Energy Recovery, Inc. (ERII) Business

Item 1 — Business

Overview

Energy Recovery, Inc. (the “Company”, “Energy Recovery”, “we”, “our” and “us”) designs and manufactures world-class energy-saving

technology for critical infrastructure that communities rely on every day, driving a more resilient and sustainable future. Grounded in more

than 30 years of leadership in the desalination industry, today we use our proprietary pressure exchanger technology to help customers in

multiple industries improve their operations and lower their emissions.

We have been incorporated in the state of Delaware since 2001.  Our corporate headquarters, principal research and development

(“R&D”), and manufacturing facility is located in San Leandro, California.  In addition, we have manufacturing and warehouse space in Tracy,

California.  We have a global direct sales team and on-site technical support staff to service customers in the United States of America (the

“U.S.”), Europe, North, South and Latin America, the Middle East, Northern Africa, and Asia.

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.

Pressure Exchanger Technology

Our pressure exchanger technology platform is at the heart of many of our solutions.  It is designed to efficiently capture and transfer

pressure energy, making commercial and industrial processes more efficient and environmentally sustainable, thereby lowering costs, saving

energy, and minimizing emissions.  This versatile technology is applicable to a wide range of industries that utilize pressurized fluids,

including liquids and gas, and is ideal for a wide range of pressure ratings.

Our pressure exchanger technology acts like a fluid piston, efficiently transferring energy between high- and low-pressure liquid or gas

through continuously rotating ducts.  Key to the operation of a pressure exchanger is the micron-level clearances between the rotor and the

pressure exchanger’s stationary components, including the sleeve and the end covers.  Fluid circulating within this clearance acts as a

lubricated bearing, minimizing frictional losses and wear for an extremely efficient exchange of pressure energy.

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The original product application of our pressure exchanger technology, the PX® Pressure Exchanger® (“PX”) energy recovery device

was a major contributor to the advancement of seawater reverse osmosis desalination (“SWRO”) globally, addressing “energy intensity”,

which is a key pain point for the industry.  The PX, which we believe is today’s industry standard in energy recovery in desalination,

establishes a value proposition by reducing energy use by up to 60% in SWRO facilities.  It is this significant savings that allowed SWRO to

supplant thermal desalination as today’s desalination technology of choice.  The PX, which uses no electricity, operates at up to 98%

efficiency and is designed to operate with no scheduled maintenance.  Today we continue to push the boundaries of our core technology to

handle different operating environments and industrial applications, such as wastewater and carbon dioxide (“CO2”) refrigeration, and deliver

reliable, high-performance solutions that generate cost savings and increase energy efficiency for our customers.

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Water Treatment

Markets

The need for clean water and energy optimization around the world is intensifying, driven by population growth, industrialization, rapid

urbanization, pollution, and climate change.  Apart from seasonal variations, the attainable supply of fresh water generally remains fixed and

is already decreasing in some geographic areas, as we believe that the reliability of rainfall grows more erratic in many geographies, water

levels drop in rivers and aquifers, and rising oceans encroach on historically fresh water sources near the coasts.  It has been projected by

the United Nations General Assembly that by 2030, global freshwater demand will exceed freshwater supply by 40%.  These trends make the

markets we serve, such as desalination and wastewater treatment, increasingly critical to meet growing global water demand.  Our goal is to

lower the costs and environmental impact associated with water production and treatment in the desalination and wastewater markets,

respectively.  In addition, we help our customers and the end user in their sustainability compliance goals.

Reverse osmosis (“RO”) is the preferred technology in the vast majority of desalination facilities and growing in importance in

wastewater applications.  As an industry leader in energy recovery devices, we deliver efficient, scalable solutions for recovering otherwise

wasted energy in the RO process, thereby helping our customers lower their operating costs and reduce carbon emissions.

Desalination

Worldwide seawater desalination plants using our products produce over 43 million cubic meters of water per day (“m3/day”).  As

water scarcity grows in communities across the globe, we are proud of our impact in enabling more affordable, sustainable access to this vital

resource.

Typical Process Flow Diagram

*  Main pump size reduced by up to 60% compared to a SWRO process not using any energy recovery device.

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Seawater Reverse Osmosis Desalination.  Energy intensive pumps are used to pressurize feed waters with varying concentrations of

salts, minerals and contaminants, which is then pumped through a semi-permeable membrane to achieve the desired water quantity and

quality.  This process results in fresh water, suitable for potable, agricultural and industrial use and a highly concentrated and pressurized

concentrate or brine stream.  Rather than dissipating or “wasting” the pressure energy from the discharge brine, our PX, the most commonly

adopted energy recovery solution, can transfer the pressure energy from the high-pressure discharge stream directly to a portion of the low-

pressure filtered feed water stream, thereby reducing the amount of flow required by the main high-pressure process pumps, which are the

largest consumers of power within the SWRO process.  Our highly efficient technology can recycle this pressure energy at peak efficiencies

up to 98%.  This results in a more efficient process as the size of the high-pressure pumps are greatly reduced, no longer needed to be sized

for full membrane feed flow, and are now re-sized for the permeate flow, thus reducing the energy usage by up to 60%, compared to a

system without energy recovery devices.  As a result, our PXs have helped make seawater desalination an economically viable and more

sustainable option in the production of potable water.

Seawater desalination has been our primary market for revenue generation.  These markets range from small, decentralized

desalination plants, such as those used in cruise ships and resorts, to large-scale project (“megaproject”) desalination plants, defined as

those which produce over 50 thousand m3/day.  Because of the geographical location of many significant desalination projects, geopolitical

and economic events can influence the timing of expected projects.  We anticipate that markets traditionally not associated with desalination,

such as the Americas, China and certain countries in Europe and North Africa, will develop and provide further revenue growth opportunities.

Both seawater and brackish market opportunities are represented by newly constructed (“greenfield”) and existing (“brownfield”) water

treatment projects.  These opportunities include retrofits, upgrades, and plant expansions, that either operate without an energy recovery

device or utilize alternative energy recovery device technologies.  The large-scale greenfield market has been the key market for our water

business and represents projects that are typically public in nature and involve a formal tendering process; while smaller projects, may be

private in nature, may or may not involve a formal tendering process.  Typical brownfield facilities face higher energy consumption and

reduced plant availability due to legacy technologies, aging or outdated equipment, and include improvements to existing operations,

equipment upgrades and potential expansions of existing capacity.

We work directly with the project bidders, generally large project developers, engineering, procurement, and construction firms (“EPC”

firm), end-users, and industry consultants, to specify our products prior to the project being awarded, where possible.  Once the project is

awarded to an EPC firm, our normal sales process ensues.  The greenfield market is highly competitive, and the tendering process pays

close attention to the cost to desalinate water (i.e., dollars per cubic meter of water produced).  Retrofit opportunities may or may not have a

formal tendering process.  We typically approach the plant owners, operators, and/or end-users of these facilities to present our leading life-

cycle cost value-proposition.

Wastewater

The wastewater market has more variety and covers a wide range of industries, such as discharges from heavy manufacturing, textile

production, chemical processing, mining operations, and municipal plants, and geographies.  As governments across the globe increase their

focus on water conservation, reusing, recycling, and limiting the amount of pollution, they are establishing more stringent requirements for

wastewater treatment to maximize water recovery, and to comply with growing freshwater withdrawal and discharge regulations.  Zero or

minimum liquid discharge (“ZLD” and “MLD”, respectively) applications are being observed in countries throughout the world.  We expect this

trend to continue to expand as we observe the implementation of regulations on the discharge of wastewater effluents as the world responds

to the growing gap between water availability and demand while focusing on minimizing and/or eliminating pollution from these industries.

Brackish Water Reverse Osmosis Desalination.  The brackish RO process is similar to that of the SWRO process.  Brackish water

typically has lower salt, mineral and contaminant content than seawater, therefore, fewer solids need to be removed and less energy is

expended on pressurizing the feed water.  Due to the lower cost and available pressure energy involved, our low pressure PX and hydraulic

turbochargers generally have characteristics more applicable to the brackish process.  The salt content in the feed water will ultimately

determine the system design and operating conditions which, in turn, will drive decisions related to the specification or type of energy

recovery device to be employed, if any.

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Energy Recovery Devices Utilized During Each Stage in the Treatment Train

As climate change becomes the focus of many countries, governments around the world are increasing their regulations on

sustainability as well as providing voluntary incentives.  Many municipal and industrial industries are adopting more sustainable water reuse

practices to reduce their reliance on existing water resources, as well as to market their sustainability performance to the public and their pro-

active risk management to their investors.  Sectors such as automotive, including electric vehicles, chemicals, pulp and paper, textiles,

semiconductors, and other heavy industries are often large water consumers.  Their water usage can compete with municipal and agricultural

water resources, further straining potable water supply in areas already struggling with water scarcity.

A variety of RO technologies may be utilized in the wastewater applications where our energy recovery solutions are applicable.  Such

processes are typically multi-staged, with each stage increasing in pressure as the wastewater is filtered to recover clean water from a

wastewater stream and concentrate pollutants to a level where they can be economically utilized or safely disposed, rather than discharged

into the environment.  Our energy recovery solutions, such as our hydraulic turbochargers, low-pressure PX, and our Ultra High-Pressure PX,

can be applied to each of these stages.

Technology Conversion

The thermal desalination process was the dominant seawater desalination technology employed throughout the 1990s.  In this

process, thermal energy is used to evaporate water from heated seawater and subsequently condenses the vapor to produce fresh potable

water.  Starting in the early 1990s, due to many factors including the introduction and greater usage of energy recovery devices, the process

of choice for the desalination industry shifted from thermal- to membrane-based RO desalination.

Over the past two decades RO desalination technology has become the predominant technology, supplanting thermal desalination

technology as today’s desalination technology of choice.  As water desalination plants that use the thermal desalination technology age, the

industry expects the majority of these plant owners to replace their existing thermal technology with RO desalination technology.  These

conversions are driving new demand for RO desalination equipment, which in turn creates demand for our products.

We also see a similar technology conversion in the wastewater market.  Thermal technologies have been the technology of choice for

RO systems seeking to maximize the removal of waste from the water used in the manufacturing process, such as in ZLD processes, where

all water is recovered and contaminants are reduced to solid waste, and MLD processes, where near-ZLD processes produce small volumes

of liquid waste.  Similar to seawater desalination, thermal technologies are an energy- and cost-intensive method for cleaning water in these

discharge processes, with up to 50% of costs typically stemming from thermal treatments.  Adopting ultra high-pressure reverse osmosis

(“UHPRO”) treatment methods to achieve ZLD and MLD objectives moves the cost of these thermal technologies further downstream.  Our

PX U Series pressure exchangers further reduce wasted energy of the UHPRO process by returning pressure energy to the system,

ultimately reducing overall energy costs and potentially lowering capital expenditures.

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Water Treatment Solutions

Pressure Exchangers

Our line of pressure exchangers are high efficiency positive-displacement isobaric energy recovery devices made of a highly-

engineered ceramic cartridge supported by a highly efficient hydrodynamic and hydrostatic bearing system.  Models in this product family are

designed for use in a variety of reverse osmosis systems within the water treatment industry, including seawater and brackish desalination,

wastewater treatment, and reuse.

High-Pressure PX Pressure Exchanger.  Our highly efficient PX Pressure Exchanger family of energy recovery devices delivers

unmatched energy savings for water treatment systems.  We offer a variety of sizes defined by the flow and pressure  requirements of the

system ranging as low as 20 and up to 400 gallons per minute (“gpm”) (as low as 4.5 and up to 90.8 cubic meters of water per hour (“m3/h”))

per device at pressures between 400-1200 pounds per square inch (“psi”) (28-84 kilograms per square centimeter (“bar”)); however, our

customers can design their energy recovery systems to achieve unlimited capacities by installing an array of  PXs in parallel.

Small and large desalination projects around the world rely on our range of PXs to achieve optimal operations and maximum energy

savings, and we believe the scalability and versatility of our PX can achieve similar success in the emerging wastewater markets we are

targeting.

Ultra High-Pressure PX.  Our Ultra High-Pressure PX energy recovery device, which we believe, addresses key

challenges, such as energy intensity and environmental impacts associated with treating wastewater in a variety of water

treatment applications.  Designed with the pressure exchanger technology that powers our flagship high pressure PX, the

Ultra High-Pressure PX, functions similarly to our PX but can withstand higher pressures.  We offer a variety of sizes

defined by the flow and pressure requirements of the system ranging as low as 10 and up to 250 gpm (or as low as

2.3 and up to 56.8 m3/h) per device at pressures up to 1800 psi (124 bar); however, by installing an array of PXs in

parallel, our customers can design their energy recovery system to achieve unlimited capacities.

While reverse osmosis adoption in wastewater treatment is growing, we believe our Ultra High-Pressure PX can help

accelerate further adoption of reverse osmosis in the growing zero and minimum liquid discharge markets by enhancing

RO’s affordability and efficiency compared to thermal treatment options, similar to the impact of our PX

in the seawater desalination market.

Low-Pressure PX.  Products in this family are ideal for municipal and industrial potable water reuse applications

that deploy low-pressure RO stages.  We offer a variety of sizes defined by the flow and pressure requirements of the

system ranging as low as 30 and up to 260 gpm (or as low as 6.8 and up to 59.0 m3/h) per device at pressures between

80-400 psi (6-28 bar); however, by installing an array of PXs in parallel, our customers can design their energy recovery

system to achieve unlimited capacities.

Pumps and Turbochargers

We offer high-pressure centrifugal pumps designed to complement our energy recovery devices for a wide range of

RO plant capacities and applications.

Hydraulic turbochargers.  Our AT and LPT hydraulic turbochargers are high efficiency centrifugal

energy recovery devices used in low-pressure brackish and high-pressure seawater desalination systems and wastewater treatment markets.

Our turbocharger product lines are highly efficient with state-of-the-art engineering in a compact configuration.  With custom-designed

hydraulics that allow for optimum performance over a wide range of operating conditions, our turbocharger technology offers solutions to

capital cost constrained single-stage RO applications, inter-stage boost applications typically found in brackish water desalination and some

wastewater treatment systems.  We believe our hydraulic turbochargers deliver substantial savings, operational benefits, and ease of

integration into systems.

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Pumps.  RO requires specialized high-pressure membrane feed and, in pressure exchanger applications, high-pressure circulation

pumps.  We manufacture and/or supply specialized high-pressure feed and circulation pumps for only a portion of the markets served by our

energy recovery solutions.  Our high-pressure feed pumps are designed to pressurize the membrane feed flow and overcome the osmotic

pressure requirements of the feed water resulting in the production of desalinated water.  Our high-pressure circulation pumps are designed

to circulate and control the high-pressure flow through our PX and to compensate for small pressure losses across the membranes, PX and

associated process piping in many desalination and wastewater applications.

Sales and Marketing

Our strategically located direct sales force offers our products through capital sale to our customers around the world.  We maintain a

sales and service footprint in strategic territories to handle desalination activities, such as in the U.S., China, India, Latin America, Spain,

Saudi Arabia, the United Arab Emirates, and countries in North Africa, allowing rapid response to our customers’ needs.  In addition, we are

expanding our team to handle the growing wastewater from industrial plants in the U.S., China, India, South America, and Taiwan.  Our team

is comprised of individuals with many years of desalination and wastewater treatment industry expertise.  Aligned to the geographic breadth

of our current and potential future customers, our product marketing approach includes a strategic presence at water industry events across

various regions.  In addition, we leverage our industry and market intelligence to develop new solutions and services that can be adopted by

our growing customer base.

A significant portion of our revenue is from outside of the U.S.  Additional segment and geographical information regarding our

product revenue is included in Note 2, “Revenue,” Note 9, “Segment Reporting,” and Note 10, “Concentrations,” of the Notes to Consolidated

Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K (the “Notes”).

Competition

As the water industry has evolved, we faced, and continue to face, increasing worldwide competition based on product offerings and

service.  While our technology has been embraced for many years as the industry standard in RO desalination plants, the competition has

increased over time whereby more companies are offering energy recovery devices similar to our devices.  Furthermore, we expect our

competition to begin offering new products that incorporate newer technology and materials that may work with existing and new RO

desalination and wastewater operations.  We believe our flagship PX has a competitive advantage over products offered by our competitors,

because our devices (1) are made with highly durable and corrosion-resistant aluminum oxide (“alumina”) ceramic parts that are designed for

a life of more than 25 years; (2) are, in certain circumstances, warrantied for high efficiencies; and (3) cause minimal unplanned and planned

downtime, resulting in lower lifecycle cost and cost-effective energy recovery solutions.  In addition, our PX offers optimum scalability in both

the desalination and growing wastewater market with a quick startup and no scheduled maintenance, as well as having been proven in the

market and trusted by our customers.

Project Channels

We separate our Water segment sales into three distinct channels that are related to financial, other commercial, and technical

aspects of the projects.  We identify these sales channels as megaproject (“MPD”), original equipment manufacturers (“OEM”) and

aftermarket (“AM”).

Megaproject.  MPD customers are major firms that develop, design, build, own and/or operate large-scale desalination plants with

capacities greater than 13.2 million gallons/day (50 thousand m3/day).  A majority of our water treatment revenue comes from this channel.

Our MPD customers have the required desalination expertise to engineer, undertake procurement for, construct, and sometimes own and

operate, large-scale desalination plants.  Due to the project structures and capacities of these plants, ongoing operating costs and life cycle

costs, rather than the initial capital expenditures are the key factor in the customers’ selection of an energy recovery device solution.  As

such, MPD customers most often select our PX, which we believe offers market-leading value with the highest technological and economic

benefit.  We work with our MPD customers to specify and optimize our PX solutions for their plant designs.  The typical desalination and

wastewater MPD project timeline between project tender and shipment may take up to 36 months; however, from time-to-time, may exceed

36 months.  Each project in this channel generally represents revenue opportunities over $1 million.

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Original Equipment Manufacturer.  OEM customers are companies that supply equipment, packaged systems, and various operating

and maintenance solutions for small- to medium-sized desalination and wastewater plants utilized by commercial and industrial entities, and

national, state, and local municipalities worldwide.  We sell to our OEM customers a broad set of our products, including our PX, hydraulic

turbochargers, high-pressure pumps, circulation booster pumps, and associated services.  As it relates to desalination and wastewater OEM

projects, these projects comprise of plants processing up to 13.2 million gallons/day (50 thousand m3/day), such as those located in  hotels

and resorts, power plants, cruise ships, agricultural sectors, local and other municipal sites, and industrial facilities.  In addition, these OEM

customers purchase our solutions for mobile, decentralized “quick water” or emergency water solutions.  Unlike MPD projects, desalination

and wastewater OEM projects are smaller in scope and the initial capital expenditure, rather than future ongoing operating costs, is often

more of a factor in selection of an energy recovery device solution in desalination.  Accordingly, we sell not only our PX, but also our

hydraulic turbochargers, which offer a lower cost alternative to our PX.  The typical desalination and wastewater OEM project timeline from

project tender to shipment generally ranges from one to 16 months; however, from time-to-time, it may exceed 16 months.  Each project in

this channel typically represents revenue opportunities up to $1 million.  Early stage revenue from these projects are dependent on the size of

system or retrofit of our customers’ projects.

Aftermarket.  Aftermarket customers are desalination or wastewater plant owners and/or operators who can utilize our technology to

upgrade or keep their plant running optimally, and usually have our solutions installed and in operation.  We provide spare parts, repair

services, field services and various commissioning activities.  We leverage our industry expertise in supporting our existing installed base to

ensure that our energy recovery solutions are being operated effectively and efficiently in order to maximize plant availability and overall

profitability of the facility operations, as required by our industry partners and customers.

Seasonality

Desalination or wastewater revenue occurs throughout a calendar year and are based on project timing and size.  We often

experience substantial fluctuations in desalination or wastewater revenue from quarter-to-quarter and from year-to-year primarily due to the

timing and execution of our MPD shipments, which can also vary from year to year.

Emerging Technologies

We are leveraging our pressure exchanger technology platform to develop new product applications and diversify into new industries.

We continue to push the limits of what our pressure exchanger technology can do, which we believe will unlock new commercial opportunities

in the future.

CO2

The global refrigeration and heating industries are major contributors to greenhouse gas emissions, of which the leakage of

hydrofluorocarbon (“HFC”) refrigerants within these closed systems is the leading cause.  HFCs have been recognized as a significant

contributor to global warming, up to thousands of times more potent than CO2 used as a refrigerant. Global regulations are pushing the

refrigeration and heating industries to transition away from incumbent HFCs to lower global warming potential (“GWP”) natural refrigerants.

CO2 used as a refrigerant is a climate-friendly alternative to greenhouse gas-emitting HFCs and has been the natural refrigerant of

choice for decades in Europe and Japan, where tens of thousands of CO2 implementations have occurred to date.  CO2-based refrigeration

systems for commercial and industrial applications are safe, sustainable, and commercially available; however, a CO2-based refrigeration

system can also consume significant amounts of electricity, especially in warm environments, making them expensive to operate.  We believe

our PX G1300®, which uses proven pressure exchanger technology to improve CO2-based refrigeration system performance, can contribute

to solving this challenge and help make CO2-based refrigeration more economically viable in a broader range of climates.  When integrated

into new or existing systems, the PX G1300 can reduce compressor workload to increase cooling capacity, system stability, and energy

efficiency.

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.

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PX G1300.  Our refrigeration-focused product leverages our existing ceramics, material science, and manufacturing

expertise.  The PX G1300 can reduce the energy consumption and operating costs of CO2-based refrigeration systems in a

broad range of operating conditions.

We designed the PX G1300 to be integrated into new or existing CO2-based refrigeration systems.  The PX G1300

can integrate with any existing rack controller and is easy to operate and maintain.

Sales and Marketing

We believe there is a potential market for the PX G1300 in a variety of channels, such as supermarket chains and cold storage

facilities.  The build of these commercial and industrial refrigeration systems is large enough and demands enough flow of CO2 refrigerant to

warrant the use of our device, which today implies any system 80 kilowatt in size or greater.

In understanding the market for the PX G1300, we have identified three major value propositions:

1.Energy Savings and Emissions Reduction.  The PX G1300 recycles the high-pressure energy of a CO2 system by compressing a

portion of the gas flow for “free.”  This “free” compression provided by the PX G1300 allows the main electrical refrigeration

compressor to work less to keep the refrigeration system at the same temperature.  In this way, our PX G1300 contributes to

lower energy consumption and lower costs by reducing the amount of cycles the main compressor operates, and thereby lower

emissions in a CO2 refrigeration system.

2.Increased Cooling Capacity.  The PX G1300 can add compression capacity to a transcritical CO2-based refrigeration system to

safeguard against high discharge pressure failures, which occur during heatwaves when refrigeration systems are under stress.

3.Operating Costs Savings.  The PX G1300 can help lower the costs of water usage and maintenance by reducing the reliance on

an adiabatic gas cooler system.

The magnitude of each of these value propositions, or lack thereof, will greatly depend on the geographic location of a refrigeration

system and temperature ranges that location experiences, the cost of energy at that location, the specific architecture of the refrigeration

system itself and possibly other parameters.

Channels and Customers

CO2 sales are reported under our OEM sales channel.  This includes direct sales to commercial or industrial customers, such as

supermarket chains, cold storage facilities, and other industrial users, and sales to intermediaries, such as refrigeration system installers or

refrigeration OEMs, to whom we sell the PX G1300 and associated services for inclusion in these customers’ new installation or retrofit of

existing systems.

The commercial refrigeration market ecosystem has multiple players who integrate the components to build a system.  These players

include supermarkets, which are the end users of the systems; contractors and installers that assist with the installation and maintenance of

the systems; refrigeration OEMs; and design consultants that assist in designing and specifying the systems for end users and in providing

the component specifications to the refrigeration OEMs.

In 2025, we continued to increase our commercialization efforts in the U.S. and in Europe. We began partnering with OEMs,

conducting multiple filed trials.  Through these field trials, the OEMs have been able to provide us significant feedback on the PX G1300´s

real world operations, installation, value proposition, such as energy savings, an increase in refrigeration capacity and lower operational

costs, and customer acceptance, all of which are necessary for successful commercialization of the PX G1300.

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Competition

The concept of energy recovery is a new one in the refrigeration industry.  Therefore, unlike in our water markets, there is no direct

analogous competitor to our pressure exchanger technology.  However, there are a variety of cost saving methods, such as parallel

compression plus ejector and parallel compressors, as well as alternative devices, such as adiabatic gas coolers, that refrigeration

manufacturers may try to introduce into their configurations to reduce energy consumption within their CO2-based refrigeration systems.

These cost saving methods include utilizing novel system architectures, new and improved equipment or materials, ejectors or other energy

recovery devices, and/or other technologies that could improve energy efficiency.  These cost savings methods may or may not be

compatible with the PX G1300.  As CO2-based refrigeration systems become more prevalent, we believe competitive technologies and

devices could arise.

Seasonality

There is no specific CO2 revenue seasonality to highlight in the early stages of this product lifecycle.

Sustainability

Our core technology leverages performance and energy efficiency to enhance operational profitability for our customers, helping

them achieve more sustainable operations. We are committed to managing our own operational footprint and delivering high-quality energy

recovery devices. Our sustainability approach integrates initiatives with measurable targets for our own operational footprint, alongside

delivering customer solutions that drive profitable, sustainable growth for both our customers and our business.

A comprehensive materiality assessment, conducted with input from investors, employees, and customers, helped us refine our

sustainability priorities. Our current sustainability goals focus on four key topics: Employees, Innovation & Opportunity, Product Safety &

Performance, and Operational Impact & Management. These topics were identified through this assessment, with input from our

management team and stakeholders, as most material to our business and our ability to create long-term value. These goals provide a

strategic framework for managing critical business factors, fostering a more resilient enterprise, and supporting sustained performance.

Employees. Guided by our purpose — to design and manufacture world-class energy-saving technology for critical infrastructure that

communities rely on every day, driving a more resilient and sustainable future — we seek to foster a workplace culture shaped by our core

values: where individuals are empowered to Own the Outcome with integrity and accountability, Connect to Win through collaboration and

trust, and Engineer for Agility in their approach to work. We encourage employees to Embrace the Challenge for personal growth and to

Innovate for Impact in shaping our markets and products. We are committed to providing a safe and supportive environment that encourages

professional development and values these contributions, which we view as fundamental to maintaining a high-performing and stable

workforce. For more information on our employees and programs, please see Human Capital Resources below.

Innovation & Opportunity. Innovation and strong customer relationships are pivotal to our ability to deliver solutions that address customer

needs and contribute to their operational profitability and environmental objectives. In 2020, we set a goal to double emissions reductions

delivered by our products by 2025. In 2024, we achieved this goal a year ahead of schedule. Building on this achievement, we continue to

develop innovative products and solutions that address evolving customer needs, driving profitable and sustainable outcomes for our

customers.

Product Safety & Performance. To maintain trust in the industries we serve, we focus on manufacturing products that deliver high

performance, reliability, and safety, generating value for our customers. Our commitment to product quality and safety is reinforced by our

goal to certify 100% of manufacturing operations to ISO 9001 standards or equivalent, alongside consistent performance on warranty

expenses.

Operational Impact & Management. We recognize the importance of efficiently managing our own operational footprint. In 2022, we set a

goal to reduce our Scope 1 and 2 greenhouse gas emissions intensity by 65% by the end of 2026, a target which supports operational

efficiency and resilience. We also continue to formalize our efforts to optimize waste and water consumption via new targets published in

2025.

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Our latest annual sustainability performance report that was published in June 2025 details our initiatives to manage sustainability

topics within our own business and drive profitable, sustainable outcomes for our customers. Reflecting our consistent performance and

transparency, we retained the highest ESG rating of AAA from MSCI ESG Research LLC (“MSCI”) as of MSCI’s last re-rating cycle. MSCI’s

evaluation recognizes Energy Recovery as one of the highest performing companies within the Industrial Machinery industry in MSCI’s All

Company World Index, highlighting robust corporate governance, labor management practices, and our engagement with clean technology

opportunities.

Our 2024 sustainability performance report is available for download on our website at: https://energyrecovery.com/sustainability/.

We have included this website address only as an inactive textual reference and do not intend it to be an active link to our website. Our 2024

sustainability performance report is not incorporated by reference into, and is not a part of, this Annual Report on Form 10-K.

Manufacturing

Our products, including our PX, hydraulic turbochargers, high-pressure pumps, and circulation booster pumps, are designed,

manufactured, assembled, and tested in two facilities located in California. Our facilities include advanced ceramics manufacturing and

testing equipment. In some instances, we rely on highly qualified third-parties for final assembly and testing.

We obtain raw, processed, and certain pre-machined materials from various suppliers to support our manufacturing operations.  A

limited number of these suppliers are single source to maintain material consistency and support new product development.  However,

although we may purchase from certain single source suppliers, we have qualified redundant source(s) to ensure consistent supply for many

of our critical raw materials and manufactured components.  Alumina ceramic components for our PX products are manufactured in-house

from high-purity alumina to the final product.  We are able to leverage our ceramics manufacturing across all of our PX product lines.

Through our vertically integrated ceramics precision manufacturing process, we ensure that all components meet our high standards for

quality, durability, and reliability.  The components for our other products undergo final precision machining to protect the proprietary nature of

our manufacturing methods and product designs, and to maintain premium quality standards.

We are committed to reducing the environmental impact of our operations.  We recognize that as we pursue our strategy of diversified

and disciplined growth, our operations and our impact on the environment may increase.  Some of the ways we currently seek to minimize

our environmental impact are by reducing consumption of resources through waste management strategies, optimizing the use of renewable

energy, and monitoring key environmental indicators.  For example, as part of our waste management strategies, during the machining

phase, when the solid components are shaped, excess high-purity alumina powder is collected, processed, and then reused.  Further, we

have incorporated in our testing process multiple test loops, which allows us to test products we manufacture to their operating conditions.

These test loops, which are a major driver of our water usage, have been modified to allow us to recycle a large proportion of the water used

in these testing cycles.  Our efforts to measure and manage our impact will continue to evolve as our business grows.

Research, Development and Technology

Research and development (“R&D”) has been, and remains, an essential part of our history, culture and corporate strategy.  Since our

formation, we have developed leading technology and engineering expertise through the evolution of our pressure exchanger technology,

which can enhance environmental sustainability and improve productivity by reducing energy consumption in pressurized 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.

We are applying our pressure exchanger technology in new and important ways, building new products to accelerate environmental

sustainability across more industries.  Our investments into R&D are focused on (1) advancing our solutions to better service historical

markets, such as desalination; (2) applying our pressure exchanger technology to additional markets, such as the wastewater and CO2

markets; and (3) fundamental research into new applications of our pressure exchanger technology in existing and new verticals.

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We recognize the importance of carefully stewarding resources to support our ongoing R&D program.  We maintain advanced

analytical and testing capabilities to evaluate our solutions at all company sites.  We have developed complex analytical tools which allow us

to be less reliant on full-scale testing that is costly and often uses considerable amounts of water and consumable energy.  Our advanced

numerical modeling and analytical tools allow for 3-dimensional, multi-phase, multi-physics, and multi-scale, computational fluid dynamics,

fluid structure interactions, thermodynamics, and system analysis.  Leading-edge modeling and analytical techniques coupled with extensive

state of the art experimental capabilities allow us to further refine our existing water and refrigeration technologies, as well as developing new

derivatives of our pressure exchanger technology for complex systems and applications.

Our engineering team, many of whom carry accreditation from world-recognized engineering organizations, specialize in a range of

technical fields critical to support our current product lines and advance our incubation initiatives, including core engineering competencies of

fluid mechanics, solid mechanics with expertise in computational fluid dynamics and finite element analysis, bearings design (roller-element,

hydrostatic, and hydrodynamic), multi-phase flow, dynamics and controls, acoustics and vibrations, tribology, material science and coatings,

pumps and turbines, turbo-machinery, and rotating equipment.

Intellectual Property

We seek patent protection for new technologies, inventions, and improvements that are likely to be incorporated into our solutions.

We rely on patents, trade secret laws, and contractual safeguards to protect the proprietary tooling, processing techniques, and other know-

how used in the production of our solutions.  We have a robust intellectual property (“IP”) portfolio consisting of U.S. and international issued

patents as well as pending patent applications.

We have registered the following trademarks with the United States Patent and Trademark office: “ERI,” “PX,” “PX Pressure

Exchanger,” “Pressure Exchanger,” “PX G1300,” and the Energy Recovery logo.  We have also applied for and received registrations in

international trademark offices.

Human Capital Resources

Our employees are key to our Company’s success.  We believe we have a talented, motivated and dedicated team, and we work to

create an inclusive, safe, and engaging environment, for all of our employees.  Our company is built around innovation and driven by

customer focus.  Our employees challenge the status quo, actively partner to resolve challenges, and seek to continuously improve

themselves as well as our operations.

As of December 31, 2025, we had 230 full-time employees.  Our full-time employees represent approximately 100% of our staffing,

and include both permanent and leased employees.  Our leased employees include sales and service agents worldwide, and IT support.  Our

employees are not unionized, and we consider our relations with our employees to be good.

We are proud to have built a global workforce to match our global customer base.  Our employees represent a broad array of

backgrounds, professionally and personally, and we believe that this diversity of experience and perspectives is a competitive advantage that

allows us to better serve the needs of our customers.

Our Code of Business Conduct (our “Code”) serves as a critical tool to help all of us recognize and report unethical conduct, while

preserving and nurturing our culture.  Our Code is reflected in our employee manual, which we provide to all of our employees, and training

programs.  Both our employee manual and training programs include our policies against harassment and bullying, and the fair treatment of

all employees in the workplace.

Recruiting, Training and Retention

Our focus is to create an engaged employee experience, throughout the process of attracting, onboarding, developing, and retaining

employees.  We are committed to supporting employee development as well as providing competitive benefits and a safe workplace.  We

support and develop our employees through global training and development programs that build and strengthen employees’ leadership and

professional skills while striving to enhance our employee’s financial, mental and physical wellness.  To assess and improve employee

retention and engagement, we regularly solicit feedback through engagement surveys and we take action to address areas of employees’

concerns.

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We strive to keep our employees well informed through various engagement activities.  Our engagement efforts include all-employee

town hall meetings, informational meetings, which includes our executive staff meeting with small groups of employees in an informal setting,

through which we aim to increase transparency and promote a culture of open communication, product and manufacturing training, where we

help our employees to understand our product and the process to manufacture these products, and newsletters.  Our values and ethics serve

as the guiding force through which we proactively maintain the highest standards of business conduct.

Compensation and Benefits

We believe that compensation should be competitive and should enable our employees to share in our company’s success.  In

addition, we recognize our employees are most likely to thrive when they have the resources to meet their needs and the time and support to

succeed in their professional and personal lives.  In support of this, we offer a wide variety of benefits for our employees and we invest in

tools and resources that are designed to support our employees’ individual growth and development.

Our compensation and benefit programs are designed to recognize our employees’ contributions to value, ingenuity and business

results, including variable pay, which rewards each employee for the Company’s and individual’s performance.  All full-time and full-time

equivalent employees, where allowed, are included in our stock-based equity incentive program, and are offered health and welfare benefits,

mental wellness programs, development programs and training courses.  In addition, our employees are afforded the opportunity to give back

to our communities through donations of time and money through our company sponsored programs.

Workplace Health and Safety

We are committed to providing a safe and healthy workplace.  We continuously strive to meet or exceed compliance with all laws,

regulations and accepted practices pertaining to workplace safety.  All employees are required to comply with established safety policies,

standards and procedures, and to attend and complete annual safety training based on their job function.  To accomplish our safety goals, we

developed and maintain company-wide policies to ensure the safety of each employee, as well as compliance with domestic and international

safety standards.

Additional Information

Our website is https://energyrecovery.com.  We also maintain an Investor Relations website as a routine channel for distribution of

important information, including news releases, presentations, and financial statements (https://ir.energyrecovery.com).  We intend to use our

Investor Relations website as a means of complying with our disclosure obligations under Regulation FD.  Accordingly, investors should

monitor our Investor Relations website in addition to press releases, Securities and Exchange Commission (“SEC”) filings, and public

conference calls and webcasts.  Our Annual Report on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, all

amendments to those reports, and the Proxy Statement for our Annual Meeting of Stockholders are made available, free of charge, in the

Investor Relations section of our website, as soon as reasonably practicable after the reports have been filed with, or furnished to, the SEC.

The information contained on our website, or any other website, is not part of this report nor is it considered to be incorporated by reference

herein or with any other filing we make with the SEC.  Our headquarters and primary manufacturing center is located at 1717 Doolittle Drive,

San Leandro, California 94577, and our main telephone number is (510) 483-7370.  The SEC maintains an internet site that contains reports,

proxy and information statements and other information regarding issuers that file electronically with the SEC.  The address of the SEC

website is http://www.sec.gov.  We have included this website address only as an inactive textual reference and do not intend it to be an

active link to the SEC website.

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