Birchtech Corp. (BCHT) Earnings Call Transcript

Good day, and welcome to the Birchtech Shareholder Update Webinar. [Operator Instructions] If any relevant and appropriate questions are not addressed during today's webinar, the company will address such questions on the company's website as soon as possible following today's webinar. This webinar is being recorded today, October 22, 2024. The press release was issued prior to this webinar today on October 17, 2024, which provided the webcast access information for today's call. Today's webinar, which will be led by Birchtech's Chief Executive Officer, Richard MacPherson, who will introduce other companies' executives, Dr. David Mazyck and Dennis Baranik. Before we begin, we want to note that you should read the forward-looking statements in the company's press release issued prior to this webinar. During today's discussion, management will make certain predictive statements that reflect its current views about future performance and financial results. The company bases these statements and certain assumptions and expectations on future events that are subject to risks and uncertainties. The company's periodic filings with the Securities and Exchange Commission list some of the most important risk factors that can cause actual results to differ from its predictions. I will now hand over this webinar to Richard MacPherson, Chief Executive Officer of Birchtech. Please go ahead, sir.

Thank you, operator. And folks, thank you for joining this webinar today. It's focused on the reason for our rebranding and the market impact that we expect from this important repositioning of our company and the ongoing strategic efforts in this massive water treatment sector that we are now entering. But first, I'd like to formally introduce 2 critical executives in our future growth in the water market, Dr. David Mazyck and Dennis Baranik. Dr. Mazyck rounds out our unparalleled expertise in research and development, complementing the collective sorbent expertise and PFAS analysis capabilities of John Pavlish and Dr. Nick Lin. Dr. Mazyck's work and academic knowledge of activated carbons leads the industry. Dr. Mazyck holds over 20 patents in activated carbons and has developed products currently commercially available in the water treatment sector that is actively involved in projects with the United States Department of Energy and Environmental Protection Agency. Dr. Mazyck has a unique understanding of commercializing innovative products as he previously owned and operated activated carbon companies. Dr. Mazyck is the Director of our WE2C Environmental division, overseeing the technical development of our division. Dr. Mazyck?

Good morning. Thanks, Rick. The potable water treatment market is moving swiftly to understand how to augment their operations to meet PFAS legislation. Activated carbon is historically used in water treatment and therefore, is reliable and proven for all waters that are used for the production of drinking water. Therefore, consulting companies and other agencies are predicting an increase in activated carbon at least two to threefold. The future of activated carbon manufacturing and the ability to reactivate the carbon are best approached with sustainable manufacturing in mind. Briefly, reactivation is the process of removing the activated carbon from a water treatment plant and then subjecting it to thermal processing that cleans out the material, the activated carbon removed during its service life. Testing activated carbons at the full scale is time-consuming and expensive. It could take a water treatment plant an entire year to understand how an activated carbon works for their water treatment plant. Therefore, lab services that provide water treatment plants results with their water and comparing virgin carbon performance to which reactivated counterpart provides crucial information at a fraction of the time and at a much lower cost. We are offering the water treatment industry, these services, whereby we can reactivate the utilities spend carbon and then compare it to its virgin counterpart. We are not familiar with any other company that can provide these services holistically critical to success for manufacturing activated carbon, reactivating carbon and offering lab services are industry experts. It is important that the industry recognize these experts who have the experience and expertise to analyze data and operations to help water utilities meet the regulations at the lowest cost. The WE2C team has decades of experience in analytical equipment, owned and operated laboratories, owned activated carbon plants and design, build and operated manufacturing facilities. This collective will provide the water treatment plants confidence in our data, recommendations and solutions. Rick?

Thank you, David. Also joining us today is Dennis Baranik, a seasoned business development expert and our National Director of Sales. Prior to WE2C, Dennis spent more than 10 years as an executive leading business development for an activated carbon manufacturer. His indebtness and strategic partnerships, in particular, and sales in the water treatment industry will ensure our growth in this new market. Dennis?

Thanks, Rick. David and I have worked closely together for over a decade now. And I know both of us are looking forward to working with the entire Birchtech team to develop and commercialize different innovative technologies for the water treatment market. Based on the feedback that we're hearing from our projected customer base, the market is ready for a company like ours to step in with new and novel products and services. I'm confident that the team that we have in place with our collective talents and experiences, we'll be able to bring to market a variety of disruptive technologies for water treatment that are not only effective but also cost-efficient.

Thank you, Dennis. Folks, we're here today to discuss our rebrand and our growth strategies, but I'd first like to comment on our recent 8-K filing that we made yesterday. Let me say at the outset that I know you, like us, are highly interested and any news regarding the outstanding litigation. And I have a couple of things to share with you on that front. The 8-K filing that we made was as a result of us reaching an agreement with 1 of the utilities and an affiliated entity that were defendants in the patent infringement lawsuit we filed July 2024 in the U.S. District Court of Arizona. The license agreement that came from that provides the utility and its affiliates a nonexclusive license to our 2-part Sorbent Enhancement additive process for use in connection with their coal-fired plant. The agreement also includes a onetime license fee and provides our company with the right of first refusal, or what they call, ROFR, for product supply for merger emissions capture at their plant for the next 5 years. The lawsuit against other defendants named in the Arizona action is making great progress as we expected. And I must reiterate our goal with all of these proceedings is to reach a business arrangement that works for all parties. We're most focused on providing services and know-how along with our custom line of products to these users of our technologies and it's our hope as we move forward that we can find a business solution rather than litigious one and our license users are all operating now more economically and officially than ever before when working with our team. We're ready and open to discuss a win-win arrangement with all outstanding defendants immediately. And today, we want to take the time to share how everything we've learned and accomplished with ME2C's efforts in the clean energy space, positions Birchtech to become a leading technology provider in the important national effort to eliminate forever chemicals from our drinking water. So firstly, let me share our name in our identity. This is Birchtech. Why the name change? And mostly because the launch of our processes, services and products in the PFAS space is a significant leap forward since I started the company back in 2008. We have a new market and an important breakthrough story and the new name allows us to reintroduce ourselves establishing a stronger presence to the market. ME2C Environmental represents our legacy success in mercury emissions for the coal-fired power sector, and we expect our market share will continue to grow in that sector in the coming year in particular. Our entry, however, into the massive water treatment market through WE2C Environmental will lead to significant growth that will begin in early 2025, and we expect to grow significantly over the next decade. By establishing a parent company, Birchtech, under which these separate divisions will operate represents our capabilities as a multifaceted environmental technology firm. And so Birchtech is a culmination of our strengths and competencies in new technologies and markets, and it repositions our company as a leader in more than just the air purification with many diversified applications. It's represent -- estimated and reported that the cost of U.S. water utilities to meet the new EPA regulations for PFAS and PFOA exceeds $47 billion. That's a massive uptick in the requirements for the entire industry. And so David, I'll ask you if you can, to speak about the challenges that water utilities are currently facing, and what our innovative lab approach should do to that -- to those challenges?

Sure, Rick. There's a growing supply shortage that is forecasted to continue, whereby activated carbon demand will continue to surpass its available supply. Concurrently, the cost of manufacturing of activated carbon are also increasing, basing on increases in raw materials, labor as well as energy requirements. Thermal reactivation is a decades-old practice. But because disposing spent carbon in landfills, is not desired because of PFAS leaching and it's more sustainable and cheaper alternative than relying on virgin carbon, more water utilities will be looking towards thermal reactivation in the future. Our labs will provide water utilities a side-by-side comparison of their virgin and reactivated carbon to predict performance and costs to meet PFAS compliance.

David, you made a excellent point with the activated carbon supply shortage, along with the high industry demand. There is 1 major carbon supplier in the space that's estimated that close to 200 million pounds of activated carbon is currently used in the U.S. to treat drinking water on an annual basis. And as I mentioned, that amount is projected by a number of industry sources to be at least 2 to 3x higher within 3 years. And then to continue growing significantly beyond that amount as water utilities incorporate the use of carbon is a best available technology for the removal of PFAS and other contaminants.

Thanks for that, guys. Folks, the decision to enter the market -- the water market and lead with the opening of our labs first, was a strategic move. We didn't want to just jump into the business. We're here to change it. The existing players in this water market function primarily as product suppliers. They're mainly focused on selling and manufacturing product, and they stand to profit immensely with the new EPA regulations at the expense of utilities and the citizens of the whole country due to the amount of material that expected to be used to capture these forever chemicals. But at Birchtech, like we did with ME2C, we're going to offer consultative tunable technologies to meet our customers' needs. Our business strategy under the WE2C banner is very different than others operating in space. Our approach is as a collaborative business partner, offering an arsenal of technologies, all focused to improving efficiency, affordability and sustainably better than other solutions aimed at PFOA, PFOS removal. We established our lab centers at the outset for 2 reasons: to address the limited supply and the growing demand of activated carbons and to internally push our own product technologies forward. Our labs will provide a faster path to commercialization of our own highly efficient and sustainable products. Our initial offering for these lab centers to the water treatment market is improved reactivation and our expert analysis of PFAS removal of activated carbon from water utilities to better virgin carbon selections, as David has spoken to. Dr. Mazyck can expand on our decision to launch our lab service and give a better understanding of why it's knowledge-first as our approach.

Thanks, Rick. These labs will be an important tool in establishing our presence as a leading provider in the water treatment industry. We will be able to provide a custom solution to address a water utilities needs. We will take their water and their spend carbon, reactivate it in our lab and then diagnose the appropriate approach to help these water utilities more efficiently and affordably remove PFAS from their water. In addition, our labs will also conduct research and development for our own highly innovative and environmentally friendly products.

David, I'd like to add to your comments as a complementary offering to our lab services, we've just announced a supply agreement for up to 2,000 tons of feedstock to be used for water treatment. As a leader in this industry, it will be important to be able to provide an ever-expanding portfolio to meet customer needs. I've been reaching out to the industry, along with our business development manager Isaac Post. We've been attending major conferences, and we've introduced our lab services, our new products as well as other sorbents technologies that are applicable to a variety of different water purification purposes. Our customer base has shared with us their excitement about our entree into the water market as well as our ability to introduce new technologies and solutions.

Well, David, Dennis thank you very much for your comments today. I'll turn the call back over to the operator, and we can begin a question-and-answer session, please.

[Operator Instructions] Rick. Our first question, when will revenue sales for the $7 million product supply begin?

There's still a complete unknown at this point with regards to exactly when but we expect that early in 2025, we will have finished products that we're ready to move into market. There will be a growing demand over 2025. So we expect the uptake of that material will take effect throughout 2025, and I expect the ability that we have will allow us to sell through all of that product.

Our next question here is when will you -- sorry, will you manufacture products for water at your Texas location? If so, when will this begin?

Yes. Actually, we will be formulating finished product at our Texarkana location, which, as most folks know, we built 5, 6 years ago and is ready to go into full operation. Replacement costs on that facility would be somewhere is in the $5 million range today, and it's fully paid for. So we're going to use that in our rollout of new materials in conjunction with another partner on site actually at that facility I expect that, that facility will be up and running either late in the first quarter or early in the second quarter of 2025.

And our next question, how does the new license agreement announced via 8-K today impact the time line of the development for your water treatment technologies.