erii-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to __________

Commission File Number: 001-34112

Energy Recovery, Inc.

(Exact Name of Registrant as Specified in its Charter)


	Delaware		01-0616867
	(State or Other Jurisdiction of Incorporation)		(I.R.S. Employer Identification No.)

1717 Doolittle Drive, San Leandro, California 94577

(Address of Principal Executive Offices) (Zip Code)

(510) 483-7370

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	ERII	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934

during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing

requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of

Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such

files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an

emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in

Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑Accelerated filer ☐Non-accelerated filer ☐Smaller reporting company ☐Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or

revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☑

As of October 24, 2024, there were 57,893,899 shares of the registrant’s common stock outstanding.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | FLS 1

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Forward-Looking Information

This Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2024, including Part I, Item 2,

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” (the “MD&A”), contains forward-looking

statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this

report include, but are not limited to, statements about our expectations, objectives, anticipations, plans, hopes, beliefs, intentions or

strategies regarding the future.

Forward-looking statements represent our current expectations about future events, are based on assumptions, and involve risks and

uncertainties. If the risks or uncertainties occur or the assumptions prove incorrect, then our results may differ materially from those set forth

or implied by the forward-looking statements. Our forward-looking statements are not guarantees of future performance or events.

Words such as “expects,” “anticipates,” “aims,” “projects,” “intends,” “plans,” “believes,” “estimates,” “seeks,” “continue,” “could,”

“may,” “potential,” “should,” “will,” “would,” variations of such words and similar expressions are also intended to identify such forward-looking

statements. These forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict; therefore,

actual results may differ materially and adversely from those expressed in any forward-looking statement. Readers are directed to risks and

uncertainties identified under Part II, Item 1A, “Risk Factors,” and elsewhere in this report for factors that may cause actual results to be

different from those expressed in these forward-looking statements. Except as required by law, we undertake no obligation to revise or

update publicly any forward-looking statement for any reason.

Forward-looking statements in this report include, without limitation, statements about the following:

•our belief that our PX offers market-leading value with the highest technological and economic benefit;

•our belief that leveraging our pressure exchanger technology will unlock new commercial opportunities in the future;

•our belief that our PX G1300™ can contribute to help make CO2-based refrigeration economically viable in a broader range of

climates;

•our belief that our technology helps our customer achieve environmentally sustainable operations;

•our expectation that sales outside of the U.S. will remain a significant portion of our revenue;

•the scale of the environmental impact from the use of our solutions;

•our belief that our sustainability goals are highly influential to our business success;

•the timing of our receipt of payment for products or services from our customers;

•our belief that our existing cash and cash equivalents, our short and/or long-term investments, and the ongoing cash generated

from our operations, will be sufficient to meet our anticipated liquidity needs for the foreseeable future, with the exception of a

decision to enter into an acquisition and/or fund investments in our latest technology arising from rapid market adoption that

could require us to seek additional equity or debt financing;

•our expectations relating to the amount and timing of recognized revenue from our projects;

•our expectations relating to expenses;

•our expectation that we will continue to receive a tax benefit related to U.S. federal foreign-derived intangible income and

research and development tax credit;

•the outcome of proceedings, lawsuits, disputes and claims;

•the impact of losses due to indemnification obligations;

•other factors disclosed under the MD&A and Part I, Item 3, “Quantitative and Qualitative Disclosures about Market Risk,” and

elsewhere in this Form 10-Q.

You should not place undue reliance on these forward-looking statements. These forward-looking statements reflect management’s

opinions only as of the date of the filing of this Quarterly Report on Form 10-Q. All forward-looking statements included in this document are

subject to additional risks and uncertainties further discussed under Part II, Item 1A, “Risk Factors,” and are based on information available to

us as of October 30, 2024. We assume no obligation to update any such forward-looking statements. Certain risks and uncertainties could

cause actual results to differ materially from those projected in the forward-looking statements. These forward-looking statements are

disclosed from time to time in our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q and Current Reports on Form 8‑K filed

with, or furnished to, the Securities and Exchange Commission (the “SEC”), as well as in Part II, Item 1A, “Risk Factors,” within this Quarterly

Report on Form 10-Q.

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It is important to note that our actual results could differ materially from the results set forth or implied by our forward-looking

statements. The factors that could cause our actual results to differ from those included in such forward-looking statements are set forth

under the heading Item 1A, “Risk Factors,” in our Quarterly Reports on Form 10-Q, in our Annual Reports on Form 10-K, and from time-to-

time, in our results disclosed in our Current Reports on Form 8-K. In addition, when preparing the MD&A below, we presume the readers

have access to and have read the MD&A in our Annual Report on Form 10-K, pursuant to Instruction 2 to paragraph (b) of Item 303 of

Regulation S-K.

We provide our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, Proxy Statements on

Schedule 14A, Forms 3, 4 and 5 filed by, or on behalf of, directors, executive officers and certain large shareholders, and any amendments to

those documents filed or furnished pursuant to the Securities Exchange Act of 1934, free of charge on the Investor Relations section of our

website, www.energyrecovery.com. These filings will become available as soon as reasonably practicable after such material is

electronically filed with or furnished to the SEC. From time to time, we may use our website as a channel of distribution of material company

information.

We also make available in the Investor Relations section of our website our corporate governance documents including our code of

business conduct and ethics and the charters of the audit, compensation and nominating and governance committees. These documents, as

well as the information on the website, are not intended to be part of this Quarterly Report on Form 10-Q. We use the Investor Relations

section of our website as a means of complying with our disclosure obligations under Regulation FD. Accordingly, you should monitor the

Investor Relations section of our website in addition to following our press releases, SEC filings and public conference calls and webcasts.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 1

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PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements (unaudited)

ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2024	December 31, 2023
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$63,261	$68,098
Short-term investments	55,364	40,445
Accounts receivable, net	31,845	46,937
Inventories, net	33,464	26,149
Prepaid expenses and other assets	5,980	3,843
Total current assets	189,914	185,472
Long-term investments	21,286	13,832
Deferred tax assets, net	11,029	10,324
Property and equipment, net	16,352	18,699
Operating lease, right of use asset	10,152	11,469
Goodwill	12,790	12,790
Other assets, non-current	1,182	388
Total assets	$262,705	$252,974
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$3,414	$3,000
Accrued expenses and other liabilities	10,524	15,583
Lease liabilities	1,964	1,791
Contract liabilities	2,969	1,097
Total current liabilities	18,871	21,471
Lease liabilities, non-current	9,861	11,488
Other liabilities, non-current	100	207
Total liabilities	28,832	33,166
Commitments and contingencies (Note 7)
Stockholders’ equity:
Common stock	66	65
Additional paid-in capital	231,909	217,617
Accumulated other comprehensive income (loss)	149	(44)
Treasury stock	(80,486)	(80,486)
Retained earnings	82,235	82,656
Total stockholders’ equity	233,873	219,808
Total liabilities and stockholders’ equity	$262,705	$252,974

See Accompanying Notes to Condensed Consolidated Financial Statements

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ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
	(In thousands, except per share data)
Revenue	$38,584	$37,036	$77,873	$71,160
Cost of revenue	13,472	11,154	28,060	23,580
Gross profit	25,112	25,882	49,813	47,580

Operating expenses:
General and administrative	7,673	7,369	24,771	21,704
Sales and marketing	6,413	5,411	18,669	15,397
Research and development	3,969	3,969	12,264	12,043
Total operating expenses	18,055	16,749	55,704	49,144
Income (loss) from operations	7,057	9,133	(5,891)	(1,564)

Other income (expense):
Interest income	1,711	1,083	4,816	2,486
Other non-operating income (expense), net	57	(38)	(45)	(129)
Total other income, net	1,768	1,045	4,771	2,357
Income (loss) before income taxes	8,825	10,178	(1,120)	793
Provision for (benefit from) income taxes	344	518	(699)	(906)
Net income (loss)	$8,481	$9,660	$(421)	$1,699

Net income (loss) per share:
Basic	$ 0.15	$ 0.17	$ (0.01)	$ 0.03
Diluted	$ 0.15	$ 0.17	$ (0.01)	$ 0.03

Number of shares used in per share calculations:
Basic	57,756	56,443	57,409	56,346
Diluted	58,290	57,969	57,409	57,761

See Accompanying Notes to Condensed Consolidated Financial Statements

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ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
	(In thousands, except shares)
Common stock
Beginning balance	$66	$65	$65	$64
Issuance of common stock, net	—	—	1	1
Ending balance	66	65	66	65

Additional paid-in capital
Beginning balance	225,240	209,139	217,617	204,957
Issuance of common stock, net	4,293	805	5,794	1,183
Stock-based compensation	2,376	1,838	8,498	5,642
Ending balance	231,909	211,782	231,909	211,782

Accumulated other comprehensive income (loss)
Beginning balance	(61)	(127)	(44)	(349)
Other comprehensive income (loss)
Foreign currency translation adjustments	(94)	(2)	(57)	95
Unrealized gain (loss) on investments	304	(54)	250	71
Total other comprehensive income (loss), net	210	(56)	193	166
Ending balance	149	(183)	149	(183)

Treasury stock
Beginning and ending balance	(80,486)	(80,486)	(80,486)	(80,486)

Retained earnings
Beginning balance	73,754	53,191	82,656	61,152
Net (loss) income	8,481	9,660	(421)	1,699
Ending balance	82,235	62,851	82,235	62,851

Total stockholders’ equity	$233,873	$194,029	$233,873	$194,029

Common stock issued (shares)
Beginning balance	65,571,275	64,553,969	65,029,459	64,225,391
Issuance of common stock, net	459,312	99,091	1,001,128	427,669
Ending balance	66,030,587	64,653,060	66,030,587	64,653,060

Treasury stock (shares)
Beginning and ending balance	8,148,512	8,148,512	8,148,512	8,148,512

Total common stock outstanding (shares)	57,882,075	56,504,548	57,882,075	56,504,548

See Accompanying Notes to Condensed Consolidated Financial Statements

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ENERGY RECOVERY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
	2024	2023
(In thousands)
Cash flows from operating activities:
Net (loss) income	$(421)	$1,699
Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities
Stock-based compensation	8,512	5,811
Depreciation and amortization	3,050	3,075
Right of use asset amortization	1,317	1,223
Accretion (amortization) of discounts (premiums) on investments	(1,049)	(613)
Deferred income taxes	(705)	(920)
Other non-cash adjustments	307	241
Changes in operating assets and liabilities:
Accounts receivable, net	15,060	10,756
Contract assets	(882)	1,720
Inventories, net	(7,686)	(5,745)
Prepaid and other assets	(2,159)	(1,292)
Accounts payable	879	1,043
Accrued expenses and other liabilities	(6,467)	(4,966)
Contract liabilities	1,811	240
Net cash provided by operating activities	11,567	12,272

Cash flows from investing activities:
Sales of marketable securities	—	2,966
Maturities of marketable securities	59,423	58,705
Purchases of marketable securities	(80,490)	(78,949)
Capital expenditures	(1,194)	(1,179)
Proceeds from sales of fixed assets	90	82
Net cash used in investing activities	(22,171)	(18,375)

Cash flows from financing activities:
Net proceeds from issuance of common stock	5,795	1,184
Net cash provided by financing activities	5,795	1,184

Effect of exchange rate differences on cash and cash equivalents	(23)	27
Net change in cash, cash equivalents and restricted cash	(4,832)	(4,892)
Cash, cash equivalents and restricted cash, beginning of year	68,225	56,458
Cash, cash equivalents and restricted cash, end of period	$63,393	$51,566

See Accompanying Notes to Condensed Consolidated Financial Statements

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ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Description of Business and Significant Accounting Policies

Energy Recovery, Inc. and its wholly-owned subsidiaries (the “Company” or “Energy Recovery”) designs and manufactures reliable,

high-performance solutions that provide cost savings through improved energy efficiency in commercial and industrial processes, with

applications across several industries. Leveraging the Company’s pressure exchanger technology, which generates little to no emissions

when operating, the Company believes its solutions lower costs, save energy, reduce waste, and minimize emissions for companies across a

variety of commercial and industrial processes. As the world coalesces around the urgent need to address climate change and its impacts,

the Company is helping companies reduce their energy consumption in their industrial processes, which in turn, reduces their carbon

footprint. The Company believes that its customers do not have to sacrifice quality and cost savings for sustainability and the Company is

committed to developing solutions that drive long-term value – both financial and environmental. The Company’s solutions are marketed,

sold in, and developed for, the fluid-flow and gas markets, such as seawater and wastewater desalination, natural gas, chemical processing

and CO2-based refrigeration systems, under the trademarks ERI®, PX®, Pressure Exchanger®, PX® Pressure Exchanger® (“PX”), Ultra PX™,

PX G™, PX G1300™, PX PowerTrain™, AT™, and Aquabold™. The Company owns, manufactures and/or develops its solutions, in whole or in

part, in the United States of America (the “U.S.”).

Basis of Presentation

The Condensed Consolidated Financial Statements include the accounts of Energy Recovery, Inc. and its wholly-owned subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the

Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the financial statements

prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules

and regulations. The December 31, 2023 Condensed Consolidated Balance Sheet was derived from audited financial statements and may

not include all disclosures required by GAAP; however, the Company believes that the disclosures are adequate to make the information

presented not misleading.

The September 30, 2024 unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited

Consolidated Financial Statements and the notes thereto for the fiscal year ended December 31, 2023 included in the Company’s Annual

Report on Form 10-K filed with the SEC on February 21, 2024 (the “2023 Annual Report”).

The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any

future periods.

Reclassifications

Certain prior period amounts have been reclassified in certain notes to the Condensed Consolidated Financial Statements to conform

to the current period presentation.

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ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Use of Estimates

The preparation of Condensed Consolidated Financial Statements, in conformity with GAAP, requires the Company’s management to

make judgments, assumptions and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and

accompanying notes.

The accounting policies that reflect the Company’s significant estimates and judgments and that the Company believes are the most

critical to aid in fully understanding and evaluating its reported financial results are revenue recognition; granted equity award valuations;

equipment useful life and valuation; goodwill valuation and impairment; deferred taxes and valuation allowances on deferred tax assets; and

evaluation and measurement of contingencies. Those estimates could change, and as a result, actual results could differ materially from

those estimates.

The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a

revision of the carrying value of its assets or liabilities as of October 30, 2024, the date of issuance of this Quarterly Report on Form 10-Q.

These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these

estimates under different assumptions or conditions. The Company undertakes no obligation to publicly update these estimates for any

reason after the date of this Quarterly Report on Form 10-Q, except as required by law.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies in Note 1, “Description of Business and

Significant Accounting Policies - Significant Accounting Policies,” of the Notes to Consolidated Financial Statements included in Item 8,

“Financial Statements and Supplementary Data,” of the 2023 Annual Report.

Recently Issued Accounting Pronouncement Not Yet Adopted

There have been no issued accounting pronouncements that have not yet been adopted during the nine months ended

September 30, 2024 that apply to the Company other than the pronouncements disclosed in Note 1, “Description of Business and Significant

Accounting Policies - Recently Issued Accounting Pronouncement Not Yet Adopted,” of the Notes to Consolidated Financial Statements

included in Item 8, “Financial Statements and Supplementary Data,” of the 2023 Annual Report.

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ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 — Revenue

Disaggregation of Revenue

The following tables present the disaggregated revenues by segment, and within each segment, by geographical market based on the

customer “shipped to” address, and by channel customers. Sales and usage-based taxes are excluded from revenues. See Note 9,

“Segment Reporting,” for further discussion related to the Company’s segments.


	Three Months Ended September 30, 2024			Nine Months Ended September 30, 2024
	Water	Emerging Technologies	Total	Water	Emerging Technologies	Total
	(In thousands)
Geographical market
Middle East and Africa	$28,043	$153	$28,196	$47,295	$399	$47,694
Asia	6,829	—	6,829	16,770	36	16,806
Americas	1,051	—	1,051	6,957	—	6,957
Europe	2,421	87	2,508	6,329	87	6,416
Total revenue	$38,344	$240	$38,584	$77,351	$522	$77,873

Channel
Megaproject	$29,009	$—	$29,009	$48,924	$—	$48,924
Original equipment manufacturer	4,832	87	4,919	15,087	123	15,210
Aftermarket	4,503	153	4,656	13,340	399	13,739
Total revenue	$38,344	$240	$38,584	$77,351	$522	$77,873


	Three Months Ended September 30, 2023			Nine Months Ended September 30, 2023
	Water	Emerging Technologies	Total	Water	Emerging Technologies	Total
	(In thousands)
Geographical market
Middle East and Africa	$24,543	$—	$24,543	$38,272	$108	$38,380
Asia	5,688	—	5,688	19,180	—	19,180
Americas	5,091	123	5,214	9,628	153	9,781
Europe	1,490	101	1,591	3,542	277	3,819
Total revenue	$36,812	$224	$37,036	$70,622	$538	$71,160

Channel
Megaproject	$26,829	$—	$26,829	$42,283	$—	$42,283
Original equipment manufacturer	5,083	224	5,307	16,415	430	16,845
Aftermarket	4,900	—	4,900	11,924	108	12,032
Total revenue	$36,812	$224	$37,036	$70,622	$538	$71,160

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ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Contract Balances

The following table presents contract balances by category.


	September 30, 2024	December 31, 2023
	(In thousands)
Accounts receivable, net	$31,845	$46,937
Contract assets:
Contract assets, current (included in prepaid expenses and other assets)	$685	$592
Contract assets, non-current (included in other assets, non-current)	789	—
Total contract assets	$1,474	$592

Contract liabilities:
Contract liabilities, current	$2,969	$1,097
Contract liabilities, non-current (included in other liabilities, non-current)	29	90
Total contract liabilities	$2,998	$1,187

Contract Liabilities

The Company records contract liabilities, which consist of customer deposits and deferred revenue, when cash payments are

received in advance of the Company’s performance. The following table presents changes in contract liabilities during the period.


	September 30, 2024	December 31, 2023
(In thousands)
Contract liabilities, beginning of year	$1,187	$1,316
Revenue recognized	(1,063)	(1,254)
Cash received, excluding amounts recognized as revenue during the period	2,874	1,125
Contract liabilities, end of period	$2,998	$1,187

Remaining Performance Obligations

As of September 30, 2024, the following table presents the revenue that is expected to be recognized related to performance

obligations that are unsatisfied or partially unsatisfied.


Period		Remaining Performance Obligations
		(In thousands)
2024 (remaining three months)		$198
2025		6,957
2026		3,419
Total		$10,574

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ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3 — Net Income (Loss) Per Share

Net income (loss) for the reported period is divided by the weighted average number of basic and diluted common shares outstanding

during the reported period to calculate the basic and diluted net income (loss) per share, respectively. Outstanding stock options to purchase

common shares and unvested restricted stock units (“RSUs”) are collectively referred to as “equity awards.”

•Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the

period.

•Diluted net income (loss) per share is computed using the weighted average number of common and potentially dilutive shares

outstanding during the period, using the treasury stock method. Any anti-dilutive effect of equity awards outstanding is not

included in the computation of diluted net income (loss) per share.

The following tables present the computation of basic and diluted net income (loss) per share.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
	(In thousands, except per share amounts)
Numerator
Net income (loss)	$8,481	$9,660	$(421)	$1,699

Denominator (weighted average shares)
Basic common shares outstanding	57,756	56,443	57,409	56,346
Options	316	1,236	—	1,155
RSUs	218	290	—	260
Diluted common shares outstanding	58,290	57,969	57,409	57,761

Net income (loss) per share
Basic	$ 0.15	$ 0.17	$ (0.01)	$ 0.03
Diluted	$ 0.15	$ 0.17	$ (0.01)	$ 0.03

The following tables present the equity awards that are excluded from diluted net income (loss) per share because their effect would

have been anti-dilutive.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
	(In thousands)
Anti-dilutive equity award shares	1,077	125	2,876	126

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ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4 — Other Financial Information

Cash, Cash Equivalents and Restricted Cash

The Condensed Consolidated Statements of Cash Flows explain the changes in the total of cash, cash equivalents and restricted

cash, such as cash amounts deposited in restricted cash accounts in connection with the Company’s credit cards. The following table

presents a reconciliation of cash, cash equivalents and restricted cash, reported for each period within the Condensed Consolidated Balance

Sheets and the Condensed Consolidated Statements of Cash Flows that sum to the total of such amounts.


	September 30, 2024	December 31, 2023	September 30, 2023
	(In thousands)
Cash and cash equivalents	$63,261	$68,098	$51,440
Restricted cash, non-current (included in other assets, non-current)	132	127	126
Total cash, cash equivalents and restricted cash	$63,393	$68,225	$51,566

Accounts Receivable, net


	September 30, 2024	December 31, 2023
	(In thousands)
Accounts receivable, gross	$32,015	$47,075
Allowance for doubtful accounts	(170)	(138)
Accounts receivable, net	$31,845	$46,937

Inventories, net

Inventory amounts are stated at the lower of cost or net realizable value, using the first-in, first-out method.


	September 30, 2024	December 31, 2023
	(In thousands)
Raw materials	$8,731	$8,752
Work in process	6,929	5,234
Finished goods	18,990	13,319
Inventories, gross	34,650	27,305
Valuation adjustments for excess and obsolete inventory	(1,186)	(1,156)
Inventories, net	$33,464	$26,149

Goodwill

Goodwill is tested for impairment annually in the third quarter of the Company’s fiscal year or more frequently if indicators of potential

impairment exist. The Company monitors the industries in which it operates and reviews its business performance for indicators of potential

impairment. The recoverability of goodwill is measured at the reporting unit level, which represents the operating segment. The carrying

amount of goodwill as of September 30, 2024 and December 31, 2023 was $12.8 million.

On July 1, 2024, the Company estimated the fair value of its reporting units using the discounted cash flow approach and market

approach. The forecast of future cash flows, which is based on the Company’s best estimate of future net sales and operating expenses, is

based primarily on expected category expansion, pricing, market segment, and general economic conditions. The Company incorporates

other significant inputs to its fair value calculations, including discount rate and market multiples, to reflect current market conditions. As a

result, the analysis performed indicated that the fair value of each reporting unit, that is allocated goodwill, significantly exceeds its carrying

value, and therefore, no impairment charges were recorded.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 13

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ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 5 — Investments and Fair Value Measurements

Fair Value of Financial Instruments

The following table presents the Company’s financial assets measured on a recurring basis by contractual maturity, including pricing

category, amortized cost, gross unrealized gains and losses, and fair value. As of the dates reported in the table, the Company had no

financial liabilities and no Level 3 financial assets.


		September 30, 2024				December 31, 2023
	Pricing Category	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
		(In thousands)
Cash equivalents
Money market securities	Level 1	$13,653	$—	$—	$13,653	$18,767	$—	$—	$18,767
U.S. treasury securities	Level 2	11,449	2	—	11,451	—	—	—	—
Total cash equivalents		25,102	2	—	25,104	18,767	—	—	18,767

Short-term investments
U.S. treasury securities	Level 2	17,233	78	—	17,311	4,900	1	(1)	4,900
Corporate notes and bonds	Level 2	32,408	65	(2)	32,471	25,674	11	(18)	25,667
Municipal and agency notes and bonds	Level 2	5,584	—	(2)	5,582	9,887	—	(9)	9,878
Total short-term investments		55,225	143	(4)	55,364	40,461	12	(28)	40,445

Long-term investments
Corporate notes and bonds	Level 2	18,307	179	—	18,486	9,229	28	(3)	9,254
Municipal and agency notes and bonds	Level 2	2,798	2	—	2,800	4,585	—	(7)	4,578
Total long-term investments		21,105	181	—	21,286	13,814	28	(10)	13,832
Total short and long-term investments		76,330	324	(4)	76,650	54,275	40	(38)	54,277
Total		$101,432	$326	$(4)	$101,754	$73,042	$40	$(38)	$73,044

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 14

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ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents a summary of the fair value and gross unrealized losses on the available-for-sale securities that have

been in a continuous unrealized loss position, aggregated by type of investment instrument. The available-for-sale securities that were in an

unrealized gain position have been excluded from the table.


	September 30, 2024		December 31, 2023
	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses
	(In thousands)
U.S. treasury securities	$—	$—	$2,931	$(1)
Corporate notes and bonds	2,492	(2)	15,276	(21)
Municipal and agency notes and bonds	5,582	(2)	12,956	(16)
Total available-for-sale investments with unrealized loss positions	$8,074	$(4)	$31,163	$(38)

Sales of Available-for-Sale Investments

The following table presents the sales of available-for-sale investments.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
	(In thousands)
Corporate notes and bonds	$—	$—	$—	$2,966

Realized losses on sales of securities were immaterial during the three and nine months ended September 30, 2024 and 2023.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 15

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ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 6 — Lines of Credit

Credit Agreement

The Company entered into a credit agreement with JPMorgan Chase Bank, N.A. (“JPMC”) on December 22, 2021 (as amended, the

“Credit Agreement”). The Credit Agreement, which will expire on December 21, 2026, provides a committed revolving credit line of

$50.0 million and includes both a revolving loan and a letters of credit (“LCs”) component.

Under the Credit Agreement, as of September 30, 2024, there were no revolving loans outstanding. In addition, under the LCs

component, the Company utilized $18.4 million of the maximum allowable credit line of $30.0 million, which includes newly issued LCs, and

previously issued and unexpired stand-by letters of credit (“SBLCs”) and certain non-expired commitments under the Company’s previous

Loan and Pledge Agreement with Citibank, N.A. which are guaranteed under the Credit Agreement.

Letters of Credit

The following table presents the total outstanding LCs and SBLCs issued by the Company to its customers related to product

warranty and performance guarantees.


	September 30, 2024	December 31, 2023
	(In thousands)
Outstanding letters of credit	$17,398	$19,945

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 16

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ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 7 — Commitments and Contingencies

Litigation

From time-to-time, the Company has been named in and subject to various proceedings and claims in connection with its business.

The Company may in the future become involved in litigation in the ordinary course of business, including litigation that could be material to

its business. The Company considers all claims, if any, on a quarterly basis and, based on known facts, assesses whether potential losses

are considered reasonably possible, probable and estimable. Based upon this assessment, the Company then evaluates disclosure

requirements and whether to accrue for such claims in its consolidated financial statements. The Company records a provision for a liability

when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are

reviewed at least quarterly and are adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other

information and events pertaining to a particular case. As of September 30, 2024, the Company was not involved in any lawsuits, legal

proceedings or claims that would have a material effect on the Company’s financial position, results of operations, or cash flows. Therefore,

there were no material losses which were probable or reasonably possible.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 17

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ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8 — Income Taxes


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
	(In thousands, except percentages)
Provision for (benefit from) income taxes	$344	$518	$(699)	$(906)
Discrete items	426	357	566	986
Provision for (benefit from) income taxes, excluding discrete items	$770	$875	$(133)	$80
Effective tax rate	3.9%	5.1%	62.4%	(114.2%)
Effective tax rate, excluding discrete items	8.7%	8.6%	11.8%	10.0%

The Company’s interim period tax provision for (benefit from) income taxes is determined using an estimate of its annual effective tax

rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective

tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The

Company’s quarterly tax provision and estimate of its annual effective tax rate are subject to variation due to several factors, including

variability in accurately predicting its pre-tax income or loss and the mix of jurisdictions to which they relate, the applicability of special tax

regimes, and changes in how the Company does business.

For the three and nine months ended September 30, 2024, the recognized provision for and (benefit from) income taxes, respectively,

resulted from the tax projection based on the full year forecasted profit and included benefits related to the U.S. federal foreign-derived

intangible income (“FDII”), federal research and development (“R&D”) tax credit, certain permanent differences, such as share-based

compensation shortfalls, and partial release of California valuation allowance.

For the three and nine months ended September 30, 2023, the recognized provision for and (benefit from) income taxes, respectively,

included benefits related to the U.S. FDII and federal R&D tax credit, along with a discrete tax benefit due primarily to share-based

compensation windfalls and prior years’ discrete tax benefit largely related to increased tax credits.

The effective tax rate excluding discrete items for the nine months ended September 30, 2024, as compared to the prior year, differed

primarily due to lower projected R&D tax credits, increased non-deductible officer share-based compensation, and lower projected U.S. FDII

benefits.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 18

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ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9 — Segment Reporting

The Company’s Chief Operating Decision-Maker (“CODM”) is its President and Chief Executive Officer. The Company continues to

monitor and review its segment reporting structure in accordance with authoritative guidance to determine whether any changes have

occurred that would impact its reportable segments.

The following tables present a summary of the Company’s financial information by segment and corporate operating expenses.


	Three Months Ended September 30, 2024				Nine Months Ended September 30, 2024
	Water	Emerging Technologies	Corporate	Total	Water	Emerging Technologies	Corporate	Total
	(In thousands)
Revenue	$38,344	$240	$—	$38,584	$77,351	$522	$—	$77,873
Cost of revenue	13,334	138	—	13,472	27,633	427	—	28,060
Gross profit	25,010	102	—	25,112	49,718	95	—	49,813

Operating expenses
General and administrative	1,803	906	4,964	7,673	5,637	2,908	16,226	24,771
Sales and marketing	3,777	1,977	659	6,413	11,359	5,484	1,826	18,669
Research and development	1,145	2,824	—	3,969	3,318	8,946	—	12,264
Total operating expenses	6,725	5,707	5,623	18,055	20,314	17,338	18,052	55,704
Operating income (loss)	$18,285	$(5,605)	$(5,623)	$7,057	$29,404	$(17,243)	$(18,052)	$(5,891)


	Three Months Ended September 30, 2023				Nine Months Ended September 30, 2023
	Water	Emerging Technologies	Corporate	Total	Water	Emerging Technologies	Corporate	Total
	(In thousands)
Revenue	$36,812	$224	$—	$37,036	$70,622	$538	$—	$71,160
Cost of revenue	11,114	40	—	11,154	23,136	444	—	23,580
Gross profit	25,698	184	—	25,882	47,486	94	—	47,580

Operating expenses
General and administrative	2,039	1,061	4,269	7,369	5,837	2,976	12,891	21,704
Sales and marketing	3,272	1,560	579	5,411	9,567	4,171	1,659	15,397
Research and development	1,098	2,871	—	3,969	3,121	8,922	—	12,043
Total operating expenses	6,409	5,492	4,848	16,749	18,525	16,069	14,550	49,144
Operating income (loss)	$19,289	$(5,308)	$(4,848)	$9,133	$28,961	$(15,975)	$(14,550)	$(1,564)

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 19

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ENERGY RECOVERY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 10 — Concentrations

Customer Revenue Concentration

The following tables present the customers that account for 10% or more of the Company’s revenue and their related segment for

each of the periods presented. Although certain customers might account for greater than 10% of the Company’s revenue at any one point in

time, the concentration of revenue between a limited number of customers shifts regularly, depending on when revenue is recognized. The

percentages by customer reflect specific relationships or contracts that would concentrate revenue for the periods presented and do not

indicate a trend specific to any one customer.


		Three Months Ended September 30,		Nine Months Ended September 30,
	Segment	2024	2023	2024	2023
Customer A	Water	14%	20%	14%	16%
Customer B	Water	17%	15%	**	**
Customer C	Water	**	15%	**	**
Customer D	Water	11%	**	11%	**
Customer E	Water	10%	**	**	**
Customer F	Water	**	10%	**	**

**Zero or less than 10%.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 20

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of

Operations

Overview

Energy Recovery, Inc. (the “Company”, “Energy Recovery”, “we”, “our” and “us”) designs and manufactures solutions that make

industrial processes more efficient and sustainable. Leveraging our pressure exchanger technology, which generates little to no emissions

when operating, we believe our solutions lower costs, save energy, reduce waste, and minimize emissions for companies across a variety of

commercial and industrial processes. As the world coalesces around the urgent need to address climate change and its impacts, we are

helping companies reduce their energy consumption in their industrial processes, which in turn, reduces their carbon footprint. We believe

that our customers do not have to sacrifice quality and cost savings for sustainability and we are committed to developing solutions that drive

long-term value – both financial and environmental.

The original product application of our technology, the PX® Pressure Exchanger® (“PX”) energy recovery device, was a major

contributor to the advancement of seawater reverse osmosis desalination (“SWRO”), significantly lowering the energy intensity and cost of

water production globally from SWRO. Our pressure exchanger technology is being applied to the wastewater filtration market, such as

battery manufacturers, mining operations, municipalities, and other manufacturing plants that discharge wastewater with significant levels of

metals and pollutants, and has also been applied to the development of our PX G1300® for use in the CO2 market.

Engineering, and research and development (“R&D”), have been, and remain, an essential part of our history, culture and corporate

strategy. Since our formation, we have developed leading technology and engineering expertise through the continual evolution of our

pressure exchanger technology, which can enhance environmental sustainability and improve productivity by reducing waste and energy

consumption in high-pressure industrial fluid-flow systems. This versatile technology works as a platform to build product applications and is

at the heart of many of our products. In addition, we have engineered and developed ancillary devices, such as our hydraulic turbochargers

and circulation “booster” pumps, that complement our energy recovery devices.

Segments

Our reportable operating segments consist of the water and emerging technologies segments. These segments are based on the

industries in which the technology solutions are sold, the type of energy recovery device or other technology sold and the related solution and

service or, in the case of emerging technologies, where revenues from new and/or potential devices utilizing our pressure exchanger

technology can be brought to market. Other factors for determining the reportable operating segments include the manner in which our Chief

Operating Decision Maker (“CODM”), our President and Chief Executive Officer, evaluates our performance combined with the nature of the

individual business activities. In addition, our corporate operating expenses include expenditures in support of the water and emerging

technologies segments. We continue to monitor and review our segment reporting structure in accordance with authoritative guidance to

determine whether any changes have occurred that would impact our reportable segments.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 21

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Results of Operations

A discussion regarding our financial condition and results of operations for the three and nine months ended September 30, 2024,

compared to the three and nine months ended September 30, 2023, is presented below.

Revenue

Variability in revenue from quarter to quarter is typical, therefore year-on-year comparisons are not necessarily indicative of the trend

for the full year due to these variations. There is no specific seasonality in our revenues to highlight that occurs throughout a calendar year.

We generally track our revenues by channels. The channels we recognize and channel definitions we utilize are as follows:

•Megaproject (“MPD”) channel: The MPD channel has been the main driver of our long-term growth as revenue from this channel

benefits from a growing number of projects as well as an increase in the capacity of these projects in some cases. MPD projects

are large-scale in nature and generally have shipment timelines from 16 to 36 months from contract date. Recognition of

revenue is dependent on customers’ project timing and execution of these projects.

•Original Equipment Manufacturer (“OEM”) channel: The OEM channel reflects sales to a wide variety of industries in the

desalination, wastewater, and the refrigeration markets. This channel contains projects smaller in size and revenue, and of

shorter duration compared to those projects in the MPD channel.

•Aftermarket (“AM”) channel: The AM channel represents support and services rendered to our installed customer base. AM

revenue generally fluctuates from year-to-year and is dependent on our customers’ timing of product upgrades, as well as their

replenishment of spare parts and supplies.

Revenue by Channel Customers


	Three Months Ended September 30,
	2024		2023
	Revenue	% of Revenue	Revenue	% of Revenue	Change
	(In thousands, except percentages)
Megaproject	$29,009	75%	$26,829	73%	$2,180	8%
Original equipment manufacturer	4,919	13%	5,307	14%	(388)	(7%)
Aftermarket	4,656	12%	4,900	13%	(244)	(5%)
Total revenue	$38,584	100%	$37,036	100%	$1,548	4%


	Nine Months Ended September 30,
	2024		2023
	Revenue	% of Revenue	Revenue	% of Revenue	Change
	(In thousands, except percentages)
Megaproject	$48,924	63%	$42,283	59%	$6,641	16%
Original equipment manufacturer	15,210	19%	16,845	24%	(1,635)	(10%)
Aftermarket	13,739	18%	12,032	17%	1,707	14%
Total revenue	$77,873	100%	$71,160	100%	$6,713	9%

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 22

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Revenue Attributable to Primary Geographical Markets by Segments


	Three Months Ended September 30,
	2024			2023
	Water	Emerging Technologies	Total	Water	Emerging Technologies	Total
	(In thousands)
Middle East and Africa	$28,043	$153	$28,196	$24,543	$—	$24,543
Asia	6,829	—	6,829	5,688	—	5,688
Americas	1,051	—	1,051	5,091	123	5,214
Europe	2,421	87	2,508	1,490	101	1,591
Total revenue	$38,344	$240	$38,584	$36,812	$224	$37,036


	Nine Months Ended September 30,
	2024			2023
	Water	Emerging Technologies	Total	Water	Emerging Technologies	Total
	(In thousands)
Middle East and Africa	$47,295	$399	$47,694	$38,272	$108	$38,380
Asia	16,770	36	16,806	19,180	—	19,180
Americas	6,957	—	6,957	9,628	153	9,781
Europe	6,329	87	6,416	3,542	277	3,819
Total revenue	$77,351	$522	$77,873	$70,622	$538	$71,160

Three months ended September 30, 2024, as compared to the three months ended September 30, 2023

The increase in MPD revenue of $2.2 million was due primarily to:

•Desalination: The decrease in revenue of $0.6 million was due primarily to lower shipments of products to the Americas and

Middle East and Africa (“MEA”) markets, partially offset by higher shipments of products to the Asia and Europe markets.

•Wastewater: The increase in revenue of $2.8 million was due primarily to higher shipments of products to the MEA market.

The decrease in OEM revenue of $0.4 million was due primarily to:

•Desalination: The decrease in revenue of $0.6 million was due primarily to lower shipments of products to the Asia and Americas

markets, partially offset by higher shipments of products to the MEA and Europe markets.

•Wastewater: The increase in revenue of $0.3 million was due primarily to higher shipments of products to the Asia market,

partially offset by lower shipments of products to the Europe and Americas markets.

•Emerging Technology: The decrease in revenue of $0.1 million was due primarily to lower shipments of products.

The decrease in AM revenue of $0.2 million was due primarily to lower shipments of products to the Asia market, partially offset by

higher shipments of products to the Europe and MEA markets.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 23

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Nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023

The increase in MPD revenue of $6.6 million was due primarily to:

•Desalination: The increase in revenue of $3.8 million was due primarily to higher shipments of products to the MEA, Asia and

Europe markets, partially offset by lower shipments of products to the Americas market.

•Wastewater: The increase in revenue of $2.8 million was due primarily to higher shipments of products to the MEA market.

The decrease in OEM revenue of $1.6 million was primarily due to:

•Desalination: The decrease in revenue of $0.5 million was due primarily to lower shipments of products to the Asia and Americas

markets, partially offset by higher shipments of products to the MEA and Europe markets.

•Wastewater: The decrease in revenue of $0.9 million was due primarily to lower shipments of products in all markets, with the

largest decrease in the Europe market.

•Emerging Technology: The decrease in revenue of $0.3 million was due primarily to an installment in Europe and sales to a gas

producer in the Americas, both occurring in the prior year.

The increase in AM revenue of $1.7 million was due primarily to higher shipments of product to the Americas, Asia, and the MEA

markets, partially offset by lower shipments of product to the Asia market.

Concentration of Revenue

See Note 10, “Concentrations,” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Statements

(unaudited),” of this Quarterly Report on Form 10-Q (the “Notes”) for further discussion regarding our concentration of revenue.

Gross Profit and Gross Margin

Gross profit represents revenue less cost of revenue. Cost of revenue consists primarily of raw materials, personnel costs (including

share-based compensation), manufacturing overhead, warranty costs, and depreciation expense.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024	2023	Change		2024	2023	Change
	(In thousands, except percentage and basis point)
Gross profit	$25,112	$25,882	$(770)	(3.0)%	$49,813	$47,580	$2,233
Gross margin	65.1%	69.9%	(480) bps	(100.0)%	64.0%	66.9%	(290) bps

The decrease in gross profit for the three months ended September 30, 2024, as compared to the prior year, was due primarily to a

decrease in gross margin, partially offset by an increase in sales of PXs. The decrease in gross margin for the three months ended

September 30, 2024, as compared to the prior year, was due primarily to higher manufacturing costs, higher costs related to product mix, and

an increase in freight costs and indirect costs.

The increase in gross profit for the nine months ended September 30, 2024, as compared to the prior year, was due primarily to an

increase in sales of PXs, partially offset by a decrease in gross margin. The decrease in gross margin for the nine months ended

September 30, 2024, as compared to the prior year, was due primarily to higher manufacturing costs and freight costs, partially offset by

average selling prices related to product mix.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 24

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Operating Expenses

The total material changes of general and administrative (“G&A”), sales and marketing (“S&M”) and research and development

(“R&D”) operating expenses for the three and nine months ended September 30, 2024, as compared to the comparable periods in the prior

year, are discussed within the following overall operating expenditures, and the segment and corporate operating expenses discussions

below.


	Three Months Ended September 30,
	2024				2023
	Water	Emerging Technologies	Corporate	Total	Water	Emerging Technologies	Corporate	Total
	(In thousands)
General and administrative	$1,803	$906	$4,964	$7,673	$2,039	$1,061	$4,269	$7,369
Sales and marketing	3,777	1,977	659	6,413	3,272	1,560	579	5,411
Research and development	1,145	2,824	—	3,969	1,098	2,871	—	3,969
Total operating expenses	$6,725	$5,707	$5,623	$18,055	$6,409	$5,492	$4,848	$16,749

Three months ended September 30, 2024, as compared to the three months ended September 30, 2023

Overall Operating Expenditures. Overall operating expenditures increased $1.3 million, or 7.8%. This increase was due primarily to

higher consulting costs related to the enhancement of our corporate growth strategy, S&M employee compensation and benefit costs related

to an increase in headcount, and an increase in S&M and R&D share-based compensation expense, partially offset by lower marketing and

sales commission costs.

Water Segment. Water segment operating expenses increased by $0.3 million, or 4.9%. This increase was due primarily to an

increase in share-based compensation expense and consultant costs, partially offset by lower sales commission costs.

Emerging Technologies Segment. Emerging Technologies segment operating expenses increased by $0.2 million, or 3.9%. This

increase was due primarily to an increase in research and development costs and consultant costs, partially offset by lower employee

compensation costs.

Corporate Operating Expenses. Corporate operating expenses increased by $0.8 million, or 16.0%. This increase was due primarily

to higher consulting costs related to the enhancement of our corporate growth strategy and an increase in employee compensation costs.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 25

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	Nine Months Ended September 30,
	2024				2023
	Water	Emerging Technologies	Corporate	Total	Water	Emerging Technologies	Corporate	Total
	(In thousands)
General and administrative	$5,637	$2,908	$16,226	$24,771	$5,837	$2,976	$12,891	$21,704
Sales and marketing	11,359	5,484	1,826	18,669	9,567	4,171	1,659	15,397
Research and development	3,318	8,946	—	12,264	3,121	8,922	—	12,043
Total operating expenses	$20,314	$17,338	$18,052	$55,704	$18,525	$16,069	$14,550	$49,144

Nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023

Overall Operating Expenditures. Overall operating expenditures increased by $6.6 million, or 13.4%. This increase was due primarily

to higher consulting costs related to the enhancement of our corporate growth strategy and an increase in employee compensation and

benefit costs, recruiting costs, travel expenses, and an increase in share-based compensation expense due to modification of certain equity

awards and higher severance payments, both related to the termination of certain executive-level employees, partially offset by lower

marketing costs and depreciation expense.

Water Segment. Water segment operating expenses increased by $1.8 million, or 9.7%. This increase was due primarily to higher

employee compensation and benefit costs and share-based compensation expense in S&M related to an increase in headcount to support

our existing desalination operations and our growth in wastewater. In addition, non-employee operating expenses were higher due primarily

to an increase in consultant costs to support our growth in desalination and wastewater.

Emerging Technologies Segment. Emerging Technologies operating expenses increased by $1.3 million, or 7.9%. This increase was

due primarily to higher employee compensation and benefit costs, and share-based compensation expense, both related to an increase in

headcount in S&M and R&D, an increase in research and development costs, higher consultant costs, and an increase in severance cost,

partially offset by lower marketing costs.

Corporate Operating Expenses. Corporate operating expenses increased by $3.5 million, or 24.1%. This increase was due primarily

to higher employee compensation and benefit costs, and share-based compensation expense, related to an increase in headcount in G&A,

an increase in recruiting costs, higher travel costs, and an increase in share-based compensation expense due to modification of certain

equity awards and higher severance payments. In addition, the increase in non-employee operating expenses was due primarily to higher

consulting costs related to the enhancement of our corporate growth strategy, partially offset by lower marketing costs.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 26

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Other Income, Net


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
	(In thousands)
Interest income	$1,711	$1,083	$4,816	$2,486
Other non-operating expense, net	57	(38)	(45)	(129)
Total other income, net	$1,768	$1,045	$4,771	$2,357

The increase in “Total other income, net” in the three and nine months ended September 30, 2024, as compared to the comparable

periods in the prior year, was due primarily to an increase in short- and long-term investments.

Income Taxes


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
	(In thousands, except percentages)
(Benefit from) provision for income taxes	$344	$518	$(699)	$(906)
Discrete items	426	357	566	986
(Benefit from) provision for income taxes, excluding discrete items	$770	$875	$(133)	$80
Effective tax rate	3.9%	5.1%	62.4%	(114.2%)
Effective tax rate, excluding discrete items	8.7%	8.6%	11.8%	10.0%

The interim period tax provision for (benefit from) income taxes is determined using an estimate of our annual effective tax rate,

adjusted for discrete items, if any, that arise during the period. Each quarter, we update our estimate of the annual effective tax rate, and if

the estimated annual effective tax rate changes, we make a cumulative adjustment in such period. The quarterly tax provision and estimate

of our annual effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax income

or loss and the mix of jurisdictions to which they relate, the applicability of special tax regimes, and changes in how we do business.

For the three and nine months ended September 30, 2024, the recognized provision for and (benefit from) income taxes, respectively,

resulted from the tax projection based on the full year forecasted profit and included benefits related to the U.S. federal foreign-derived

intangible income (“FDII”), federal R&D tax credit, certain permanent differences, such as share-based compensation shortfalls, and partial

release of California valuation allowance.

For the three and nine months ended September 30, 2023, the recognized provision for and (benefit from) income taxes, respectively,

included benefits related to the U.S. FDII and federal R&D tax credit, along with a discrete tax benefit due primarily to share-based

compensation windfalls and prior years’ discrete tax benefit largely related to increased tax credits.

The effective tax rate excluding discrete items for the nine months ended September 30, 2024, as compared to the prior year, differed

primarily due to lower projected R&D tax credits, increased non-deductible officer share-based compensation, and lower projected U.S. FDII

benefits.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 27

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Liquidity and Capital Resources

Overview

From time-to-time, management and our Board of Directors review our liquidity and future cash needs and may make a decision to

(1) return capital to our shareholders through a share repurchase program or dividend payout; or (2) seek additional debt or equity financing.

As of September 30, 2024, our principal sources of liquidity consisted of (i) unrestricted cash and cash equivalents of $63.3 million that are

primarily invested in money market funds and U.S. treasury securities; (ii) investment-grade short-term and long-term marketable debt

instruments of $76.7 million that are primarily invested in U.S. treasury securities, corporate notes and bonds, and municipal and agency

notes and bonds; and (iii) accounts receivable, net of allowances, of $31.8 million. As of September 30, 2024, there was unrestricted cash of

$1.1 million held outside the U.S. We invest cash not needed for current operations predominantly in investment-grade, marketable debt

instruments with the intent to make such funds available for future operating purposes, as needed. Although these securities are available for

sale, we generally hold these securities to maturity, and therefore, do not currently see a need to trade these securities in order to support our

liquidity needs in the foreseeable future. We believe the risk of this portfolio to us is in the ability of the underlying companies or government

agencies to cover their obligations at maturity, not in our ability to trade these securities at a profit. Based on current projections, we believe

existing cash balances and future cash inflows from this portfolio will meet our liquidity needs for at least the next 12 months.

Credit Agreement

We entered into a credit agreement with JPMorgan Chase Bank, N.A. (“JPMC”) on December 22, 2021 (as amended, the “Credit

Agreement”). The Credit Agreement, which will expire on December 21, 2026, provides a committed revolving credit line of $50.0 million and

includes both a revolving loan and a letters of credit (“LCs”) component. The maximum allowable LCs under the credit line component of the

Credit Agreement is $30.0 million. As of September 30, 2024, we were in compliance with all covenants under the Credit Agreement.

Under the Credit Agreement, as of September 30, 2024, there were no revolving loans outstanding. In addition, as of September 30,

2024, under the LCs component, we utilized $18.4 million of the maximum allowable credit line of $30.0 million, which included newly

issued LCs, and previously issued and unexpired stand-by letters of credits (“SBLCs”) and certain non-expired commitments under the

previous Loan and Pledge Agreement with Citibank, N.A., which are guaranteed under the Credit Agreement. As of September 30, 2024,

there was $17.4 million of outstanding LCs. These LCs had a weighted average remaining life of approximately 17 months.

See Note 6, “Lines of Credit,” of the Notes for further discussion related to the Credit Agreement.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 28

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Cash Flows


	Nine Months Ended September 30,
	2024	2023	Change
	(In thousands)
Net cash provided by operating activities	$11,567	$12,272	$(705)
Net cash used in investing activities	(22,171)	(18,375)	(3,796)
Net cash provided by financing activities	5,795	1,184	4,611
Effect of exchange rate differences on cash and cash equivalents	(23)	27	(50)
Net change in cash, cash equivalents and restricted cash	$(4,832)	$(4,892)	$60

Cash Flows from Operating Activities

Net cash provided by operating activities is subject to the project driven, non-cyclical nature of our business. Operating cash flow can

fluctuate significantly from year to year, due to the timing of receipts of large project orders. Operating cash flow may be negative in one year

and significantly positive in the next, consequently individual quarterly results and comparisons may not necessarily indicate a significant

trend, either positive or negative.

The lower net cash provided by operating assets and liabilities for the nine months ended September 30, 2024, as compared to the

prior year, was due primarily to the following factors:

•Accounts receivable and contract assets: an increase in cash provided primarily related to an increase in revenues, the timing of

billings related to shipments of product or certification of installations, and collections on the account receivable balances;

•Inventory: an increase in cash used primarily related to the increase in PXs manufactured for project deliveries in the fourth

quarter of 2024 and early 2025; and

•Accrued liabilities: an increase in cash used primarily related to a decrease in employee compensation and benefits, and a

reduction of tax accruals.

Cash Flows from Investing Activities

Net cash used in investing activities primarily relates to sales, maturities and purchases of investment-grade marketable debt

instruments, such as corporate notes and bonds, and capital expenditures supporting our growth. We believe our investments in marketable

debt instruments are structured to preserve principal and liquidity while at the same time maximizing yields without significantly increasing

risk. The higher net cash used in investing activities of $3.8 million in the nine months ended September 30, 2024, as compared to the prior

year, was primarily driven by $3.8 million of net cash used for purchases of marketable debt instruments.

Cash Flows from Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2024, as compared to the cash provided by

financing activities in the prior year, was due primarily to an increase of cash from exercises of employee stock options granted under our

equity incentive plans.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 29

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Liquidity and Capital Resource Requirements

We believe that our existing resources and cash generated from our operations will be sufficient to meet our anticipated capital

requirements for at least the next 12 months. However, we may need to raise additional capital or incur additional indebtedness to continue

to fund our operations or to support acquisitions in the future and/or to fund investments in our latest technology arising from rapid market

adoption. These needs could require us to seek additional equity or debt financing. Our future capital requirements will depend on many

factors including the continuing market acceptance of our products, our rate of revenue growth, the timing of new product introductions, the

expansion of our R&D, manufacturing and S&M activities, and the timing and extent of our expansion into new geographic territories. In

addition, we may enter into potential material investments in, or acquisitions of, complementary businesses, services or technologies in the

future which could also require us to seek additional equity or debt financing. Should we need additional liquidity or capital funds, these funds

may not be available to us on favorable terms, or at all.

Recent Accounting Pronouncements

Refer to Note 1, “Description of Business and Significant Accounting Policies – Significant Accounting Policies,” of the Notes to

Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Statements (unaudited),” of this Quarterly Report on Form 10-Q.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 30

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Item 3 — Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk may be found primarily in two areas, foreign currency and interest rates.

Foreign Currency Risk

Our foreign currency exposures are due to fluctuations in exchange rates for the U.S. dollar (“USD”) versus the British pound, Saudi

riyal, Emirati dirham, European euro, Chinese yuan, Indian rupee and Canadian dollar. Changes in currency exchange rates could adversely

affect our consolidated operating results or financial position.

Our revenue contracts have been denominated in the USD. At times, our international customers may have difficulty in obtaining

the USD to pay our receivables, thus increasing collection risk and potential bad debt expense. To the extent we expand our international

sales, a larger portion of our revenue could be denominated in foreign currencies. As a result, our cash and operating results could be

increasingly affected by changes in exchange rates.

In addition, we pay many vendors in foreign currency and, therefore, are subject to changes in foreign currency exchange rates. Our

international sales and service operations incur expense that is denominated in foreign currencies. This expense could be materially affected

by currency fluctuations. Our international sales and services operations also maintain cash balances denominated in foreign currencies. To

decrease the inherent risk associated with translation of foreign cash balances into our reporting currency, we do not maintain excess cash

balances in foreign currencies.

We have not hedged our exposure to changes in foreign currency exchange rates because expenses in foreign currencies have been

insignificant to date and exchange rate fluctuations have had little impact on our operating results and cash flows. In addition, we do not

have any exposure to the Russian ruble.

Interest Rate and Credit Risks

The primary objective of our investment activities is to preserve principal and liquidity while at the same time maximizing yields without

significantly increasing risk. We invest primarily in investment-grade short-term and long-term marketable debt instruments that are subject

to counter-party credit risk. To minimize this risk, we invest pursuant to an investment policy approved by our Board of Directors. The policy

mandates high credit rating requirements and restricts our exposure to any single corporate issuer by imposing concentration limits.

As of September 30, 2024, our investment portfolio of $88.1 million, in investment-grade marketable debt instruments, such as U.S.

treasury securities, corporate notes and bonds, and municipal and agency notes and bonds, are classified as either cash equivalents or

short-term and/or long-term investments on our Condensed Consolidated Balance Sheets. These investments are subject to interest rate

fluctuations and decrease in market value to the extent interest rates increase, which occurred during the nine months ended September 30,

2024. To minimize the exposure due to adverse shifts in interest rates, we maintain investments with a weighted average maturity of

approximately eight months. As of September 30, 2024, a hypothetical 1% increase in interest rates would have resulted in a less than

$0.4 million decrease in the fair value of our investments in marketable debt instruments as of such date.

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 32

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PART II — OTHER INFORMATION

Item 1 — Legal Proceedings

We have been, and may be from time to time, involved in legal proceedings or subject to claims incident to the ordinary course of

business. We are not presently a party to any legal proceedings that we believe are likely to have a material adverse effect on our business,

financial condition, or operating results. Regardless of the outcome, such proceedings or claims can have an adverse impact on us because

of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be

obtained.

Item 1A — Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, “Risk Factors,” in the 2023 Annual

Report.

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3 — Defaults Upon Senior Securities

None.

Item 4 — Mine Safety Disclosures

Not applicable.

Item 5 — Other Information

During the three months ended September 30, 2024, no director or officer (within the meaning of Rule 16a-1(f) under the Securities

Exchange Act of 1934, as amended) has adopted or terminated any Rule 10b5-1 trading arrangement and/or any non-Rule 10b5-1 trading

arrangement (as defined in Item 408 of Regulation S-K).

Energy Recovery, Inc. | Q3'2024 Form 10-Q | 33

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Item 6 — Exhibits

A list of exhibits filed or furnished with this report or incorporated herein by reference is found in the Exhibit Index below.


Exhibit Number		Exhibit Description
Exhibit Number		Exhibit Description
31.1*		Certification of Principal Executive Officer, pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer, pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part I, “Financial Information” of this Quarterly Report on Form 10-Q.
104		Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.

*Filed herewith.

**The certification furnished in Exhibit 32.1 is not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that

section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its

behalf by the undersigned thereunto duly authorized.


		ENERGY RECOVERY, INC.

Date:	October 30, 2024	By:	/s/ DAVID W. MOON
			David W. Moon
			President and Chief Executive Officer
			(Principal Executive Officer)

Date:	October 30, 2024	By:	/s/ MICHAEL S. MANCINI
			Michael S. Mancini
			Chief Financial Officer
			(Principal Financial Officer)


	September 30, 2024	December 31, 2023
	(In thousands)
Accrued expenses and other liabilities, current
Payroll, incentives and commissions payable	$7,134	$11,037
Warranty reserve	983	1,057
Other accrued expenses and other liabilities	2,407	3,489
Total accrued expenses and other liabilities	10,524	15,583

Other liabilities, non-current	100	207
Total accrued expenses, and current and non-current other liabilities	$10,624	$15,790


		Page No.
PART I
FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets — September 30, 2024 and December 31, 2023	1
	Condensed Consolidated Statements of Operations — Three and Nine Months Ended September 30, 2024 and 2023	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) — Three and Nine Months Ended September 30, 2024 and 2023	3
	Condensed Consolidated Statements of Stockholders’ Equity — Three and Nine Months Ended September 30, 2024 and 2023	4
	Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2024 and 2023	5
	Notes to Condensed Consolidated Financial Statements	6

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4	Controls and Procedures	31

PART II
OTHER INFORMATION
Item 1	Legal Proceedings	32
Item 1A	Risk Factors	32
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3	Defaults Upon Senior Securities	32
Item 4	Mine Safety Disclosures	32
Item 5	Other Information	32
Item 6	Exhibits	33

Signatures		33