Energy Recovery closed the second quarter of 2026 with a financial profile that looks more like a company in transition than one in steady state. Revenue for the three months ended June 30, 2026 came in at $12.0 million, down 57.2 percent from $28.1 million in the prior year quarter, as the megaproject channel that had driven the second quarter of 2025 unwound. The Desalination segment, which had delivered $25.5 million of revenue in Q2 2025, generated $11.5 million in Q2 2026, while the Wastewater segment shrank to $0.5 million from $2.3 million. Net loss for the quarter was $3.2 million, or $0.06 per share, compared with net income of $2.1 million, or $0.04 per share, in the prior year quarter. For the six months ended June 30, 2026, revenue of $21.7 million was 40 percent below the $36.1 million booked in the first half of 2025, and the company posted a net loss of $15.4 million, or $0.30 per share, more than double the $7.8 million loss in the year ago period.
The weakness is concentrated rather than structural, and the financial statements actually tell a more constructive story than the year-over-year revenue line suggests. Gross margin in the second quarter was 74.7 percent, up from 64.0 percent a year ago, because the revenue mix shifted toward higher-margin original equipment manufacturer (OEM, sales to plant builders and engineering contractors that incorporate PX devices into the plants they construct) and aftermarket sales and away from the lower-margin megaproject work that had bloated volume a year ago. Operating cash flow for the six months ended June 30, 2026 was $37.3 million, more than double the $14.8 million generated in the year ago period, as accounts receivable collapsed from $76.6 million at year end 2025 to $14.2 million at the end of the second quarter after the company collected the megaproject receivables that had been tying up working capital. The balance sheet is a fortress: $61.4 million of cash and equivalents, $36.6 million of short and long term investments, no debt other than operating lease liabilities, and $172.5 million of stockholders equity against $197.7 million of total assets. Management has been returning cash to shareholders through active share repurchase programs, taking out 1.95 million shares in the first half of 2026 at an aggregate cost of $20.7 million.
The most strategically important event of the period sits outside the income statement. On May 26, 2026, the company's President and Chief Executive Officer David Moon resigned, leaving the board to run the company through an interim CEO while it searches for a permanent leader. Two months later, on July 9, 2026, the board appointed John Mitchell to fill the vacant board seat, restoring the body to its full six member complement. Also in July 2026, the company entered into a five year lease for a manufacturing facility in Saudi Arabia, marking the first material local manufacturing footprint in the Middle East, the geographic region that supplied 51 percent of Q2 2026 revenue and where the desalination project pipeline is most active. The company is also winding down its CO2 retail grocery business, recording $2.4 million of severance, $1.6 million of inventory reserves, and $1.7 million of goodwill impairment in the first half of 2026 as it sharpens its focus on the core water business.
The investment question is whether the project timing air pocket that compressed 2026 revenue is a temporary digestion of the megaproject cycle or a sign of structural weakness in the desalination capex environment. The 2025 second quarter revenue of $28.1 million was a clear outlier, inflated by an unusually large megaproject shipment that was paid for in the first half of 2026, so a 57 percent revenue decline from that base is partly an arithmetic artifact of comparison. The forward test is whether the Saudi manufacturing footprint, the leaner cost structure, and the active project pipeline in the Middle East can restore revenue growth in 2027 and beyond without sacrificing the gross margin expansion that has emerged in the meantime.