Birchtech Corp. (BCHT) Earnings Call Transcript & Summary

Good day and welcome to the Midwest Energy Emissions Corp. Shareholder Update Call. Today's webcast is being recorded. Before we begin, I'd like to remind everyone that statements made on this call and webcast, including those regarding future financial results and industry prospects, are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company's SEC filings for a list of associated risks, and we would also refer you to the company's website for more supporting industry information. At this time, I would like to turn the call over to Rick MacPherson, Chief Executive Officer of Midwest Energy Emissions Corp. Sir, please go ahead.

Thank you, operator, and good day, everybody. Thank you for joining us on today's call. I would like to, of course, make note of the legal disclosure and then begin by talking about our past. This past year was truly transformational for ME2C. As we saw the initial success in our efforts to monetize our patented technologies as a leading technology company who's had our technology adopted by over 44% of the coal-fired fleet, we've remained focused on delivering solutions to the global power industry that improve plant efficiencies while diminishing toxic emissions in a cost-effective fashion. Ultimately, our goal is to leverage our technologies to make the world a better place for us all, and I'm excited to share today the significant strides we've made in achieving that goal. Thanks to the hard work of the entire ME2C team and the partnerships that we have fostered, our company is better-positioned than ever to accelerate our growth and drive significant long-term value creation for all of our shareholders. Let me first review where our efforts have been focused over the past few years, followed by the drivers of the momentum we're seeing today. The coal-fired industry has long served as a significant source of energy for the North American power grid. The stability of the industry as a result of federal and state regulations mandated by the EPA, which support the operations that are adhere to mercury emission reduction standards. Our patented sorbent enhancing additive, or SEA technologies, were created by the energy Environment research center in the early 2000s with the objective of creating the best approach to mercury emissions capture. Since live infield testing began in 2008, we continued to improve the technologies until 2011, when they were adopted by a large utility for its twin 750-megawatt boilers in Washington state, a utility, which remained the customer today as their technology continues to benefit both the utility and the people of Washington state with a cleaner environment. Since that time, the SEA system has been tested at hundreds of power plants across the U.S. And after years of due diligence, cost cutting and significant investment in our patent portfolio, we can confidently say that we believe that there are no other solutions in the market that can boast the unique environmental cost and efficiency benefits that our SEA technologies provide. Our process, when combined with the unrivaled technical know-how of our team, was so well-received that we believe 44% of the entire coal-fired fleet throughout the U.S. have now adopted and are using them, which is greatly reducing the emissions across North America and improving air quality for everyone. To this day, our technology is the most widely adopted mercury emission capture system across the U.S. In 2016, we were growing commercially at a terrific pace, with over $32 million in annual revenue and terrific projections for [ 2017 ] in hand. At that time, a significant portion of the industry decided to proceed with this new technology but without us, the inventing firm, as part of the equation. Employed by the major chemical companies in the space, we were left competing against our own technologies with the very suppliers of the materials that supply them to us. So we made a significant decision to stop entirely our track at that point and reset the monetization strategy for a robust patent portfolio to ensure we realize the monetary value that we were creating for these utilities. And just a sample of the suite and family of patents that we now control, that is on the slide, as you see it. Clearly, our objective was to monetize the heavily adopted -- adoption of our technologies for the benefit of the firm and its shareholders. In keeping with that, we reached business agreements with 4 of the largest coal-fired utility operators in the country after making significant fundamental progress in our core business in 2020, and a complete reboot of our patented package in '17 and '18, as I've just shown. We were in a position to take on the infringing utilities and win as we are. Collectively, these long-term agreements have the potential to generate tens of millions of annual recurring revenue for ME2C. The required testing to acquire this new business started this month. We believe these recent agreements are a testament to our value of our technologies, and could create a domino effect within the industry as other operators who now use our patented technologies realize the value with us as we move forward in 2021 and beyond. Our legal partners, Caldwell Cassady & Curry, have been exceptional in communicating our place in this commercial development of our patented technologies and providing the continued guidance needed to monetize its adoption across the U.S. and beyond. With these recent agreements behind us and the IPR patent challenges dismissed, we're in a strong position, both from a patent claim and operational perspective, to proceed against both the present defendants in the refined coal space as other outstanding utility infringers. Over the past decade, we managed to keep a strong base of business and reduced our operating costs to ensure that we're able to complete the task of staking our ownership claim to these industry-changing processes. In 2021, we carried just $10.5 million in annual operating costs and a base of mature business of $12.5 million. That's without taking into consideration any revenue from our recent agreements. We've been able to do that because our management team, starting with myself, have worked diligently over the recent years and deferring a significant portion of our wages while we cut costs in order to get us to where we are today. And the recent agreements have added great credibility to our ownership claims of these world-class technologies, positioning us to further monetize and grow their adoption as we go forward. The refined coal segment of our litigation that's now underway is a very significant opportunity for us to be able to realize additional value for our shareholders. It is before the judge for decision on whether we will be moving forward in the near term or future, with regards to litigating these potentially extremely valuable claims, and we will be reporting back on the progress of that as we go forward. But in the meantime, we'll be focusing on building our licensing and supply business with the utility operators across the country. The partnership that we have with Caldwell Cassady & Curry provides us with an effective manner to proceed based on a business-first approach to utilities, meaning we prefer to enter into business agreements with these customers, leveraging our existing production facilities, which are capable of supporting a $100 million a year in revenue. So rather than move down the path of long-term litigation with the folks that are using our technologies now, we've decided to make a business-first approach, and we will be reaching out in the near future to start in on that process of converting these utilities that use our technologies to our supply chain or licensing model. As a small environmental technologies firm with its core technologies having been widely adopted in a huge industry, we seek to recognize the true commercial value and the quality-of-life impact that our clean tech solutions provide to people everywhere. So looking towards our future. We believe the future of the company is bright. And as we continue to grow and transform the face of the energy sector through our growing suite of environmental technologies, our sustainability-first approach has been, since inception and always will be, the focal point of our existence as a company. Our ambitions and goals are centered around making our world a better place to live and prosper through advanced clean tech innovations and new discoveries. The ME2C value proposition reaches far beyond the financial statements alone. We see ourselves as a true driver of change for the betterment of the planet through improved environmental stewardship throughout the utility industry. Now we've talked about our history and what we're doing today. Let me now talk about who we are becoming. According to the U.S. Energy Information Administration, the coal-fired utility industry will continue to be a key component of the baseload power supply of the country for years to come. They actually are predicting a possible uptick in the output over the next 5 years due to increased natural gas prices. Our financial projections are based on our solid platform of industry operations going forward. In the longer term, the expansion of coal-fired power across Eastern Europe and Southeast Asia are other areas of tremendous growth potential for us. The value proposition of our technologies in play across just the U.S. coal-fired fleet is very significant. Annual potential can reach and should plateau in the $100 million plus year of supply side revenue, once all of the folks using our system are converted either to our supply or are taking a license from us. Starting this year, we expect to see exceptional revenue growth in the firm, beginning in the second quarter, and we will see more substantial growth occurring in Q3 and Q4 of this year as the supply side option of our agreements start to take hold. In preparation for our expected revenue growth, we've made strategic investments in our production facilities to support our expected capacity of $100 million in potential annual product supply revenue; are fully paid for manufacturing and distribution center here in Texarkana, Texas is now being commissioned for service; and we'll be able to meet the expected uptick in business this year. On the capital markets front, a move to a major exchange in 2021 will ensure the company receives the broad investor exposure that it deserves to generate increased liquidity and reach fair market valuation as we continue to grow. We're working diligently to accomplish this task. We've got a plan to do so, and we've got a plan to do it in a timely fashion. We'll make further announcements on this topic as we move through 2021. As part of our newfound commitment to the capital markets, to best communicate our recent business success, we've reengaged with MZ Group, the world's largest independent investor relations firm, to lead a financial communications program, sharing our story with the broader investment community. These efforts will include virtual attendance at several key investor conferences in 2021. As a truly sustainability-minded company, our corporate goals align with the growing trend towards ESG reporting. Everything we do has a focus on improving the environment from our material sourcing to the technologies we provide. We're entering 2021, not only the solid enterprise position that's required to succeed and grow, but with the ability to utilize our decade of know-how, expertise and the relationships to expand our efforts into new areas of opportunity, created by the utility-led replacement of fossil fuel power generation with renewables over the long term. We're focused on enhancing the environmental footprint of the industries we serve and helping them transition to the new world of reduced emissions and cleaner energy sources. Most every utility in operation today across North America is making the move to greener solutions, and our firm is perfectly positioned to help enable them to do just that. Over 1.5 years ago, we began developing technologies to clean up the legacy of decades of coal-fired power plant operations across North America, and the present day environmental hazards that we now face as a result. We've made terrific strides over the past 1.5 years and are moving to pilot scale testing in the next 2 months. When added to our present base business operations, it should prove to be an exciting and profitable expansion of our core business with decades of opportunity across the U.S. and around the world. We look forward to providing an update to the investment community on our progress in the very near future. In conclusion, we're entering 2021 in a strong position. With the recent momentum of recently announced agreements and potential for many more on the horizon, we'll continue to showcase our ability to effectively monetize our patent-protected technologies in the form of reoccurring long-term contracts, which, when coupled with significant upside from our new ventures, position us to be a leading environmental technology company with an impactful steward of the environment -- as an impactful steward of the environment in the years to come. As we look forward, we strive to deliver sustainable value for our shareholders over the long term. Our future is bright, and not only from a financial position, but is a truly sustainable firm with the knowledge, ability and vision to make the world a better place for everybody in our small way. Please continue to watch us grow, and stay tuned for future news in the coming months. And with that, I'll turn the call over to the operator to begin the Q&A session. Thank you.

[Operator Instructions] We'll take our first question from Mike Shlisky with Colliers Securities.

A great information here, and I appreciate you doing this call. I had a few follow-ups for you. I guess, first, you had mentioned that some of the refined coal business was going to be going in front of a judge soon, and there could be some kind of settlement. Can you give us a sense as to the size of what that could mean, just a ballpark estimate? Is it only $1 million, $2 million or is it much, much larger than that?

So first off, let me just course correct this a bit. The judge is at this point making decisions on whether or not to let the case proceed. Without getting too far in the weeds, there are options for us as we move forward to continue down the path of having our case heard, which we're hoping will be able to take advantage of. With regards to a value statement, the T45 tax credit program, which is the refined coal business, accounts for approximately $1 billion a year of tax credits. And that process -- that tax scheme has been going on for the last 9 years. It will continue for about another year. So our -- and that -- and we started our claim about 6 months ago. So we feel, and we feel that the evidence will show that their technologies and their tax scheme was based on our patented technologies. And so we feel that we have a significant claim against their value proposition on an annual basis. And so we'll just have to see it through. But again, we feel that our technologies are a benchmark, a base tenant of their business. And as such, we feel that we deserve some -- a position with regards to that $1 billion a year business that they built on it. So I can't really comment any more than that, but we are encouraged by how things are moving forward and are awaiting the judge's decision on next steps.

Okay. Okay. That makes sense. We can kind of work -- maybe we can back into it at some point as some more steps are kind of made here. And then you had mentioned you're commissioning the plant in Texarkana to kind of serve the 2021 demand. Do you have to spend any additional capital or additional money or expenses to ramp up anything else? Or will Texarkana pretty much cover most of what you need to do for the next couple of years?

That facility was constructed in 2017 to handle the expected ramp-up in business, barring infringement. It has the capacity to handle an access of $100 million a year in supply side, and it's fully paid for and only requires to be commissioned at this time, which basically means a run-through of the system and loading it up with material. So we're pretty much locked and loaded and ready to go with that facility to meet any and all increase in supply demand as we go forward through the next few years.

And the actual ramp-up itself, I mean, as far as cash need is or cash usage is concerned, I mean, last quarter, you were down to only a few hundred thousand cash balance. Do you -- are you okay on cash to kind of ramp up from here? Or -- I'm not sure how do the licensees pay for what they're doing. Do you just get straight cash and you can just use it immediately? Or are there true-ups and you have to kind of have an escrow for a while? Give us a sense as to how you've got cash today and how the cash might flow throughout the year here.

So Mike, with regards to the actual agreements that we've signed, I'm barred from commenting on any of the details, but I can answer your question with regards to cash on hand. At this time, we are well-positioned and expect a profitable year. At this time, we have between $1 million and $2 million of cash on hand and expect a profitable year going forward as well. So we do not have any cash constraints going forward and look very much to improving that cash position quarter-over-quarter as we go forward.

Okay. And then looking out to other adjacencies. Looking at like remediation and other markets, can you maybe size for us how big new business can be outside of that $100 million that you can already serve? How far above that can you go, especially if you just be doing licensing?

So let me just back up a little bit and put it in context. The actual mercury capture business that our core business is now building on is an approximate $350 million a year business. Each of the 2 specific areas that we've been working in these past 1.5 years to 2 years in the U.S.A. alone represents $7 billion to $8 billion of opportunity annually. And we've taken all of our know-how experience and expertise in the field that we've been working in, especially through our Chief Technical Officer and our connections with the energy environment research center and others, and generated very strategic interesting technologies that we'll be rolling out in the next couple of quarters, that have a huge amount of potential to be commercially viable in these 2 spaces. So extremely excited going forward, focusing on those as well as our core business. And I guess, Mike, the thing is a couple of years ago, we realized as a firm that the adoption of our technologies had taken place. Almost 45% of the industry had adopted it. So the challenge became, one, of just monetizing that adoption, and operationally, being able to handle the business ramp-up to be able to serve it once we proved our position. We feel very, very good at where we are right now. So for the past 1.5 years to 2 years, we've been developing these technologies under the radar and being very effective in putting what we know to work so that as we roll out into the pilot scale side of things over the next few weeks, we expect to be able to bring some very solid information to the market. And I don't mind the methane capture industry alone as one of the key areas that we've been focusing on is huge, and with the new administration, is going to be extremely tightly regulated and monitored over the years to come. We are tightly focused on that and feel very confident like ME2C's mercury technologies that we have technologies that will be effective and viable and commercially adopted in that field.

Okay. And if I could just follow up on that last comment there and just maybe squeezing one more question. I'm curious, with the changeover in administration in Washington, D.C., can you give us your sense and your thoughts about some of the early policy priorities of either the EPA or the DOE, and how that affects your business going forward? And some of the appointees, are they favorable towards cleaning up coal? And I imagine they are, but just based upon who you know and what you know about what they're starting with here, how do you feel about the outlook is from a regulatory perspective for the next 4 years?

Broad question. I'll just try to get to the heart of it. From what we see, we expect that the fossil fuel industries are going to be further challenged with additional regulations and tougher monitoring over the next 5 to 10 years. We feel that there is a core amount of coal-fired energy that's going to take a decade or more to be retired. And what we're focused on is enhancing the viability of the environmental positioning of both the oil and gas and coal industries so that as these industries, as huge as they, are challenged, we're there to offer them environmental solutions to be able to continue in a clean tech environment. So I think there will be added challenges to those industries. I don't think they're going to go away. But we are working diligently to be able to make sure that they can continue on and operate in an as environmentally friendly way as possible. Also, what we're focused on is the remediation side of sites, in particular, coal-fired plants as they shut down and retire over the next decade. So we've been working not only to secure the business in hand of the operating coal-fired plants, but we've been working diligently to create technologies to enhance the cleanup and remediation of those fossil fuel plants that are being retired. And there's a massive, massive decades-long job to be done in remediation across the U.S., of the hundreds of plants that have shuttered over the last decade and those to come.

Got it. And so you've got that kind of back-end opportunity as well. It's, again, not part of what's being put in these slides here, but they're probably future business. Yes. Well, look, I will ask some more, but I will pass it along to others who might have some questions.

We'll go to our next question from Jeff Feinberg with Feinberg Investments.

A quick follow-up question on some of the comments, which are very exciting. In talking about these new agreements and annual potential of $100 million of revenue in a very constrained cost base, can you please help us think through potential recovery EBITDA here? The extent we ramp the business back up and a few years how we could look at 2 to 4 years base? What the potential here is from the EBITDA perspective?

Sure, Jeff. Thanks so much for joining us today. I appreciate your questions. In all honesty, we are in a situation right now where we need to see the fundamental growth of the company over the next quarter or 2 in order to generate numbers that we're extremely confident in. I'm sure the company is going to have a great growing profitable year. The actual value of that in EBITDA is really just going to come into light, I would say, in the second quarter of this year. We're in the field right now testing at facilities as part of our agreements that we've been able to come to resolution with. As I see the results of that, I will be able to better ascertain whether it's a license payment that we're going to be getting primarily or if we're going to be able to build that supply side of the company, which I think creates more long-term enterprise value for the firm. So Jeff, with all due respect, I would like to get through the first quarter before I give solid guidance, and I think that guidance will also be changing quarter-over-quarter as we go through the year. One of the big things that I can't get a handle on completely is the pacing and timing of when these agreements and supply side opportunities turn into real business. But as we go through this first quarter and we get the results of the testing that were now in play with, I expect to be able to bring projection -- solid projections to the market quarter-over-quarter. So I would, if you don't mind, [ share-hold ] until the end of this quarter, and I will be making -- I will be giving good guidance with regards to real-time results by the end of the first quarter.

Wonderful. May I just ask from a long-term perspective just so we can understand the business model. From a hypothetical perspective, if we do get to capacity at $100 million in revenue, what the business model looks like?

At that point -- and let's just step it back. Even let's just say we get to half of that. On a $50 million revenue base on just our core business, not bringing anything into play with regards to the refined coal situation or any of the new technologies I've described, we would drop approximately 40% of that to the bottom line as cash profit. And that would be a sustainable amount of revenue as a reoccurring revenue model for years to come. So I think our core business will be the main driver of our growth over the next few years as we expand into these other areas.

[Operator Instructions] We'll take our next question from Jeffrey Campbell with Alliance Global Partners.

First, I want to follow-up, I want to Mike's -- answer to one of Mike's questions. Regarding the $7 billion to $8 billion addressable market that you identified, can you give us some kind of idea of what portion or proportion of this is methane versus coal remediation? And without giving away any of the secret sauce, can you give us some idea of where the methane remediation fits into the [indiscernible] value chain, meaning the wellhead, the midstream, power plants, where?

Sure. Good questions. A little premature on the technical front for what I'd like to explain to the market right now. We're still in the process of establishing patents. However, I can say that both the remediation and the methane opportunities each are in the $7 billion to $8 billion a year potential. And in following up on how we propose to play a role in that, it really is based on our experience and know-how in the technologies that we have been working in, in particular, the [indiscernible] sorption molecular models that we've worked in on and around for the past 20 years, led by our CTO, John Pavlish. And that's added to by the expertise and know-how of our Vice President of Operations, Jim Trettel, who is one of the best in the industry with regards to the actual flow of material flow and handling. And the leakage of methane across the entire well fleet of the U.S. is horrendous. We are focused on improving that, if not eliminating it. And as we roll things out and do our pilot scale testing across the country, we will get closer and closer to the solutions that we think can make a huge difference in the viability of these operations going forward, especially considering the regulations that are purported to be coming in from the Biden camp.

Great. And just to follow up on the end of that. Did I hear correctly that you think that you'll have something to tell us about these pilot efforts at some point in 2021? Or is this more of a 2022 event?

No. I expect that we will be able to come forward probably in Q2 with some results and pilot scale projections of what that means in the future in Q2. We've been working on this stuff for a couple of years now, and we're in the -- in one of the categories, we're in the seventh phase of testing. And that was set up 1.5 years ago to generate a position where we could go, if successful, which we've been, into full pilot scale on-site testing, which we are going to be moving forward with in the next quarter.

Okay. I look forward to that. Rick, you said that you have a preference -- you just mentioned a minute ago that you have a preference for supply agreements versus licensing agreements. Could you just discuss briefly why you had that preference?

Sure. As a company, we started into this business -- I founded the company to be able to improve the operations at power plants. A license, which just pays us for what we created, is not near as fulfilling either economically or spiritually as a company than being able to go to work and work day-by-day on site. In the early days, my son and I worked for 18 hours a day, 6 months of a year, carrying out a test around the clock in order to get a piece of business, and it was much more than just creating some cash flow. It was creating a business, creating real -- a real supporting technology that really worked at that power plant. And so we really want to build our business. We don't want to just take a license check from somebody. I would much prefer. And I think the enterprise value of the shareholders will be much better represented by us working hand in hand. So I really think we should be taking the business rather than a license agreement. But if there's something that keeps us from doing that, then a license agreement will be fine and recognize the value that we brought to that operation.

Okay. And that's helpful. And my last question is sticking with the core business. With the revenue landscape and the U.S. far more visible after these recent litigation wins, which foreign markets look best to you for expansion of your technology? And what's the strategy for expansion in the foreign markets?

Eastern Europe, then Southeast Asia. We've been working actively in those areas for the last 3 years. Things are going to start coming together nicely next year. But we are focused right now, Jeff, on seeing this adoption monetization here in the U.S. What I don't want to do is look too far over the horizon and lose focus on what we've got in front of us right now. We're finally back on track to create some real value for the shareholders and I want to stay focused on that before we move off into the other global opportunities. We will do that, and it will be a licensing model approach, which doesn't take us off our game here. With what's happening in the U.S. right now with the new administration and with our present position, having set strong precedent on the value of our patents in this industry, we need to stay focused on the U.S., and in time, longer term, will develop around the world.

No. I think that makes perfect sense. Plus, you've got these other irons in the fire in the U.S. as well. But you want to -- obviously, you want to put a squeeze all the juice out of the lemon that you can at some point. So it's good to know that you're sketching out that model for the future.

We'll take a follow-up from Mike Shlisky with Collier Securities.

As I model the company and the free cash going forward, it sounds like you've got a pretty good feel for a decent profitability this year and certainly going forward after 2021. Do you have a number? How much has been -- is on the books? Or how much can be have used as NOLs from prior year losses? I'm looking -- just looking at the last 5 or 10 years, you've got at least $50 million, $60 million of NOLs that I can see, but I don't go further back to that. So what's the bottom line number as far as trying to not pay cash taxes going forward due to NOLs?

Mike, I think it's close to what you referenced, the $50 million plus, but I -- to be honest with you, I don't know exactly. I would have to bring our financial officer into -- answer that. I'll make sure that, that information goes out to you. But I don't think you're far off. I just can't confirm that right now.

No worries. And I -- looking back at the last quarter, I'm not sure what counts. Now that you've commissioned Texarkana, can you take more depreciation now than you could in previous quarters? Or has it all -- has it been depreciated since 2017 when you first built the facility?

Good question. We're -- wasn't commissioned or used at all, I don't know if we've started to write it off. Again, I'm sorry, I have to ask the financial officer for that answer. And if indeed, we were writing it off, it was probably only at our own cost. We built the facility ourselves. And although it's probably worth today somewhere in the $5 million range, we built it ourselves. And the cost of our construction was somewhere in the $2 million range. And it just gives you a sense, if you look at it, as was shown today in our presentation, of our capacity as a company to build an infrastructure such as this from scratch, customized ourselves. We have a huge talent pool, a small group of people, that can create these kinds of infrastructures both here and eventually around the world. So from a depreciation point of view, I don't know where we are with it. I'll have to review that, of course, and maybe reposition it with regards to its value as we go forward once we put it in service later this year.

At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Rick MacPherson for his closing remarks.

Folks, I want to thank you again for taking time. And particularly, I want to thank the investors, Mr. Feinberg and the rest of you folks, that have been with us for many, many years. We had a bit of setback in 2017. And in spite of the technology that continues to be adopted, we were unable to monetize that. Well, heard last few years, we did what we had to do to be standing today and moving forward again. And we think we're going to pick the ball up where we left it in 2017 and continue to grow the company. If anything, the -- stay in our progress and growth for the last few years has allowed us to reengage with different technologies and ideas, use our strengths to come out of the gates with a whole lot of opportunity besides the core business that we're now going to be able to monetize. So I very much expect we're going to be an ME2C plus company going forward. And I'm really looking forward to bringing, not only the new agreements and the new supply side news to the market that we put together over the coming months, but also introduce this new round of technologies that we think we can be as successful with regards to adoption as we were with this core technology. And if so, we'll be playing in a sandbox that's 100x bigger than the one that we're working in right now for each of those areas that we're dealing with. So we're extremely excited about what our future holds. We very much want to make that uplist to a major exchange as soon as possible this year. We've got a plan to do that, which we think we can execute on. And I think that will add value to the shareholders as well as the technologies that we're going to continue to grow and the core business as it expands. So I look forward to keeping in touch with the market through MZ on a regular basis, and thank you so much for staying with us. And I'm looking forward to the next call that we have, which I would hope to have in the next 60 to 90 days. Thank you very much. Appreciate all your time.

[Audio Gap] today's call. Thank you for your participation.