Companies

Energy Recovery's Megaproject Sales Collapse After Iran War

The Tip Desk · August 5, 2026 · 3 min read

Second-quarter revenue fell 57% to $12.0 million as megaproject sales dropped 82% and the company posted a $3.2 million net loss.

Energy Recovery, Inc. (ERII), a designer of pressure-exchanger equipment for desalination and other industrial plants, reported second-quarter revenue of $12.0 million, down 57% from $28.1 million a year earlier, after a 20% year-over-year increase to $9.7 million in the first quarter.

The company said the operating loss was due primarily to lower revenue from the war in Iran. Megaproject channel sales collapsed to $2.7 million from $14.8 million a year earlier. Original-equipment-manufacturer revenue fell 38% to $5.2 million and aftermarket revenue fell 16% to $4.1 million.

Desalination, the core end market, generated $11.5 million of revenue versus $25.5 million a year earlier. Wastewater revenue was $0.5 million versus $2.3 million. Desalination posted $2.8 million of operating income, down from $11.9 million. Wastewater’s operating loss widened to $2.1 million from $0.2 million.

Gross margin expanded to 74.7% from 64.0% a year earlier, up 1,070 basis points, after collapsing to 27.8% in the first quarter from 55.3% a year earlier. The company attributed the second-quarter margin lift primarily to indirect manufacturing costs and channel mix, partially offset by lower volume.

The company swung to a $5.9 million operating loss, or a 49.0% operating margin, from $1.5 million of operating income a year earlier, following a $14.9 million operating loss in the first quarter. Net results flipped to a $3.2 million loss, or $0.06 a share, from $2.1 million of net income, or $0.04 a share, a year earlier. Adjusted EBITDA turned to a $2.6 million loss from $4.4 million of adjusted EBITDA.

Operating expenses declined 10.0% to $14.8 million from $16.5 million a year earlier, after a 3.2% increase to $17.6 million in the first quarter. The company said the decline was due primarily to lower employee compensation, including stock-based compensation, and lower consulting costs, partially offset by restructuring charges incurred in the second quarter. Restructuring charges of $0.9 million appeared in second-quarter operating expenses versus none a year earlier.

Cash and investments were $98.1 million at June 30, 2026, up from $92.1 million at March 31. Free cash flow was $15.4 million versus $4.0 million a year earlier. Accounts receivable and contract assets were $14.2 million at June 30, down from $78.3 million at year-end 2025. Inventories were $38.2 million.

In the first-quarter release, the company said President and Chief Executive Officer David Moon had notified the board of his intention to retire after a successor is appointed, and that Mike Mancini had resigned as chief financial officer, with Aidan Ryan named interim chief financial officer. The board had authorized a $25.0 million share-repurchase plan.

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