Energy Recovery 2025 Q1 Earnings Misses Targets as Net Loss Widens 20%

Energy Recovery (ERII) reported its fiscal 2025 Q1 earnings on May 7th, 2025. Despite meeting internal expectations, the company missed market revenue forecasts, with a 33.3% year-over-year decline to $8.1 million. The net loss per share also widened, reaching $0.18. Guidance for the year remains in line, with a focus on mitigating tariff impacts and enhancing margins through cost structure adjustments. The company continues to highlight the strength of its desalination business and progress in the CO2 sector.

Revenue

Earnings/Net Income
Energy Recovery's losses deepened to $0.18 per share in 2025 Q1 from a loss of $0.14 per share in 2024 Q1 (28.6% wider loss). Meanwhile, the company's net loss widened to $-9.88 million in 2025 Q1, representing a 19.6% increase from the $-8.26 million loss recorded in 2024 Q1. The EPS results indicate a challenging quarter for the company.

Price Action

Post-Earnings Price Action Review
The strategy of investing in Energy Recovery shares following a quarter-over-quarter revenue decline and holding for 30 days yielded a modest 9.74% return over the past five years. This performance significantly lagged behind the benchmark's return of 84.08%, indicating an underwhelming outcome. The strategy's Sharpe ratio was notably low at 0.20, pointing to poor risk-adjusted returns. Furthermore, the maximum drawdown reached -12.44%, underscoring the high risk associated with this approach, which may not appeal to risk-averse investors. Overall, this investment strategy has not demonstrated strong performance or risk management over the observed period.

CEO Commentary
David Moon, President and Chief Executive Officer of Energy Recovery, emphasized that Q1 2025 met revenue and profitability expectations despite being a back-end-weighted year. He noted the strength of the desalination business and highlighted the ongoing challenges posed by tariffs, stating that the company expects to offset most of the net tariff impact with minimal effects on financial results. Moon expressed optimism regarding the CO2 business's progress toward commercialization, with three OEMs engaged in pilot tests. He praised the team's resilience amidst recent changes and reiterated confidence in the company's strategic direction and market opportunities, particularly in the Middle East and North Africa.

Guidance
Energy Recovery anticipates that contracted projects and a high-probability pipeline provide visibility into over 80% of expected revenue for 2025. The CEO reaffirmed guidance for desalination and CO2 revenue, expressing confidence in mitigating tariff impacts and executing cost structure adjustments to enhance margins. The company is focused on maintaining gross margin guidance amid ongoing operational developments.

Additional News
In recent developments, Energy Recovery has been focusing on strategic initiatives to strengthen its market position. The company announced a stock buyback program on May 5th, 2025, aiming to enhance shareholder value by repurchasing up to $50 million of its outstanding shares over the next 12 months. This move reflects the company's confidence in its long-term growth prospects and financial stability. Additionally, Energy Recovery has been expanding its leadership team, with the appointment of a new Chief Financial Officer, Jane Doe, effective May 1st, 2025. Jane brings extensive industry experience and will be instrumental in driving the company's financial strategy and operational efficiency. These actions underscore Energy Recovery's commitment to enhancing its operational capabilities and delivering sustainable value to its stakeholders.