Energy Recovery, Inc. (ERII) Risk Factors

Item 1A — Risk Factors

The following discussion sets forth what management currently believes could be the most significant risks and uncertainties that

could impact our businesses, results of operations, and financial condition.  Other risks and uncertainties, including those not currently known

to us or our management, could also negatively impact our businesses, results of operations, and financial conditions.  Accordingly, the

following should not be considered a complete discussion of all of the risks and uncertainties we may face.  We may amend or supplement

these risk factors from time to time in other reports we file with the SEC.

Risks Related to our Water Segment

Our Water segment revenues largely depend on the construction of new large-scale desalination plants and the retrofit of existing

desalination plants, and as a result, our operating results have historically experienced, and may continue to experience,

significant variability due to volatility in capital spending, availability of project financing, project timing, execution and other

factors affecting the broader water desalination industry.

We currently derive the majority of our Water segment revenues from sales of energy recovery products and services used in newly

constructed, large-scale desalination plants and the retrofit of existing desalination plants, particularly in dry or drought-ridden regions of the

world.  The demand for our products used in the Water segment may decrease if the construction of these large-scale desalination plants or

the retrofit of existing plants declines for any reason, including, any global or regional economic downturns, worsening global or regional

political conflicts, worsening regional conditions, changing government priorities, or the impact of any global or regional conflicts.

Other factors that could affect the number and capacity of large-scale desalination plants built or the timing of their completion, include

the availability of required engineering and design resources; availability of credit and other forms of financing; the health of the global

economy; inflation rates; changes in government regulation, permitting requirements, or priorities; and reduced capital spending for water

desalination solutions.  Each of these factors could result in reduced or uneven demand for our products.  Pronounced variability, complete

cancellations or delays in the construction of such plants or reductions in spending for desalination in general could negatively impact our

Water segment sales, which in turn could have an adverse effect on our entire business, financial condition, or results of operations, and

make it difficult for us to accurately forecast our future sales.

Our Water segment faces competition from a number of companies that offer competing energy recovery solutions.  If any of these

companies produce superior products or offer their products at substantially lower prices, our competitive position in the market

could be harmed and our revenues may decline.

The market for energy recovery devices for desalination and other water treatment plants is becoming increasingly competitive and

we expect this competition to intensify as the desalination and wastewater markets continue to grow.  Competitors have introduced products

that are similar to, and directly compete with, our key energy recovery products.  In addition, we expect new competitors to enter the market,

and existing competitors to introduce improvements to their existing products and introduce new products that are directly competitive to our

solutions.  Our competitors’ existing, new, and improved products may be superior to our products and/or could be offered at prices that are

considerably less than the cost of our products. Our customers may also encourage competition by purchasing our competitors products.

The performance and pricing pressure of such products could cause us to adjust the prices of certain products to remain competitive, or we

may not be able to continue to win large contracts, which could adversely affect our market share, competitive position and margins.  Some

of our current and potential competitors may have significantly greater financial, technical, marketing, and other resources; longer operating

histories; or greater name recognition.  They may also have more extensive products and product lines that would enable them to offer multi-

product or packaged solutions as well as competing products at lower prices or with other more favorable terms and conditions.  As a result,

our ability to sustain our market share may be adversely impacted, which would affect our business, product margins, operating results, and

financial condition.  In addition, if one of our competitors were to merge or partner with another company, the change in the competitive

landscape could adversely affect our continuing ability to compete effectively.

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A sustained downturn in the economy or global unrest could impact the future of new, and the retrofit of existing, desalination

plants, and the treatment of various wastewater verticals, which could result in decreased demand for our water products and

services.

The demand for our water products and services depends primarily on the continued construction of new large-scale desalination

plants, the retrofit of existing plants, and the construction of wastewater treatment facilities, particularly in the countries that are part of the

Gulf Cooperation Council, China, Taiwan and India.  Weak economic conditions, inflation and global uncertainty including the continuing

conflicts in Ukraine and many parts of the Middle East may have a negative economic impact on these and other countries, which may

impact the levels of spending on, timing of, delays to, and availability of, project financing for new desalination and retrofit plant projects.  The

inability of our customers to secure credit or financing for these projects, may result in the postponement or cancellation of these projects.  In

addition, the change in government priorities and/or their reduction in spending for water treatment projects could result in decreased demand

for our products and services, which could have an adverse effect on our business, financial condition or results of operations.

We may not be successful in developing suitable market adoption for our products in the wastewater market.

We have introduced a number of products designed specifically for the wastewater market in the last few years, including the Ultra

High-Pressure PX family of products and the low pressure PX. While we have enjoyed some initial market adoption in certain key markets,

the wastewater market continues to evolve and covers a wide range of industries and geographies, and utilizes a variety of RO technologies.

While we believe our products can be a potential solution to these different applications, there is no guarantee that we will continue to be

successful in developing market adoption of our wastewater products.  While countries like China and India are beginning to mandate zero or

minimum liquid discharge (“ZLD” and “MLD”, respectively) requirements for specific industries, in many parts of the world there are no

regulations or minimal regulations for treating wastewater.  Accordingly, end users in other parts of the world with no or minimal regulations

may not be willing to implement wastewater treatment at all or, if they do plan to implement a wastewater treatment program, they may select

a competitive or alternative wastewater treatment technology.  Similar to the desalination market, there are many competitors and competitive

products that can service wastewater industries that do not include RO technologies or utilize our products.  These competitors may have

existing relationships with end users, greater name recognition, and/or significantly greater financial, technical, marketing and other resources

that may make it challenging for us to compete in this industry.  As a result of the foregoing, we may not be able to successfully develop our

wastewater business, develop any market share, or win any large contracts, which would affect our business, operating results and financial

condition.

Risks Related to our Emerging Technologies Segment

We have decided to wind down operations of our CO2 retail grocery business, and we expect to incur costs associated with the

wind down, which will have an adverse effect on our Emerging Technologies segment financial condition and results of operations.

For the past decade, the global commercial and industrial refrigeration industry has been shifting away from HFC-based

refrigerants to natural refrigerants, such as CO2-based refrigerants in response to the global HFC-based refrigerant phase-down and

subsequent environmental regulations. We introduced the PX G1300 energy recovery device for use in CO2-based refrigeration systems in

2021. While interest in the PX G1300 had been positive, in February 2026, as a result of discussions with OEM and end user customers, we

decided to wind down operations in the CO2 business within our Emerging Technologies segment due to a fundamental change in the

business’ outlook. We expect to substantially complete the wind down in the first quarter of 2026, and we will incur costs associated with the

wind down which will have an adverse effect on our Emerging Technologies segment financial condition and results of operations.

Additionally, as a result of the wind down, we will not generate revenues in the CO2-based refrigeration market.

Our expected future development of the next generation of the PX G1300 may not be completed as anticipated and/or may not meet

our expectations.

We are currently working on the next generation of the PX G1300.  If the project timeline is not completed as anticipated, or if the

development of the next generation of the PX G1300 does not meet the expected goals, or if we experience unanticipated problems, we may

incur a reduction in our forecasted revenues or market share.  In addition, any delays may adversely affect our competitive position and could

have a material adverse effect on our business.

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We may not be able to develop future new technologies successfully.

We have made a substantial investment in R&D and sales and marketing to execute our diversification strategy into new and existing

fluid flow markets, including our recent commercial refrigeration products.  While we see diversification as core to our growth strategy, there is

no guarantee that we will be successful in our efforts.  Our model for growth is based in part on our ability to initiate and embrace disruptive

technology trends, to enter new markets, both in terms of geographies and product areas, and to drive broad adoption of the products and

services that we develop and market.  Our competitive position and future growth depend upon a number of factors, including our ability to

successfully: (i) innovate, develop and maintain competitive products, and services to address emerging trends and meet customers’ needs,

(ii) defend our market share against current and any future competitors, (iii) enhance our product and service offerings by adding innovative

features or disruptive technologies that differentiate them from those of our competitors and prevent commoditization, (iv) develop,

manufacture and bring compelling new products and services to market quickly and cost-effectively, (v) attract, develop and retain individuals

with the requisite innovation and technical expertise and understanding of customers’ needs to develop new technologies, products and

services, and (vi) continue to invest in manufacturing, R&D, engineering, sales and marketing, and customer support.  Any inability to execute

this model for growth could damage our reputation, limit our growth, and negatively affect our operation results.  In addition, profitability, if

any, in new industrial verticals may be lower than in our Water segment, and we may not be sufficiently successful in our diversification

efforts to recoup investments.  The failure of our technologies, products or services to maintain and gain market acceptance due to more

attractive offerings, or customers’ slower-than-expected adoption of, and investment in, our new and innovative technologies could

significantly reduce our revenues or market share and adversely affect our competitive position.

Risks Related to our General Business

Our operating results may fluctuate significantly, making our future operating results difficult to predict and causing our operating

results to fall below expectations.

Our quarterly and yearly operating results may fluctuate due to a variety of factors, many of which are outside of our control.  We have

experienced significant fluctuations in revenue from quarter-to-quarter and year-to-year, and we expect such fluctuations to continue.  As a

result, comparing our operating results on a period-to-period basis may not be meaningful.  Since it is difficult for us to anticipate the impact

of these fluctuations on our future results, in the event our revenue or operating results fall below the expectations of investors or securities

analysts, our stock price may be negatively affected.

Material variations to our forecasted MPD project delivery timeline in the fourth quarter of a fiscal year may have a substantial

negative impact on our annual operating results and financial condition.  Each of our MPD contracts generally has a minimum dollar value of

approximately $1.0 million, with larger MPD contracts exceeding $10.0 million.  We generally recognize revenue under MPD contracts when

control of the promised goods or services is transferred to our customers.  If 1) delivery is cancelled, postponed or otherwise delayed beyond

the end of the fourth quarter; or 2) if control of the promised goods or services is transferred beyond the end of the fourth quarter; we will not

be able to recognize that revenue for the fiscal year.  If we experience unforeseen fourth quarter delivery cancellations, postponements or

other delays due to project cancellations, project delays, transportation or other shipping delays, or other adverse events would have

prevented delivery in the fourth quarter, it is unlikely we will have sufficient time to make up such revenue shortfall.

Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense.  As a result, our

sales are difficult to predict and may vary substantially from quarter to quarter, which may cause our operating results to fluctuate.

Our sales efforts involve substantial education of our current and prospective customers about the use and benefits of our energy

recovery products.  This education process can be time-consuming and typically involves a significant product evaluation process which is

particularly pronounced when dealing with product introduction into new fluid flow industrial verticals. For example, in our Water segment, the

average Water segment sales cycle for our international MPD customers, which are involved with larger desalination plants, can be up to 36

months, and may exceed 36 months from time-to-time, and the average sales cycle for our OEM customers, which are involved with smaller

desalination plants, ranges from one to 16 months, and may exceed 16 months from time-to-time.  These long sales cycles make revenue

predictions difficult and results in our expending significant resources well in advance of orders for our products, which may cause our

operating results to fluctuate and may adversely affect our financial condition.

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Our Water contracts often contain holdback provisions of up to 10% of the contract price.  If we are unable to collect unbilled

receivables, which are caused in part by these holdback provisions, our operating results could be adversely affected.

Our Water contracts with large EPC firms generally contain holdback provisions that typically delay final installment payments for our

products by up to 24 months after the product has been shipped and revenue has been recognized.  Generally, 10% or less of the revenue

we recognize pursuant to our customer contracts is subject to such holdback provisions and is generally accounted for as contract assets.

Such holdbacks may result in relatively high unbilled receivables.  If we are unable to collect these performance holdbacks, our operating

results and financial condition could be adversely affected.

We depend on a limited number of suppliers for some of our components.  If our suppliers are not able to meet our demand and/or

requirements, our business could be harmed.

We rely on a limited number of suppliers for vessel housings, stainless steel ports, and alumina powder for our portfolio of energy

recovery devices and stainless steel castings and components for our hydraulic turbochargers and pumps.  Our reliance on a limited number

of manufacturers for these supplies involves several risks, including reduced control over delivery schedules, quality assurance,

manufacturing yields, production costs caused by rising inflation, and lack of guaranteed production capacity or product supply.  We may

qualify additional suppliers in the future, which would require time and resources.  If we do not qualify additional suppliers, we may be

exposed to increased risk of capacity shortages due to our dependence on current suppliers.

We do not have long-term supply agreements with our suppliers but secure our supplies on a purchase order basis.  Our suppliers

have no obligation to supply products to us for any specific period, in any specific quantity, or at any specific price, except as set forth in a

particular purchase order.  Our requirements may represent a small portion of the total production capacities of these suppliers, and our

suppliers may reallocate capacity to other customers, even during periods of high demand for our products.  We have in the past

experienced, and may in the future experience, product quality issues and delivery delays with our suppliers due to factors such as high

industry demand or the inability of our vendors to consistently meet our quality or delivery requirements.  If our suppliers were to cancel or

materially change their commitments to us or fail to meet quality or delivery requirements needed to satisfy customer orders for our products,

we could lose time-sensitive customer orders, be unable to develop or sell our products cost-effectively or on a timely basis, if at all, and have

significantly decreased revenue, which could harm our business, operating results, and financial condition.

We are subject to manufacturing risks, particularly related to new products, which could lead to excessive scrap, quality defects,

warranty claims in excess of our warranty provision or result in a significant or a large number of warranty or other claims in any

given year.

We manufacture most of our products in our facilities.  In connection with new products, we may sometimes need to develop new

manufacturing processes and techniques that may lead to an increase in excess scrap compared to our more mature processes, as well as

an increase in quality defects.  We provide warranties for most of these products and while we test our products in our manufacturing facilities

through a variety of means, there can be no assurance that our testing will reveal all quality defects in our products, which may not become

apparent until after the products have been sold into the market.  Accordingly, there is a risk that we may incur increased expenses due to

excess scrap and significant warranty claims that will result in additional cost of revenue if our warranty provisions are not sufficient to cover

the actual cost of resolving issues related to defects in our products.  If these additional expenses are significant, they could adversely affect

our business, financial condition, and results of operations.

Parts of our inventory may become excess or obsolete, which would increase our cost of revenues.

Inventory of raw materials, parts, components, work in-process, or finished products may accumulate, and we may encounter losses

due to a variety of factors, including technological change in the water desalination process; changes in the wastewater and refrigeration

markets that result in product redesign; long delays in shipment of our products or order cancellations, and/or changes related to

improvements in existing product design; our need to order raw materials that have long-lead times; our inability to estimate exact amounts

and types of items needed, especially with regard to the configuration of our high-efficiency pumps; and cost reduction initiatives resulting in

component changes within the products.

In addition, we may, from time-to-time, purchase more inventory than is immediately required in order to shorten our delivery time in

case of an anticipated increase in demand for our products.  If we are unable to forecast demand for our products with a reasonable degree

of certainty and our actual orders from our customers are lower than these forecasts, we may accumulate excess inventory that we may be

required to write off, and our business, financial condition, and results of operations could be adversely affected.

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We may not generate positive returns on our research and development and our corporate growth strategy.

Developing our products is expensive and the investment in product development may involve a long payback cycle.  While we

believe one of our greatest strengths lies in our innovation and our product development efforts, successfully commercializing such efforts

and generating a return can be difficult.  We expect that our results of operations may be impacted by the timing and size of these

investments.  In addition, these investments may take several years to generate positive returns, if ever.

Our corporate growth strategy provides a roadmap for overall growth of our Company, including certain product introduction timelines,

market opportunities and operating cost measures.  While we believe that this roadmap prepares us for the future growth and longevity of our

Company, we cannot be assured that all aspects in our corporate growth strategy will result in a favorable impact.  Accordingly, actual

implementation of our corporate growth strategy may vary from the original roadmap, and the variations may be material.  In light of the

foregoing, our corporate growth strategy, and/or subsequent changes to our corporate growth strategy, could have an adverse effect on our

business, financial condition, or results of operations.

Business interruptions may damage our facilities or those of our suppliers.

Our operations and those of our suppliers may be vulnerable to interruption by fire, earthquake, flood, and other natural disasters, as

well as power loss, telecommunications failure, and other events beyond our control.  Our headquarters in California is located near major

earthquake faults and has experienced earthquakes in the past.  If a natural disaster occurs, our ability to conduct our operations could be

seriously impaired, which could harm our business, financial condition, results of operations, and cash flows.  We cannot be sure that the

insurance we maintain against general business interruptions will be adequate to cover all of our losses.

We are, from time to time, involved in legal proceedings and may be subject to additional future legal proceedings that may result

in material adverse outcomes.

In addition to the IP litigation risks discussed below, we may become involved in the future in various commercial and other disputes

as well as related claims and legal proceedings that arise from time to time in the course of our business.  See Note 7, “Commitments and

Contingencies – Litigation,” of the Notes for information about certain legal proceedings in which we are involved.  Our current legal

proceedings and any future lawsuits to which we may become a party are, and will likely be, expensive and time consuming to investigate,

defend and resolve, and will divert our management’s attention.  Any litigation to which we are a party may result in an onerous or

unfavorable judgment that may not be reversed upon appeal or in payments of substantial monetary damages or fines, or we may decide to

settle lawsuits on similarly unfavorable terms, which could have an adverse effect on our business, financial condition, or results of

operations.

Our actual operating results may differ significantly from our guidance.

We release guidance in our quarterly earnings conference calls, quarterly earnings releases, or otherwise, regarding our future

performance that represents our management’s estimates as of the date of release.  This guidance, which includes forward-looking

statements, will be based on projections prepared by our management.  These projections will not be prepared with a view toward

compliance with published guidelines of the American Institute of Certified Public Accountants, and neither our registered public accountant

nor any other independent expert or outside party compiles or examines the projections.  Accordingly, no such person will express any

opinion or any other form of assurance with respect to the projections.

Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently

subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are

based upon specific assumptions with respect to future business decisions, some of which will change.  We will continue to state possible

outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are changed.  The high and low ranges are

not intended to imply that actual results could not fall outside of the suggested ranges.  The principal reason that we release guidance is to

provide a basis for our management to discuss our business outlook with analysts and investors.  We do not accept any responsibility for any

projections or reports published by any such third parties.

Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the guidance

furnished by us will not materialize or will vary significantly from actual results.  Accordingly, our guidance is only an estimate of what

management believes is realizable as of the date of release.  Actual results may vary from our guidance and the variations may be material.

In light of the foregoing, investors are urged not to rely upon our guidance in making an investment decision regarding our common stock.

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Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this

“Risk Factors” section in this Annual Report on Form 10-K could result in the actual operating results being different from our guidance and

the differences may be adverse and material.

In preparing our financial statements we make certain assumptions, judgments and estimates that affect amounts reported in our

consolidated financial statements, which, if not accurate, may significantly impact our financial results.

We make assumptions, judgments and estimates for a number of items, including the fair value of financial instruments, goodwill, and

long-lived assets, the realizability of deferred tax assets, the recognition of revenue and the fair value of stock awards.  We also make

assumptions, judgments and estimates in determining the accruals for employee-related liabilities, including commissions and variable

compensation, and in determining the accruals for uncertain tax positions, valuation allowances on deferred tax assets, allowances for

doubtful accounts, and legal contingencies, if any.  These assumptions, judgments and estimates are drawn from historical experience and

various other factors that we believe are reasonable under the circumstances as of the date of the consolidated financial statements.  Actual

results could differ materially from our estimates, and such differences could significantly impact our financial results.

Our global operations expose us to risks and challenges associated with conducting business internationally, and our results of

operations may be adversely affected by our efforts to comply with the laws of other countries, as well as U.S. laws which apply to

international operations, such as the U.S. Foreign Corrupt Practices Act (“FCPA”) and U.S. export control laws.

We operate on a global basis with offices or activities in North, South and Latin America, Middle East and Africa, Asia, and Europe.  In

the future, we may further expand the international reach of our operations, including new offices and manufacturing facilities.  As a result, we

are exposed to several political, economic and other uncertainties, including increased risks of social unrest, strikes, terrorism, war, the high

cost of investment to establish a presence in a new market, changes in economic, political or other location conditions.  In addition, we face

risks inherent in compliance with international and U.S. laws and regulations that apply to our international operations.  These laws and

regulations include tax laws, anti-competition regulations, import and trade restrictions, export control laws, and laws which prohibit corrupt

payments to governmental officials or certain payments or remunerations to customers, including the U.S. FCPA or other anti-corruption laws

that have recently been the subject of a substantial increase in global enforcement.  Many of our products are subject to U.S. export law

restrictions that limit the destinations and types of customers to which our products may be sold, or require an export license in connection

with sales outside the U.S.  Given the high level of complexity of these laws, there is a risk that some provisions may be inadvertently or

intentionally breached, for example, through fraudulent or negligent behavior of individual employees, our failure to comply with certain formal

documentation requirements, or otherwise.  Also, we may be held liable for actions taken by our local dealers and partners.  Violations of

these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, and prohibitions or conditions on

the conduct of our business.  Any such violations could include prohibitions or conditions on our ability to offer our products in one or more

countries and could materially damage our reputation, our brand, our business, and our operating results.  In addition, we operate in many

parts of the world that have experienced significant governmental corruption to some degree and, in certain circumstances, strict compliance

with anti-bribery laws may conflict with local customs and practices.  We may be subject to competitive disadvantages to the extent that our

competitors are able to secure business, licenses, or other preferential treatment by making payments to government officials and others in

positions of influence or through other methods that relevant law and regulations prohibit us from using.  Our success depends, in part, on

our ability to anticipate these risks and manage these difficulties.  These factors or any combination of these factors may adversely affect our

revenue or our overall financial performance.

Our failure to maintain appropriate sustainability practices and disclosures could result in reputational harm, a loss of customer

and investor confidence, and adverse business and financial results.

Governments, investors, customers, and employees are enhancing their focus on sustainability practices and disclosures, and

expectations in this area are rapidly evolving and increasing.  While we monitor the various and evolving standards and associated reporting

requirements, failure to adequately maintain appropriate sustainability practices that meet diverse stakeholder expectations may result in the

loss of business, reduced market valuation, an inability to attract customers, and an inability to attract and retain top talent.

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We must comply with a variety of existing and future laws and regulations, such as sustainability initiatives, that could impose

substantial costs on us and may adversely affect our business.

Increasingly regulators, customers, investors, employees and other stakeholders are focusing on sustainability matters.  Concern over

climate change can result in new or additional legal or regulatory requirements designed to reduce greenhouse gas emissions and/or mitigate

the effects of climate change on the environment, such as taxation of, or caps on the use of, carbon-based energy.  While we have certain

sustainability initiatives, there can be no assurance that regulators, customers, investors, and employees will determine that these programs

are sufficiently robust.  There can be no assurance that we will be able to attain any announced goals related to our sustainability program,

as statements regarding our sustainability goals reflect our current plans and aspirations and are not guarantees that we will be able to

achieve them within the timelines we announce or at all.  Actual or perceived shortcomings with respect to our sustainability initiatives and

reporting can impact our ability to hire and retain employees, increase our customer base, or attract and retain certain types of investors.  Any

such new or additional legal or regulatory requirements may increase the costs associated with, or disrupt sourcing, manufacturing and

distribution of, our products which may adversely affect our business and financial statements.

In addition, parties are increasingly focused on specific disclosures and frameworks related to sustainability matters.  Collecting,

measuring, and reporting sustainability information and metrics can be costly, difficult and time consuming, is subject to evolving reporting

standards, and can present numerous operational, reputational, financial, legal and other risks, any of which could have a material impact,

including on our reputation and stock price.  Inadequate processes to collect and review this information prior to disclosure could be subject

to potential liability related to such information.

We may seek to expand through acquisitions of and investments in other businesses, technologies, and assets.  These acquisition

activities may be unsuccessful or divert management’s attention.

We may consider strategic and complementary acquisitions of and investments in other businesses, technologies, and assets, and

such acquisitions or investments are subject to risks that could affect our business, including risks related to:

•the necessity of coordinating geographically disparate organizations;

•implementing common systems and controls;

•integrating personnel with diverse business and cultural backgrounds;

•integrating acquired research and manufacturing facilities, technology and products;

•combining different corporate cultures and legal systems;

•unanticipated expenses related to integration, including technical and operational integration;

•increased costs and unanticipated liabilities, including with respect to registration, environmental, health and safety matters, that

may affect sales and operating results;

•retaining key employees;

•obtaining required government and third-party approvals;

•legal limitations in new jurisdictions;

•installing effective internal controls and audit procedures;

•issuing common stock that could dilute the interests of our existing stockholders;

•spending cash and incurring debt;

•assuming contingent liabilities; and

•creating additional expenses.

We may not be able to identify opportunities or complete transactions on commercially reasonable terms, or at all, or actually realize

any anticipated benefits from such acquisitions or investments.  Similarly, we may not be able to obtain financing for acquisitions or

investments on attractive terms.  If we do complete acquisitions, we cannot ensure that they will ultimately strengthen our competitive or

financial position or that they will not be viewed negatively by customers, financial markets, investors, or the media.  In addition, the success

of any acquisitions or investments also will depend, in part, on our ability to integrate the acquisition or investment with our existing

operations.

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The integration of businesses that we may acquire is likely to be a complex, time-consuming, and expensive process and we may not

realize the anticipated revenues or other benefits associated with our acquisitions if we fail to successfully manage and operate the acquired

business.  If we fail in any acquisition integration efforts and are unable to efficiently operate as a combined organization utilizing common

information and communication systems, operating procedures, financial controls, and human resources practices, our business, financial

condition, and results of operations may be adversely affected.

In connection with certain acquisitions, we may agree to issue common stock or assume equity awards that dilute the ownership of

our current stockholders, use a substantial portion of our cash resources, assume liabilities, record goodwill and amortizable intangible assets

that will be subject to impairment testing on a regular basis and potential periodic impairment charges, incur amortization expenses related to

certain intangible assets, and incur large and immediate write-offs and restructuring and other related expenses, all of which could harm our

financial condition and results of operations.

Our success depends, in part, on key personnel whose continued service is not guaranteed.

Our success depends, in part, on the continued availability and service of key personnel, including executive officers and other highly

qualified employees, particularly when we undergo a leadership transition.  Competition for these key personnel is intense.  We cannot

assure that we will retain our key personnel or that we will be able to recruit and retain other highly qualified employees in the future.  Losing

any key personnel could, at least temporarily, have a material adverse effect on our business, financial position and results of operations.

Risks Related to Economic Conditions and Geopolitical Conflicts

Uncertainty in the global geopolitical landscape and macro-economic environment may impact our operations outside the U.S.,

including in the Middle East where many of our water megaprojects are planned.

We conduct our business on a global basis.  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 and Africa, and Asian 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 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.

In addition, there is uncertainty as to the position the U.S. will take with respect to world affairs.  This uncertainty may include such

issues as the U.S. support for existing treaty and trade relationships with other countries, including, notably, China, Mexico and Canada.  This

uncertainty, together with other recent key global events, such as currency control regulations and tariff regimes, ongoing terrorist activity,

and hostilities in the Middle East, may adversely impact (i) the ability or willingness of non-U.S. companies to transact business with U.S.

companies, including with us; (ii) our ability to transact business in other countries, including the Middle East, where many of the water

megaprojects are planned; (iii) regulation and trade agreements affecting U.S. companies; (iv) global stock markets (including The NASDAQ

Global Select Market Composite on which our common shares are traded); and (v) general global economic conditions.  Furthermore, the

conflicts in Europe and the Middle East have resulted in worldwide geopolitical and macroeconomic uncertainty, and we cannot predict how

these conflicts will evolve or their timing.  If these conflicts continue for a significant time or further expand to other countries or regions, they

could have additional adverse effects on macroeconomic conditions that may have a direct adverse impact on our business and/or our supply

chain, business partners or customers in the broader region.  All of these factors are outside of our control, but may nonetheless cause us to

adjust our strategy in order to compete effectively in global markets.

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Risks Related to Information Technology

We may have risks associated with security of our information technology systems.

We make significant efforts to maintain the security and integrity of our information technology systems and data.  Despite significant

efforts to create security barriers to such systems, it is virtually impossible for us to entirely mitigate this risk.  We have implemented

additional enhanced security features and monitoring procedures and continue to closely monitor our cybersecurity risks.  There is a risk of

industrial espionage, cyberattacks, such as LOG4J, misuse or theft of information or assets, or damage to assets by people who may gain

unauthorized access to our facilities, systems, or information.  Such cybersecurity breaches, misuse, or other disruptions could lead to the

disclosure of confidential information, improper usage and distribution of our IP, theft, manipulation and destruction of private and proprietary

data, and production downtimes.  Although we actively employ measures to prevent unauthorized access to our information systems,

preventing unauthorized use or infringement of our rights is inherently difficult.  These events could adversely affect our financial results and

any legal action in connection with any such cybersecurity breach could be costly and time-consuming and may divert management’s

attention and adversely affect the market’s perception of us and our products.  In addition, we must frequently expand our internal information

system to meet increasing demand in storage, computing and communication, which may result in increased costs.  Our internal information

system is expensive to expand and must be highly secure due to the sensitive nature of our customers’ information that we transmit.  Building

and managing the support necessary for our growth places significant demands on our management and resources.  These demands may

divert these resources from the continued growth of our business and implementation of our business strategy.

Our actual or perceived failure to adequately protect personal data could adversely affect our business, financial condition and

results of operations.

A wide variety of provincial, state, national, foreign, and international laws and regulations apply to the collection, use, retention,

protection, disclosure, transfer, and other processing of personal data.  These privacy and data protection-related laws and regulations are

evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new

or different interpretations.  Further, our legal and regulatory obligations in foreign jurisdictions are subject to unexpected changes, including

the potential for regulatory or other governmental entities to enact new or additional laws or regulations, to issue rulings that invalidate prior

laws or regulations, or to increase penalties significantly.  Compliance with these laws and regulations can be costly and can delay or impede

the development and offering of new products and services.

For example, the General Data Protection Regulation, which became effective in May 2018, imposes more stringent data protection

requirements, and provides for significantly greater penalties for noncompliance, than the European Union laws that previously applied.

Additionally, California recently enacted legislation, the California Privacy Rights Act (“CPRA”), which amends the California Consumer

Privacy Act.  The CPRA took effect on January 1, 2023, and enforcement began on July 1, 2023.  We may be subject to additional

obligations relating to personal data by contract that industry standards apply to our practices.  Our actual or perceived failure to comply with

applicable laws and regulations or other obligations to which we may be subject relating to personal data, or to protect personal data from

unauthorized access, use, or other processing, could result in enforcement actions and regulatory investigations against us, claims for

damages by customers and other affected individuals, fines, damage to our reputation, and loss of goodwill, any of which could have a

material adverse effect on our operations, financial performance, and business.  Further, evolving and changing definitions of personal data

and information, including the classification of internet protocol addresses, machine identification information, location data, and other

information, may limit or inhibit our ability to operate or expand our business, including limiting business relationships and partnerships that

may involve the sharing or uses of data, and may require significant costs, resources, and efforts in order to comply.

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Risks Related to Intellectual Property

If we are unable to protect our technology or enforce our intellectual property rights, our competitive position could be harmed, and

we could be required to incur significant expenses to enforce our rights.

Our competitive position depends on our ability to establish and maintain proprietary rights in our technology and to protect our

technology from copying by others.  We rely on trade secret, patent, copyright, and trademark laws, as well as confidentiality agreements with

employees and third parties, all of which may offer only limited protection.  We hold a number of U.S. and counterpart international patents,

and when their terms expire, we could become more vulnerable to increased competition.  The protection of our IP in some countries may be

limited.  While we have expanded our portfolio of patent applications, we do not know whether any of our pending patent applications will

result in the issuance of patents or whether the examination process will require us to narrow our claims, and even if patents are issued, they

may be contested, circumvented, or invalidated.  Moreover, while we believe our issued patents and patent pending applications are

essential to the protection of our technology, the rights granted under any of our issued patents or patents that may be issued in the future

may not provide us with proprietary protection or competitive advantages, and as with any technology, competitors may be able to develop

similar or superior technologies now or in the future.  In addition, our granted patents may not prevent misappropriation of our technology,

particularly in foreign countries where IP laws may not protect our proprietary rights as fully as those in the U.S.  This may render our patents

impaired or useless and ultimately expose us to currently unanticipated competition.  Protecting against the unauthorized use of our products,

trademarks, and other proprietary rights is expensive, difficult, and in some cases, impossible.  Litigation may be necessary in the future to

enforce or defend our IP rights or to determine the validity and scope of the proprietary rights of others.  IP litigation could result in substantial

costs and diversion of management resources, either of which could harm our business.

Claims by others that we infringe their proprietary rights could harm our business.

Third parties could claim that our technology infringes their IP rights.  In addition, we or our customers may be contacted by third

parties suggesting that we obtain a license to certain of their IP rights that they may believe we are infringing.  We expect that infringement

claims against us may increase as the number of products and competitors in our market increases and overlaps occur.  In addition, to the

extent that we gain greater visibility, we believe that we will face a higher risk of being the subject of IP infringement claims.  Any claim of

infringement by a third party, even those without merit, could cause us to incur substantial costs defending against the claim and could

distract management from our business.  Furthermore, a party making such a claim, if successful, could secure a judgment that requires us

to pay substantial damages.  A judgment against us could also include an injunction or other court order that could prevent us from offering

our products.  In addition, we might be required to seek a license for the use of such IP, which may not be available on commercially

reasonable terms, or at all.  Alternatively, we may be required to develop non-infringing technology, which could require significant effort and

expense and may ultimately not be successful.  Any of these events could seriously harm our business.  Third parties may also assert

infringement claims against our customers.  Because we generally indemnify our customers if our products infringe the proprietary rights of

third parties, any such claims would require us to initiate or defend protracted and costly litigation on their behalf in one or more jurisdictions,

regardless of the merits of these claims.  If any of these claims succeed, we may be forced to pay damages on behalf of our customers.

Risks Related to Tax and Governmental Regulations

The enactment of legislation implementing changes in taxation of international business activities, the adoption of other corporate

tax reform policies, or changes in tax legislation or policies could materially impact our financial position and results of operations.

Our future effective tax rates could be subject to volatility or adversely affected by changes in tax laws, regulations, accounting

principles, or interpretations thereof. For example, on July 4, 2025, the One Big Beautiful Bill Act (“OBBB”) was enacted, which, among other

things, allows domestic research and development expenditures to be expensed for tax years beginning on or after January 1, 2025, with

retroactive elections for such expenditures paid or incurred in the two prior years, the restoration of 100% bonus depreciation for certain

qualified property, modifications to international tax provisions, including provisions addressing the global intangible low-taxed income,

foreign-derived intangible income, base erosion anti-abuse tax and controlled foreign corporation rules, and permanently extends certain

expiring provisions of the Tax Act described below.

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As another example, the U.S. Tax Cuts and Jobs Act (“Tax Act”) enacted in 2017, made significant changes to the taxation of

U.S. business entities including a reduction to the federal corporate income tax rate, the current taxation of certain foreign earnings, the

imposition of base-erosion prevention measures which may limit the deduction of certain transfer pricing payments, foreign derived intangible

income deductions, and possible limitations on the deductibility of net interest expense or corporate debt obligations.  The U.S. Department of

the Treasury may continue to issue regulations that affect various components of the OBBB and the Tax Act.  Our future effective tax rate

may be impacted by changes in interpretation of the regulations, as well as additional legislation and guidance regarding the OBBB and the

Tax Act.

In addition, many countries are beginning to implement legislation and other guidance to align their international tax rules with the

Organisation for Economic Co-operation’s Base Erosion and Profit Shifting recommendations and action plan that aim to standardize and

modernize global corporate tax policy, including changes to cross-border tax, transfer-pricing documentation rules, and nexus-based tax

incentive practices.  As a result of the heightened scrutiny of corporate taxation policies, prior decisions by tax authorities regarding

treatments and positions of corporate income taxes could be subject to enforcement activities, and legislative investigation and inquiry, which

could also result in changes in tax policies or prior tax rulings.  Any such changes in policies or rulings may also result in the taxes we

previously paid being subject to change.

Due to the scale of our international business activities any substantial changes in international corporate tax policies, enforcement

activities or legislative initiatives may materially and adversely affect our business, the amount of taxes we are required to pay and our

financial condition and results of operations generally.

Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our

business, cash flow, financial condition or results of operations.

New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could

adversely affect our business operations and financial performance.  Further, existing tax laws, statutes, rules, regulations or ordinances

could be interpreted, changed, modified or applied adversely to us.  For example, the OBBB, the Tax Act, the Coronavirus Aid, Relief, and

Economic Security Act, and the Inflation Reduction Act, enacted many significant changes to the U.S. tax laws.  Future guidance from the

U.S. Internal Revenue Service (the “IRS”) and other tax authorities with respect to such legislation may affect us, and certain aspects thereof

could be repealed or modified in future legislation.  The incumbent administration and Congress periodically make and propose tax law

changes, some of which could have an adverse effect on our operations, cash flows, and results of operations, and contribute to overall

market volatility.  In addition, it is uncertain if and to what extent various states will conform to federal tax legislation.  Changes in corporate

tax rates, the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings, and the deductibility of

expenses under future reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-

time charges, and could increase our future U.S. tax expense.

The U.S. Congress and Incumbent Administration may make substantial changes to fiscal, regulation and other federal policies that

may adversely affect our business, financial condition, operating results and cash flows.

Changes in general economic conditions in the U.S. or other regions could adversely affect our business.  There have been, and

there may be, significant changes in, and uncertainty with respect to, legislation, regulation and government policy.  While it is not possible to

predict whether and when any such changes will occur, changes at the local, state or federal level could impact our business.  Specific

legislative and regulatory proposals that could have a material impact on us include, but are not limited to, modifications to international trade

policy; public company reporting requirements; and environmental regulation.

We cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the U.S. and other countries,

what products may be subject to such actions, or what actions may be taken by the other countries in retaliation.  There is currently

uncertainty about the future relationship between the U.S. and various other countries with respect to trade practices. The incumbent

administration has proposed the implementation of a number of tariffs on products produced from countries, which could, if enacted into law,

increase the cost of certain raw materials and components we import into the U.S.  In addition, certain countries have enacted retaliatory

tariffs, which could significantly increase the cost of our products shipped into those countries.

Accordingly, it is difficult to predict how such actions may impact our business operations, such as our supply chain from our vendors

and sales to our customers on which we are substantially dependent, that are located in various countries at risk for escalating trade disputes

and retaliatory tariffs.  Any resulting trade wars could have a significant adverse effect on world trade and could adversely impact our

revenues, gross margins and business operations.

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Unanticipated changes in our tax provisions or exposure to additional income tax liabilities could affect our profitability and cash

flows.

We are subject to income and other taxes in the U.S. and numerous foreign jurisdictions.  Significant judgments and estimates are

required to be made in determining our worldwide provision for income taxes.  Changes in estimates of projected future operating results,

changes in tax laws, loss of deductibility of items, changes in the source of income, amount and location of R&D spending, limitations on our

ability to utilize tax net operating losses in the future or changes in assumptions regarding our ability to generate future taxable income could

result in significant increases to our tax expense and liabilities that could adversely affect our financial condition and profitability.  In addition,

we are subject to ongoing tax audits in various jurisdictions.  In connection with these audits (or future audits), tax authorities may disagree

with our estimates or other matters and assess additional taxes. As a result, changes in tax laws or tax rates, and the ability to utilize our

deferred tax assets could materially affect our tax provision, net income and cash flows in future periods.

Changes in U.S. policy, including the imposition of or increases in tariffs, changes to existing trade agreements and any resulting

changes in international trade relations, such as reciprocal tariffs or trade wars may have a material adverse impact on impact on

our business, results of operations, or financial condition.

Throughout 2025, the U.S. has increased, expanded, or imposed new tariffs on goods imported from various countries. Several

countries have increased or imposed additional tariffs in response to U.S. tariffs. The tariff environment has been dynamic in 2025, with

changes occurring on an ongoing basis, and it is possible that additional developments will occur in the future, including as a result of

negotiations between the U.S. and trade partners and legal challenges to the tariffs.

These recent tariffs and the subsequent retaliatory tariffs could increase the cost of goods for our products or reduce our ability to sell

products globally, particularly for our Wastewater business in China, which may adversely affect our operating results and financial condition.

In addition, there is no guarantee that we can avoid any impact of tariff and related economic effects in the future, and these trade measures

and retaliations may directly impact our business by increasing trade-related costs or affecting the demand for our products globally.

Any further unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for our

products and services, impact the competitive position of our products or prevent us from selling products in certain countries. If any new

tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated, such changes could have an adverse

effect on our business, financial condition and results of operations.

Risks Related to our Internal Controls

Changes in the U.S. generally accepted accounting principles could adversely affect our financial results and may require

significant changes to our internal accounting systems and processes.

We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”).  These

principles are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC and various bodies formed to interpret

and create appropriate accounting principles and guidance.  The FASB periodically issues new accounting standards on a variety of topics.

These and other such standards generally result in different accounting principles, which may significantly impact our reported results or

could result in variability of our financial results.

We are required to evaluate the effectiveness of our internal control over financial reporting and publicly disclose material

weaknesses in our controls.  Any adverse results from such evaluation may adversely affect investor perception, and our stock

price.

Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to assess the effectiveness of our internal controls over

financial reporting and to disclose in our filing if such controls were unable to provide assurance that a material error would be prevented or

detected in a timely manner.  We have an ongoing program to review the design of our internal controls framework in keeping with changes

in business needs, implement necessary changes to our controls design and test the system and process controls necessary to comply with

these requirements.  If in the future, our internal controls over financial reporting are determined to be not effective resulting in a material

weakness or significant deficiency, investor perceptions regarding the reliability of our financial statements may be adversely affected which

could cause a decline in the market price of our stock and otherwise negatively affect our liquidity and financial condition.

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Risks Related to our Common Stock

Insiders and principal stockholders will likely have significant influence over matters requiring stockholder approval.

Our directors, executive officers, and other principal stockholders beneficially own, in the aggregate, a substantial amount of our

outstanding common stock.  These stockholders could likely have significant influence over all matters requiring stockholder approval,

including the election of directors and approval of significant corporate transactions such as a merger or other sale of our company, or our

company’s assets.

The market price of our common stock may continue to be volatile.

The market price of our common stock has been, and is likely to continue to be, volatile and subject to fluctuations.  Changes in the

stock market generally, as it concerns our industry, as well as geopolitical, economic, and business factors unrelated to us, may also affect

our stock price.  Significant declines in the market price of our common stock or failure of the market price to increase could harm our ability

to recruit and retain key employees, reduce our access to debt or equity capital, and otherwise harm our business or financial condition.  In

addition, we may not be able to use our common stock effectively as consideration in connection with any future acquisitions.

We cannot guarantee that our share repurchase programs will enhance long-term shareholder value, and share repurchases could

increase the volatility of the price of our common stock.

From time-to-time, our Board of Directors (the “Board”) have authorized a share repurchase program, in which our management is

authorized to repurchase up to an aggregate of outstanding shares of our common stock through a combination of open market repurchases,

privately negotiated transactions, 10b5-1 trading plans, accelerated stock repurchase transactions, and/or other transactions, in accordance

with federal securities laws.  For example, the Board authorized two share repurchase programs in fiscal year 2025 to repurchase up to

30.0 million and 25.0 million aggregate value of the Company’s common stock, respectively. Such programs may be suspended or

discontinued at any time, at the discretion of management.  The timing of repurchases pursuant to our share repurchase program(s), if any,

could affect our stock price and increase its volatility.  We cannot guarantee that we will repurchase any additional shares under these

program(s), and there can be no assurance that any share repurchases will enhance shareholder value because the stock price of our

common stock may decline below the levels at which we effected repurchases.

Anti-takeover provisions in our charter documents and under Delaware law could discourage, delay, or prevent a change in control

of our company and may affect the trading price of our common stock.

Provisions in our amended and restated certificate of incorporation and bylaws may have the effect of delaying or preventing a

change of control or changes in our management.  Our amended and restated certificate of incorporation and amended and restated bylaws

include provisions that:

•authorize the Board to issue, without further action by the stockholders, up to 10,000,000 shares of undesignated preferred

stock;

•require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written

consent;

•specify that special meetings of our stockholders can be called only by the Board, the chairman of the board, the chief executive

officer, or the president;

•establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders,

including proposed nominations of persons for election to the Board;

•provide that our directors may be removed only for cause;

•provide that vacancies on the Board may be filled only by a majority vote of directors then in office, even though less than a

quorum;

•specify that no stockholder is permitted to cumulate votes at any election of directors; and

•require a super-majority of votes to amend certain of the above-mentioned provisions.

In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers.

Section 203 generally prohibits us from engaging in a business combination with an interested stockholder subject to certain exceptions.

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Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the

trading value of our securities.

In recent years, shareholder activists have become involved in numerous public companies.  Shareholder activists frequently propose

to involve themselves in the governance, strategic direction and operations of the company.  Such proposals may disrupt our business and

divert the attention of the Board, management and employees, and any perceived uncertainties as to our future direction resulting from such

a situation could result in the loss of potential business opportunities, interfere with our ability to execute our strategic plan, be exploited by

our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel and

business partners, all of which could adversely affect our business.  A proxy contest for the election of directors at our annual meeting could

also require us to incur significant legal fees and proxy solicitation expenses.  In addition, actions of activist shareholders may cause

significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect

the underlying fundamentals and prospects of our business.

Our shareholders may experience future dilution as a result of future equity offerings.

In the future, we may offer additional shares of our common stock or other securities convertible into, or exchangeable for, our

common stock in order to raise additional capital.  We cannot assure our shareholders that we will be able to sell shares or other securities in

any other offering at a price per share that is equal to or greater than the price per share our shareholders paid for our shares.  Investors

purchasing shares or other securities in the future could have rights, preferences or privileges senior to those of our shareholders and our

shareholders may experience dilution.  Our shareholders may incur additional dilution upon the exercise of any outstanding stock options or

warrants, the issuance of shares of restricted stock, the vesting of restricted stock units, or the issuance, vesting or exercise of other equity

awards.