Birchtech Corp

OTC:BCHT

Earnings Call Transcript

[Operator]

Good day, and welcome to the ME2C Environmental Fourth Quarter 2021 Earnings Conference Call [Operator Instructions] This conference is being recorded today April 6, 2022. The earnings press release accompanying this conference call was issued at about 5:00 p.m. Eastern Time yesterday.

On the call today is ME2C Environmental's President and Chief Executive Officer, Richard MacPherson; as well as Chief Financial Officer, Jami Satterthwaite.

Before we begin, we want to note that you should read the forward-looking statements in the company's earnings press release. During today's call, 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 Form 10-K lists some of the most important risk factors that could cause actual results to differ from its predictions.

Please also note that the company's earnings press release and this conference call make a reference to adjusted EBITDA, a non-GAAP financial measure. The company views adjusted EBITDA as an operating performance measure. And as such, the company believes that the GAAP financial measure most directly comparable to it is net income or loss.

For further information, please refer to the earnings press release and the company's periodic filings with the Securities and Exchange Commission. At this time, I would like to turn the call over to Richard MacPherson, Chief Executive Officer of ME2C Environmental. Sir, please go ahead.

[Richard MacPherson, executive]

Thank you, operator, and thank you all for joining us this morning for ME2C Environmental's Fourth Quarter and Full Year 2021 Earnings Call. .

I'd like to begin first by personally thanking my colleagues whose expertise and efforts across all facets of our company have secured our solid foundation and led to development in several key areas of significant future growth. We remain focused in our pursuit of producing advanced and innovative environmental technologies that are both affordable and effective and will improve the environmental footprint of our nation's energy sector.

Moving on, we'll cover 4 items, starting with an overview of the Q4 and 2021, followed by a strategic operating update. Jami Satterthwaite, our CFO, will cover our Q4 year-end financials. 2021 produced significant improvements in our bottom line and was a pivotal year for us at ME2C Environmental.

We reported strong fourth quarter results measured by most key metrics. The market demand for our mercury emissions product continues to be robust, driven by the growing need for low-cost and reliable energy and increased regulations imposed by the EPA to diminish the long-term hazardous effects of coal waste.

For the fourth quarter of 2021, we reported a revenue increase of 17.4%, up to $2.7 million compared to the fourth quarter of 2020 and a 59.5% increase for the full year to $13 million with growing demand across our expanding coal-fired utility customer base for our patented emissions technologies, and we expect that this growth will continue.

Overall, we expect to see a robust demand for our technologies in 2022. And today, we view our business as having 3 significant pillars to drive growth in the near term and over the next several years. And we'll address our growth and those efforts in today's call.

Two areas of our business are based on the field of chemisorption or sorbent technologies. And since 2008, our expertise in sorbent technologies has built a stable company in mercury emissions capture, which is the first pillar of our business.

The patented sorbet technology or SEA, as we call it, is the process combined with certain chemistry, which is currently used by approximately 40% of the U.S. coal utilities in the reference to reduce mercury emissions. This 2-partner recapture approach is considered the best available control technology and reduces mercury more efficiently and with a lower environmental footprint than the traditional approach that was taken by the industry.

As we already stated, this core business had revenues in 2021, which increased just under 60% over the 2020 numbers that we reported. And we're excited about that continued growth that we've experienced, which is continuing into 2022.

We believe that many of these entities are currently using our technologies to reduce mercury emissions continue to do so without recognizing our patent position and in violation of that. And therefore, the growth of our core business is based not only from strong industry demand from our customers, but also from the outreach that is underway through our law firm Caldwell Cassady & Curry to address these unlicensed users.

Utilities that we believe they are using our patented technology, we will be offering a license and/or supply agreement for them to continue using those technologies. These communications that we've initiated and continue today have generated a positive result to our patent position, along with our expertise in mercury capture and which has seen an increased validation by the U.S. power industry since 2020 and this recognition has led to new supply and license agreements with major coal-fired utilities in the U.S., and we expect to see these agreements increase throughout 2022.

To meet this expected increase in supply customers, we're in the process of commissioning our fully paid for manufacturing batch plant in Texarkana. In addition to our manufacturing operations in Corsicana, this facility will give us the opportunity to handle up to $100 million worth of business annually.

Now in 2018, we applied our expertise in chemisorption to begin developing other technologies, addressing the environmental concerns of the energy sector. This, our second pillar of growth is our emerging sorbent technology for rare earth extraction and processing under development since that time and preparing for commercialization later this year.

In the second half of 2021, we made considerable progress against our critical strategic initiative to apply our absorbent technologies to address the ever-growing demand for economic and environmental sound rare earth element extraction. And we also focused on coal ash and wastewater remediation. Rare earth elements are extremely important for applications in various industries in both the private sector as well as the government level. And we felt that our connection to the coal industry would allow us to be able to not only extract these rare earth elements in general in a better format, but also to be able to use this coal ash situation as it exists in the country to our advantage and also find a way to underwrite the clean up that the country needs to take place.

So the widespread demand for rare earth elements has created a huge global market that's estimated to be worth somewhere in the $400 billion range. And unfortunately, while the U.S. is rich in these minerals, the processing of them and the extraction from mining operations or coal ash ponds is very costly and environmentally unacceptable at this time.

We believe the coal ash pond remediation opportunity is in the several hundred billion dollar range here in the country annually. And as an example, Duke Energy agreed last year that the cleanup, improvement in closing of its 9 coal ash ponds, which is undertaken, is about a $9 billion effort for this 1 utility only and there are approximately 1,100 ash ponds across the U.S.

Previously, as North Carolina's Department of Environmental Quality Director, who led the charge against Duke Energy and won, the present EPA Director, Michael Regan, is bringing this issue to the forefront. Cleaning up the damage that coal utilities have left behind from coal ash ponds and wastewater is gaining significant federal attention with new stricter regulations recently announced.

We saw this coming folks several years ago and have been focusing on this for the past couple of years and feel that we are at the head of the pack as far as having technologies to be able to address this issue. We look forward to moving it into a commercial format this year and have already spoken to several of our present customers with regards to opportunities to bring the technology into the field.

We actually will be talking with Penn State later today for the final results of our most recent round of testing and are expecting that those results will provide us with what we need to move in field. The preliminary numbers from those results have been very encouraging and have mirrored the initial results of us being able to capture over 90% of the rare earth elements from the materials that we were testing on. This is very exciting and something that we will be moving quickly to take into the field.

Late in 2021, we commenced the second phase of testing at Penn State, which I've just referred to, that was using real-world materials that was coal ash pond materials and mine waste one-off materials, 2 very significant items that we wanted to be able to prove our technology could work for.

So looking forward, we're now planning full-scale testing with our commercial vendors in field, and we'll be bringing that schedule to the market very shortly once we have it nailed down. So the third pillar of our business, which is very interesting for those that have been following it, and we have a very significant date coming up in the third week of this month is that centered around our litigation, which is underway and has been for several years now against refined coal operators and LLC owners.

We believe that our patented technologies in mercury emissions we have 37 active and 5 pending patents have enabled us -- have enabled the users of this refined coal program to benefit financially over the last 10 years in an extraordinary way. We initiated the lawsuit in 2019 against over 40 defendants, including the operators using refined coal and the owners of these operations and other entities.

With this tax credit program ended in December '21, approximately $1 billion a year in annual tax credits were generated for the producers and operators of this refined coal program. The power plants that were part of the refined coal program now need to find a product replacement to control the mercury emissions. And we estimate that approximately 75% of the non-licensed power plants using our technologies are part of this refined coal program or were part of it.

So there's a strong potential for significant additional supply side business from these previous users under the refined coal program. Since the commencement of litigation in 2019, we've successfully licensed with 6 major U.S. producers to allow these utilities continue using our patented process for mercury capture. Several of these licensees have direct supply side agreements with ME2C as well, and we continue to see new supply contracts come from this base of initial folks to have taken licenses.

For the refined coal operators, we believe that the litigation process continues to progress in a very aggressive manner for our side. In September of 2021, we received approval from the district judge of Delaware of the adoption of the report and a recommendation of the magistrate charge, which allows our lawsuit to move forward. With this discovery now well underway and moving forward positively, we're looking forward to seeing this through to resolution.

We're invigorated by our 2021 results, one that was a very pivotal year for the company and we look forward to announcing additional growth across all of these 3 pillars of our business as we move through the year.

So I'll turn the call over now to Jami Satterthwaite, our CFO, for an overview of our fourth quarter and year-end 2021 financial results. Jami?

[Jami Satterthwaite, executive]

Thank you, Rick. Good morning, everyone. We are encouraged by the fourth quarter and full year 2021 results and expect to continue to strengthen our financial position in 2022 as our current sorbent business remains strong, and we enter into new supply and licensing agreements.

Revenue in the fourth quarter of 2021 was just over $2.7 million, a 17.4% increase from $2.3 million in the same quarter last year. The total cost and expenses in the fourth quarter of 2021 were $4 million compared to $4.4 million in the same quarter last year.

The net loss in the fourth quarter of 2021 was $1.3 million or negative $0.01 per basic and diluted share compared to a net loss of $2 million or negative $0.03 per basic and diluted share in the same quarter last year.

Adjusted EBITDA in the fourth quarter of 2021 was approximately negative $21,000 compared to negative $73,000 in the same quarter last year. Total revenue in 2021 was $13 million, a 59.5% increase compared to $8.2 million in total revenue for 2020. The increase in revenues from the prior year was primarily driven by increased sorbent product sales due to increased supply demand in the coal-fired market as well as expansion of our customer base.

Total costs and expenses in 2021 were approximately $16.6 million compared to $14 million in 2020. The increase in cost and expenses from the prior year is mainly attributable to the increase in cost of sales, generally due to the increase in sales. The net loss was $3.6 million or a negative $0.04 per diluted share compared to a loss of $5.8 million or negative $0.07 per diluted share for the prior year.

Adjusted EBITDA for the full year of 2021 was a positive $297,000 compared to negative $735,000 in 2020, which is an increase of over $1 million year-over-year. Please refer to the use of non-GAAP financial measures in our year-end 2021 press release issued yesterday and posted to our website for a description of these measures.

As of December 31, 2021, the company had approximately $1.4 million of cash on its balance sheet. Overall, we had a great finish to 2021 with solid improvement over the prior year, and we feel that we're in a good position for growth as we move into 2022 and beyond.

With that, I will hand the call back over to Rick for his concluding remarks. Rick?

[Richard MacPherson, executive]

Jami, thank you. A few closing comments. Folks, while we report earnings on a quarter-to-quarter basis, our team is focused on creating value for the long term. Over the past few years, sustained progress against developing a focused strategy that takes advantage of ME2C's -- our patent position in the market, and we've delivered progress on accelerating growth driving margin and preparing our organization for the expected revenue growth that we see ahead of us.

The company has a stronger balance sheet has improved our cash generation capabilities. Overall, we're confident that the progress we're making in key growth areas, combined with the strength of the market will allow us to continue to expand revenue and earnings. Turning to our outlook for full year 2022, which we preliminarily announced back on February 16, we currently expect revenue to increase 60% year-over-year for 2022 and with the majority of revenue increase expected in the latter half of the year as the new business that we're signing ramps up.

Our revenue guidance for the full year of 2022 is based on positive developments and business conditions, demand indications from major customers and the commencement of activity under new license agreements. Our ongoing wins with enforcing our IP position has accounted for approximately $20 million in new contract value on our books over the next 5 years if we go back in start of Q4 of 2021. So we're making really solid growth gains in our book value as we go forward. And we'll be continuing to do that with the communications we now have with the market.

We continue to make progress in positioning our portfolio to increase our exposure to segments where our chemisorption technologies can provide innovative and critical solutions in markets that can grow faster than this core mercury business that we're in and that's in the areas of wastewater remediation and the rare earth extraction business.

And we're very much looking forward as we grow into those markets and they become commercially viable as this year goes on. Looking over the past 3 years, the progress we've made is visible and steady, and all this makes us confident that despite short-term ups and downs, our company is well positioned. Indeed, our team is excited about our mission and our future. We're in excellent position to deliver on our strategic financial goals in 2022.

To all my colleagues, I want to thank you again for a great year and your commitment -- continued commitment to our long-term success. And with that, I'll turn the call back over to the operator to begin the question-and-answer session.

[Operator]

[Operator Instructions] Our first question comes from the line of Jon Gruber with Gruber & McBaine.

[Jon deRoy Gruber, analyst]

I have a question on rare earth. When do you think revenue would realistically start? And if things go right, what could revenue be in '23 and '24 in that area?

[Richard MacPherson, executive]

Mr. Gruber, thanks so much for your question. So as I mentioned, we have a call actually today with Penn State to go over the final results of real-world material testing after we have received the preliminary results that indicate we're still in the 90% to 95% capture rate on coal ash residue and mine waste runoff. That puts us in a position now where we can go to field with several different opportunities that we've got lined up both with utilities and mining sites to actually do real field testing.

[Operator]

I apologize seems as we have lost Mr. MacPherson. [Technical Difficulty]

[Richard MacPherson, executive]

Jonathan, sorry about that.

[Jon deRoy Gruber, analyst]

Yes, you cut off. You didn't answer my question.

[Richard MacPherson, executive]

Yes, let me continue. So long story short, I expect that we'll be in the market proving to be commercial or not late summer. And if it proves to be commercially viable, we should start to see some commercial results by end of year and show up in our revenue stream starting early 2023. And we'll be operating under a royalty basis and it will be a percentage of extracted value.

So we'll be able to make some firm numbers projected this fall, once I see what the capture rates are and what the value of those captures are. At this point, we're just moving into that commercial forum difficult other than stating what the potential value is to make a statement as to what our technology be worth. It has the potential.

However, at this point, I can clearly say to be much more significant than just our core business at this time.

[Operator]

[Operator Instructions] Our next question comes from the line of David Bastian with Kingdom Capital.

[Unknown]

My first one was regarding the guidance for Q4 had been in excess of $4 million, and it came in at $2.7 million. What was the main driver there?

[Richard MacPherson, executive]

First of all, let me state that, that was not our guidance. We did not provide that guidance. That was guidance that was provided by a third party, which we -- on our own had given an expectation months ago that we were expecting to come in around $13 million, which was a significant growth position for us, and we hit that.

[Unknown]

Got it. So I didn't see it corrected on the Q3 call. Maybe I just missed something there. But I didn't see anything until early '22 when it came out and said $13 million. So did I miss an update on that?

[Richard MacPherson, executive]

That was the first time we gave guidance. Once we got through the year, we gave guidance as to what we expect it would be on a preliminary basis. And then when we did our final audited results, we generated a slight improvement over that projection. And we continue as we go through '22 to give guidance as we have and expect to hit those numbers.

[Unknown]

My second question is on the rare earth side. I saw that West Virginian University has also been working on a similar product. Can you give us a high-level comparison of what they are working on versus yours? And any advantages or disadvantages you see versus your own product?

[Richard MacPherson, executive]

I really haven't delved deeply into what they're working on. All I can say is that at this point, the field that we work in chemisorption is fairly unique. It has a very strong economic basis. We will be able to put this in play in a very economically viable format.

I don't know that that is the same with other technologies. And the feedback we have from Penn State at this point is that they are very excited and have not seen these levels of results from chemisorption approach. So I think we're on the verge of being able to bring something new to the market in a rather short period of time, that other technologies might take years to get to.

So as I mentioned to Mr. Gruber, we basically just need to get in field now that we have what we need and see how it performs in the real world conditions with commercial partners, and we expect to get that accomplished this year by the fall, that would put us in a position where we would be at the head of the pack of these other developing technologies that are expected to take years and years to come to commercialization.

[Unknown]

Got it. My last question would be regarding the coal energy market. with surging national gas prices, have you seen an increase in demand for thermal coal for energy generation? Or has it been pretty flat compared to prior years?

[Richard MacPherson, executive]

It's been growing significantly. At this point, the pressure is on getting enough coal. They are burning everything they can get their hands on, and we expect that to continue. We expect the production of coal to increase and our efforts to maintain folks in compliance on the mercury will increase along with that. The coal usage in the country is at an all-time high over the past 5 years. It is expected to stay that way for some time to come.

[Operator]

And we have reached the end of the question-and-answer session. And I'll now turn the call back over to Mr. Richard MacPherson for closing remarks.

[Richard MacPherson, executive]

Well, folks, thank you very much. We had a good solid result to the 2021 year. We're going into 2022 as a profitable company with a solid balance sheet and a growing [indiscernible] core business. The expansion opportunities, both in the core business and in these other new technology areas is real, and we expect to make them commercially viable as we go through the year.

The big elephant in the room is our lawsuit that's been ongoing with the refined coal folks. And we expect, as this month goes on to see some significant growth in that effort. And I'm looking forward to bringing an update on the expected movement to the market by end of month. And so I think with that as a very significant part of our company's overall efforts, the core business that we've got underway that's profitable and growing and the new technologies that we're working on we've got tremendous opportunity to increase our overall value as a company and our enterprise value for our shareholders.

So we're very excited to keep our head down, keep working and bring some real fundamental growth to the company throughout the rest of the year. Thank you very much for listening in. We look forward to getting back to you later this month with an update on our IP efforts. Thank you now.

[Operator]

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.