Except as noted below, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, “Risk Factors,” in the 2025 Annual Report. 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, war or other hostilities 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, war or other hostilities, such as the 2026 conflict in Iran and escalating tensions in the Middle East, 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. 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, global uncertainty including the continuing conflicts in Ukraine, the continuing 2026 conflict in Iran and escalating conflicts in the Middle East, as well as the impact of increased inflation and a potential stagflation resulting from such conflicts 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. 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. Energy Recovery, Inc. | Q2'2026 Quarterly Report (Form 10-Q) | 36 Table of Contents 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, such as the continuing 2026 conflict in Iran and Iran’s response to attacks by the United States and Israel, have created global economic and political uncertainty, and have impacted demand for certain of our products. Further escalation of the conflict could heighten inflationary pressures on our input costs, adversely affect global financial markets, increase currency exchange rate volatility, and elevate interest rates, which could increase the cost of future financing. 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, economic sanctions and export controls, trade restrictions, 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 where we have existing or prospective customer relationships, 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, further expand to other countries or regions or cannot be stabilized by any diplomatic efforts, 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. We face risks associated with our first international manufacturing facility in Saudi Arabia. We are investing significant resources to establish and operate our first manufacturing facility outside the United States, located in Saudi Arabia. The successful construction, commissioning, and operation of this facility are subject to a variety of risks and uncertainties that could materially and adversely affect our business, financial condition, results of operations, and cash flows. The facility is currently under development and is expected to begin operations in 2027. Establishing a new manufacturing operation in a foreign jurisdiction presents challenges that we have not previously encountered at this scale, including obtaining and maintaining licenses, permits, and regulatory approvals; complying with local labor, tax, environmental, health and safety, customs, and other legal requirements; hiring, training, and retaining a skilled local workforce; and implementing our manufacturing processes, quality systems, and internal controls in a new operating environment. Any delays, cost overruns, construction deficiencies, supply chain disruptions, labor shortages, or difficulties in commissioning equipment could postpone the facility’s operational readiness, increase our costs, and delay anticipated benefits. Our operations in Saudi Arabia also expose us to additional geopolitical, economic, and operational risks. These risks include changes in government policies, trade regulations, local content requirements, taxation, foreign investment rules, import and export controls, sanctions regimes, currency restrictions, and political or security conditions in the region. Any deterioration in regional stability, changes in regulatory frameworks, or actions by governmental authorities could adversely affect the facility, our employees, our suppliers, or our customers and could result in increased costs, operational disruptions, or limitations on our ability to conduct business in the region. Further, the transfer of manufacturing knowledge, proprietary processes, and technology to a new foreign operation may increase the risk of unauthorized disclosure, misuse, or infringement of our intellectual property. We may also face challenges in maintaining consistent oversight, cybersecurity protections, internal controls, and compliance programs across geographically dispersed operations. If we are unable to successfully construct, commission, ramp, and operate the Saudi Arabian facility on the timeline we expect, or if the facility fails to achieve its anticipated operational, financial, or strategic objectives, our growth prospects, competitive position, operating results, and long-term business strategy could be materially and adversely affected. Energy Recovery, Inc. | Q2'2026 Quarterly Report (Form 10-Q) | 37 Table of Contents Because the facility is not yet operational, there is substantial uncertainty regarding the timing and effectiveness of the commissioning and ramp-up process. Initial production volumes, labor productivity, manufacturing yields, quality metrics, and operating efficiencies may fall short of expectations. We may also encounter unforeseen technical, engineering, infrastructure, equipment integration, or supply chain issues during startup. Any such challenges could require additional capital expenditures, delay customer deliveries, increase operating costs, and adversely affect our ability to achieve expected returns on our investment.