too early to tell, given project timing uncertainties, but expressed confidence in the trajectory.
- Pfingst (B. Riley): Inquired about pricing strategy for the next-generation PX product. CFO Mike Mancini explained pricing is based on capacity rather than unit count, which supports higher revenue per project as capacity increases.
- Pfingst (B. Riley): Requested an update on CO2 refrigeration partnerships and testing. Moon stated that commercial negotiations with Hillphoenix and other OEMs are ongoing, with new sites added and expectations for further progress during the summer testing season.
- Pfingst (B. Riley): Asked about the potential for entering the data center market. Moon indicated the data center opportunity is still in early evaluation, and unless market adoption of CO2 accelerates, it is unlikely to be a near-term driver.
- Jeffrey Leon Campbell (Seaport Research Partners): Questioned whether improved results in China were due to lower tariffs or greater customer willingness to pay. Moon credited the reduction in tariffs as the main factor enabling shipments and project execution.
Catalysts in Upcoming Quarters
Looking forward, the StockStory team will be monitoring (1) the conversion of the desalination project pipeline into signed contracts, (2) progress in achieving reference cases across targeted wastewater verticals to support broader market adoption, and (3) the outcome of CO2 refrigeration testing and commercial agreements with OEMs. The pace of regulatory change and tariff developments will also be important factors to watch.
Energy Recovery currently trades at $14.30, up from $13.61 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).
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