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

class energy-saving technology for critical infrastructure that communities rely on every day, driving a more resilient and sustainable future.

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 High-Pressure 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

The 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.

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

The preparation of Consolidated Financial Statements, in conformity with U.S. generally accepted accounting principles (“GAAP”),

requires the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated

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; stock-based compensation expense;

equipment useful life and valuation; goodwill valuation and impairment; inventory valuation and allowances, deferred taxes and valuation

allowances on deferred tax assets; and evaluation and measurement of contingencies. Those estimates could change, and as a result,

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 February 25, 2026, the date of issuance of this Annual Report on Form 10-K.

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 Annual Report on Form 10-K, except as required by law.

The Company considers all highly liquid investments with an original or remaining contractual maturity on date of purchase of less

than or equal to three months to be classified and presented as cash equivalents on the Consolidated Balance Sheets. Cash equivalents are

stated at cost, which approximates fair value. The Company’s cash and cash equivalents may include demand deposit accounts with large

financial institutions, institutional money market funds, U.S. treasury securities, corporate notes and bonds, and municipal and agency notes

and bonds. The Company monitors the creditworthiness of the financial institutions, institutional money market funds, and corporations in

which the Company invests its surplus funds. The Company has experienced no credit losses from its cash investments.

The Company’s short-term and long-term investments consist primarily of investment-grade debt securities, such as U.S. treasury

securities, corporate notes and bonds, and municipal and agency notes and bonds, all of which are classified as available-for-sale.

Available-for-sale securities are carried at fair value. Amortization or accretion of premium or discount is included in other income (expense),

net on the Consolidated Statements of Operations. Changes in the fair value of available-for-sale securities are reported as a component of

accumulated other comprehensive (loss) income within stockholders’ equity on the Consolidated Balance Sheets. Realized gains and losses

on the sale of available-for-sale securities are determined by specific identification of the cost basis of each security.

The Company categorizes and classifies short-term and long-term available-for-sale investments on the Company’s Consolidated

•Short-term investments: Investments purchased with an original or remaining maturity at time of purchase greater than three

months and that are expected to mature within 12 months from the balance sheet date are classified as short-term investments

•Long-term investments: Investments purchased with an original or remaining maturity at time of purchase greater than three

months and that are expected to mature more than 12 months from the balance sheet date are classified as long-term

The Company records a provision for doubtful accounts based on historical experience and an estimate of the expected credit losses.

In estimating the allowance for doubtful accounts, the Company considers, among other factors, the aging of the accounts receivable, its

historical write-offs, the credit worthiness of each customer, and general economic conditions. Account balances are charged off against the

allowance when the Company believes that it is probable that the receivable will not be recovered.

Inventories are stated at the lower of cost (using the first-in, first-out “FIFO” method) or net realizable value. The Company calculates

inventory valuation adjustments for excess and obsolete inventory based on current inventory levels, movement, expected useful lives, and

Property and equipment is recorded at cost and reduced by accumulated depreciation. Depreciation expense is recognized over the

estimated useful lives of the assets using the straight-line method. The following table presents the estimated useful life, or range of useful

lives, of the Company’s property and equipment. Maintenance and repairs are charged directly to expense as incurred.


	Minimum	Maximum
Machinery and equipment (excluding equipment used for manufacturing of ceramic components)	3 years	7 years
Machinery and equipment used for manufacturing of ceramic components	3 years	10 years
Leasehold improvements (1)	1 year	3.5 years
Software (2)	3 years	5 years
Office equipment, furniture, and fixtures	3 years	5 years
Automobiles	1 year	7 years

(1)Leasehold improvements represent remodeling and retrofitting costs for leased office and manufacturing space and are depreciated over the shorter of

either the estimated useful lives or the term of the lease. See Note 7, “Commitments and Contingencies-Operating Lease Obligations,” for further

(2)Software purchased for internal use consists primarily of amounts paid for perpetual licenses to third-party software providers and implementation

Estimated useful lives are periodically reviewed, and when appropriate, changes are made prospectively. When certain events or

changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of

the carrying amounts. The Company evaluates the recoverability of long-lived assets by comparing the carrying amount of an asset to

estimated future net undiscounted cash flows generated by the asset (asset group). If such assets are considered to be impaired, the

impairment recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. The

evaluation of recoverability involves estimates of future operating cash flows based upon certain forecasted assumptions, including, but not

limited to, revenue growth rates, gross profit margins, and operating expenses.

The Company determines if an arrangement is a lease, or contains a lease, at the inception of the arrangement and evaluates

whether the lease is an operating or a finance lease at the commencement date. The Company recognizes right-of-use (“ROU”) assets and

lease liabilities for operating leases with terms greater than 1 year. ROU assets represent the Company’s right to use an asset for the lease

term, while lease liabilities represent the Company’s obligation to make lease payments. Operating lease ROU assets and liabilities are

recognized based on the present value of lease payments over the lease term at the lease commencement date. The Company uses the

implicit interest rate or, if not readily determinable, its incremental borrowing rate as of the lease commencement date to determine the

present value of lease payments. The incremental borrowing rate is based on the Company’s unsecured borrowing rate, adjusted for the

effects of collateral. Operating lease ROU assets are recognized net of any lease prepayments and incentives. Based on materiality, the

Company accounts for both the non-lease components and related lease components as a single lease component. Lease terms may

include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease

The Company applies lease modifications that change the contractual terms and conditions of a lease, that were not part of the

original lease, and grants additional right of use with a price consistent with the market, as a new lease.

Goodwill represents the excess of the purchase price of a business combination over the fair value of the net assets acquired.

Goodwill is not amortized but is evaluated annually for impairment at the reporting unit level or when indicators of a potential impairment are

present. Goodwill impairment testing requires significant judgment and management estimates, including, but not limited to, the

determination of (i) the number of reporting units, (ii) the goodwill and other assets and liabilities to be allocated to the reporting units and

(iii) the fair values of the reporting units. The Company performs a quantitative assessment of goodwill for impairment on an annual basis

during the third quarter of each year, which would consist primarily of a discounted cash flow analysis to determine the fair value of the

reporting unit’s goodwill. In addition, the Company incorporates other significant inputs to its fair value calculations, including discount rate

and market multiples, to reflect current market conditions. Between annual tests, a qualitative assessment whenever events or changes in

circumstances indicate that the carrying amount may not be recoverable. If these interim qualitative factors were to indicate that it is more-

likely-than-not that the fair value of the reporting unit is less than its carrying value, the Company would then perform a quantitative

assessment. To the extent the carrying amount of the reporting unit’s allocated goodwill exceeds the unit’s fair value, the Company

recognizes an impairment of goodwill for the excess up to the amount of goodwill of that reporting unit.

The Company’s financial instruments include cash and cash equivalents, restricted cash, investments in marketable securities,

accounts receivable, and accounts payable. The carrying amounts for these financial instruments reported in the Consolidated Balance

Sheets approximate their fair values. See Note 5, “Investments and Fair Value Measurements,” for further discussion related to fair value.

Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount

that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Performance obligations are

identified and the total transaction price is allocated to the performance obligations at execution of the contract.

The Company’s payment terms vary based on the credit risk of its customer. For certain customer types, the Company requires

payment before the products or services are delivered to the customer. The Company performs an evaluation of customer credit worthiness

on an individual contract basis to assess whether collectability is reasonably assured at the inception of the contract. As part of this

evaluation, the Company considers many factors about the individual customer, including the underlying financial strength of the customer

and/or partnership consortium and the Company’s prior history or industry-specific knowledge about the customer and its supplier

relationships. For smaller projects, the Company requires the customer to remit payment generally within 30 to 60 days after product

delivery. In some cases, if credit worthiness cannot be determined, prepayment or other security is required.

Sales commissions are expensed as incurred when product revenue is earned. These costs are recorded within sales and marketing

The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company

allocates revenue to each performance obligation based on its relative stand-alone selling price. The Company generally determines stand-

With respect to termination, the Company does not have the ability to cancel the contract for convenience. In general, customers can

cancel for convenience upon the payment of a termination fee that covers costs and profit.

The time period between when the Company transfers control of products to the customer and the payment for the products is, in

general, less than one year and, therefore, the practical expedient with respect to a financing component has been adopted by the Company.

With respect to taxes, the Company has made the policy election to exclude taxes from the measurement of the transaction price.

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of

one year or less; and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice

The Company recognizes the incremental cost of obtaining contracts as an expense when incurred if the amortization period of the

assets that the Company otherwise would have recognized is one year or less. The costs of obtaining contracts are included in sales and

A contract is established by a written agreement (executed sales order, executed purchase order or stand-alone contract) with the

customer with fixed pricing, and a credit risk assessment is completed prior to the signing of the agreement to ensure that collectability is

The Company adheres to consistent pricing in the stand-alone sale of products and services. Performance obligations consist of

delivery of products, such as the Company’s PXs, hydraulic turbochargers, pumps and spare parts. Service obligations, such as

commissioning, which are not material, are deferred as contract liabilities until the services are performed.

The transfer of control for the Company’s products follows transfer of title which typically occurs upon shipment or delivery of the

equipment in accordance with International Commercial Terms (commonly referred to as “incoterms”). The specified product performance

criteria for the Company’s products pertain to the ability of the Company’s product to meet its published performance specifications and

warranty provisions, which the Company’s products have demonstrated on a consistent basis. This factor, combined with historical

performance metrics, provides the Company’s management with a reasonable basis to conclude that the products will perform satisfactorily

upon commissioning of the plant. Installation is relatively simple, requires no customization, and is performed by the customer under the

supervision of the Company’s personnel. Based on these factors, the Company concluded that performance has been completed upon

shipment or delivery when title transfers based on the shipping terms, and that product revenue is recognized at a point in time.

The Company does not provide its customers with a right of product return; however, the Company will accept returns of products that

are deemed to be damaged or defective when delivered that are covered by the terms and conditions of the product warranty. Product

warranty is provided consistent with the industry and is considered to be an assurance warranty, not a separate performance obligation.

For large projects, stand-alone contracts are utilized. For these contracts, consistent with industry practice, the Company’s customers

typically require their suppliers, including the Company, to accept contractual holdback provisions (also referred to as a retention payment)

whereby the final amounts due under the sales contract are remitted over extended periods of time or alternatively, stand-by letters of credit

are issued. These retention payments are generally 10% or less of the total contract amount and are due and payable based upon the

contractual milestone billing, generally between 24 to 36 months from the date of product delivery. These retention payments with

performance conditions are recorded as contract assets and align with the product warranty period. Given that they are not material in the

context of the contract, they are not considered to be a financing component.

Shipping and handling charges billed to customers are pass-through from the freight forwarder to the customer and are included in

product revenue. The cost of shipping to customers is included in product cost of revenue.

exist when the modification either creates new or changes the existing enforceable rights and obligations. Any subsequent contract

modifications are analyzed to determine the treatment of the contract modification as a separate contract, prospectively or through a

The Company sells products with a limited warranty for a period ranging from 18 months to five years. The Company accrues for

warranty costs based on estimated product failure rates, historical activity, and expectations of future costs. Periodically, the Company

evaluates and adjusts the warranty costs to the extent that actual warranty costs vary from the original estimates.

The Company measures and recognizes stock-based compensation expense based on the fair value measurement for all stock-

based awards made to its employees, non-employee consultants and directors, including restricted stock units (“RSUs”), performance

restricted stock units (“PRSUs”) and incentive stock options over the requisite service period (typically the vesting period of the awards). The

fair value of RSUs and PRSUs is based on the Company’s common stock price on the date of grant. The fair value of stock options is

calculated on the date of grant using a Black-Scholes (also referred to as the “Black-Scholes-Merton”) model, which requires a number of

complex assumptions including the expected life to exercise a vested award based upon the Company’s exercise history, expected volatility

based upon the Company’s historical stock prices, risk-free interest rate based upon the U.S. Treasury rates, and the Company’s dividend

yield. The estimation of awards that will ultimately vest requires judgment, and to the extent that actual results or updated estimates differ

from the Company’s current estimates, such amounts are recorded as a cumulative adjustment in the period in which the estimates are

revised. See Note 12, “Stock-based Compensation – Fair Value Assumptions,” for further discussion of fair value measurements of stock-

The Company’s reporting currency is the U.S. dollar. The functional currency of the Company’s foreign subsidiaries is their respective

local currencies. The asset and liability accounts of the Company’s foreign subsidiaries are translated from their local currencies at the rates

in effect on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the period. Gains

and losses resulting from the translation of the Company’s subsidiary balance sheets are recorded as a component of accumulated other

comprehensive income (loss). Gains and losses from foreign currency transactions are recorded in other income (expense) in the

Current and non-current tax assets and liabilities are based upon an estimate of taxes refundable or payable for each of the

jurisdictions in which the Company is subject to tax. In the ordinary course of business, there is inherent uncertainty in quantifying income tax

positions. The Company assesses income tax positions and records tax benefits for all years subject to examination based upon the

Company’s evaluation of the facts, circumstances, and information available at the reporting dates. For those tax positions where it is more

likely than not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50% likelihood of

being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax

positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements.

When applicable, associated interest and penalties are recognized as a component of income tax expense. Accrued interest and penalties

are included within the related tax asset or liability on the Consolidated Balance Sheets.

Deferred income taxes are provided for temporary differences arising from differences in bases of assets and liabilities for tax and

financial reporting purposes. Deferred income taxes are recorded on temporary differences using enacted tax rates in effect for the year in

which the temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is

recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the

opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Significant judgment

is required in determining whether and to what extent any valuation allowance is needed on the Company’s deferred tax assets. In making

such a determination, the Company considers all available positive and negative evidence including recent results of operations, scheduled

reversals of deferred tax liabilities, projected future income, and available tax planning strategies. See Note 8, “Income Taxes,” for further

The Company’s operations are subject to income and transaction taxes in the U.S. and in foreign jurisdictions. Significant estimates

and judgments are required in determining the Company’s worldwide provision for income taxes. Some of these estimates are based on

interpretations of existing tax laws or regulations. The ultimate amount of tax liability may be uncertain as a result.

(“ASU 2023-09”). ASU 2023-09 was issued to enhance the transparency and decision usefulness of income tax disclosures. ASU 2023-09

is effective for annual periods beginning after December 15, 2024 (i.e., the Company’s 2025 Annual Report) on a prospective basis; however,

retrospective application is permitted. In addition, early adoption is permitted. On December 31, 2025, the Company adopted ASU 2023-09

prospectively and has applied the disclosure requirements to the period ended December 31, 2025 presented in the consolidated financial

statements. The Company has evaluated the impact of the adoption of ASU 2023-09 on its consolidated financial statements and

disclosures, and has determined that the adoption of this guidance will only impact disclosures, with no material impact on the Company’s

results of operations, cash flows, or financial condition. See Note 8, “Income Taxes,” for further discussion of the Company’s income taxes.

Disclosure Update and Simplification Initiative (“ASU 2023-06”). The amendments in ASU 2023-06 will impact various disclosure areas,

including the statement of cash flows, accounting changes and error corrections, earnings per share, debt, equity, derivatives, and transfers

of financial assets. The amendments in ASU 2023-06 will be effective on the date the related disclosures are removed from Regulation S-X

or Regulation S-K by the Securities and Exchange Commission (the “SEC”), and will no longer be effective if the SEC has not removed the

applicable disclosure requirement by June 30, 2027. Early adoption is prohibited. The Company has evaluated the impact of the adoption of

ASU 2023-06 on its consolidated financial statements and disclosures, and has determined that the adoption of this guidance will not

materially impact the Company’s current disclosures. In addition, the Company believes the adoption of ASU 2023-06 will not have a

material impact on results of operations, cash flows, or financial condition.

Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” (“ASU 2024-03”). ASU 2024-03 is intended

to require more detailed disclosures about specified categories of expenses (including employee compensation, depreciation, and

amortization) included in certain expense captions presented on the face of the income statement. ASU 2024-03 is effective for fiscal years

beginning after December 15, 2026 (i.e., the Company’s 2027 Annual Report), and for interim periods within fiscal years beginning after

December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for

reporting periods after the effective date of ASU 2024-03 or (2) retrospectively to all prior periods presented in the financial statements. The

Company is evaluating the potential impact of this adoption on the consolidated financial statements and related disclosures.

Contract Assets (“ASU 2025-05”). ASU 2025-05 provides a practical expedient for measuring expected credit losses on current accounts

receivables and contract assets by assuming that conditions at the balance sheet date remain unchanged over the life of the asset. ASU

2025-05 is effective for annual reporting periods beginning after December 15, 2025 (i.e. the Company’s 2026 Annual Report), and interim

periods within those years, with early adoption permitted. The Company believes the adoption of ASU-2025-05 will not have a material

Improvements (“ASU 2025-11”), which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. ASU

2025-11 provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose

events subsequent to the end of the last annual reporting period that have a material impact on the entity. ASU 2025-11 is effective for fiscal

years beginning after December 15, 2027 (i.e. the Company’s 2028 Annual Report), including interim periods within those fiscal years, with

early adoption permitted. The Company is evaluating the potential impact of this adoption on the consolidated financial statements and