Energy Recovery (ERII) faces a visibility test after guidance withdrawal. Energy Recovery (ERII) entered the second half of 2026 with a balance sheet that still offers breathing room, but the operating picture has become much harder to read. The company's latest results show that the real issue is not whether desalination demand exists in the long run. It is whether large Middle East projects can move from pipeline talk to revenue on a timetable investors can actually underwrite. What the latest results and management commentary actually showed. Energy Recovery reported Q2 2026 revenue of $12.0 million on August 5, 2026, down from $28.0 million in Q2 2025, according to the company's second-quarter press release and quarterly filing. For the first half of 2026, revenue was $21.7 million versus $36.2 million in the comparable 2025 period. The first-half net loss widened to $15.4 million from $7.8 million a year earlier. Discover more Financial data API Stock market analysis Market analysis software The sharpest pressure came from the megaproject business. Management disclosed that megaproject revenue fell to $2.7 million in Q2 2026 from $14.8 million a year earlier. That decline matters because megaproject desalination work has historically carried a large share of the company's revenue opportunity and has been central to the long-term bull case. The quarter was not uniformly weak. Energy Recovery said Q2 gross margin was 74.7%, helped by channel mix and lower indirect manufacturing costs. But the first-half picture was less clean. Gross margin for the first six months of 2026 was 53.7%, and management tied part of the pressure to a $1.6 million inventory reserve related to the wind-down of the CO2 retail grocery business. That means the underlying desalination business may look better than the headline first-half margin suggests, but it also shows how little room the company has for execution noise while revenue is soft. Liquidity remains the main cushion. As of June 30, 2026, Energy Recovery had $98.1 million in cash, cash equivalents, and investments, up from $83.3 million at December 31, 2025. Management also continued to point to product and manufacturing moves that could matter later. The company launched the PX Q650 in March 2026 and said it has already booked a first commercial order. In late July, it signed a lease for a manufacturing facility near Dammam, Saudi Arabia, which management says should reduce freight, procurement, and operating costs over time. Those steps support the long game, but they do not solve the current revenue timing problem. Why geopolitical risk and reduced visibility matter to the near-term thesis. The most important signal from this year was not a single line item. It was management's decision in May 2026 to withdraw full-year guidance because earlier assumptions were no longer reliable in the face of the Iran conflict and related disruption across the Middle East desalination project cycle. Discover more Market trend analysis Earnings call transcripts That matters because Energy Recovery's business is unusually exposed to project timing. When megaproject customers delay financing, procurement, or construction milestones, the company can still describe a healthy long-term pipeline while near-term revenue falls apart. That is effectively what investors are seeing now. The structural need for desalination infrastructure in the region has not gone away, but timing risk has become the dominant variable in the stock. Management's own commentary suggests the problem is broader than one canceled order. The company has described financing pressure, procurement delays, and logistics friction as reasons visibility has deteriorated. If projects are pushed from 2026 into 2027 rather than lost outright, the long-term thesis may survive. But the market is not valuing the long term in isolation. It is discounting the possibility that a company with heavy megaproject exposure can spend several quarters waiting for customers to regain enough confidence to move. There is also an organizational layer to that risk. Energy Recovery disclosed major leadership changes this year, including CEO David Moon's planned retirement and the departure of CFO Mike Mancini. Aidan Ryan moved into the interim CFO role while the company began a CEO search. Leadership transitions do not automatically change fundamentals, but they do raise the execution bar when investors already have less confidence in forecasts. The Saudi manufacturing lease is a good example of the two-sided story. On one hand, it signals conviction that local presence and regional demand still matter. On the other hand, it deepens the company's operating commitment to the same geography that is currently creating the most uncertainty. That can pay off if project timing normalizes. It can also lengthen the period in which investors are asked to fund patience. What investors should watch next in project timing, margins, and demand visibility. The first thing to watch is whether management can move from general commentary about delay to more concrete evidence of conversion. That could come through improving megaproject revenue, firmer backlog timing, or language around reinstating guidance. Without one of those markers, investors are left assuming that 2027 is doing too much work in the thesis. The second watchpoint is margin quality. Q2's 74.7% gross margin shows the model can still produce attractive economics when mix cooperates, but investors need to see whether that holds as revenue rebuilds. If future quarters require heavy operational spending, facility ramp costs, or more inventory charges before sales recover, the earnings reset could last longer than bulls expect. Earnings report summaries Third, the balance sheet needs to remain a strategic asset rather than a slowly shrinking bridge. The $98.1 million cash-and-investments position gives Energy Recovery time, and the absence of revolving loans outstanding helps. But the company is also carrying higher inventory and continuing capital allocation decisions such as share repurchases. If delays stretch further, investors will start asking whether cash should be preserved more aggressively. Finally, diversification has to become visible in the numbers, not just in strategy language. The PX Q650 launch, wastewater activity, and geographic expansion outside the core Middle East megaproject lane all matter because they offer ways to reduce dependence on a single timing-sensitive revenue engine. Until those offsets show up more clearly, Energy Recovery is likely to trade less on technology leadership and more on whether project visibility returns. Key signals for investors. * Q2 2026 revenue fell to $12.0 million from $28.0 million a year earlier, so investors need to see whether megaproject revenue stabilizes before the stock can regain a cleaner earnings narrative. * The withdrawal of 2026 guidance remains the clearest sign that management still lacks confidence in project timing, and guidance restoration would be a major credibility marker. * Gross margin was 74.7% in Q2 2026, but first-half margin was pulled down by inventory-related charges, so the next question is whether margin strength survives a more normal shipment mix. * Cash, cash equivalents, and investments totaled $98.1 million at June 30, 2026, which buys time, but longer project delays would make inventory growth and capital allocation more important risks. * The Saudi facility lease and PX Q650 rollout support the long-term story, but investors need evidence that those initiatives can translate into revenue and cost benefits on a schedule that matters.

Energy Recovery to open Saudi manufacturing facility for desalination technology. August 4, 2026 * Energy Recovery has signed a lease for a new manufacturing facility near Dammam, Saudi Arabia. * The facility will support key stages of PX Pressure Exchanger manufacturing. * It is expected to become operational in 2027. * The site will serve desalination customers in Saudi Arabia and the wider MENA region. * Energy Recovery says the move supports Saudi Vision 2030, water security and industrial localisation. Energy Recovery has finalised a lease for a new manufacturing facility near Dammam, Saudi Arabia, marking the company's first in-Kingdom manufacturing operation. The 3,750m2 facility, located near Dammam Second Industrial City, is expected to become operational in 2027 and will support key stages of Energy Recovery's proprietary PX Pressure Exchanger manufacturing process. The company said the site will carry out machining, assembly and testing, serving desalination customers in Saudi Arabia and across the wider Middle East and North Africa region. Manufacturing closer to desalination demand. Saudi Arabia and the wider Gulf region rely heavily on desalination for potable water supply and industrial development. Energy Recovery said the new facility is designed to bring production closer to one of the world's largest desalination markets. The company will operate in Saudi Arabia through Energy Recovery Company, a fully registered Saudi entity that is 100% owned by Energy Recovery. "Geographic diversity in our manufacturing footprint has been a linchpin of our operating strategy, and this facility is a concrete step in that direction," said Alex Buehler, interim president and chief executive officer of Energy Recovery. "A Saudi Arabian manufacturing presence complements our existing operations in California and positions us closer to the customers and markets at the centre of global desalination." Supporting Saudi Vision 2030. Energy Recovery said the new facility will create skilled local jobs, support in-Kingdom manufacturing expertise and contribute to Saudi Arabia's Vision 2030 goals for industrial localisation and water security. "Localising advanced water technologies and manufacturing capabilities is fundamental to strengthening Saudi Arabia's water security and achieving the objectives of Vision 2030," said Eng. Mohammed Alshaikh, vice president of strategic partnerships and local content at the Saudi Water Authority. Alshaikh said the investment supports technology localisation, national capability development and a more resilient domestic supply chain. PX technology for energy-efficient desalination. Energy Recovery's PX Pressure Exchanger technology is used in seawater reverse osmosis desalination to recover energy from high-pressure reject brine and transfer it back into the desalination process. The company says its pressure exchanger technology can reduce energy consumption in seawater reverse osmosis desalination by up to 60%. Energy Recovery said its energy recovery devices are currently helping produce 43.6 million cubic metres of clean water per day globally, equivalent to roughly 17,000 Olympic-sized swimming pools. "This lease signing reflects Energy Recovery's long-term commitment to the Kingdom of Saudi Arabia and to the customers we serve here and across the broader region," said Imad Al-Sharif, vice president, sales and general manager of Energy Recovery Company. "Manufacturing our proprietary PX technology closer to the world's largest desalination market allows us to support Saudi Arabia's water security and Vision 2030 goals more directly and to build lasting in-Kingdom expertise." More information about Energy Recovery's desalination technologies is available on the company's desalination page. FAQs. Where will Energy Recovery's new manufacturing facility be located? The facility will be located near Dammam Second Industrial City in Dammam, Saudi Arabia. When is the new facility expected to open? Energy Recovery expects the facility to become operational in 2027. What will the facility manufacture? The site will carry out key stages of PX Pressure Exchanger manufacturing, including machining, assembly and testing. Why is the facility important? It brings production closer to major desalination customers in Saudi Arabia and the wider MENA region, while supporting local manufacturing expertise and water security goals.