Birchtech Corp. (BCHT) Earnings Call Transcript & Summary

Thanks, operator, and good afternoon, everyone. We're glad you could join us for this call about our financial results from Q3 2026. First, I'd like to bring you up to speed on the patent litigation. On October 22, we submitted our appellee brief to the U.S. Court of Appeals for the Federal Circuit, answering the appeal filed by the CERT defendants. That brief answers every one of CERT's challenges concerning liability, the jury instructions and damages, and it leans squarely on the pretrial and post-trial opinions issued by the District Court, in which the court reaffirmed the legal standard applied at trial and turned aside many of the arguments CERT is now pressing on appeal. Our request to the Federal Court is that it affirm the jury's verdict along with the trial judgment of roughly $78 million in its entirety. Equally significant, the appeal does not halt the clock. Post-judgment interest keeps accruing for as long as the appeal remains pending. More than 7 years have now passed since we kicked off our patent enforcement program in 2019. In that period, roughly $37 million in licensing payments and settlement money has come in from utilities. Also, each review petition filed by an interparty challenging our FDA patents has been thrown out, taken off the docket before institution, or otherwise resolved. Separately, one case still pending from the consolidated Iowa actions got sent back in August to the U.S. District Court for the Eastern District of Missouri — the same court where it was first filed. The stay that was in place before has been dissolved. Our goal hasn't changed: to recover the judgment in full plus interest and convert those relationships into long-term customers for product supply. Capital allocation also saw a significant step during the quarter. Back in September, we started buying shares under our $5 million repurchase plan, and that shows we feel the stock is trading below what it's worth. Purchases can happen periodically, depending on legal and regulatory rules that apply, how the market is doing, the share price, and other considerations; in our view this program is a disciplined add-on to the investments we're making to scale our water platform, not a replacement for them, and Mike will go through the specifics when he speaks. Moving on to operations now. Revenue for the third quarter came in at roughly $5.5 million for our business, versus $7.4 million overall in Q3 of the prior year, and that earlier period had a onetime license fee of $2.6 million included in it. Leaving licensing aside, product revenue rose 15.7% compared with a year earlier, lifted by stronger demand in our mercury emissions business along with sales into the water treatment market; and SG&A expenses fell 35%, mainly because professional fees were lower, since the prior-year period carried substantially higher legal fees tied to that license which produced the revenues during the period. Revenue also climbed roughly 45% from the second quarter on a sequential basis, in line with the seasonal strength we usually see in the back half of the year. The U.S. The coal market is holding steady, and ongoing federal backing for coal plant operations strengthens demand for demonstrated emissions control solutions such as our patented SEA platform, which extends how long our core air quality business can keep running and reinforces the base that our water business is now being built upon. Let me now give you a bit more detail on our air business. Product revenues in the third quarter, mainly from sales of our sorbent products, rose 15.7% year-over-year to roughly $5.5 million. That increase came from the mix of plants operating and stronger demand for coal-fired generation, helped along by more extreme weather and higher natural gas prices. Traditionally, Q3 has been one of our best quarters for mercury emissions control, because summer cooling needs drive more coal-fired generation—and that means higher sorbent use at the plants we serve. Our SEA platform remains a key pillar of the company's air business. Around 80% of U.S. coal-fired power plants that use sorbent technologies rely on SEA; and now that every IPR challenge has been resolved, our commercial attention is focused squarely on strengthening those relationships. As existing supply contracts taper off at utilities already licensed under Birchtech, we have positioned our sorbent formulations—along with the hands-on expertise that comes with them—for integration into their daily operations. The demand environment continues to look favorable. Data center and AI electricity needs keep climbing, and coal-fired power still matters a great deal for keeping the grid dependable. We believe this backdrop will underpin a supply discussion pipeline with utilities that expands over the coming years. With 2026 wrapping up and 2027 in view, three objectives remain at the heart of the air division's road map. First, turn those using our technology without a license into licensees and, in time, into long-term supply customers. Second, expand recurring activated carbon sales throughout our licensed utility roster, and resolve our final major case involving the Midwest defendant. And third, we’re steering the cash this mature, high-margin operation produces into expanding our water platform, since that’s where we believe the biggest long-term payoff lies. Put simply, air remains the engine that funds itself, supplying both the capital and the market credibility we need to put money into water while still returning value to shareholders. Now I’ll move to water, where this quarter we concentrated on putting in place the commercial groundwork needed to grow. Our Design Centers are still the basis of how we approach water treatment with data first. Our Analytical Design Center keeps gaining new capabilities, and it can now evaluate a wider variety of treatment media with the utility's own water. That helps smaller systems find the most affordable route to compliance before they put their capital on the line. Working alongside national engineering firm, civil and environmental consultants, the RSSCT testing we run at the Analytical Design Center is open to hundreds of water utility clients they serve nationwide. We continue to support several national engineering companies by combining RSSCT analytics with carbon reactivation work on research efforts that involve government bodies and larger municipalities. Each of those engagements generates performance data, which assists the utility in selecting the appropriate treatment path while establishing Birchtech as a logical collaborator when that utility eventually expands to full scale. Regarding products, our SEA-IX nuclear-grade ion exchange rosin line, introduced in March, continues to target an estimated addressable market of $200-plus million, spanning nuclear power, coal-fired utilities and municipal water treatment. Since that time we have expanded the line with rosin SEA-IX to remove boron and heavy metals. Ion exchange rosins, along with granular activated carbon, are recognized by the U.S. Since the EPA recognizes it as a best available technology for numerous contaminants, PFOS included, we can match the appropriate media to each customer's specific water chemistry rather than forcing a one-size-fits-all approach. Our water treatment solutions business continues collaborating with engineering firms and utilities on integrated projects that may encompass end-to-end media change-out services, vessel replacements, and shorter-term pilot testing, chiefly in wastewater applications for water utilities along with coal and nuclear power plants. Our largest long-term opportunity remains our Carbon Rejuvenation technology. The upgraded thermal reactivation method we’ve developed indicates that restored granular activated carbon delivers PFOS removal performance on par with new carbon. For utilities, that may mean substantially reduced media costs across the life cycle, along with a decrease in waste.

We also assessed potential acquisitions as a way to build out capabilities for commercial-scale reactivation. In September, we announced a proposed acquisition under a term agreement with 9 bonding. However, following additional evaluation, we decided not to proceed with that acquisition and terminated the term sheet. In a separate development, we recently entered into an agreement with an industry partner for granular activated carbon supply. We believe this provides a faster and more capital-efficient route into the water treatment market than the proposed acquisition would have. Under this agreement, we anticipate beginning to supply high-grade granular activated carbon to water treatment customers in early 2027. The first phase will be 2,000 tons per year, and standing up that initial supply capability for the water market won't take any capital expenditure on our side. We expect this agreement to bring in meaningful granular activated carbon supply revenues beginning in '27, while giving the water market a high-grade product and the capacity to scale demand. We plan to grow our sales team as supply ramps up, since total supply once fully up to capacity is roughly 10,000 tons per year. Meanwhile, we keep advancing our Carbon Rejuvenation strategy, including developing our first reactivation facility. When we build a facility of our own centered on our proprietary process, that lets us match the investment to growth in the water treatment market and expand capacity in step with rising demand. Past that facility, our strategy calls for extra reactivation capacity that we would develop jointly with water utilities. Right now we're holding talks with potential water utilities, those partners, and the engineering firms that serve them. Information produced at our Design Centers is being used to establish permitting requirements, capital expenditure parameters, and projected operating costs for the reactivation capacity we have planned, and we look forward to sharing more as these efforts move ahead. The regulatory environment keeps underscoring the need for affordable solutions. The federal drinking water limits of 4 parts per trillion for PFOA and PFAS are still in place. The EPA has put forward a plan giving qualifying systems as many as two extra years to come into compliance, but the core requirement remains in place. Under that proposal, any system registering PFOA or PFAS at 12 parts per trillion or higher that seeks the extension would still have to put interim treatment measures in place during that period. For a lot of utilities—particularly smaller and rural ones—the issue is no longer whether treatment is needed, but how to afford it; our water platform was built precisely to address that challenge. That same emphasis on smaller systems is why we were glad to bring Charlie Cooper aboard as Business Development Manager on October 1. Charlie has 21 years of practical experience in water treatment, ranging from industrial mine water discharge to municipal drinking water. That includes 5 years spent overseeing the West Virginia Rural Water Association Emerging Contaminants Program, where he assisted systems throughout the states in getting ready for new testing, treatment and regulatory demands. Nearly 50,000 community water systems exist across the country, and many of them are small utilities lacking substantial internal resources. So Charlie's experience will help us connect with those systems sooner and pair them with practical, cost-effective solutions, including the potential savings they could achieve through Carbon Rejuvenation. Going forward, our approach to water is all about converting and scaling—meaning we turn pilot projects into ongoing service and product income, advance our carbon rejuvenation work, and continue broadening what we offer. Alongside our long-standing air business, our clean water technologies provide a second sizable source of revenue, and we anticipate considerable growth in that area over the coming years. With that said, I'll now pass things to our CFO, Mike Mesa, who will cover some important financial points from Q3 of 2026. Mike?

Thanks, Rick, and good afternoon everyone. I'll spend my time giving you a quick rundown of the financial results for Q3 2026; the full detail on our financials can be found in our regulatory filings. For the third quarter of 2026, revenues totaled $5.5 million, versus $7.4 million during the same quarter last year. Product revenues increased 15.7% to $5.5 million, up from $4.7 million in the prior-year period. The gain was driven primarily by the mix of plants running and stronger demand for coal related to our mercury emissions business, which was fueled by more extreme weather conditions and higher natural gas prices. Additionally, we recorded sales into the water treatment market during 2026, while there were none in the equivalent 2025 period. The drop in total revenues is due to $2.6 million of one-time upfront license fees that were recognized in the third quarter of 2025 under new licensing agreements with utilities, and no comparable transactions took place in the third quarter of 2026. Gross profit came in at $1.6 million, or 29.9% of total revenues, versus $4 million, or 54.8% of total revenues, in the same quarter last year. This decline was mainly the result of the revenue mix shifting away from the higher-margin licensing revenues recognized in the third quarter of 2025, partly offset by higher product sales in the current period. We're still putting money into growing the water side of the business, and at the same time we're keeping tight control over costs everywhere else. In Q3 of 2026, SG&A came in at $1.8 million, down 35% from $2.7 million in the same quarter last year. The main driver of that drop was lower professional fees, since the year-earlier period carried much bigger legal costs tied to licensing work. R&D spending was basically level, at about $0.5 million in the third quarter of 2026 versus $0.5 million a year earlier. That R&D money funds work on developing water treatment products built around new sorbent technologies. For Q3 2026, we posted a net loss of $0.3 million, equal to $0.01 per basic and diluted share, versus net income of $0.8 million, or $0.04 per basic and diluted share, during last year's comparable quarter. Adjusted EBITDA — a non-GAAP figure — came in as a $0.5 million loss for the third quarter of 2026, against $1 million of income in Q3 2025. Our cash position at September 30, 2026 stood at $10.8 million, debt-free, up from $2.2 million on December 31, 2025. Now on to capital allocation. In Q3, we put cash toward several things: ongoing funding for building out our water platform — that covers engineering work on our inaugural Carbon Rejuvenation plant plus buying lab equipment — along with operating costs, working capital, and buying back company stock through our share repurchase program. Going forward, we expect cash burn each quarter to remain in a similar band, and we'll adjust our outlays based on what comes in during the stronger seasonal quarters; we believe the cash we have on hand today is enough to fund the investments on our roadmap. During mid-September, we repurchased stock through our $5 million buyback plan, picking up 103,864 shares between then and September 30 at an average cost of $1.64 per share, using cash we had on hand, and all of those shares have now been retired. Also, just to remind everyone, our balance sheet liabilities contain a $7.1 million profit share obligation that is nonrecourse and only needs to be paid once certain proceeds come in from our litigation activities; that concludes my prepared remarks. Now, prior to beginning the Q&A, I'd like to turn things back over to Rick for a few closing thoughts. Rick?

Thanks, Mike. In summary, steady execution characterized the third quarter. Product revenues rose 15.7% compared with a year earlier, and we cut SG&A by 35%. We filed the resolute appellee brief backing our final judgment of roughly $78 million, and we started buying back shares through our share repurchase program. We brought in dedicated business development leadership focused on rural and small water systems, and we keep moving our first Carbon Rejuvenation facility forward. With 2026 wrapping up and 2027 beginning, our priorities are plain. Appeals aimed at collecting the judgment in full plus interest, turning licensed coal-fired utilities into recurring supply customers, advancing offtake agreements for our first planned Carbon Rejuvenation facility, and growing our footprint in the water treatment market via our design centers, product lines and strategic partnerships. We headed into the year's final stretch from strength, with a balance sheet free of debt and clear priorities. I have confidence in this team's capacity to seize the major opportunity ahead of us. With that, operator, please open the line for questions.

I’d like to ask a follow-up here: what do the next steps in the appeal process look like? Rick, are you able to hear me?

Yes. Rob, my apologies, I was muted. Yes, on the appeal process, our response has been filed, and we expect they’ll issue a final response to it. My understanding is they have either 30 or 45 days for that, but our fund’s response to their appeal is in. I believe once they respond back again, it then goes to court review. I could be wrong about that, but that’s how I understand it as of today.

I'd like to get some clarity on the strategy surrounding the rejuvenation facility. What is your current thinking on the size of the utility and how the timeline ramps up on that?