Birchtech Corp. 2026 Q2 Earnings Call

Thank you, operator, and good afternoon, everyone. Welcome to our second quarter 2026 financial results conference call. I want to start with the milestone that defined the quarter on the legal front. In June, we announced the end of all remaining attempts to challenge our patents under inter partes review. Every petition filed with the Patent Trial and Appeal Board against our patented SEA technologies have now been dismissed, removed prior to institution, or resolved, and the parties previously involved are permanently barred from bringing further patent validity challenges. After seven years of disciplined enforcement, our patent estate stands well-protected, an outcome that validates the business-first approach we've taken since 2019, through which approximately $37 million in license fees and settlements have been received to date.

On collections, as a reminder, we remain in position to maintain a $78 million-plus final judgment, which was entered by the U.S. District Court for the District of Delaware in December of 2025. The defendants have filed a notice of appeal but have not posted a bond, and post-judgment interest continues to accrue daily until the judgment is paid. Upon the conclusion of the appeals process, we will assess all enforcement options. Turning to operations, our business delivered second quarter revenues of approximately $33.8 million, with an approximate 27% gross margin, driven by increases in both mercury emissions and water treatment product supply, RSSCT testing, and other water treatment sales.

The increase in revenues from the prior period was primarily due to increased air business demand, driven by the mix of plants that we have running combined and more extreme weather conditions, and the higher natural gas prices in the current year compared to the second quarter of 2025. Additionally, sales were recognized for the water treatment market in 2026, compared to none in the comparable period of 2025. The U.S. coal market remained stable, and continued federal support for coal plant operation reinforces demand for proven emissions control solutions like our patented SEA platform, creating a longer operational runway for our core air quality business and a solid foundation upon which our growing water treatment business will expand. Now allow me to provide added color on our air business. Our SEA platform remains the legacy cornerstone of the company.

With the IPR process now fully behind us, the distinctiveness of our technologies have never been clearer. As incumbent supply arrangements conclude for utilities already licensed under Birchtech, our focus remains on converting them into ongoing product supply customers as they adopt our sorbent formulations into their day-to-day operations and realize the benefits of our applied expertise. Second quarter air revenues totaled $3.4 million, mostly derived from product supply. Because coal-fired production and the production supply demand that correlates with it fluctuates with weather, there is some seasonality in our business. The second quarter of each year has historically been our lowest mercury emission revenue period. We aim to convert utility licensees that began as patent enforcement targets to direct purchasers of our activated carbon sorbents, and we expect the pipeline of supply conversations to grow as power demand from AI increases in the coming years.

That transition from legal resolution to commercial partnership has been our core objective in our business-first approach to patent enforcement that began over seven years ago. As I mentioned, the June IPR resolution reaffirms the distinctiveness of our SEA process. We remain confident in the strength of our intellectual property. For the remainder of 2026, the air division's roadmap remains centered on three objectives. Aim transition of unlicensed users of our technology into licensees and long-term supply customers, expand recurring active carbon sales across our growing roster of newly licensed utilities, and redeploy the cash flow generated by this mature, high-margin segment into the scale-up of our nascent, rapidly growing water business, where we see the highest prospect returns as we invest in the significant opportunity that lies ahead of us.

Put simply, the air segment functions as a self-funding growth engine, producing both the capital and market credibility that enable us to invest aggressively in water while continuing to deliver value to shareholders. Let me turn to water, where we continue to build on the commercial foundation established over a year ago, drive initial revenues, and are laying the groundwork for significant growth next year. During the quarter, we put our water platform in front of the industry at scale, exhibiting at leading water industry conferences across May and June, including the AWWA ACE26 Annual Conference & Exposition in Washington, D.C., the largest water national industry gathering, as well as various other regional and state water association events, and a national technical lab instrument conference in San Diego, where our Dr. Nicholas Lentz was invited to speak about our innovative analytical instrumentation.

Dr. Lentz also delivered a presentation on PFAS removal and our RSSCT analytical capabilities at a major industry event, underscoring the depth of our technical expertise that lies behind our platform. Our design centers remain the cornerstone of our data-first entry into the water market. Through our collaboration with national engineering firm, Soil & Environmental Consultants, our RSSCT testing performed at our analytical design center in Grand Forks, North Dakota, is available now to the hundreds of water utility clients they serve across the country, and we are working to replicate this approach with other leading environmental consultants and engineering firms. We are currently involved in supporting multiple national engineering firms with a combination of our RSSCT analytics and carbon reactivation in research projects with government entities and larger municipalities.

As expected, our data-first approach has been well received by the industry, and we anticipate being a leading contributor to advanced contaminant treatment technologies. Our design centers will become significant profit centers, establishing our credibility and creating a strong market position for our products, services, and highly effective technologies. On the product side, our SEA-IX™ nuclear-grade ion exchange resin line, which we launched in March, continues to target an estimated $200-plus million addressable market spend of nuclear power, coal-fired utilities, and municipal water treatment. We have recently expanded upon this product portfolio by adding two additional lines focused on removing specific contaminants, boron and heavy metals. Ion exchange resins are used nearly as prevalently as activated carbon, depending on the utility size, configuration, and water makeup. Alongside granular activated carbon, ion exchange resins are also recognized as a best available technology by the U.S. EPA for many contaminants, including PFAS.

These resins are used in multiple industries to treat wastewater from coal and nuclear power to water municipalities and other industrial applications. Expanding this product line allows BirchTech to address the growing needs of our customers with wastewater concerns. In addition to product sales in our RSSCT Design Center, additional revenue comes from our water treatment solutions which collaborates with engineering firms and utilities to integrate solutions that may include end-to-end media changeout services, vessel replacements, and shorter-term pilot testing. The market for these solutions is primarily wastewater, which affects water utilities, as well as coal and nuclear power plants. Through our industry knowledge and strategic partnerships, we are now able to source media and solutions that more affordably and effectively address certain contaminants and unique water environments.

Now, these areas that I have just described comprise our current revenue streams, which we expect will significantly increase through the next couple of years. We have added staff, increased our presence across the industry to support this growth. Our long-term and larger growth will come from our innovative technologies, where we have made strong progress this year. Consistent with our SEA for clean air, we are focused on creating industry-disrupting technologies that are more sustainable, effective, and affordable. Our improved thermal reactive technologies, carbon rejuvenation, has demonstrated that our thermally rejuvenated granular activated carbon performs comparably to virgin carbon for PFOS removal, and it is a breakthrough that could dramatically lower the life cycle cost for utilities. We continue to make meaningful progress establishing carbon rejuvenation capacity and look forward to providing further updates to that end in the very near future. The story from here remains conversion and scale.