Energy Recovery NASDAQ: ERII used its first-quarter 2026 earnings call to highlight early momentum for a newly launched desalination product, announce leadership changes, and address how rising geopolitical risk in the Middle East is affecting its outlook.
New PX Q650 product launches with early traction
President and CEO David Moon said the company launched its new PX Q650 product in March and has already received its first commercial order. Moon added that Energy Recovery is “working with multiple large customers to design it into large desalination plants,” calling the rollout “off to a strong start.”
Moon also provided a timeline for product mix changes, telling analysts the transition from the company’s current primary product to the Q650 is expected to take time. While the Q650 has “early momentum,” Moon said the company expects it to take “a couple of years for the Q650 to become our primary product,” adding that the company likely does not see that happening until “probably 2028.”
Moon noted that many projects in the next 12 to 24 months are already specified for the existing PX Q400 product and are “so far along in the design phases” that it is “unlikely that those projects will change product.”
Leadership changes: Moon retirement plans; CFO transition
Moon said he has informed the board of his intention to retire and that a search for his successor is underway. Asked whether the search would lean internal or external, Moon said, “everything’s on the table.” He added that, until a successor is named, he remains “fully engaged” and pointed to what he described as a “strong bench of talent” to support a smooth transition.
The company also announced a change in its finance leadership. Moon said CFO Mike Mancini has resigned, and that Aidan Ryan—who joined the company in 2024—will serve as interim CFO.
Middle East conflict leads to guidance withdrawal; company building inventory
Moon said Energy Recovery has “meaningful exposure to the Middle East” and expects the ongoing conflict to have an impact. As a result, Moon said the company’s original 2026 financial guidance is “no longer reliable,” and management is “temporarily withdrawing guidance until we have better visibility on the evolving conflict.”
On the call, Moon characterized current expectations as project timing shifts rather than a fundamental drop in demand. “What we’re hearing…is that the project delays will be just that,” Moon said, adding that some projects could move “from 2026 into 2027.” He emphasized that the long-term drivers for desalination in the region remain intact, pointing to “water scarcity and water security” and continued population growth.
Moon also said the company is building inventory to support customers once project timing becomes clearer. He told analysts that Energy Recovery feels comfortable with “how many Q400s we need to be building over the next couple of years and how many Q650s that we should be building as well,” based on its view of project pipelines and anticipated transition timing for the new product.
Manufacturing strategy unchanged; Middle East expansion still targeted
Despite the geopolitical uncertainty, Moon said the company’s manufacturing footprint plans have not changed. He reiterated that the Middle East remains central to the strategy because it is currently the company’s largest base of business and is expected to remain so for the next five to 10 years. Moon also said customers in the region continue to push for local content, including building PX products on the ground.
Energy Recovery continues “full speed ahead” in planning and still expects to be able to begin assembling Q400 units overseas by the first quarter, according to Moon.
Other markets to watch; wastewater guidance also paused
Asked about regions outside the Middle East with strong mega-project potential, Moon pointed to several areas the company is watching closely. He cited China, where he said desalination activity “looks to be ramping up,” and South America, where activity is “starting to pick up.” He also described Texas as a “wild card,” noting years of discussion around potential desalination projects and suggesting meaningful opportunities could emerge if projects begin moving forward.
On wastewater, analysts asked whether the prior 2026 revenue outlook for the segment still applied. Interim CFO Aidan Ryan said the company is pausing guidance “on both desalination and wastewater” and would not comment on the prior range. Ryan said there are “a lot of good things going on in wastewater” alongside some challenges and that the company hopes to update guidance when it provides broader guidance again, “hopefully here, in Q2 or Q3.”
In response to a question about cost controls and free cash flow, management pointed to ongoing cost-discipline efforts, including domestic manufacturing improvements through lean and kaizen initiatives and the company’s broader manufacturing footprint strategy. Moon added that Energy Recovery has already completed significant workforce reductions, including a “major reduction in force last year” and another “to start the beginning of this year.” He said that, beyond continued “belt-tightening” and “trim around the edges,” there are “not a lot of big one-time opportunities left,” and future opportunities are expected to come from factory productivity gains and more efficient SG&A deployment.
In closing remarks, Moon reiterated that the company’s strategic direction remains unchanged, with continued emphasis on product innovation, cost discipline, manufacturing transformation efforts “both here and overseas,” and growing the wastewater business.
About Energy Recovery NASDAQ: ERII
Energy Recovery, Inc NASDAQ: ERII is an energy technology company specializing in the design and manufacture of high-efficiency devices that capture and repurpose energy in fluid-handling applications. The company's core offering, the Pressure Exchanger® (PX®) device, enables seawater reverse osmosis (SWRO) desalination plants to recover and reuse hydraulic energy that would otherwise be lost during brine discharge. By integrating PX technology into desalination processes, Energy Recovery helps operators significantly reduce the energy consumption and operating costs of producing fresh water from seawater or brackish sources.
In addition to desalination solutions, Energy Recovery has expanded its portfolio to serve the oil and gas sector through turbocharger systems that improve the energy efficiency of hydraulic fracturing operations.
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