Energy Recovery Reports Record Q4 Revenue,
75% Annual Earnings Per Share Growth

SAN LEANDRO, Calif. - February 22, 2023 - Energy Recovery, Inc. (Nasdaq:ERII) (“Energy Recovery” or the “Company”) today announced its financial results for the fourth quarter ended December 31, 2022.

•Revenue growth of 21% over the prior year and within the November 2022 guidance.

•Achieved the highest revenue quarter in the company’s history during the fourth quarter of fiscal year 2022 of $42.3 million. Growth was driven by our core desalination business and industrial wastewater growth.

•Gross margin of 69.6%, up 100 basis points compared to the prior year, due to increased pricing and product mix.

•Operating expenditures grew 9% over the prior year, which included VorTeq-related costs and litigation expenses that comprised 3% of the growth.

•Net income of $24.0 million, a growth of 69% over the prior year, and adjusted EBITDA of $36.8 million, up 50% over the prior year. Profitability increased on the basis of increased gross margin and a reduction of operating expenditures as a percent of revenue, which in turn drove earnings per share up nearly 75% to $0.42.

•Operating cash flow for the year was 7% below 2021 largely due to the timing of customer collections for shipments that occurred late in the fourth quarter.

Robert Mao, Chairman, President and CEO, commented on the financial results: “Despite the macro-economic headwinds we are all experiencing globally, we achieved 21% annual revenue growth in 2022. Our core desalination business has never been stronger, and our new PX Q400 will help us maintain a competitive advantage in the coming years. Additionally, we exceeded our industrial wastewater 2022 guidance by nearly 30%, our annual operating income nearly doubled, and earnings per share grew 75%. All of these metrics show that our focus on thoughtful organic growth is having a real and positive impact on the business.”

Mr. Mao added, “In our CO2 refrigeration business, we are investing in additional resources to support the growth of this burgeoning business, including sales account managers for the U.S. and European markets, as well as field technicians. Our manufacturing partners are beginning to highlight our PX G1300 to their supermarket clients now that our PX technology has demonstrated its reliability and efficiency gains out in the field. We have received repeat orders for additional PX G1300 units to be deployed this year, and are in discussions with some partners for regional distribution agreements. We are confident that our clear and disciplined growth strategy is moving us to where we need to be in this high-quality and opportunity-rich market, which we believe will create significant value for our shareholders.”

(1)Refer to the sections “Use of Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” for definition of adjustment to GAAP presentation.

Certain matters discussed in this press release and on the conference call are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including our expectations on full year revenue and gross margin guidance; our belief that the Company’s core desalination business has never been stronger; the timing of any new hires to support our CO2 business; the timing of any CO2 deployments; our ability to finalize and enter into any regional distribution agreements; and our belief that the Company’s CO2 business will create significant value for our shareholders. These forward-looking statements are based on information currently available to us and on management’s beliefs, assumptions, estimates, or projections and are not guarantees of future events or results. Potential risks and uncertainties include any other factors that may have been discussed herein regarding the risks and uncertainties of the Company’s business, and the risks discussed under “Risk Factors” in the Company’s Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) for the year ended December 31, 2021, as well as other reports filed by the Company with the SEC from time to time. Because such forward-looking statements involve risks and uncertainties, the Company’s actual results may differ materially from the predictions in these forward-looking statements. All forward-looking statements are made as of today, and the Company assumes no obligation to update such statements.

This press release includes certain non-GAAP financial measures, including adjusted gross margin, adjusted operating margin, adjusted net income, adjusted net income per share, adjusted effective tax rate, adjusted EBITDA and free cash flow. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either exclude or include amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles in the United States of America, or GAAP. These non-GAAP financial measures do not reflect a comprehensive system of accounting, differ from GAAP measures with the same captions, and may differ from non-GAAP financial measures with the same or similar captions that are used by other companies. As such, these non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company uses these non-GAAP financial measures to analyze its operating performance and future prospects, develop internal budgets and financial goals, and to facilitate period-to-period comparisons. The Company believes these non-GAAP financial measures reflect an additional way of viewing aspects of its operations that, when viewed with its GAAP results, provide a more complete understanding of factors and trends affecting its business.

•Adjusted operating expense is a non-GAAP financial measure that the Company defines as operating expense which excludes non-core operational costs, such as VorTeq-related severance costs, litigation charges and accelerated depreciation.

•Adjusted operating margin is a non-GAAP financial measure that the Company defines as income from operations which excludes i) share-based compensation; and ii) non-core operational costs, such as VorTeq-related severance costs, litigation charges and accelerated depreciation, divided by revenues.

•Adjusted net income is a non-GAAP financial measure that the Company defines as net income which excludes i) share-based compensation; ii) non-core operational costs, such as VorTeq-related severance costs, litigation charges and accelerated depreciation; and iii) the applicable tax effect of the excluded items including the share-based compensation discrete tax item.

•Adjusted net income per share is a non-GAAP financial measure that the Company defines as net income, which excludes i) share-based compensation; and ii) non-core operational costs, such as VorTeq-related severance costs, litigation charges and accelerated depreciation, and iii) the applicable tax effect of the excluded items including the share-based compensation discrete tax item, divided by basic shares outstanding.

•Adjusted effective tax rate reflects adjustments for share-based compensation discrete tax item, share-based compensation, severance costs, litigation charges and accelerated depreciation.

•Adjusted EBITDA is a non-GAAP financial measure that the Company defines as net income which excludes i) depreciation and amortization; ii) share-based compensation; iii) non-core operational costs, such as VorTeq-related severance costs and litigation charges; iv) other income, net, such as interest income and other non-operating income (expense), net; and v) provision for (benefit from) income taxes.

•Free cash flow is a non-GAAP financial measure that the Company defines as net cash provided by operating activities less capital expenditures.

Wednesday, February 22, 2023, 2:00 PM PT / 5:00 PM ET

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Expiration: Wednesday, March 22, 2023

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Investors may access the live call and the replay (approximately three hours after the live call concludes) over the internet at:
ir.energyrecovery.com/websites/energyrecover/English/2200/calendar.html

Energy Recovery uses the investor relations section on its website as means of complying with its disclosure obligations under Regulation FD. Accordingly, investors should monitor Energy Recovery’s investor relations website in addition to following Energy Recovery’s press releases, SEC filings, and public conference calls and webcasts.

Energy Recovery, Inc., creates technologies that solve complex challenges for commercial and industrial fluid-flow markets worldwide. Building on an innovative pressure exchanger technology platform, they design and manufacture solutions that make commercial and industrial processes more efficient and sustainable. What began as a game-changing invention for desalination has grown into a global business accelerating the environmental sustainability of customers’ operations in multiple industries. Headquartered in the San Francisco Bay Area, Energy Recovery has manufacturing and research and development facilities across California and Texas with sales and on-site technical support available globally. To learn more, visit https://energyrecovery.com/.

Investor Relations

ir@energyrecovery.com

+1 (281) 962-8105

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (1)

This press release includes certain non-GAAP financial information because we plan and manage our business using such information. The following table reconciles the GAAP financial information to the non-GAAP financial information.

(1)Amounts may not total due to rounding.

(2)Amount presented are net of tax.

(3)Refer to the sections “Use of Non-GAAP Financial Measures” for description of items included in adjustments.