# Energy Recovery, Inc. (ERII)

Informational only - not investment advice.

CIK: 0001421517
SIC: 3559 Special Industry Machinery, NEC
SIC breadcrumb: [Manufacturing](/division/D/) > [Industrial And Commercial Machinery And Computer Equipment](/major-group/35/) > [SIC 3559 Special Industry Machinery, NEC](/industry/3559/)
Latest 10-K filed: 2026-02-25
SEC page: https://www.sec.gov/edgar/browse/?CIK=1421517
Filing source: https://www.sec.gov/Archives/edgar/data/1421517/000142151726000022/erii-20251231.htm

## Selected Fundamentals
| Metric | Value | Unit | FY | Filed |
| --- | ---: | --- | ---: | --- |
| Revenue | 134987000 | USD | 2025 | 2026-02-25 |
| Net income | 22962000 | USD | 2025 | 2026-02-25 |
| Assets | 231514000 | USD | 2025 | 2026-02-25 |

## Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-25. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001421517.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

| Metric | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue |  |  |  | 57,784,000 | 69,129,000 | 74,515,000 | 86,942,000 | 118,986,000 | 103,904,000 | 125,591,000 | 128,349,000 | 144,948,000 | 134,987,000 |
| Net income |  |  |  | 3,719,000 | 18,354,000 | 22,093,000 | 10,913,000 | 26,387,000 | 14,269,000 | 24,049,000 | 21,504,000 | 23,050,000 | 22,962,000 |
| Operating income |  |  |  | 3,426,000 | 9,249,000 | 9,978,000 | 10,364,000 | 31,294,000 | 13,831,000 | 24,829,000 | 19,050,000 | 19,724,000 | 23,889,000 |
| Gross profit | 25,722,000 | 16,713,000 | 24,560,000 | 31,866,000 | 39,095,000 |  |  |  | 71,234,000 | 87,356,000 | 87,079,000 | 96,933,000 | 87,931,000 |
| Diluted EPS |  |  |  | 0.07 | 0.33 | 0.40 | 0.19 | 0.47 | 0.24 | 0.42 | 0.37 | 0.40 | 0.42 |
| Operating cash flow |  |  |  | 4,965,000 | 2,895,000 | 7,565,000 | 5,268,000 | 16,870,000 | 13,526,000 | 12,631,000 | 26,054,000 | 20,522,000 | 18,770,000 |
| Capital expenditures |  |  |  | 1,112,000 | 7,376,000 | 5,235,000 | 7,382,000 | 6,785,000 | 6,684,000 | 4,232,000 | 2,567,000 | 1,298,000 | 1,330,000 |
| Share buybacks |  |  |  | 9,375,000 | 4,276,000 | 10,000,000 | 0.00 | 0.00 | 23,346,000 | 26,654,000 | 0.00 | 50,384,000 | 35,623,000 |
| Assets |  |  |  | 149,063,000 | 164,485,000 | 179,841,000 | 188,774,000 | 204,314,000 | 213,690,000 | 217,039,000 | 252,974,000 | 242,792,000 | 231,514,000 |
| Liabilities |  |  |  | 83,930,000 | 72,591,000 | 66,463,000 | 52,761,000 | 32,690,000 | 34,911,000 | 31,701,000 | 33,166,000 | 32,782,000 | 25,322,000 |
| Stockholders' equity |  |  |  | 68,492,000 | 91,894,000 | 113,378,000 | 136,013,000 | 171,624,000 | 178,779,000 | 185,338,000 | 219,808,000 | 210,010,000 | 206,192,000 |
| Cash and cash equivalents |  |  |  | 61,364,000 | 27,780,000 | 21,955,000 | 26,387,000 | 94,255,000 | 74,358,000 | 56,354,000 | 68,098,000 | 29,627,000 | 48,076,000 |
| Free cash flow |  |  |  | 3,853,000 | -4,481,000 | 2,330,000 | -2,114,000 | 10,085,000 | 6,842,000 | 8,399,000 | 23,487,000 | 19,224,000 | 17,440,000 |

### Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

| Metric | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net margin |  |  |  | 6.44% | 26.55% | 29.65% | 12.55% | 22.18% | 13.73% | 19.15% | 16.75% | 15.90% | 17.01% |
| Operating margin |  |  |  | 5.93% | 13.38% | 13.39% | 11.92% | 26.30% | 13.31% | 19.77% | 14.84% | 13.61% | 17.70% |
| Return on equity |  |  |  | 5.43% | 19.97% | 19.49% | 8.02% | 15.37% | 7.98% | 12.98% | 9.78% | 10.98% | 11.14% |
| Return on assets |  |  |  | 2.49% | 11.16% | 12.28% | 5.78% | 12.91% | 6.68% | 11.08% | 8.50% | 9.49% | 9.92% |
| Liabilities / equity |  |  |  | 1.23 | 0.79 | 0.59 | 0.39 | 0.19 | 0.20 | 0.17 | 0.15 | 0.16 | 0.12 |
| Current ratio |  |  |  | 7.13 | 4.15 | 4.41 | 4.06 | 9.10 | 7.67 | 8.63 | 8.64 | 7.41 | 10.44 |

## Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-06. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001421517.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

| Quarter | End date | Revenue | Net income | Diluted EPS | Method |
| --- | --- | ---: | ---: | ---: | --- |
| 2022-Q2 | 2022-06-30 |  |  | -0.04 | reported discrete quarter |
| 2022-Q3 | 2022-09-30 |  |  | 0.08 | reported discrete quarter |
| 2023-Q1 | 2023-03-31 |  |  | -0.11 | reported discrete quarter |
| 2023-Q2 | 2023-06-30 | 20,723,000 | -1,665,000 | -0.03 | reported discrete quarter |
| 2023-Q3 | 2023-09-30 | 37,036,000 | 9,660,000 | 0.17 | reported discrete quarter |
| 2023-Q4 | 2023-12-31 | 57,189,000 | 19,805,000 |  | derived Q4 = FY annual - nine-month YTD |
| 2024-Q1 | 2024-03-31 | 12,090,000 | -8,260,000 | -0.14 | reported discrete quarter |
| 2024-Q2 | 2024-06-30 | 27,199,000 | -642,000 | -0.01 | reported discrete quarter |
| 2024-Q3 | 2024-09-30 | 38,584,000 | 8,481,000 | 0.15 | reported discrete quarter |
| 2024-Q4 | 2024-12-31 | 67,075,000 | 23,471,000 |  | derived Q4 = FY annual - nine-month YTD |
| 2025-Q1 | 2025-03-31 | 8,065,000 | -9,880,000 | -0.18 | reported discrete quarter |
| 2025-Q2 | 2025-06-30 | 28,051,000 | 2,054,000 | 0.04 | reported discrete quarter |
| 2025-Q3 | 2025-09-30 | 32,000,000 | 3,874,000 | 0.07 | reported discrete quarter |
| 2025-Q4 | 2025-12-31 | 66,871,000 | 26,914,000 |  | derived Q4 = FY annual - nine-month YTD |
| 2026-Q1 | 2026-03-31 | 9,706,000 | -12,251,000 | -0.23 | reported discrete quarter |

## Macro Cross-References
- [CPIAUCSL](/indicator/CPIAUCSL/): Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
- [UNRATE](/indicator/UNRATE/): Unemployment Rate
- [FEDFUNDS](/indicator/FEDFUNDS/): Federal Funds Effective Rate
- [CES0500000003](/indicator/CES0500000003/): Average Hourly Earnings of All Employees, Total Private
- [DFEDTARU](/indicator/DFEDTARU/): Federal Funds Target Range - Upper Limit
- [DFEDTARL](/indicator/DFEDTARL/): Federal Funds Target Range - Lower Limit
- [DGS3MO](/indicator/DGS3MO/): Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
- [DGS2](/indicator/DGS2/): Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
- [DGS10](/indicator/DGS10/): Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
- [DGS30](/indicator/DGS30/): Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
- [T10Y2Y](/indicator/T10Y2Y/): 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
- [CPILFESL](/indicator/CPILFESL/): Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
- [CPIUFDSL](/indicator/CPIUFDSL/): Consumer Price Index for All Urban Consumers: Food
- [CPIENGSL](/indicator/CPIENGSL/): Consumer Price Index for All Urban Consumers: Energy
- [CUSR0000SAH1](/indicator/CUSR0000SAH1/): Consumer Price Index for All Urban Consumers: Shelter
- [PCEPI](/indicator/PCEPI/): Personal Consumption Expenditures: Chain-type Price Index
- [PCEPILFE](/indicator/PCEPILFE/): Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
- [PPIACO](/indicator/PPIACO/): Producer Price Index by Commodity: All Commodities
- [T10YIE](/indicator/T10YIE/): 10-Year Breakeven Inflation Rate
- [U6RATE](/indicator/U6RATE/): Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
- [PAYEMS](/indicator/PAYEMS/): All Employees, Total Nonfarm
- [CIVPART](/indicator/CIVPART/): Labor Force Participation Rate
- [EMRATIO](/indicator/EMRATIO/): Employment-Population Ratio
- [UNEMPLOY](/indicator/UNEMPLOY/): Unemployed
- [CE16OV](/indicator/CE16OV/): Employment Level
- [ICSA](/indicator/ICSA/): Initial Claims
- [JTSJOL](/indicator/JTSJOL/): Job Openings: Total Nonfarm
- [JTSQUR](/indicator/JTSQUR/): Quits: Total Nonfarm
- [GDPC1](/indicator/GDPC1/): Real Gross Domestic Product
- [A191RL1Q225SBEA](/indicator/A191RL1Q225SBEA/): Real Gross Domestic Product: Percent Change from Preceding Period
- [INDPRO](/indicator/INDPRO/): Industrial Production: Total Index
- [TCU](/indicator/TCU/): Capacity Utilization: Total Index
- [HOUST](/indicator/HOUST/): New Privately-Owned Housing Units Started: Total Units
- [PERMIT](/indicator/PERMIT/): New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
- [RSAFS](/indicator/RSAFS/): Advance Retail Sales: Retail Trade
- [PCE](/indicator/PCE/): Personal Consumption Expenditures
- [DSPIC96](/indicator/DSPIC96/): Real Disposable Personal Income
- [PSAVERT](/indicator/PSAVERT/): Personal Saving Rate
- [M2SL](/indicator/M2SL/): M2
- [BOPGSTB](/indicator/BOPGSTB/): U.S. International Trade in Goods and Services: Balance
- [MSPUS](/indicator/MSPUS/): Median Sales Price of Houses Sold for the United States
- [HSN1F](/indicator/HSN1F/): New One Family Houses Sold: United States
- [RHORUSQ156N](/indicator/RHORUSQ156N/): Homeownership Rate in the United States
- [TTLCONS](/indicator/TTLCONS/): Total Construction Spending: Total Construction in the United States
- [RRVRUSQ156N](/indicator/RRVRUSQ156N/): Rental Vacancy Rate in the United States
- [TOTALSL](/indicator/TOTALSL/): Total Consumer Credit Owned and Securitized
- [REVOLSL](/indicator/REVOLSL/): Revolving Consumer Credit Owned and Securitized
- [DRCCLACBS](/indicator/DRCCLACBS/): Delinquency Rate on Credit Card Loans, All Commercial Banks
- [GDP](/indicator/GDP/): Gross Domestic Product
- [GPDI](/indicator/GPDI/): Gross Private Domestic Investment
- [GCE](/indicator/GCE/): Government Consumption Expenditures and Gross Investment
- [PCEC](/indicator/PCEC/): Personal Consumption Expenditures
- [NETEXP](/indicator/NETEXP/): Net Exports of Goods and Services
- [GFDEBTN](/indicator/GFDEBTN/): Federal Debt: Total Public Debt
- [GFDEGDQ188S](/indicator/GFDEGDQ188S/): Federal Debt: Total Public Debt as Percent of Gross Domestic Product
- [FYFSD](/indicator/FYFSD/): Federal Surplus or Deficit
- [FGRECPT](/indicator/FGRECPT/): Federal Government Current Receipts
- [FGEXPND](/indicator/FGEXPND/): Federal Government: Current Expenditures
- [MANEMP](/indicator/MANEMP/): All Employees, Manufacturing
- [USCONS](/indicator/USCONS/): All Employees, Construction
- [USTRADE](/indicator/USTRADE/): All Employees, Retail Trade
- [USFIRE](/indicator/USFIRE/): All Employees, Financial Activities
- [USGOVT](/indicator/USGOVT/): All Employees, Government
- [AWHAETP](/indicator/AWHAETP/): Average Weekly Hours of All Employees, Total Private
- [DGORDER](/indicator/DGORDER/): Manufacturers' New Orders: Durable Goods
- [NEWORDER](/indicator/NEWORDER/): Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
- [BUSINV](/indicator/BUSINV/): Total Business Inventories
- [EXPGS](/indicator/EXPGS/): Exports of Goods and Services
- [IMPGS](/indicator/IMPGS/): Imports of Goods and Services
- [IR](/indicator/IR/): Import Price Index (End Use): All Commodities
- [PPIFIS](/indicator/PPIFIS/): Producer Price Index by Commodity: Final Demand

## Latest quarter (10-Q)

Latest 10-Q source: https://www.sec.gov/Archives/edgar/data/1421517/000142151726000041/erii-20260331.htm

Extracted structurally from real Item 2 body heading to real Item 3/4 boundary.
Confidence: high
Filing date: 2026-05-06
Report date: 2026-03-31

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.

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 desalination, wastewater 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 desalination, wastewater 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.

During the three months ended March 31, 2026, we changed the composition of our reportable segments to better reflect how the

CODM manages the business. As a part of this change, the Water segment was separated into two segments, the Desalination segment and

the Wastewater segment. Prior periods have been recast to conform to the current year presentation.

Energy Recovery, Inc. | Q1'2026 Quarterly Report (Form 10-Q) | 23

Table of Contents

Results of Operations

A discussion regarding our financial condition and results of operations for the three months ended March 31, 2026, compared to the

three months ended March 31, 2025, is presented below.

Revenue

As a significant portion of our revenue is derived from large project contract deliveries that are up to 36 months from contract date,

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.

Revenue by Channel Customers

Three Months Ended March 31,

2026

2025

Revenue

% of

Revenue

Revenue

% of

Revenue

Change

(In thousands, except percentages)

Original equipment manufacturer

$6,588

68%

$4,001

50%

$2,587

65%

Aftermarket

2,754

28%

4,028

50%

(1,274)

(32%)

Megaproject

364

4%

36

—%

328

911%

Total revenue

$9,706

100%

$8,065

100%

$1,641

20%

Revenue Attributable to Primary Geographical Markets by Segments

Three Months Ended March 31,

2026

2025

Desalination

Wastewater

Emerging

Technologies

Total

Desalination

Wastewater

Emerging

Technologies

Total

(In thousands)

Middle East

$2,506

$—

$77

$2,583

$2,014

$—

$1

$2,015

Africa

196

—

—

196

866

—

—

866

Other

6,205

601

121

6,927

4,879

305

—

5,184

Total revenue

$8,907

$601

$198

$9,706

$7,759

$305

$1

$8,065

Three months ended March 31, 2026, as compared to the three months ended March 31, 2025

The increase in original equipment manufacturer revenue of $2.6 million was due primarily to:

•Desalination: The increase in revenue of $2.1 million was due primarily to higher shipments of products to the Europe market and

the Middle East market, partially offset by lower shipments of products to the Africa market.

•Wastewater: The increase in revenue of $0.4 million was due primarily to higher shipments of products to the Asia market.

•Emerging Tech: The increase in revenue of $0.1 million was due primarily to higher shipments of products to the Americas

market.

The decrease in aftermarket revenue of $1.3 million was primarily due to lower shipments to the Asia and Middle East markets.

The increase in megaproject revenue of $0.3 million was due primarily to higher shipments to the Middle East 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.

Energy Recovery, Inc. | Q1'2026 Quarterly Report (Form 10-Q) | 24

Table of Contents

Gross Profit and Gross Margin

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

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

Three Months Ended March 31,

2026

2025

Change

(In thousands, except percentage and basis point)

Gross profit

$2,702

$4,458

$(1,756)

Gross margin

27.8%

55.3%

(2,750) bps

The decrease in gross profit and gross margin for the three months ended March 31, 2026, as compared to the prior year, was due

primarily to $1.6 million of restructuring charges booked to inventory associated with the wind down of the CO2 retail grocery business, as

well as increased costs related to product and channel mix, pricing, tariffs, and indirect manufacturing costs during the three months ended

March 31, 2026.

Operating Expenses

The total material changes of general and administrative (“G&A”), sales and marketing (“S&M”) and R&D operating expenses for the

three months ended March 31, 2026, as compared to the comparable period in the prior year, are discussed within the following overall

operating expenditures, and the segment and corporate operating expenses discussions below.

Three Months Ended March 31,

2026

2025

Desalination

Wastewater

Emerging

Technologies

Corporate

Total

Desalination

Wastewater

Emerging

Technologies

Corporate

Total

(In thousands)

General and

administrative

$756

$981

$348

$4,370

$6,455

$845

$728

$755

$6,246

$8,574

Sales and

marketing

2,485

1,163

858

613

5,119

2,108

1,037

1,270

491

4,906

Research and

development

1,616

136

1,037

—

2,789

849

329

1,823

—

3,001

Restructuring

charges

335

18

1,140

43

1,536

107

103

123

206

539

Impairment of

goodwill

—

—

1,662

—

1,662

—

—

—

—

—

Total operating

expenses

$5,192

$2,298

$5,045

$5,026

$17,561

$3,909

$2,197

$3,971

$6,943

$17,020

Three months ended March 31, 2026, as compared to the three months ended March 31, 2025

Overall Operating Expenditures.  Overall operating expenditures increased by $0.5 million, or 3.2%. This increase was due primarily

to impairment of goodwill and restructuring charges incurred as part of the wind down of the CO2 retail grocery business, partially offset by a

decrease in employee costs, as well as consulting costs and impairment costs associated with the sublease of the Katy, Texas lease incurred

during the three months ended March 31, 2025. 

Desalination Segment. Desalination segment related operating expenses increased by $1.3 million, or 32.8%.  This increase was due

primarily to higher employee costs, including stock-based compensation costs, and higher restructuring charges.

Wastewater Segment. Wastewater segment related operating expenses increased by $0.1 million, or 4.6%. This increase was due

primarily to higher consulting costs, partially offset by lower employee costs.

Energy Recovery, Inc. | Q1'2026 Quarterly Report (Form 10-Q) | 25

Table of Contents

Emerging Technologies Segment. Emerging Technologies segment related operating expenses increased by $1.1 million, or 27.0%. 

This increase was due primarily to impairment of goodwill and restructuring charges incurred as part of the wind down of the CO2 retail

grocery business, partially offset by lower employee costs, including stock-based compensation costs.

Corporate Operating Expenses.  Corporate operating expenses decreased by $1.9 million, or (27.6%).  This decrease was primarily

due to lower employee costs, consulting costs and impairment costs associated with the sublease of the Katy, Texas lease incurred during

the three months ended March 31, 2025.

Restructuring Charges. During the first quarter of fiscal year 2026, we wound down operations of the CO2 retail grocery business

within our Emerging Technologies segment due to a fundamental change in the outlook of the business. We recorded a restructuring charge

of approximately $1.5 million during the three months ended March 31, 2026. The total restructuring charge recorded relates to severance

and benefits, including reemployment assistance, for 23 terminated employees.  In addition to the restructuring charges, the Company

incurred other related charges associated with the wind down of the CO2 retail grocery business, including excess and obsolescence

reserves taken on CO2 inventory of approximately $1.6 million and impairment of goodwill of approximately $1.7 million, which are included in

“Restructuring - inventory reserve” and “Impairment of goodwill” in the Condensed Consolidated Statements of Operations, respectively.

The restructuring plan was substantially complete by the end of the first quarter of fiscal year 2026 and the Company does not expect to incur

significant additional expenses related to the restructuring.

During the fourth quarter of fiscal year 2024, we implemented a restructuring plan which included reductions in our workforce in all

functions of the organization, primarily within the G&A function, in order to lower our operating cost structure, and to position the Company for

profitable growth.  We recorded total restructuring charges of approximately $2.8 million, of which $0.5 million was recorded during the three

months ended March 31, 2025. The total restructuring charge relates to severance and benefits, includin

[Excerpt truncated for page length; source filing is linked above.]

## Latest 10-K MD&A

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of

Operations

The following Management Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader

understand our results of operations and financial condition.  It should be read in conjunction with the Consolidated Financial Statements and

related Notes included in Part II, Item 8, “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K.

Overview

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

management evaluates the performance of the Company 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, as well as R&D

expenditures applicable to potential future industry verticals, or enabling technologies that could benefit either or both existing business units.

On February 25, 2026, we decided to wind down operations of the CO2 retail grocery business within our Emerging Technologies

segment due to a fundamental change in the outlook of the business.  See Note 13, “Subsequent Events,” of the Notes for further discussion

regarding the wind down.

Global Economic and Political Environment Considerations

The markets for our products are dynamic and constantly evolving.  Our products are sold in numerous countries worldwide, with a

large percentage of our sales generated outside the U.S., specifically in the Middle East, Africa and Asia markets which provide a significant

portion of our total revenue.  Therefore, we are exposed to and impacted by global macroeconomic factors, U.S. and foreign government

policies and foreign exchange fluctuations.  There is uncertainty surrounding macroeconomic factors in the U.S. and globally characterized by

the supply chain environment, inflationary pressure, rising interest rates, and labor shortages.  These global macroeconomic factors, coupled

with the U.S. political climate, political unrest internationally, and known conflicts in Europe and the Middle East, have created global

economic and political uncertainty, and have impacted demand for certain of our products.  While the impact and longevity of these factors

remain uncertain, we are constantly evaluating the extent to which these factors will impact our business, financial condition or results of

operations. 

Over the long-term, demand for our energy recovery devices could correlate to global macroeconomic and geopolitical factors.  Any

disruption to the economic factors and regulations in these regions, which remain uncertain, may adversely affect our results of operations

and financial condition.

Refer to Part I, Item 1, “Business,” and Part I, Item 1A, “Risk Factors,” in this Annual Report on Form 10-K for further discussion of

these trends and other risks.

Results of Operations

A discussion regarding our financial condition and results of operations for the year ended December 31, 2024, compared to the year

ended December 31, 2023, can be found under Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with

the SEC on February 26, 2025, which is available free of charge on the SEC’s website at http://www.sec.gov and at our investor relations

website (https://ir.energyrecovery.com).

Revenue

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As a significant portion of our revenue is derived from large project contract deliveries that are up to 36 months from contract date,

there is no specific seasonality in our revenues to highlight.

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

Years Ended December 31,

2025

2024

Revenue

% of

Revenue

Revenue

% of

Revenue

Change

(In thousands, except percentages)

Megaproject

$82,885

61%

$95,399

66%

$(12,514)

(13%)

Original equipment manufacturer

31,940

24%

31,525

22%

415

1%

Aftermarket

20,162

15%

18,024

12%

2,138

12%

Total revenue

$134,987

100%

$144,948

100%

$(9,961)

(7%)

Revenue Attributable to Primary Geographical Markets by Segments

Years Ended December 31,

2025

2024

Water

Emerging

Technologies

Total

Water

Emerging

Technologies

Total

(In thousands)

Middle East

$68,084

$92

$68,176

$59,538

$399

$59,937

Africa

15,010

—

15,010

30,731

—

30,731

Other

51,608

193

51,801

54,041

239

54,280

Total revenue

$134,702

$285

$134,987

$144,310

$638

$144,948

Year ended December 31, 2025, as compared to the year ended December 31, 2024

Revenues associated with our Water segment represented 99% of total revenues during the years ended December 31, 2025 and

2024. Revenues associated with our Emerging Technologies segment were immaterial.

The decrease in MPD revenue of $12.5 million was due primarily to lower shipments to the Africa and Asia markets, partially offset by

higher shipments of products to the Middle East and Europe markets.

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

•Desalination: The increase in revenue of $2.5 million was due primarily to higher shipments of products to the Asia market.

•Wastewater: The decrease in revenue of $2.1 million was due primarily to lower shipments of products to the Asia market.

The increase in AM revenue of $2.1 million was due primarily to higher shipments to the Asia and Middle East markets.

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Revenues attributable to domestic and international sales

Revenues are primarily attributable to international sales and are concentrated in the Middle East and Africa.  See Note 10,

“Concentrations – Revenue by Geographic Location and Country,” of the Notes for further discussion regarding our concentration of revenue

by geographic location.

Gross Profit and Gross Margin

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

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

Years Ended December 31,

2025

2024

Change

(In thousands, except percentage and basis point)

Gross profit

$87,931

$96,933

$(9,002)

Gross margin

65.1%

66.9%

(180) bps

The decrease in gross profit and gross margin for the year ended December 31, 2025, as compared to the prior year, was due

primarily to lower sales volume spread over fixed costs, increased costs related to product and channel mix, pricing and tariffs, partially offset

by a decrease in indirect manufacturing costs during the year ended December 31, 2025.

Operating Expenses

The total material changes of general and administrative (“G&A”), sales and marketing (“S&M”) and R&D operating expenses for the

year ended December 31, 2025, as compared to the comparable period in the prior year, are discussed within the following overall operating

expenditures, and the segment and corporate operating expenses discussions below.

Years Ended December 31,

2025

2024

Water

Emerging

Technologies

Corporate

Total

Water

Emerging

Technologies

Corporate

Total

(In thousands)

General and

administrative

$5,686

$2,350

$21,733

$29,769

$8,127

$3,821

$21,126

$33,074

Sales and marketing

13,664

5,449

1,813

20,926

15,683

7,340

2,400

25,423

Research and

development

6,344

6,690

—

13,034

4,523

11,713

—

16,236

Restructuring charges

105

47

161

313

1,147

832

497

2,476

Total operating

expenses

$25,799

$14,536

$23,707

$64,042

$29,480

$23,706

$24,023

$77,209

Year ended December 31, 2025, as compared to the year ended December 31, 2024

Overall Operating Expenditures.  Overall operating expenditures decreased by $13.2 million, or (17.1%).  This decrease was due

primarily to a decrease in employee costs, such as employee compensation and stock-based compensation, as well as lower Emerging

Technologies segment development costs, facility expenses and restructuring charges, partially offset by impairment costs associated with

the sublease of the Katy, Texas lease incurred during the year ended December 31, 2025. 

Water Segment. Water segment related operating expenses represented 40% and 38% of overall operating expenses during the

years ended December 31, 2025 and 2024, respectively and decreased by $3.7 million, or (12.5%).  This decrease was due primarily to

lower employee costs, including stock-based compensation costs, and lower restructuring charges.

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Emerging Technologies Segment. Emerging Technologies segment related operating expenses represented 23% and 31% of overall

operating expenses during the years ended December 31, 2025 and 2024, respectively and decreased by $9.2 million, or (38.7%).  This

decrease was due primarily to lower employee costs, including stock-based compensation, lower development costs and lower restructuring

charges.

Corporate Operating Expenses.  Corporate operating expenses decreased by $0.3 million, or (1.3%).  This decrease was primarily

due to lower employee costs, such as employee compensation, partially offset by an increase in consulting costs and impairment costs

associated with the sublease of the Katy, Texas lease incurred during the year ended December 31, 2025.

Restructuring Charges.  During the fourth quarter of fiscal year 2024, we implemented a restructuring plan which included reductions

in our workforce in all functions of the organization, primarily within the G&A function, in order to lower our operating cost structure, and to

position the Company for profitable growth.  We recorded total restructuring charges of approximately $2.8 million, of which $0.3 million was

recorded during the year ended December 31, 2025. The total restructuring charge relates to severance and benefits, including

reemployment assistance, for 38 terminated employees, which was approximately 15% of our workforce.  The implementation of the

restructuring plan was completed during the year ended December 31, 2025. See Note 4, “Other Financial Information – Restructuring,” of

the Notes for further discussion and disclosure on our restructuring program. 

Other Income, Net

Years Ended December 31,

2025

2024

(In thousands)

Interest income

$3,614

$6,218

Other non-operating income (expense), net

92

(207)

Total other income, net

$3,706

$6,011

The decrease in “Total other income, net” in the years ended December 31, 2025, as compared to the comparable period in the prior

year, was primarily due to a decrease in short- and long-term investments.

Income Taxes

Years Ended December 31,

2025

2024

Change

(In thousands, except percentages)

Provision for income taxes

$4,633

$2,685

$1,948

Effective tax rate

17%

10%

The higher provision for income taxes in 2025, as compared to the prior year, was due primarily to an increase in income from

operations, a decrease in tax benefit of $0.3 million related to Foreign Derived Intangible Income (“FDII”), a decrease of $0.6 million in federal

R&D tax credits, a decrease in $0.6 million in realizable California R&D credit and $0.1 million net increase on the tax impact of stock-based

compensation and executive compensation limits.

The fiscal year 2025 effective tax rate included a benefit of $1.9 million related to FDII, a benefit of $0.3 million related to federal R&D

tax credits, tax expense of $0.2 million related to increase of California R&D credit valuation allowance and tax expense of $0.6 million

related to stock-based compensation and executive compensation limits.  The fiscal year 2024 effective tax rate included a benefit of

$2.1 million related to FDII, a benefit of $0.9 million related to federal R&D tax credits, a benefit of $0.4 million related to California R&D credit

valuation allowance release, and tax expense of $0.5 million related to stock-based compensation and executive compensation limits.

See Note 8, “Income Taxes,” of the Notes for further discussion regarding further information related to our tax rate reconciliation.

Energy Recovery, Inc. | 2025 Annual Report (Form 10-K) | 38

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Liquidity and Capital Resources

Overview

From time-to-time, management and our Board of Directors (the “Board”) 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 December 31, 2025, our principal sources of liquidity consisted of (i) unrestricted cash and cash equivalents of $48.1 million

that are held in cash accounts and invested in money market funds and U.S. treasury securities; (ii) investment-grade short-term and long-

term marketable debt instruments of $35.2 million that are primarily invested in U.S. treasury securities and corporate notes and bonds; and

(iii) accounts receivable, net of allowances, of $76.6 million.  As of December 31, 2025, there was unrestricted cash of $1.4 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. on December 22, 2021 (as amended, the “Credit Agreement”). 

The Credit Agreement 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

December 31, 2025, the Company was in compliance with all covenants under the Credit Agreement.

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

Letters of Credit

From time-to-time, we enter into LCs related to our product warranty and performance guarantees.  As of December 31, 2025,

outstanding LCs totaled $20.4 million.  See Note 6, “Lines of Credit – Letters of Credit,” of the Notes for further discussion related to LCs and

Note 7, “Commitments and Contingencies – Guarantees,” of the Notes for further discussion related to performance guarantees. 

Energy Recovery, Inc. | 2025 Annual Report (Form 10-K) | 39

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Share Repurchase Programs

The Board, from time-to-time, has authorized share repurchase programs under which we may, at our discretion, repurchase the

Company’s outstanding common stock in the open market, or in privately negotiated transactions, in compliance with applicable state and

federal securities laws.  The timing and amounts of any purchase under the share repurchase programs are based on market conditions and

other factors including price, regulatory requirements, and capital availability.  We account for stock repurchases under these programs using

the cost method.  As of December 31, 2025, we have cumulatively repurchased 14.0 million shares of the Company’s common stock at an

aggregate cost of $166.1 million under all share repurchase programs.  The following is a discussion of the current share repurchase

program during the years ended December 31, 2025.  See Note 11, “Stockholders’ Equity – Share Repurchase Programs,” of the Notes for

further discussion related to share repurchase programs and a reconciliation of the latest share repurchase plan balance.

On February 26, 2025 and August 6, 2025, we announced that the Board authorized share repurchase programs under which we may

repurchase our outstanding common stock, at the discretion of management, up to an aggregate amount of $55.0 million in aggregate cost,

which includes both the share value of the acquired common stock and the fees charged in connection with acquiring the common stock.

During the year ended December 31, 2025, we repurchased 2,570,214 shares of our common stock at an aggregate cost of approximately

$35.6 million.

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Cash Flows

Years Ended December 31,

2025

2024

Change

(In thousands)

Net cash provided by operating activities

$18,770

$20,522

$(1,752)

Net cash provided by (used in) investing activities

33,985

(15,654)

49,639

Net cash used in financing activities

(34,534)

(43,284)

8,750

Effect of exchange rate differences on cash and cash equivalents

98

(52)

150

Net change in cash, cash equivalents and restricted cash

$18,319

$(38,468)

$56,787

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 reporting period to reporting period, due to the timing of receipts of large project orders.  Operating cash flow may

be negative in one reporting period and significantly positive in the next. Consequently, individual reporting period results and comparisons

may not necessarily indicate a significant trend, either positive or negative. 

The higher net cash used for operating assets and liabilities for the year ended December 31, 2025, as compared to the prior year,

was due primarily to the following factors: 

•Accrued liabilities: an increase in cash used due to incentives and restructuring expenses paid out in 2025,

•Accounts payable: an increase in cash used due to the timing of payments and vendor invoices received; partially offset by

•Accounts receivable: a decrease in cash used due to an increase in collections related to revenues earned late in the fourth

quarter of 2024.

Cash Flows from Investing Activities

Net cash provided by (used in) investing activities primarily relates to sales, maturities and purchases of investment-grade marketable

debt instruments, and capital expenditures supporting our growth. The decrease in cash used during the year ended December 31, 2025, as

compared to the prior year, is primarily due to lower purchases of marketable securities. 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. 

Cash Flows from Financing Activities

Net cash used in financing activities for the year ended December 31, 2025 was lower as compared to the cash used in financing

activities in the prior year, due to lower repurchases of our common stock partially offset by lower net proceeds from the issuance of common

stock as compared to the prior year.

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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.

Facility and Equipment Leases.  We lease facilities and equipment under fixed noncancelable operating leases that expire on various

dates through fiscal year 2030.  See Note 7, “Commitments and Contingencies – Operating Lease Obligations,” of the Notes for additional

information related to our fixed noncancelable operating leases.

Off-balance Sheet Arrangements.  During the periods presented, we did not have any relationships with unconsolidated entities or

financial partnerships such as entities often referred to as structured finance or special purpose entities which would have been established

for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP.  These accounting principles require us to make

estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the Consolidated Financial

Statements as well as the reported amounts of revenue and expense during the periods presented.  We believe that the estimates and

judgments upon which we rely are reasonable based upon information available to us at the time that we make these estimates and

judgments.  To the extent that there are material differences between these estimates and actual results, our consolidated financial results

will be affected.  The accounting policies that reflect our more significant estimates and judgments and which we believe are the most critical

to aid in fully understanding and evaluating our reported financial results are revenue recognition; valuation of stock options; valuation and

impairment of goodwill; inventory; and deferred taxes and valuation allowances on deferred tax assets.

The following is not intended to be a comprehensive list of all of our accounting policies or estimates.  See Note 1, “Description of

Business and Significant Accounting Policies,” of the Notes for further detailed discussion regarding our accounting policies and estimates.

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to our customers in an amount that reflects

the consideration we expect to be entitled to in exchange for those goods or services.  At the inception of each contract, performance

obligations are identified and the total transaction price is allocated to the performance obligations.  Our contracts with customers may

include multiple performance obligations.  For such arrangements, we allocate revenue to each performance obligation based on its relative

stand-alone selling price.  We generally determine stand-alone selling prices based on the prices charged to customers.  With respect to

termination, we do not have the ability to cancel a contract for convenience.  In general, customers can cancel for convenience upon the

payment of a termination fee that covers costs and profit.  It is rare for customers to cancel contracts.  See Note 1, “Description of Business

and Significant Accounting Policies – Significant Accounting Policies – Revenue Recognition (Product and Service Revenue Recognition),” of

the Notes for more detail on product and service revenue recognition.

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Stock-based Compensation

We account for stock-based compensation according to U.S. GAAP relating to stock-based payments, which requires the

measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair

values on the grant date.  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.  See Note 1, “Description of Business and Significant Accounting

Policies – Significant Accounting Policies – Stock-based Compensation” and Note 12, “Stock-based Compensation,” of the Notes for further

discussion of our accounting policy and stock-based compensation activities, respectively.

Goodwill

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

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 estimates and assumptions described above, along with other factors such as discount rates, will significantly affect the

outcome of the impairment tests and the amounts of any resulting impairment losses.  We perform a quantitative assessment of goodwill for

impairment on an annual basis during the third quarter of each year, and 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, we would then perform a quantitative assessment,

which would consist primarily of a discounted cash flow analysis to determine the fair value of the reporting unit’s goodwill.  To the extent the

carrying amount of the reporting unit’s allocated goodwill exceeds the unit’s fair value, we recognize an impairment of goodwill for the excess

up to the amount of goodwill of that reporting unit.  See Note 1, “Description of Business and Significant Accounting Policies – Significant

Accounting Policies – Goodwill” and Note 4, “Other Financial Information – Goodwill,” of the Notes for further discussion of our accounting

policy and goodwill activities, respectively.

Inventories

We determine at each balance sheet date how much, if any, of our inventory may ultimately prove to be either unsalable or unsalable

at its carrying cost.  Reserves are established to effectively adjust the carrying value of such inventory to lower of cost (first-in, first-out

method) or net realizable value.  See Note 1, “Description of Business and Significant Accounting Policies – Significant Accounting Policies –

Inventories” and Note 4, “Other Financial Information – Inventories, net,” of the Notes for further discussion of our accounting policy and

estimates, and inventory activities, respectively.

Income Taxes

Our annual tax rate is determined based on our income and the jurisdictions where it is earned, statutory tax rates, and the tax

impacts of items treated differently for tax purposes than for financial reporting purposes.  Also inherent in determining our annual tax rate are

judgments and assumptions regarding the recoverability of certain deferred tax balances, and our ability to uphold certain tax positions.  We

are subject to complex tax laws, in the U.S. and numerous foreign jurisdictions, and the manner in which they apply can be open to

interpretation.  Realization of deferred tax assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction in

future periods, which involves business plans, planning opportunities, and expectations about future outcomes.  Our assessment relies on

estimates and assumptions, and may involve a series of complex judgments about future events.  We use an estimate of our annual effective

tax rate at each interim period based on the facts and circumstances available at that time, while the actual effective tax rate is calculated at

year-end.  See Note 1, “Description of Business and Significant Accounting Policies – Significant Accounting Policies – Income Taxes” and

Note 8, “Income Taxes,” of the Notes for further discussion of our income tax policy and our tax valuation allowance, respectively.

Recent Accounting Pronouncements

Refer to Note 1, “Description of Business and Significant Accounting Policies – Recently Issued Accounting Pronouncements Not Yet

Adopted,” of the Notes.

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