Birchtech Corp. (BCHT) Earnings Call Transcript & Summary

Good afternoon. Thank you for joining us today for the investor update with ME2C. The company has had great success this fall with settlements from 2 major defendants on their long-awaited -- Good afternoon. Thank you for joining us today for ME2C's Investor Update. The company has had great success this fall with settlements for 2 main defendants on their long-awaited court case. Working on its data into the forever chemicals industry and on their REE extraction business. ME2C trades both on the OTC and the TSX venture under the ticker symbol MEEC. There will be an opportunity for Q&A after the presentation. [Operator Instructions] and the presentation may take forward-looking statements.

With us today from the company is CEO, Rick MacPherson. Welcome, Rick. Given you have only been able to put out limited information on the lawsuit as settlements are still ongoing, can we start with an update on that front and move to the other exciting aspects of your business?

Yes, sure. Thank you, Jess, and thank you very much, everybody, for joining us today. The last few months, in particular, have been very busy in dealing with the combination of a 4, almost 5-year legal suit that we filed back in 2019 against a group that we suggest that we're infringing on our patent technologies. That process is half over, given that approximately half of the defendants have decided to settle with us prior to trial. And the remaining defendants are now lined up for trial February 25th. So we do expect to move forward on that matter. There is an opportunity for mediation between now and then. And that may also find a solution to this situation. But we are looking forward to -- trial should go to trial late February. Now with regards to the win to date, the settlement, which is an undisclosed amount between A.J. Gallagher Corp. and the DTE Division that was managing the refined coal program is highly confidential and will remain that way. However, moving forward, we are very much looking forward to not only engage the second group at trial in February, but also to address the other infringing utilities out there that continue to use our patented process, especially given the court's ruling to date on our patent credibility. So with that, Jess, I'll turn it back to you.

Okay. On that note, how many infringers are there still out there? Do you -- can you estimate?

Sure. There are actually dozens and dozens of corporations and typically 2 to 3x that in terms of actual boilers. So the potential for us to see multiples of our annual revenue growth rate is very real indeed. I plan on moving forward in this effort early in January. And throughout the first quarter, we should be able to get a very good assessment of what the real potential is in terms of what we would expect to be able to bring on board either as licensors or licensors and folks that we supply, and that would make a significant difference in what our revenue projections are but by the end of the first quarter, I should have that nailed down based on that 90-day experience. And so we'll be in a position to give full guidance starting into Q2 of next year. And I expect it would be a very significant increase in past guidance that may have been issued.

Okay. On that note, the ones that you -- the settlements you've had reached at this point, I'm assuming your -- given your patent expiry dates, et cetera, I'm assuming you're locking these people in beyond your patent expiry, is that correct?

So the folks that we've been dealing with overall in all of our dealings to date, and we have settled with many and outside of the court situation and are in discussions with several outside of the court situation we always seek a multiyear contract for supply, anything from 3 to 5 years that is as well renewable under reasonable circumstances. Our effort and our goal here is to be able to grow the business and have it maintained at highest possible level for at least the next 5 to 10 years. And that's the process that we continue to move forward with.

Okay. And so with this settlement increasing market share, when you were good, can you -- you can parlay this into not even the ones that we're not involved with the settlement, as you said, you were going to start parlaying this into increasing your market share overall in the market capture area in your core business?

Yes. So we'll be reaching out to folks that depend on the 2-part process that our patent covers early in '24. And suggesting ways that we could work together going forward that would actually enhance the performance of the systems they have installed as the developers and discoverers of the process, we very much understand how to optimize these systems. And I think it would make sense for the operators of the 2-part process to listen to what we have to say and let us take a crack at improving their operations. And I think that should go forward quite well received in the new year, and we're looking forward to getting at that.

And it's just the technology being used, I know some -- I mean, the bigger utilities have their own -- they don't have to utilize yours. But is there any other technology that's even close to yours that works this effectively?

In the non-infrastructure world, there isn't. Our 2-part patented process is the best available control technology for a non-infrastructure approach to capture mercury. If you have a large modern plant with a bag house then 9 times out of the 10, depending on the color burning, they can get into compliance. But for about 40% of the fleet that don't have that infrastructure in place, and then these are $400 million, $500 million pieces of equipment, then a sorbent approach, which is what our technology is based on is the best available approach. And of that, our approach has always outpaced and outperformed any others in the field.

Okay. And -- so we already talked about when you can provide information on the settlement. So right now, you said you're going to mediation with remaining [Indiscernible] the potential for update. That's for the 25th February.

Yes. That's a set court date, so we can't go beyond that without seeing each other in court. The chance of mediation solving the issue prior to then is already -- is always there, but the firm court date is set for February 25.

I would think many of these people that haven't sold yet, don't really have much of the light to stand on, given the settlements you reached thus far.

Well, I really can't speak to that other than that we're quite pleased with our present position, given the ruling of the court today and the settlements to date, we feel very good about our position of enforcing our claims.

Okay. And so with the bonds, you have reached settlement, will you be able to divulge that completely, or will that remain under NDA for the most part?

Well, it all depends on the terms of the settlement. The terms of the first settlement were that we were not able to disclose any of the details, but we had a third settlement that came along, a group that were actually part of the remaining defendants, and they allowed us to publish the actual factoring of that settlement, which was $1 a ton of refined coal burn. As we go forward with this next group. It's yet to be seen, a, what settlement will be if there is one? And then secondly, what the terms of that settlement will be? I would very much like to be able to bring as much detail to the market as possible, but it will all depend on whatever constraints the court imposes on us.

And everyone's been trying as we were discussing, everyone's been trying to quantify $1 per ton, what that means like without the other factors in the equation, i's hard to do. That said, do you think that kind of gives you a baseline for where others may settle, or you can't say, really?

Well, Jess, I think it does definitely set some sort of precedent, whether or not the jury take that into consideration is not for me to say. However, I do think that we're well positioned to be able to make our case in court and that the settlements that have occurred to date, I think, will be very supportive of that effort.

Okay. One person here from the audience. In terms of market share of operating profile power plants, your market share is about 20%. Is that correct?

That's correct.

And then what percentage has settled and still -- kind of already answered that. So we -- that's done. Do you expect to start seeing revenues derived from 2 utilities that settled to be reported in the income statement this coming quarter?

I don't expect that we'll be making reference to any of the settlements in the final quarter. I expect that the first quarter of 2024 will be the time frame where any announcements relating to any settlements or any financial results relating to any settlements will start to show.

Okay. And then one question I did have from a number of people. Would you consider a special dividend with your settlement, or do you have other purposes for those with that money?

Well, of course, that would be a board decision. However, there are a number of different things that we can look at as we go forward to clean up the cap table on the balance sheet and just to run through them, there would be addressing the outstanding debt that's on our books.

Can you -- on that, can you just describe as to show that for some people and how?

Sure. So the outstanding debt that we have is with a group called Alterna Capital, and there are 2 -- there are 3 pieces to it: a small secured note for approximately $275,000, then there is an unsecured note for approximately $13.5 million. And then there's a profit share component that's unsecured nonrecourse totally based on IP wins. It's a bit more complicated. But all in all, this is all information that -- it's a situation that I'll be dealing with Alterna. Over the course of the next 90 days as we work our way through the final piece of litigation, and then we will address the debt accordingly, according to the terms of the loan agreement and the amounts of the settlements and things of that nature. But I very much expect that by the end of the first quarter, the turn up debt situation will be addressed in what we feel is the best approach for the company. I can't get ahead of myself and indicate how that might be dealt with but we have a number of different options that are favorable, both to the company and to Alterna that we'll be pursuing and have been pursuing since we started into litigation. So I think the company will be much stronger once we move through this first quarter. And in any regard, the debt is not a concern for us at this time.

No, I just -- I'm assuming you want to get that off the balance sheet, and you have a -- was there a determined amount like on a percentage basis, depending on what your win was, or can you not divulge that?

No, there are terms in the agreement with Alterna, which I can't get into detail on, which, again, are items for discussion between us that will be worked out over the next 90 days.

Okay. All right. Okay. And so I think we've pretty much covered as much as you can say on the litigation at this point. Is that fair?

Yes. There's -- we're still -- you got to understand we're still in trial. We're still in the quiet period moving to the second group of defendants. And so although we're very pleased with the results of the first settlement, I can't get into any details that might offset the remaining case that's in front of us.

Okay. Just one question here. What percentage of market share that has settled? And two, what is the still in litigation? And lastly, three, what is the market share of the coal-fired plants that you plan to pursue afterwards?

Let me -- rather than get into the specifics of that because it can be a little compromising for me from a legal point of view. I think that there's tremendous opportunity in the market with a fairly stable coal-fired percentage of the fleet being around 20% expected to stay that way for the next 5 years or more that we have the opportunity to increase our market share at least 2 to 3x, and it should not take too long for us to be able to get there. And although that can be worked into projected revenues and stuff, I would like to leave the actual estimates of guidance until that March period because the next 2 months and 3 months in particular, January and February, in particular, will give us a great deal of feedback from the market, and the trial itself will add more information to our position so that come March, we'll have a really good handle on what this all means in terms of actual companies and boilers and tonnages of coal and all of that stuff, what the breakout will be between anticipated licensing only or license with a supply side contract. All of those things need to be worked out before I can give a number that's reasonable. I think either way, it will be substantial. But I'm not really going to get into a guidance point until I get most likely midway through March. But all I can say at this point, Jeff, is I feel very good about the future. And I think our market share will increase substantially because of what the courts have had to say and the settlements to date, in particular, and I believe that can only be enhanced with a further win on the final trial situation or mediation. So I really need to wait until that stuff comes to fruition before I get out there and possibly get ahead of myself with projections. But -- and I've said that the onetime cash settlement is very significant to us and will allow us to grow the company nicely and in a timely fashion. But the real value, the long-term value of the enterprise itself, and it's share value lies in us converting all of those people that have to use the 2-part process into long-term license holders or license holders and supply contracts. And as that business grows, so will we.

Well, that's -- and moving into that, as you get these new licensing agreements, even if you're still in litigation, will you be able to release news on that? Or will you have to hold back until the litigation is finalized?

We'll start announcing new contracts as soon as we get them in January, but we will have to hold back on any discussion of anybody who's still involved in litigation.

Okay. Okay. And one other person, very persistent here. Do you have a feel for how many power plants being supplied by [Indiscernible] players are still operating?

Yes, 80% is a rough guess.

80%?

Yes, yes.

And why did they think that they could actually take your technology? And I guess it happens all the time.

I really don't have an answer to that. All I know is we disagreed with that, of course, and the results will speak for themselves.

Yes. Okay. I'm just sort of -- there's lots of questions coming in, so I'm just kind of better. So the settlements to date have been lump sum payment and then licensing agreements? of course, you can answer that.

Yes. So we're looking at license agreements that come with a [Indiscernible].

Okay. Okay. All right. I think we've kind of beaten the litigation to death here. So let us talk about the core business and you're focused on getting, again, increasing market share substantially, I think, within the U.S. I do have a question on coal-to-gas switching. You did see a bit of that impact your numbers this year and gas prices still kind of remain slow, I mean, lower than -- do you foresee that being an issue for the balance of the year, or do you...

No. We had a very strong third quarter, except 1 of our main clients fell off and just no longer operating. Outside of that, we've actually increased year-over-year out of that 1 client, and we very much expect to replace that in the near future. And so we most likely will start off next year with the same base that we finished up last year, something in the $22 million [Indiscernible] for gross revenue. But as we move forward, our license revenue is increasing as a percentage of overall revenue. And that grow our margin up.

Yes, I was going to say your margins will be up substantially, yes. And so on that note, how are things going internationally as far as the market remissions factor and your expansion into like the Asian markets, et cetera, specifically focused on initially?

Interesting, you should mention that. We just finished a either final or almost final conference call with a group in Southeast Asia to demonstrate both our oil-fired technologies and our mercury technologies. And we'll be having a final meeting with them later this month in an effort to move our demonstrations that we've offered forward in the first quarter. And that's the first time I've mentioned that to market. And I only do so after about a year of effort in moving that project forward. So I very much expect at this point to be able to move into the Southeast Asian market, most likely in the first quarter of next year. And we'll bring material notices of that to market if and when we sign off on those agreements.

So we should maybe hear some news on that over the next 6 months or so, would that be fair to...

Yes, yes. I would expect in the first quarter to announce and most likely begin demonstrations.

Okay, okay. One person is asking, why to wait January to pursue the rest of the fleet, and why not start now, I think you're probably already talking to people I'm assuming.

Yes. And that's purely a legal consideration.

Okay. Is the licensing data with Cabot in Europe, still in effect? And if so, why is no revenue coming from it?

No, it's not. We closed that deal out prior to the sale of that division of the company.

Okay. Okay. Right. Now let's move on to the other parts of the business. To touch on, where you are with the REE, and then I'd like to really dig into the forever chemical side of things, if we could.

Sure. So with regards to the rare earth extraction side of things, we've gotten to a good point of development. We're now working on a couple of different research programs, both actually combined with Department of Energy. We've also got an ongoing contract with the University of North Dakota that we are looking at upgrading for the new year. We're kind of taking a longer-term perspective on the rare earth extraction process, in that we want to get a new plan in place effective January, which will move it forward in partnership with a couple of other entities, which I think will be the best way to get the market quicker. So we'll be talking in the new year about joint ventures and research at major facilities and a time line to take that into actual demonstrations in the field. So I'm going to hold off and get it any more in-depth at this point. But in January, we should be able to bring some real specifics to that part of our endeavor. And so I'll leave it at that on the rare earth extraction. I was in London all last week at the Minds conference, met with several dozen folks involved in the business in different aspects of the mining business and got quite a bit of interest in our extraction technologies. And some of those meetings are leading as well into opportunities that I would like to develop before we make any firm decisions of our direction.

Okay. So yes, I mean, so that's a bit of a wait and just continue to improve the technology. And -- but that's -- you've made some pretty good headway in the last 6 months on that. I know we initially talked about being in the field in the next 3 months, but it seems like you've now decided to go more of an increase in technology and find partners as well for this RE extraction and no one else is really doing this with...

Yes. Well, the thing is what I'm finding as we get closer to testing, is that there are more and more people that have been -- that we're finding that have been involved in it that may not have something that actually works, but components of it could be synergistic with what we're doing. So rather than go it alone, we're trying to see if we can't pull bits and pieces of other technologies together so that we will be more apt to be successful once we do get into field trials.

Okay. Okay. Great. And now the most important part is on the forever chemicals. Where do we stand on your progress there? I know you have technology that -- I mean there's other people out there doing it right now, removing forever chemicals. And I don't know how much you can describe the difference of what you do versus what they do without giving away your IP, and how long do you think it will take to test your technology versus -- and then get it operational. And what you do more as a licensing agreement, or would you use a plant or build a plant to be around or be decided on that.

Yes. So a lot of decisions have been made, a lot haven't yet. First and foremost, we're committed to this area of business. We know that it will be most likely one of the biggest, if not biggest growth opportunities in the environmental area for the coming 5 years or so. So we very much want to get into the water business and have been working diligently. I mean, we hired a group of specialists in the field, almost a year ago to work with our folks. And we've been working diligently on this over this past year. So we're at a point now where we've got some great groundwork done. We have all of the necessary things figured out with regards to starting our own plant. We've got all the feedstock identified. We've got the location identified. We've got the power sources and the natural gas and all of the things that need to go in, we have all the general description and design of the plant. Everything that we need is in place to move forward, now we're backing up to work on the actual technology 100%. So what we're trying to do, Jess, is the same thing we did in the air side of pollution. We took basically activated carbons that were the mainstay of capturing mercury, and we disrupted their use. We found a way to be able to increase the production or the capacity to capture mercury by 100%, improved at 100%, so that we basically changed that industry forever. And so rather than power plants having to spend money to put, say, 500 pounds of activated carbon back in their boiler hourly, our technology allowed that same operator to operate and maintain his compliance for 150 pounds an hour. And so what we were able to do is enhance the performance of these activated carbons in the air toxic world. We're trying to do the same thing for the water. At this point, with these forever chemical treatments coming in or requirements going in, municipalities are going to have to generate probably 3, maybe 4x as much activated carbon entered their systems in order to meet these new compliance numbers. What we're working on is to be able to create a technology that would allow the best carbons available to perform 3, 4x as much -- I'm sorry, 4x better at collecting these micro plastics than they can today. All of the people in the business today are basically putting out extremely great product, basic activated carbon products that are used across the United States. That's wonderful. What we're trying to do is to enhance their performance so that the municipality doesn't have to buy more of it. It just works better. And we'll do that either through a license arrangement with the major suppliers or we'll go ahead and build our own plants and start into the market development ourselves, which is what we did in the air side. There may be acquisitions in the near term while our plant is being built where we could test our product directly against the best needs out there. And therefore, build pockets of market share as we build our main plant. But either way, we will be in this business, most likely by the end of 2025. And it is a multibillion-dollar annual business.

Yes. I mean the market size is huge. And when you expect the EPA to start putting more restrictions in place in...

The regulations are in place and they're now just under final review, they will become law most likely by the end of '24 or sometime into '25. So we expect that we will be up and operating. I think it's going to take us another 6 months or more to actually finalize our technology and then another 6 months to test it head-to-head in real live situations around the country. And then we'll move forward either on a license basis or on an acquisition/buildout basis to be able to create our market share.

Okay. And do you have any idea what the capital cost might be for building a plant and would you see a partnership, or would you want to go at alone?

I think that we will most likely build a significant plant, not a massive one, but probably a $30 million, $35 million plant. We may take some local partners from the state in folks that we would be doing business with from the feedstock side, but also our effort to expand the business once we establish a foothold would most likely bring some other investors into our company or not depending on how our cash flows are improving. But the way this thing will be designed will be so that we can build out line after line after line. So that our first plant might be able to generate somewhere in the $60 million a year range in revenue, but the site that we've selected has the opportunity to add 3, 4 or 5 more lines of production. It will be located in the State of Alabama. And we have great markets to the south of us in Florida and of course, up through the northeast from Atlanta right on up to New York. So we'll be extremely well positioned with this particular plant and able to take in 30-plus percent swath of the U.S. opportunity.

Okay. One question from the audience. Going into the future, should large water utilities that treat water with chlorine and UV light also be looking for mercury or the other PFAS? Is there a process necessary to educate the potential hazard that your company can help in drinking water?

I'm not sure I really understand the question, Jess. I anticipate that 95% of the water that's treated in the U.S. today is done so with a high-grade activated carbon or regenerated activated carbon. Those -- that is the gold standard. I expect that will stay the same. The PFAS and PFOAs being removed will be attracted most likely with the same technology, even though there are others that are available. And I don't really see that changing the major players in the business with the business. We'll continue to operate on that level. I see us as a disruptive company that can come in and enhance the performance to the benefit of not only the municipalities, but all the people that pay for the drinking water. And I see that very much as our strength has exhibited from what we did in the power plants and the same skill set with the addition of the new folks we put on board I think will allow us to do the same thing in water.

Okay. Okay. Just was making sure I'm not missing anything here. I think you and I discussed this, do the current patents cover the wastewater treatment, or will there be new patents filed. I think you decided that you're not going about that on this technology, correct?

As we go forward, my experience has been in this whole patent world, we're better off to keep things as a trade secret. Trade secret rules and regulations are in effect and they're actually more defensible than patents and less susceptible to being imitated. So we're going to keep a very close shop on -- close shop on what we develop as we have been, and we'll be introducing it to the market in very controlled conditions and managing the either licensing or distribution of the products closely as we go forward.

Well, there's the reason my Coke doesn't have a patent, right? Okay. And then we get this question a lot, and I know you and I have discussed it at length as to whether or not you want to uplift on the TSX? Or do you plan doing asset listing that type of thing? I mean we kind of batted that back and forth in a few times. And I think the decision, and correct me if I'm wrong, is to wait until some of the stuff gets settled and when your settlements done and get yourself to -- once the lawsuit is done, et cetera, then that could be something you would approach more seriously. Do they like an asset listing or something along those lines?

Yes. So that's something for sure that we'll take a look at after the first quarter. The last time we looked at it, we were in a situation where we had considered a reverse that's no longer on the table at all, nor will it be in the future. I think that we will be in a position from my experience in looking at the last time to be accepted by either NASDAQ or NYSE. The only thing required would be organic growth to the minimum $2 trade price. And I don't see that as an issue going forward. So I would think that most likely come April, we'll be in a position to take a closer look at that. And see what the advantages would be, whether the institutional market warrants us moving on to that main exchange. And if so, I don't anticipate any real challenges in doing so.

Okay. Yes, I'm going to answer this. The question is, do you plan to deploy [ Zem proceeds ] to develop other technologies? I mean yes, I guess the answer will be yes.

Yes, of course.

Yes. And then, okay. So on -- [ already ] your types of products sold for the forever chemicals, and what you need to increase your sales or business, development staff?

Yes. So what's really exciting about this whole water thing is working in conjunction with the University of Alabama in Tuscaloosa. We've come into discussions with an incredible group of business people, young engineers and chemists and scientists that have just recently graduated or in the program. The University of Alabama has one of the largest water research facilities part of the U.S. water system in the country. Great expertise, and we're working to finalize an agreement with them now on a joint venture going forward. I'm very much I'm looking forward to hiring significant number of new people in this new effort. A large part of the construction costs that I mentioned to you earlier is for research and personnel. So I very much see...

Okay. So that's factored in that 30 to...

We'll be reinventing the company with a fresh new group of professionals in the water field, anywhere from 20 or more engineers/scientists to another 20 to 30 workers at the site. So it's going to be a really great fresh new start for the company in this new field. The original group of folks, including myself, that started the company 13, 14 years ago are getting off in age. It's time to bring a fresh new group of folks improve the knowledge that we have and the know-how with them, but I'm very excited really about creating a whole new fresh growth period for the company through this University of Alabama relationship and the business community in that region.

Okay. Okay. So that's great. And I mean, you're kind of -- I mean there are people doing it like you said already, but not as effectively as you think your technology can be. So how far ahead do you think you are to others that maybe have there working on different technologies that are already being utilized.

I think we're one of the leaders in the field at this time. There is some rationale that I would rather not get into the details of right now, just as to why I feel so strong about our prospects for success in this area. But as we get into material announcements, most likely in that second quarter of next year. It will start to come clear -- much clearer to the investment community as to why we're going all in on this. We've just had some significant settlements. We have tremendous growth ahead of us in our core business. But for me, the water side holds 10x as much potential, especially longer term. And as much as I see significant growth in our near-term future, the longer-term future for the water side, I think, is phenomenal. I think there will be a complete new crew of young professionals moving into our company over the next year or 2, and they will take the company to many, many higher levels of achievement than we'll see in the near term in the next 2, 3 years in spite of that being significant.

Okay. Okay. And I went back to the litigation, do remaining defendants risk much higher award to MEEC if they choose not to settle.

I'm sorry, what was that?

Do remaining defendants risk much higher award to you guys? If they choose not to settle, I don't really understand that question.

Yes, that's nothing I could comment on at this time. Yes, I'm sorry.

Yes. Okay. So let's just -- I think we've kind of covered everything unless I'm missing something, Rick, but let's just review the catalysts here. So we've got mediation. Over the next month and a bit, potential port date. We should have some news first quarter on the Taiwan market. And then continued licensing agreements as well as finalizing settlements. So these are all things that could be happening over the next 3 to 6 months basically.

Yes, I think the first quarter will be very developmental for us. I think where we sit now as a company, it's a basic start of where we grow from. If you consider back in 2016, we did $32 million, almost $33 million in revenue. You can almost reset us back to that point prior to the infringement, and we run a growth curve then of significant growth year-over-year. I think we're going to be back on that curve again on our core business. And I think given the know-how and the work, and effort we've put into the rare earth extraction and water technologies. We're going to be going full blown into those new areas of endeavor, which I think either or collectively have tremendous value potential in them. I think we have -- our skill set is such and proven that we should be able to enhance the performance of activated carbon as it's used in water like we did in air. And should we be able to do that, carve a whole new niche for the company and its new personnel and approach for the next 5 to 20 years. So very excited not only about where we are as a company and what I see in the near term. But what that's going to mean to us and our ability to be able to grow this skill set out into a very substantial multinational company.

That's fantastic, fantastic. Really, I'm really looking forward to the next few months here on the story. And we'll have further updates either via this way -- I mean you'll have press releases to release, but we'll also have more updates, things like this to keep the market abreast of what's going on.

Sure. Very much look forward to it.

Yes. And if anyone would like to do a one-on-one with the company, I'm happy to arrange that. You can just reach out to me at [email protected], or if you have any further questions, I'm happy to answer them. And I think we've covered everything today. Have we not?

That's great. Jess, thank you so much. And I look forward to...

Yes, thank you for your time, and happy holidays. Happy holidays, everyone.

Thank you, now.

Thanks.