Good day, ladies and gentlemen, and welcome to Energy Recovery's Q4 and full year 2025 earnings call. During today's call, Energy Recovery may make projections and other forward-looking statements under the safe harbor provisions contained in the private securities litigation reform act of 1995 regarding future events or the future financial performance of the company. These statements may discuss our business, economic and market outlook, growth expectations, new products and their performance, cost structure, and business strategy. Forward-looking statements are based on information currently available to the company and on management's beliefs, assumptions, estimates, and projections. Forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, and other factors. We refer you to the documents the company files from time to time with the SEC, specifically the company's annual form 10-K and quarterly form 10-Q. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. All statements made during this call are made only as of today, February 25th, 2026, and the company expressly disclaims any intent or obligation to update any forward-looking statements made during this call to reflect subsequent events or circumstances unless otherwise required by law. Our hosts for today's call are David Moon, president and chief executive officer of Energy Recovery, and Joshua Ballard, chief financial officer. I would now like to turn the call over to Mr. Moon. Thank you, operator. Thank you, good day, everyone. Earlier today, we released a letter to shareholders on the investor relations section of our website. That reviews business and financial performance during the quarter, our outlook for 2026, and other important updates. Prior to opening the line for questions and answers, I'd like to highlight a few important takeaways from the letter. First, I'm now excited to be fully focused on our water business. As you will have seen in the letter, this is a large, growing, and profitable end market, where we have the best Pressure Exchanger technology and continue to maintain our strong market position. As you can see from our results and guidance, we have hit an air pocket in 2025 and 2026 due to delays at several large desalination projects. This is a great business, but one that remains lumpy. We know investors find this frustrating, and so do we. The good news is that we are confident in our growth for 2027 based on our pipeline and underlying demand trends. Second, as we've highlighted, we're winding down our CO2 retail grocery business. As conversations with customers involved over the last few months, it is clear this business couldn't achieve scaled adoption without significant continued time, investment, and risk. It's a disappointing outcome, and I'm genuinely grateful for the hard work our team members put into this effort over the past several years. Ultimately, we believe that the $7 billion of annual savings was the optimal path for shareholder value creation. Against this backdrop, we as a management team will continue to focus on optimizing performance and controlling what we can control. We're keeping a high bar for capital allocation, investing in innovation, growing our wastewater business, cutting operating expenses, and buying back stock. As always, I want to thank our employees here at Energy Recovery. Our progress in 2025 and continued transformation in 2026 could not be done without the great team that we have. With that, we'll now move to questions and answer portion of our conference call. Operator, please open the line for questions. Thank you. At this time, we'll conduct a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Your first question comes from Larry Solow with CJS. Please state your question. Hi, Larry. Great. hey, good afternoon. Just to quickly summarize, essentially the Q4 shortfall, two contracts, two projects, excuse me. Yes. pushed into 2026. For 2026, essentially, you're saying $45 million, if I take kind of the midpoint, plus or minus, I realize it's not exact science, but three particular projects are shifting into 2027. You're adding kind of another, you know, I'll call it wiggle room, but I don't know how you want to term it, but $15 million-$20 million to sort of what you call de-risk, completely de-risking the revenue outlook. Is that a good way to summarize it? That's right. The only clarification I'd say is that the three projects kind of get us to the high end of guidance of things we are highly confident will slip. The additional buffer is as we scrub the pipeline to really look at things that we think could also slip throughout the course of the year, that sort of sets the low end of our guidance. Got you. Okay. So the, you're not, you're assuming those three projects don't occur, right? We, the guidance assumes those three projects slip. Correct. That is. Cool. On the order of $25 million -$30 million of projects. You slip another $15 million -$25 million in other things that kind of creates that range. Other things that we think are at risk of slipping throughout the course of the year. Yes. Yeah, as we look at. Yeah. As we look at the course over the last 30 days, sort of those are the projects that sort of come up on our radar screen. Is there any... You mentioned a bunch of, like, a host of things, construction delays. I mean, that's kind of usual stuff. These, you know, these delays seem a little bit as a percentage of your total business, maybe larger than normal. Is that fair to say? Is that... You know, is there any common theme that they're being, all... Yeah. Being pushed out? It sounds like a bunch of things, right? It did, it did happen kind of surprisingly fast and more widespread. It is only three projects. Right. There's two things going on. One is that projects are getting bigger, right? You know, five years ago, we didn't have many projects that were of this size, and now we do. We will feel the pain on if a large project slips. Secondly, with those large projects, they're more susceptible to slipping, right? They're just bigger. A lot of them are in non-gulf countries that are sort of newer to desalination. I think we're seeing that. One is a just very project-specific land issue. Then generally, if there's a trend, I'd say we see some fewer EPCs bidding on desalination projects, given broad-based construction demand, and that can sometimes extend the tendering process for our projects in our pipeline because there's fewer EPCs bidding. That's the kind of the only major trend we've seen, but importantly, no disruption in demand, right? This isn't that people don't need water. All those underlying demand trends are still in place. It's really just about timing and project complexity and timelines. I know it's all fair. The cost savings you spoke about, irrespective of the CO2 stuff, you said your OpEx, I guess, went from $77 to $64, and I assume, again, forgetting the CO2, I have one question on that, but your OpEx $64 core, or whatever that is, like CO2, is that you plan further cuts in 2026? Yeah, it's CO2 cuts. Yeah. CO2 comes out of that number. Sure. you take the 64- Right. Adjust for CO2, then I'd say there's some other room for additional cost savings. We're getting sort of to the bottom of the curve there of. Yeah, yeah. How much, getting quite efficient? Right. There are still ways for us to improve margins and OpEx. I guess the big thing, eventually, the magnitude where it might grow, when you get a little bigger or lower hanging fruit, is if when you relocate some of your manufacturing, I guess. There is still, beyond, there's margin benefit there from lower cost manufacturing, for sure. We're incurring some of the costs of that. Yeah. This year. Right. Yeah, we'll get it next year. Right. Do you realize a full seven this year or maybe not quite at the from the CO2 exit? Not quite. Not quite, but not too far off, but not quite. That is an annualized number. Got you. Yep. Okay, great. Thanks for the call. I appreciate it. Welcome. Your next question comes from Sandhya Iyer with B. Riley. Please state your question. Hi, team. Thanks for taking my question. Hi. Of course. I'm asking on behalf of Ryan Fink from B. Riley Securities. Just on this PX Q650, your new product, it represents a meaningful step function improvement over your existing product. Can you maybe help us understand, you know, how is it priced relative to the existing product? Is it a premium product with the ASP uplift? What's the strategy, you know, bringing costs down or, you know, improving the revenue? How do we look at that? Yeah, sure. This is Mike. The way that we think about it is that any given desalination plant, we price more on a sort of a cubic meter per day, so total CapEx for the plant. When we introduce a product that has a higher flow rate, we're assuming we get similar dollars per plant, but then we deliver fewer units. We end up with a higher effective ASP per product. That effective ASP typically grows more than the cost of the product, the increase in cost of the product. We see some gross margin expansion. In the past, we have also priced at a premium because these products deliver a better specific energy consumption, and the specific energy consumption or the amount of energy that the plant uses over its lifetime, is a massive factor in the profitability of a plant. When we can deliver better SEC, we can typically eke out some pricing increases as well, by sharing some of that savings with the customer and us. Got it. One more on the manufacturing expansion outside of US, w hat's the expected timeline, you know, on this selection and selection of a new site? What's the total capital commitment beyond the one that's given for 2026? Yeah. we're working on the site selection now, we should be able to finalize that by the end of the first half, with the thought that we'd be in, we'd start phasing production by the Q1 of 2027. we'll take this year to plan, to start executing, to start building up equipment, but the idea that we'd be on the ground in Q1 of next year. I'd say for capital costs, you know, we're burning a lot of CapEx this year. You saw our guided range. We've been spending about $1.5 million or less the last two years. This year, we're guiding $3 million-$6 million. Next year, maybe a similar range or a little bit lower next year, that would be all the capital we'd need to get into a new facility. Got it. Got it. That's helpful. On the revenue cadence for 2026, is that similar to 2025, we expect, like, heavily back-ended weighted? I would expect similar cadence, yes. Okay. Just last one for me. On the CO2 business, are there any other applications you guys are looking into potentially developing now that this one is... or is it, like, too early to say? Any other potential projects in development other than the CO2 thing? No, I think in terms of products, nothing. We think there might be application for our current CO2 product, potentially in some other CO2 markets like heat pumps, but we have a long way to go to prove that out. Still more work to do. Nothing, nothing immediate. Got it. Thank you. Thank you so much for the color. You're welcome. Thank you. A reminder to the audience, to ask a question, press star one. To remove yourself from the queue, press star two. Your next question comes from Jeffrey Campbell with Seaport Research Partners. Please state your question. Yeah, good evening. First of all, thanks for the expanded guidance. It's very helpful. A quick one. Do the savings from the wind down of the CO2 represent any further reduction in headcount? Yeah, there was about 20 heads associated with the wind down of CO2. Okay. That was both salaried and manufacturing. Going back to the question about the PX Q650. I understand what Mike said about how you market the device and arrive at your, what you charge and so forth, but I just wondered, how is it going to affect the rest of your line? Meaning, you know, the PX Q400 was the top of the line before. I mean, I guess that gets knocked down a peg with the 650 coming. Is there a point where some of these, more legacy pieces of equipment, do they migrate to wastewater, or do you just quit making them, or how do you manage that? You know, so when we had introduced the Q400, about two years ago, you know, we thought that the Q300, the transition out of the Q300, would take us about two to three years. That's proving out to be the case. We'll still be making 300 Q300s this year and should be making much fewer in 2027. We suspect the same sort of transition from the 400 to the 650. You know, we'll start manufacturing the 650 for sale in the second half of the year. My guess is we'll start seeing the Q400 ramp down as we get into the back half of 2027, sort of 2028. I think it'll take a couple of years, two to three years, for us to ramp down the Q400. Yeah. Just to add some color on that, too, Jeff, is that we sell a fair amount of Q300s in our OEM business. In our wastewater. In our wastewater business. We sell some Q400s there. If some systems get bigger, that might be a thing, but I could see the Q400 being lower than the Q300 in a few years when we make that transition. That transition happens mostly in the MP, in the megaproject space. does that imply when you said earlier you thought the Q300 would work itself out in, like, two years, is that an accurate-? It did in megaprojects. It is doing that in megaprojects. Yeah. Yes. The idea is you may still make it, and it may find an implementation in wastewater. Is that what you're saying? Yeah. It already does. Yeah. We sell it in our OEM desalination business and our wastewater business today. Expect that to continue. Okay. You know, the, you pointed out that the new device is going to start being manufactured in the second half of 2026, and we're sitting here talking about project delays. Does that create an opportunity to try to move some of these two 650s into some of these projects that haven't quite borne their fruit yet? That would be the absolute plan. It's been, is try and do that. Okay. with regard to the greater CapEx being spent on manufacturing footprint, I just would like to understand, how does this differ from the moves that you made during that period of tariff uncertainty? Were they just short-term opportunities, and now you're taking a different tack and going someplace else? Or how do we put those two together? Yeah, the move to Korea was short-term in nature, and that was to protect our China business over tariffs, right? So we were able to quickly put that in place. It's an assembly-only operation. We take advantage of the Korea-China free tariff, Free Trade Agreement. That was always meant to be a sort of China, India, and places like that, to ensure that, you know, the factory that we're looking at going forward, our newest factory, will sort of be holistic in terms of where we can ship product to in longer term in nature. You mentioned that Korea was assembly only, but these new facilities you're thinking of, are these still? I think in the past, you've told me that the stuff you manufactured overseas was not what you would consider to be rich in IP. Is it still gonna be that whatever you consider to be more mission-critical is gonna stay in the U.S., and then other stuff is overseas? Are you actually thinking about building IP valuable stuff overseas? Yeah, that's a good question. I think to start, it'll be sort of a mission-critical, but over time, over a two to three-year period, we'll be full on manufacturing in that new site. That's how to think about it. Okay. Over a two or three-year period, it'll be a self-sustaining, full-on manufacturing facility. Okay. Without meaning to suggest any lack of faith, you've invested meaningfully in wastewater, and 2026 doesn't suggest a huge amount of revenue growth on an absolute basis just yet. I'm just wondering, what are your gating items for deciding if this business is not meeting investment goals, similar to what you've demonstrated with CO2? Or is that just not part of the thinking? Yeah, this is Mike. No, I think, look, 2025 was a, was a tough year from a tariff standpoint. Heading into 2026 here, we just hired a lot of salespeople in the last few months, right? The key thing for me is, it is difficult to know exactly what their ramp-up time will be. I think we expect significant growth out of that business, and really expect this year to build that flywheel and get that mechanism in place. The wider range is probably more about timing of salespeople than our faith in the business. That said, right, this business has done $10 million-$12 million in the past before, is a high 60%, mid-high 60% margin business. It's just a different footing than CO2 was. Still beholden to our strict capital allocation policies, but is scoring well on that as we look at it today. Yeah, I would say the gating item for the wastewater business over the course of 2026 is adding reference cases. As we think about, you know, China, we've done that, and we continue to do that because we have an existing wastewater business there today. As we think about, continue to think about India, about South America, about the US, about Europe, continuing to add reference cases in advance of 2027 is gonna be a really important benchmark for us. Okay. Yeah, that's really helpful. Thank you. Finally, we've noted that you have taken Flowserve to court for patent infringement. I wondered how you arrived at the decision to move forward here, particularly since Flowserve selects a device that's not, to our knowledge, granted any large contracts to date. Thanks. Yeah, look, I think, you know, the, the court cases are proceeding, and, we're still going through, you know, the earliest, the additional phases of the, court proceedings, and that's all I can really say as it relates to that at this point. You know, we're going to protect our IP, that I will say. This case reflects us protecting our IP. Okay, that's fair. Thank you. You're welcome. Thank you. There are no further questions at this time, so I'll hand the floor back to David Moon for closing remarks. Thank you, operator. Look, thank you everyone for listening in today. I wanna thank all our stakeholders for your continued support, and we look forward to updating you on our next call after the Q1. Enjoy the rest of your day. Thank you, operator. Thank you. That concludes today's call. 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