Energy Recovery, Inc. (ERII) · Nov 4, 2026 · Earnings
Miss — Revenue $11.2M vs ~$16.16M consensus
Energy Recovery’s Q3 earnings show a much deeper revenue slump than expected, with megaproject sales nearly disappearing and losses widening.
Energy Recovery is a desalination-led pressure-exchanger company trying to broaden into wastewater and other industrial applications, while its near-term results remain heavily dependent on large desalination projects. Its prior quarter had already shown severe revenue weakness tied primarily to the war in Iran, even as the company continued building its desalination footprint and pursuing Saudi projects.
This was a clear earnings miss, not just a weak year-over-year comparison. Q3 revenue of $11.2 million came in roughly $5 million below the published consensus near $16.16 million, while GAAP diluted EPS was a $0.12 loss versus an expected loss of about $0.06. The shortfall was concentrated in megaproject revenue, which fell 95% to $0.9 million; OEM revenue also declined 31%, and aftermarket revenue declined 13% (Channel revenue).
| Metric | Q3 2026 | Q3 2025 | Consensus |
|---|---|---|---|
| Revenue (Financial Highlights) | $11.2M (-65%) | $32.0M | ~$16.16M |
| Gross margin (Financial Highlights) | 37.5% (-2,670 bps) | 64.2% | |
| Diluted EPS (Financial Highlights) | $(0.12) | $0.07 | ~$(0.06) |
| Adjusted EBITDA (Non-GAAP reconciliation) | $(7.8M) | $6.8M | |
| Free cash flow (Non-GAAP reconciliation) | $(10.1M) | $(3.5M) |
The problem is broader than delayed megaproject timing. Nine-month revenue is down 52%, gross margin has fallen to 48.2% from 63.1%, and adjusted operating margin is negative 62.4% versus negative 0.6% a year earlier. Even excluding restructuring and impairment items, the core business is losing money, which weakens the case that this is solely a temporary accounting-driven setback.
Cost cutting is cushioning the damage but not fixing the model yet. Operating expenses fell 17.2% to $14.0 million, mainly through lower employee compensation and consulting costs. That restraint helps preserve liquidity, but it was overwhelmed by the revenue collapse and the sharp gross-margin deterioration.
The balance sheet still buys the company time, but cash generation turned negative in the quarter. Cash, cash equivalents and investments were $85.6 million at September 30, while nine-month operating cash flow remained positive because of working-capital movements; however, Q3 operating cash flow was negative $9.8 million and free cash flow was negative $10.1 million. The company also repurchased $23.2 million of stock during the first nine months, making capital allocation more consequential while operating performance is under pressure.
Bottom line: The filing materially weakens the recovery story: the weakness was partly known, but Q3 showed the revenue gap and margin damage were substantially worse than expected. The business still has liquidity and a desalination franchise, but the hoped-for rebound remains dependent on megaproject activity that has not returned.
Q4 earnings report, early 2027
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