Birchtech Corp.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to BirchTech 3rd Quarter 2025 Earnings Conference Call. During today's presentation, all parties will be in listen-only mode. Following the presentation, the conference will be opened for questions for dial-in participants. This conference is being recorded today, November 13, 2025. and the earnings press release accompanying this conference call was issued after the market closed today. On our call today is Birch Tech President and CEO Richard McPherson and CFO Fiona Fitzmaurice. Before we get started, I'll read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements that are made pursuant to the safe harbor provisions. of the US Private Securities Litigation Reform Act of 1995, or forward-looking information under applicable Canadian securities laws regarding Birch Tech. Forward-looking statements include, but are not limited to, statements that express the company's intentions, beliefs, expectations, strategies, predictions, or any other statements relating to its future earnings, activities, events, or conditions. These statements are based on current expectations, estimates and projections about the company's business base in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may and are likely to differ materially from what is expressed or forecasted in the forward-looking statements. due to numerous factors discussed from time to time in Birch Tech's periodic filings with the U.S. Securities and Exchange Commission or Canadian securities regulators. In addition, such statements could be affected by risks and uncertainties related to factors beyond the company's control that may cause actual results to differ materially from those in forward-looking statements. During today's call, the company will discuss adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is presented as a supplemental measure of the company's performance and exclusive of certain items that the company believes do not reflect the core operations of the company. Such non-GAAP measures should not be considered in isolation or as a substitute for GAAP financial information. Additionally, the company's definition of these measures may differ from those used by other companies. making comparisons across organizations difficult. And finally, this conference call contains time-sensitive information that reflects management's best analysis only as of the date and time of this conference call. The company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information, or circumstances that arise after the date of this conference call. At this time, I'd like to turn the call over to President and CEO, Richard McPherson. Richard, the floor is yours.

Thank you, Operator, and thank you to everyone for joining us today. I'd like to welcome you to our third quarter 2025 financial results conference call. Before diving into our financials for the quarter, it's important to reflect on Birch Tech's journey and mission. Established in 2008 as Midwest Energy Emissions Corp., our initial focus was on developing and commercializing the Sorbent Enhancement Additive, or SEA, technology. This innovative approach has been instrumental in assisting coal-fired power plants across North America to effectively reduce mercury emissions, ensuring compliance with environmental regulations for the country. Birch Tech's air business built around our patented SEA sorbent technologies that utilize activated carbon and various halides was widely adopted across the coal-fired power industry due to its proven effectiveness in capturing mercury emissions. The success of this technology led to widespread adoption but also infringement as numerous industry players began using our patented process without proper licensing or business supply. So in response, since 2019, the company has aggressively defended its patents through legal action, securing significant settlements and a landmark 57 million unanimous jury award. We have continued to convert unlicensed users of our technology into long-term business partners, several of which have entered into license agreements or become direct supply customers. inclusive of enhancements, interest, and legal fees, our patent attorneys, Caldwell, Cassidy, Currie, have requested a final judgment of $160 million, which is currently pending a final decision from the court. Recognizing new and evolving environmental challenges, we expanded our activated carbon expertise into water purification with the launch of our new patent-pending water treatment technologies focused on contaminant removal from both potable and wastewater utilities. Spurred on by the U.S. EPA regulations, water treatment is a massive and growing market and in critical need of more effective and certainly more affordable solutions. Birch Tech's new water business is dedicated to developing new technologies that remove harmful contaminants, such as PFAS or forever chemicals, from potable water and industrial applications. These strategic and highly complementary technologies leverage our industry-leading expertise in activated carbons and underscores our commitment to addressing critical environmental issues issues throughout affordable and sustainable innovation. Last year, to better reflect our diversified technology portfolio and mission, we revamped our Birch Tech cork with a new ticker, BCHT. This rebranding aligns our dedication to providing sustainable and effective solutions for both air and water purification and reinforces our role as a leader in environmental technologies. Now let's turn to the third quarter results. Birch Tech's air business drove healthy revenues of $7.4 million with a strong 55% gross margin profile We also believe the U.S. coal industry has stabilized, and based on recent directives from the new administration, could have the potential to increase due to recent federal government support for clean coal that ensures a long operational runway for our core air quality business. On April 8, 2025, U.S. EPA and President Donald J. Trump's proclamations granted a two-year exemption to certain coal-fired power plants from compliance with the updated Mercury Air Token Standards, or MACs, which was introduced under the Biden administration's Clean Power Plan 2.0 in 2024. And this action allows 47 major coal plant owners and more than 60 plants vital to maintaining grid stability to remain online through at least 2029 without being burdened by recent introductory regulatory add-ons. These plants have operated for approximately 10 years under the original MATS framework, contributing to improved air quality nationwide. And numerous Birch Tech customers were included in those who received exemptions to the Biden administration supplemental to MATS, the Clean Power 2.0, and may be able to extend their operations to at least 2029. We fully support this effort by the current administration as empowering American clean coal and keeping these plants online. Our technologies continue to offer coal plants the best, most effective process to produce maximum power while maintaining a true clean coal approach to power generation with the elimination of mercury emissions. Birch Tech's Air Division remains the cornerstone of our business, continuing to deliver dependable, high margin revenue, and expanding customer engagement across the coal-fired power sector. Our patented SEA, Sorbonne Technology, has proven over more than a decade of field deployment and results this quarter reinforce that durability. In the third quarter, Air business revenues reach $7.4 million, supported by 55% gross margin profile, underscoring the strength of our licensing and consumable supply mix. We are now seeing an increase in interest for product supply along one-time license fees as utilities transition from short-term arrangements into long-term supply relationships. This evolution reflects the core thesis behind our enforcement and outreach program, converting past infringers into reoccurring commercial partners. Since initiating our IP enforcement strategy in 2019, we've begun to reach a critical mass of license agreements with coal-fired utilities, including several new contracts signed since our last earnings call. Each of these agreements validates the uniqueness of our SEA process and extends the visibility of future revenue through a multiple year participation in utility procurement cycles. Many of these licensees are already incorporating our sorbent formulations into their ongoing operations, which we expect will translate into increasing stream of activated carbon sales beginning in 2026. driving what I expect to be a meaningful increase in revenues year over year. Our legal and intellectual property team await the final judgment request of approximately $160 million related to our unanimous jury verdict inclusive of enhancements, interest, and legal fees. While timing of the court's decision remains with the judiciary, we believe the strength of the record supports a favorable outcome and potential for a significant cash infusion once resolved. From a market standpoint, U.S. coal generation has stabilized as part of the balanced energy mix that prioritizes grid reliability and domestic fuel security. Recent federal directives supporting continual coal plant operation reinforce a practical need for emissions control solutions like ours. BirchTex technology enables these plants to operate efficiently while meeting mercury emission limits, positioning our company as a key partner in maintaining reliable cleaner base load power. Looking ahead, we intend to build on this foundation through three priorities. One, protect and extend our patent estate across North America, transforming infringers to long-term product supply customers. Second, deepen the commercial relationships with licensed utilities through direct supply of our activated carbons. And thirdly, leverage the cash flow from this mature, high-margin segment to fund the rapid scaling of our water purification business. Collectively, these initiatives solidify the year-driven business as self-sustaining, cash-generating engine, one that not only underpins our financial stability, but also accelerates Birch Tech's broader evolution into a diversified environmental technology company. With that foundation firmly in place we've been able to accelerate investment in the next phase of our strategy, extending our activated carbon expertise into water purification, where we are now seeing early commercial traction and a clear path to scale. Following months of technical validation, we are now transitioning from development to execution with new customer engagements and strategic partnerships that materially advance our position in the U.S. utility market. In October, Birch Tech was selected and signed a letter of intent for a collaboration with civil and environmental consultants. CEC, a national engineering environment consulting firm with more than 30 offices and 1,600 team members across the United States. Under this arrangement, Birch Tech expects to provide rapid small-scale column testing for CEC's water utility customers through our analytical design center in Grand Forks, North Dakota. This collaboration effectively places our testing and analysis capabilities in front of dozens of utilities nationwide, establishing a direct pipeline for future design system and media supply contracts. Our SSCT is an advanced testing method that replicates full-scale filter bed performance in a fraction of the time, allowing utilities to make rapid, confident decisions on carbon media selection and PFAS removal strategy, which ensures a more affordable and accurate treatment approach. Our center's combination of speed, cost efficiency, and analytical depth positions MRSEC as one of the few independent RSSCT providers capable of serving the national market at scale. This collaboration builds on our initial 0.9 million purchase orders in the third quarter from a major Mid-Atlantic utility, marking the first commercialization of our water treatment solutions. Together, these milestones demonstrate that Birch Tech's water business is moving beyond pilots and into revenue-producing activity, backed by a clear pathway for potential expansion through CEC's established customer network. Looking ahead? We intend to convert these relationships into reoccurring service and product sales while expanding our integrative approach to water treatment solutions to utilities and municipalities affected by wastewater contaminants. We also expect to introduce a more effective granular activated carbon to the market during the first half of 2026. With increasing regulatory urgency around PFAS removal and mounting utility demand for affordable options, ErgTech is now positioned as an emerging player in the clean water solutions market, complementing the strength of our core business and broadening our long-term revenue base. With that, I'd now like to turn the call over to Fiona Fitzmaurice, our Chief Financial Officer, to walk through some key financial details

from the third quarter of 2025 fiona thank you rick i will constrain my section to a concise review of the financial results for the third quarter for a full breakdown of our financial results please view our regulatory findings revenues increased 41 to 7.4 million in the third quarter as compared to 5.2 million in the same year ago quarter the increase in revenues from the prior year was primarily due to growth in licensing revenue as we continue to enter into mutually beneficial business relationships with utilities. Growth profit totalled 4 million or 54.8% of total revenues in the third quarter of 2025, as compared to 1.6 million or 30.5% of total revenues in the same year-ago quarter. The increase in gross margin was primarily attributable to an increase in high-margin licensing revenue. Operating expenses consisted of selling, general and administrative expenses, SG&A, and research and development expenses, R&D, in 2025 and SG&A in 2024. SG&A expenses were approximately $2.7 million and $2.7 million for the three months ended September 30, 2025 and 2024, respectively. Total SG&A expenses were comparable in the third quarter of 2025 compared to the same year-ago quarter. Total R&D expenses were approximately 0.5 million for the three months ended September 30, 2025, as compared to nil in the same year-ago quarter. R&D expenses relate to research conducted to develop water treatment products utilizing new sorbent technologies and increased in the third quarter of 2025 compared to the prior year period, as the company had not incurred any research-related costs during the year-ago quarter. Net income for the third quarter of 2025 grew to 0.8 million or 1 cent per basic undiluted share, an increase of 1.3 million as compared to a net loss of 0.5 million or 0 cent per basic undiluted share in the same year-ago quarter. Adjusted EBITDA, a non-GAAP measure, grew to 1 million in the third quarter of 2025, an increase of 1.5 million as compared to negative 0.5 million in the same year-ago quarter. Cash as of September 30, 2025, totaled 1.8 million with no debt as compared to 3.5 million with no debt as of December 31, 2024. Subsequent to the close of the third quarter, the company collected 1.25 million in cash licensing fees recorded as a receivable at September 30, 2025, which will be reflected as a cash receipt in the fourth quarter. I'd also like to briefly discuss the classification of our profit share liability as a current liability on our balance sheet. This is a non-recourse liability that will not be repaid from cash on hand and is only to be paid from litigation proceeds, including any potential future proceeds of our 57 million patent infringement verdict, from which we requested 160 million from the court, inclusive of enhancement, interest, legal fees and other items. Under GAF accounting rules, the profit share liability is classified as a current liability as the company expects the proceeds from this verdict are likely to be received and the profit share from those proceeds repaid within the next 12 months. So ironically, the positive news of us believing receipts of these funds is likely within the next 12 months causes the profit share to be classified as a current liability while at the same time not allowing us to reflect in our current financial statements the expected revenue from the judgment. This completes my prepared comments. Now, before we begin our question and answer session, I'd like to turn the call back to Rick for some closing remarks. Rick?

Thank you, Fiona. As we close a profitable third quarter, BirchTech stands at an important inflection point. Our error technologies continue to generate high margin growth and expand through new licensing agreements, while our water business is now officially commercial, supported by its first purchase orders and growing pipeline. Our priorities for the quarters ahead are clear. See our expected judgment in defense of IP through to its conclusion, convert additional utilities into long-term licensees and product supply partners, and accelerate the rollout of our next generation water purification platform. Taken together, these initiatives position Birchtek to evolve from a single market technology provider into a diversified environmental solutions company with durable revenue streams across both air and water. We believe this transition will unlock meaningful long-term value for shareholders.

With that, operator, please open the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove the question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. The first question we have is from Rob Brown of Lake Street Capital. Please go ahead.

Good afternoon and congratulations on all the progress. I guess first question on the, you've completed a number of settlements now. I guess where are you at in terms of the product revenue run rate that you think you can sustain from the current customer base?

Rob, thanks for asking the question. The run rate that we have right now, we've projected 18 million this year. I do expect that to grow considerably next year. We've yet to put a final number on it. One of the challenges we have is knowing when the actual contract that they're now using expires. And the majority of these have multi-year contracts. So we do expect some of them to come up for renewal in 2026. However, we won't know exactly what that is or how many until they come up for review and we get the RFP to respond. I do, however, feel that given that typically it's a two or three year period and that we have multiple licensees, that we will get several renewals or several opportunities to increase our baseline revenue through 2026.

Okay, great. Great. And then on the water business, good progress in the quarter. I guess could you give us a sense of the pipeline there now that you've gotten this engineering firm partnership, but the pipeline of sort of reactivation customers, sort of where that's at and sort of what that looks like?

Sure. So the pipeline on the water side is really at this point in two different sections. One is the analytical side, which we see as becoming a profit center for us as we move forward. So, we'll be increasing our revenue significantly from the actual work that we'll be doing for utilities through the engineering firms like CEC. And following on with that, our water treatment business, similar to the contract that we announced initially, is expected to grow. We have a very solid pipeline there and we do expect to have some significant revenues Starting in the fourth quarter and running through 2026. I just have not put an expected number on that yet. But the contract that we got so far is one of dozens that are in the pipeline right now that we have been actively pursuing.

Okay, great. I know the PFAS regulations have a little bit of an uncertainty with the administrative change, but that's kind of worked out. How is the market kind of demand environment looking now to you from water utilities looking to take action to deal with the PFAS regulations that are coming?

It's actually quite robust, Rob. There are 27 states that have now stepped forward and said that they will go after PFAS Some of them as early as 2026. So there are literally thousands of water utilities in the country at this time trying to figure out what's the best way to meet the new regulations, whether they be state now or eventually federal. And that's why our data first approach that we've taken by putting these research facilities and teams in place over the last year or two, we think is the wisest approach that we could have taken. And the relationship with CEC and others that we expect to announce in the coming weeks will place us front and center with those folks that are trying to figure out what's the best way for them to attack these new regulations, whether they're sooner or later. And that will lead us not only in put us in a situation where they look to us for advice as a partner with their engineering firm, But also ask for our opinion in terms of the media that would be needed to carry out the processing and that's where we will step in in 2026 with our feedstock arrangement and other arrangements that we put together to actually start supplying the GAC that we expect will be necessary. We've yet to give guidance on what the value of that will be to date, but at this point, we figure it will be quite considerable in 2026.

Okay, excellent. I'll turn it over. Thank you. Thank you, Rob.

The next question we have is from Peter Kestridge of Water Tower Research. Please go ahead.

Thank you very much. So congratulations to Richard and the team on the results. Excuse me. It's great to see the revenue growth coming through and the positive adjusted EBITDA is certainly noteworthy. I'll just start with a couple questions about the gross margin. High margin licensing revenue is flagged in the prepared remarks as a key driver of your strong gross margin. How should we think about the growth prospects for licensing revenue into the fourth quarter into next year? And And also, did improvements in your legacy air business contribute at all to the improved margin?

Thanks for the questions. And, yes, in terms of the water division on its own, we are seeing some significant growth there with a very strong pipeline. We expect to continue to execute on the sales efforts that we have now. A key point is we have added several new professionals in that part of our company as well, We have four folks working in the sales side of things now and several are well educated engineering type folks. So we do expect that the overall water treatment business will grow nicely for us as we move forward with regards to the actual GAC sales that we would hope to have in the coming months and in 2026. We've yet to determine what that amount will be. We do expect that it will be, as I mentioned to Rob, considerable. It's going to be more of an outcome of the work that we do through our research and development stage with the engineering firms and they will drive the request for materials as we go forward. I really don't want to get ahead of myself with projections on that point because we are collaborating with the engineers as to what is the best approach on that front. But furthermore, with regards to our overall approach on product supply on the air side, we do expect an increase in the air business, as I mentioned earlier, really driven by the number of RFPs or requests for proposals that came out of that do come up once contracts are completed in their present state with the folks that we've signed licenses with. So as their contracts expire, we will be making RFP proposals to take over that supply side. We have favorable positioning due to the licensing negotiations to be able to do that. So I do expect that our business will benefit nicely from these licenses that we're now signing. And I very much expect, given the history to date of what we've been doing with the folks that we've been, that are using our technology, that we will come to conclusion and settlement with the folks that we're now talking with. And that should put us in a position where we can increase the actual runway of our supply side as well.

Okay, great. Thank you very much. Just a second question about the kind of an industry question. So the market in the last year or so, there's been two or three examples of major activated carbon producers that have run into delays when scaling up the operations. What does this tell you about supply challenges within this specialized product industry and What would you say to investors with regard to risk that you may face in scaling up your own water purification business in the years ahead?

So, great question. And what you say is very, very true. It's a difficult business to wrap up successfully. We've experienced that with other suppliers. We, however, taking the route that we have taken, which is to become part and parcel of the solution mechanism rather than just the supplier out of the gate, has not burdened us with those sort of challenges. I do expect as we move forward and develop and put in place our first reactivation center that we will have challenges, but the team that we have in place, led by Dr. David Masich in particular, have the pedigree and the know-how to be able to complete the actual construction and build out off the plant to the point where we don't expect to have the same kind of delays or challenges that others in the industry are having as they try to enter into the actual production of granular activated carbon. And that's why our design center in Pittsburgh is very, very important because it allows us to reactivate spent carbons, which we do now, for the potential customer base and really finalize the process on a very practical pilot scale level that we will then be introducing as our end user solution once the plant is up and running. So we will have a very strategic plan ramp up of our operations hand in hand with the client by the time we get to the point where we need to be commercially operable. But we very much take note of the challenges within the industry and feel that we have a very practical and applied approach through the competence of the people that we put in position.

Okay, thank you. I'll just squeeze in one more question here before getting back in the queue and I recognize it's probably a bit early to ask this, but for the money requested in the jury verdict, it sounds like you're getting quite close to that. Just curious, how would Birch Tech plan to strategically deploy that capital, or maybe it's too early to ask that question?

Well, it's probably a bit early, and I would need to discuss with the board, of course, what the final approach would be. We are debt-free at this point. and we've moved nicely into the profitability scheme of things and we'll continue to plan to continue doing that from our operations. The influx, potential influx of cash would be used strategically in order to be able to have a very robust entry into the water market. I think the path that we are now setting and the track record that we're establishing will be a great base for us to build from. So I very much expect that moving forward, that capital would be deployed in a number of different ways, whether it's to move ahead on a CapEx basis for expansion or in a joint venture basis with industry partners that like what we're doing and have similar interests that we could expand collectively with. But these plants that we're looking to put in place are highly financeable because of the return on investment being very strong. So I don't expect that as a firm, we'd be required to invest a lot of that capital into CapEx requirements to build out what we have in mind in front of us. So that cash can be used for going forward. And we will have to basically see how everything develops when the capital, if it is awarded, is collected, of course, and then govern ourselves accordingly. We've spent six, seven years now in the legal side of things working to attain the final solution. So we want to make sure we take our time in terms of deploying the capital.

Okay, thank you very much and congratulations again. Thank you. Thank you.

At this time, there are no further questions. And I would like to turn the floor back over to Richard McPherson for any closing remarks.

Ladies and gentlemen, shareholders, I would like to say thank you very much for taking the time to listen to our results today. We're very pleased with what the team have been able to accomplish to date. We expect a lot of more big things to come over the next quarter and into 26. We think we're entering a very exciting time. And the water business in particular is going to be one that we think we can be very successful in while our core air business continues to backstop our operations as a company and our ability to be able to grow. With that, I'd like to say thanks again. Look forward to talking to you during the next earnings call and wish you all the best.

This concludes today's conference call. Thank you for joining us. You may now disconnect your lines.