Energy Recovery, Inc.

Note 5 —Investments and Fair Value Measurements

Available-for-Sale Investments

The classification of available-for-sale investments on the Consolidated Balance Sheets anddefinition of each of these classifications

are presented in Note 1, “Description of Business and Significant Accounting Policies -Significant Accounting Policies,” subsections “Cash

and Cash Equivalents” and “Short-term and Long-term Investments.”

Expected maturities can differ from contractual maturities because borrowers may have the right to prepay obligations without

prepayment penalties. The Company generally holds available-for-sale investments until maturity; however, from time-to-time, the Company

may elect to sell certain available-for-sale investments prior to contractual maturity.

Fair Value of Financial Instruments

The Company follows the authoritative guidance for fair value measurements and disclosures that, among other things, defines fair

value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category

measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price that would be received to sell an

asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement

that should be determined based on assumptions that market participants would use in pricing an asset or liability.

All of the Company’s financial assets and liabilities are remeasured and reported at fair value at each reporting period, and are

classified and disclosed in one of the following three pricing category levels:

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2—Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and

Level 3—Unobservable inputs in which little or no market activity exists, thereby requiring an entity to develop its own

assumptions that market participants would use in pricing.

The following table presents the Company’s financial assets measured on a recurring basis by contractual maturity, including pricing

category, amortized cost and fair value. Gross unrealized gains and losses were not material for the periods presented. As of December 31,

2025 and December 31, 2024, the Company hadno financial liabilities andno Level 3 financial assets.

The Company monitors its investments for impairment. It was determined that unrealized gains and losses included in

accumulated other comprehensive (loss) income at December 31, 2025 and 2024, were temporary in nature, because the changes in market

value for these securities resulted from fluctuating interest rates, rather than a deterioration of the credit worthiness of the issuers.

Gross unrealized losses on the available-for-sale securities that have been in a continuous unrealized loss position were not material as of

December 31, 2025 and 2024.

Sales of Available-for-Sale Investments

The following table presents the sales of available-for-sale investments.

Realized losses on sales of securities were immaterial during the year ended December 31, 2023.