Re:	Energy Recovery, Inc.

Question:	Please clarify how you determined it is appropriate to use the cost to cost method to recognize revenue and how you have the ability to reasonably measure your progress toward full commercial launch. As part of your response, tell us how you considered ASC 606-10-25-37.

Response:	The Company determined that it is appropriate to use the cost to cost (“CTC”) method to recognize revenue as follows:

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Response:	The ability of the Company to reasonably measure progress toward full commercial launch is documented as follows:

1)

Experience Commercializing Technologies. The Company has many years of experience bringing new technologies to market, as well as managing and delivering large scale projects over extended periods of time. The Company was founded on its invention of its Pressure Exchanger (“PX”) technology in the 2000s in the water desalination market, which, as of 2018, has now grown to annual sales of over $50 million. The Company has since successfully commercialized and sold new technologies in the oil and gas market called the IsoBoost and IsoGen, and regularly deliver standard as well as highly customized products in support of large-scale projects globally. In short, the Company has deep experience in tracking and delivering projects on time, and within budget.

2)

Experienced Team. The Company’s strong engineering talent is comprised of 9 engineers that have a PhD and 14 engineers that hold a master’s degree, many of whom have commercialized new technologies both at the Company, as well as at other companies throughout their careers. Therefore, the Company has a strong technical know-how in determining all the various technological milestones that need to be met, what resource allocation is needed, and what time frames to target on the path to commercialization. The Company’s engineering Project Managers and Executives are responsible for defining project processes and time estimates, developing cost estimates by process and working with Finance to prepare a forecast based on various key assumptions, such as resource allocation, performance timing, and project transition.

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3)

Underlying Technology. Though this specific project applies the Company’s technology to a new product in a new market, the core underlying technology is a direct derivative of the PX where the Company has immense experience in estimating project costs, planning and execution to a successfully commercialized product. The Company’s team is leveraging existing know-how and intellectual property in a new application. Because of the team’s deep knowledge of the PX, the Company has deeper insights into the efforts and costs that are involved in launching the technology into new applications in the oil and gas market.

4)

Systems. The Company utilizes a structured approach to its R&D, which includes a robust and detailed technical readiness program that maps out each stage of each component of a new technology. Leveraging sophisticated project management tools, the Company’s Enterprise Resource System, financial modeling, and resource planning, the Company can determine, with a level of certainty, the estimated cost of the project that are tied to the Engineering and Operations resources working towards satisfying performance obligations over time. All input measure assumptions and actual results are reviewed by the Company on a quarterly basis by the Project Managers, Engineers, Executives, Finance, and Accounting, including the Chief Financial Officer, VP of Finance, Corporate Controller, VP of Operations, VP of Oil and Gas Business Unit, and VP of Engineering to ensure accuracy in forecast and actuals.

5)

The Costs. The actual costs of salaries and wages and travel expenses for employees assigned specifically toward satisfying this performance obligation are tracked by the Company’s monthly time allocation. This monthly time allocation as well as actual costs incurred are reviewed in detail quarterly by the Executive Team, Project Managers and Engineers. These costs, which directly provide value toward commercializing the product, are easily known, trackable, and remain fairly stable over time. The Company have very accurate knowledge as to what engineering and technical resources are needed to commercialize this technology, and the number of individuals, and therefore forecast variables, are finite and known. Thus, the simplicity of tracking costs directly related to the fixed pool of labor provides a clear and concise universe of costs for the team to track and forecast.

cc:	William Yeung, General Counsel