Energy Recovery's first quarter saw a significant shortfall versus Wall Street’s expectations, with the market reacting negatively to the results. Management attributed the quarter’s underperformance to a combination of delayed project revenue recognition and intensified tariff impacts, particularly affecting its desalination business. CEO David Moon acknowledged ongoing challenges, referencing “a lot of change in the past few quarters,” and emphasized that the team is actively working to offset tariff headwinds and stabilize operations. CFO Mike Mancini clarified that the missed revenue from a specific megaproject, amounting to roughly $2 million, was not the primary driver of the miss, as broader market and operational challenges persisted.
Is now the time to buy ERII? Find out in our full research report (it’s free).
Energy Recovery (ERII) Q1 CY2025 Highlights:
- Revenue: $8.07 million vs analyst estimates of $21.97 million (33.3% year-on-year decline, 63.3% miss)
- Adjusted EPS: -$0.14 vs analyst estimates of $0 (significant miss)
- Adjusted EBITDA: -$8.7 million vs analyst estimates of -$2.09 million (-108% margin, significant miss)
- Operating Margin: -149%, down from -90.4% in the same quarter last year
- Market Capitalization: $723.2 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 Energy Recovery’s Q1 Earnings Call
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Ryan Pfingst (B. Riley) asked about the outlook for the desalination market and specific geographies of strength. CEO David Moon emphasized ongoing strength in the Middle East and North Africa, with a “very bullish” view despite macroeconomic uncertainties.
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Ryan Pfingst (B. Riley) inquired about the delayed megaproject order’s revenue impact. CFO Mike Mancini clarified the order was around $2 million and not a major factor in the quarter’s results.
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Ryan Pfingst (B. Riley) questioned the company’s manufacturing strategy to navigate tariffs. Moon indicated a preference for wholly owned facilities, but said short-term partnerships to avoid tariffs remain under consideration.
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Jeffrey Campbell (Seaport Research) asked how quality would be ensured if manufacturing moves outside the U.S. Mancini explained that ceramic production, which is critical for quality, would remain in-house, while assembly and non-ceramic components could be relocated.
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Jeffrey Campbell (Seaport Research) sought clarity on upside potential from the Hillphoenix partnership. Moon noted that success in retail refrigeration could open opportunities in industrial applications, expanding the customer relationship.
Catalysts in Upcoming Quarters
Looking ahead, the StockStory team will watch (1) the pace at which Energy Recovery executes on tariff mitigation strategies and manufacturing relocation, (2) the progression of pilot projects and commercial agreements with OEMs in the CO2 refrigeration segment, and (3) traction in new markets such as India and the U.S. in both desalination and wastewater. Effective cost management and ability to diversify the sales pipeline will also be critical indicators of near-term and long-term success.
Energy Recovery currently trades at $13.27, down from $15.04 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).
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