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Operator: Good day, ladies and gentlemen, and welcome to Energy Recovery’s First Quarter 2026 Earnings Call. During today’s call, Energy Recovery may make projections and other forward-looking statements under the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of the company. These statements may discuss our business, economic and market outlook, growth expectations, new products and their performance, cost structure and business strategy. Forward-looking statements are based on information currently available to the company and on management’s beliefs, assumptions, estimates and projections. Forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors.

We refer you to documents the company files from time to time with the SEC, specifically the company’s annual Form 10-K and quarterly Form 10-Q. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. All statements made during this call are made only as of today, May 6, 2026, and the company expressly disclaims any intent or obligation to update any forward-looking statements made during this call to reflect subsequent events or circumstances, unless otherwise required by law. Our hosts for today’s call are David Moon, President and Chief Executive Officer of Energy Recovery; and Aidan Ryan, Interim Chief Financial Officer. I would now like to turn the call over to Mr. Moon.

David Moon: Thank you, operator, and good day, everyone. Earlier today, we released a letter to shareholders on the Investor Relations section of our website that reviews business and financial performance during the quarter. Prior to opening the line for questions and answers, I’d like to highlight a few important takeaways from that letter. First is our new product, the PX Q650. We launched the product in March, have already received our first commercial order and are working with multiple large customers to design it into large desalination plants. It’s off to a strong start, and we’re excited about the commercial momentum that we’ve achieved in such a short time. Second, two leadership updates. I’ve informed the Board of my intention to retire and a search for my successor is underway.

Until that person is named, I’m fully engaged in my role. Behind me is a strong bench of talent here at ERI that will ensure a smooth transition. We’re also announcing that Mike Mancini has resigned as CFO. Aiden Ryan, who joined in 2024, will take over as interim CFO and ensure business as usual from a finance and shareholder standpoint. Third is the war in Iran. As we talked about in our letter, we have meaningful exposure to the Middle East, and we know the conflict will impact us. As such, our original financial guidance for 2026 is no longer reliable, and we’re temporarily withdrawing guidance until we have better visibility on the evolving conflict. We’ve seen these situations in the past. And while timing is a key factor, we know the demand is there, and we are building inventory to serve customers when they are ready.

Our strategic direction will not change during this uncertain time. We remain focused on product innovation, cost discipline, manufacturing transformation and the growth of our wastewater business. With that, we will now move to the question-and-answer portion of our conference call. Operator, please open the line for questions.

Operator: [Operator Instructions] Our first question comes from the line of Ryan Connors with Northcoast.

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Ryan Connors: David, congratulations on the retirement decision. And Aidan, congratulations on the elevation. Actually, a quick question on that. Will the search lean internal or external? Or is that just sort of everything is on the table in terms of your replacement, David?

David Moon: Ryan, everything is on the table.

Ryan Connors: Okay. And then in terms of just unpacking the Middle East situation a little bit. I think we got two different types of issues, right? One is a short-term delay, a project gets pushed out six, nine months. I think everyone — that’s totally — that’s not a big deal even from a modeling standpoint. But there’s this sort of concern that the nature of this conflict and some of the images that were out there that people are seeing and potential investors in the region are seeing could kind of just sort of deflate confidence in the region for a little longer period and kind of just take away some of the growth economically and tourism and whatnot that underpins some of the project activity. I mean, I know you don’t have a crystal ball either, but what’s — I’d love to get your take on that issue and whether the delays are likely to be the first sort or more of the second sort, which would be a little more concerning.

David Moon: Yes. So, I think, Ryan, obviously, it’s still early days. But what we’re hearing both internally and as we talk externally to others that are in the industry is that the project delays will be just that. There are likely to be some delays as we move from ’26 into ’27. But the fundamentals that are driving desalination and wastewater, but primarily desalination in the Middle East is water scarcity and water security, right? And so, populations continue to grow. Those aren’t going away. And so, while we may see some projects delayed, we still feel good about the long-term fundamentals of desalinization.

Ryan Connors: Yes. Yes. I have to just keep track of it, I guess, as it plays out.

David Moon: And Ryan, we’re not hearing anything that would tell us otherwise at this point.

Ryan Connors: Sure. One of my questions, David, you answered to some extent, which is I was going to ask how you’re managing inventory and production schedules given that kind of uncertainty. But you did mention just there at the end of your prepared remarks that you’re building inventory to be ready to serve customers. So, I guess that was — my question is twofold there. One is what gives you confidence to be building that inventory when things could push further right or not on a certain project? And b, given the good news on the 650 gaining traction, how do you know which inventory to build? Because might — if some of these things are delayed a year or so, might you actually have the opportunity to try to spec in some of the 650s in place of what was supposed to go in? Or is that just not feasible?

David Moon: Yes. I think the answer to that is yes, but we already know projects that are on the board over the next 12, sort of 24 months that are Q400 spec and frankly, are so far along in the design phase, it’s unlikely that those projects will change product. And so, we’ve got a pretty good — given where we’re at today, we’ve got a pretty good crystal ball of sort of the Q650 transition time. And so that’s sort of number one. Number two is that we saw the Q300 Q400 transition sort of take sort of two-plus years to play out to get it to where the Q400 is our primary product today. And so, we think it’s going to take even with sort of this early momentum around the 650, we think it’s going to take a couple of years the 650 to become our primary product. And that’s probably 2028 before we see that. So, we feel pretty good about how many Q400s we need to be building over the next couple of years and how many 650s that we should be building as well.

Ryan Connors: Yes. Okay. And then my last one, and then I’ll pass it on is just obviously, the delays are focused on the Middle East and the conflict. But the conflict itself has led energy prices higher. Obviously, desal is very energy intensive no matter where on the globe people are doing it. Now the PX device is going to lower that energy footprint, but still versus a few months ago, any project is going to look a little more expensive. So is there any sign that there’s any kinds of delays outside of the Middle East, just given the higher energy cost spike?

David Moon: Yes, it’s a really good question. So, the answer is no, not to this point. We have seen a few delays in some wastewater projects because of the cost — input cost of materials. And so — but there have been small projects and pretty small scale. So, nothing really at this point that would say desal projects in general globally are being impacted even given sort of the high energy price at this point are being impacted by the war. TBD, right, if it continues. But so far, the answer is no.

Operator: Our next question comes from the line of Ryan Pfingst with B. Riley Securities.

Ryan Pfingst: Maybe just a follow-up to the last one on the flip side with the Middle East uncertainty, are there other geographic regions where you’re particularly enthusiastic about project development on the mega project side?

David Moon: Yes. I think if you think about sort of the next two years, we’re excited about China and some of the desal activity that looks to be ramping up there. And I would say South America, which would be the sort of second area where we see some activity that’s starting to pick up there. So I’d say those are the sort of the two dual areas. The third, I would say, is the wildcard would be Texas. There’s been a lot of talk about desal projects for the last couple of years. Should some of those projects really start to prove out and start to happen, that could be some really nice business for us. And so I would say those are sort of the three areas that we’re watching pretty closely.

Ryan Pfingst: Got it. And then has there been any change or update to how you’re thinking about your manufacturing footprint expansion globally, just given the recent geopolitical events?

David Moon: No. I think the strategic reasons for us looking in the Middle East are still the same regardless of conflicts, right? So first and foremost, it’s our biggest base of business and looks like it will be over the next five to 10 years. And so that’s sort of reason number one, right? Reason number two is we’ve got customers there that are really, really pulling us for local content as it relates to building PXs on the ground. And so we’re really — and so that — and that’s not going away in the near term. And then I think the third thing is that the sort of the icing on the cake would be the low-cost benefits that we get by moving a manufacturing facility to the Middle East. And so look, we continue to be full speed ahead in our planning. It’s still our target by Q1 to be able to start manufacturing Q400s, assembly Q400s overseas. And so we continue to push down that path.

Ryan Pfingst: Appreciate that. And then maybe just one more on wastewater. The prior 2026 outlook was $10 million to $15 million in revenue. Is that still how you’re thinking about wastewater revenue for this year? Or should we consider that on hold as well?

Aidan Ryan: So, we are pausing — Ryan, this is Aidan. We are pausing our guidance on both desalination and wastewater. So we’re not going to comment specifically, but there’s a lot of good things going on in wastewater. We also have some challenges, like David mentioned, and we look to update that when we update our overall guidance, hopefully here in Q2 or Q3.

Operator: Our next question comes from the line of Larry Solow with CJS Securities.

Unknown Analyst: It’s Pete Lucas on for Larry. You covered a lot in your previous answers. I guess just one for me. Given the short-term uncertainty, how do you think about cost cutting as a lever to pull to maintain free cash flow? And how should we think about that as an option for you?

Aidan Ryan: Yes. Some of those things are definitely part of the existing plans, as we highlighted in the shareholder letter, our focus is on maintaining cost discipline. So we’ve talked about reducing manufacturing costs domestically with lean and Kaizen programs. David just talked about the manufacturing footprint strategy. That is part of our plans to reduce cost, and we’re always focused on that.

David Moon: Yes. I would say the other thing, Pete, is that we did we did a major reduction in force last year. We did a reduction in force to start at the beginning of this year. And so as we think about further cost cutting in SG&A other than the belt tightening and continuing to sort of turn around the edges, there’s not a lot of big onetime opportunities left. I think we’ve done a pretty good job of reducing there where we have the opportunity. I think where we see opportunities going forward is really productivity gains at the factory and sort of continuing to get smarter where we work in our SG&A to the extent that there are opportunities. But sort of no big time opportunities left.

Operator: And we have reached the end of the question-and-answer session. I would like to turn the floor back over to CEO, David Moon, for closing remarks.

David Moon: Thank you, operator. So, I just want — just to repeat what I had said in my opening remarks, our strategic direction will not change during this uncertain time. We will remain focused on product innovation. I think we’ve proven that with the Q650. We’ve got more products on the drawing board as we move forward, cost discipline, our manufacturing transformation efforts, both here and overseas and then the growth of our wastewater business are all things that we’ll remain focused on as we move throughout the year. Thank you, operator.

Operator: Thank you. And this concludes today’s conference, and you may disconnect your line at this time. We thank you for your participation.

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