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Edited Transcript of MEEC earnings conference call or presentation 11-Apr-19 9:00pm GMT

Q4 2018 Midwest Energy Emissions Corp Earnings Call

Marina Del Rey Apr 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Midwest Energy Emissions Corp earnings conference call or presentation Thursday, April 11, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Richard A. MacPherson

Midwest Energy Emissions Corp. - Founder, CEO, President & Director

* Richard H. Gross

Midwest Energy Emissions Corp. - CFO, VP & Secretary

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Conference Call Participants

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* Steven Ralston

Zacks Investment Research, Inc. - Senior Special Situations Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Midwest Energy Emissions Corp. Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions) This conference is being recorded today, April 11, 2019, and the earnings press release accompanying this conference call was issued after the close of market today.

On the call today is ME2C's President and CEO, Richard MacPherson; and Chief Financial Officer, Rich Gross.

Before we get started, I will read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of the federal securities laws regarding Midwest Energy Emissions Corp. Forward-looking statements include statements about plans, objectives, goals, strategies, future events and performance and underlying assumptions and other statements that are different than historical fact. Forward-looking statements are generally identified by using words such as anticipate, believe, plan, expect, intend, will and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Investors are cautioned that forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the statements made.

Matters that may cause actual results to differ materially from those in the forward-looking statements include, among other factors, the gain or loss of a major customer, change in environmental regulations, disruption in supply of materials, capacity factor and fluctuations of power plant operations and power demands, a significant change in general economic conditions in any of the regions where our customers' utilities might experience significant changes in electric demand, a significant disruption in the supply of coal to our customer units, the loss of key management personnel, availability of capital and any major litigation regarding the company.

In addition, this conference call contains time-sensitive information that reflects management's best analysis only as of the date 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. Further information concerning issues that could materially affect financial performance related to forward-looking statements contained in this presentation can be found in the company's periodic filings with the Securities and Exchange Commission.

At this time, I'd like to turn the call over to Richard MacPherson, the company's President and CEO. The floor is yours.

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [2]

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Thank you, James, and thank you, everyone, for joining us today.

2018 was a year of planned transition for our company that is now completed. The first half of the year was highlighted by our international efforts, most notably the signing of the exclusive European licensing agreement with the Cabot Corporation, a multinational company in the coal industry with an established footprint

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not only shows the strength and value of our patents but also allows us to quickly and efficiently expand our international footprint into the massive, now developing, European market. This momentum continued into the second half of the year evidenced by several key announcements. First, in October, we announced that we secured a 3-year multimillion-dollar-per-year supply contract extension with one of the largest utilities in North America and a long-term customer of ours. We also announced that we expanded into 2 additional coal-fired boilers for the same customer, which is also expected to generate multimillion dollars annually in revenue over the course of 3 years and beyond. This is the

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at this time.

Secondly, over the course of the last several years, we've made significant strides to analyze and validate the strength of our extensive patent portfolio. As a result of these efforts, we announced in the second half of 2018 that we are now moving forward with our newly announced licensing program throughout the U.S.A. whereby we will be offering licenses and develop other commercial opportunities with utility operations who have adopted our patented SEA technologies. Monetizing our patented technologies in either a licensing or business procurement fashion is one of our key initiatives, and it's now well underway. To aid these efforts, we announced that we've retained Caldwell Cassady & Curry, a leading IP law firm based in Dallas, Texas who has extensive successful experience in this area. We look forward to leveraging our suite of technologies for the benefit of both the utility industry and our shareholders in this process.

Now before going any further, I'd like to give you a brief overview of our company for those of you who may be new to our story.

Midwest

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across North America and now with our licensed partnership with Cabot Corporation Europe as well. We capture mercury emissions using our patented SEA technology, which is short for Sorbent Enhancement Additive technology. SEA technology enables plants to achieve and maintain compliance with mercury emission regulations effectively and at a lower cost by carrying out a process of enhancing the main sorbent's effectiveness with a halide-based substance. This approach has been widely adopted across the U.S.A. coal fleet.

Another important component in addition to our SEA technology is the operational consulting services we provide by leveraging our team of tenured, highly trained mercury control experts. As the creators of this SEA approach, we're the experts in this field of technology and can optimize and enhance the performance of systems now installed. We are a technologies company. And as such, we believe we offer the most elegant, effective mercury capture approach much more successful than our competitors who offer commodity-based solutions, which do not work as well without our know-how and our proprietary processes.

I'd like to have a discussion on the patents as well. All of the technology is protected by our robust patent portfolio, which covers the U.S., Canada and most of Europe and Asia, actually, 64 patents and growing in all. Our core technologies come from one of the oldest research facilities for coal in the country called the Energy Environment Research Center, or EERC, with a 200-person-strong engineering and scientific team. We continue to employ several of the core individuals responsible for this technology led by John Pavlish, our Senior Vice President and Chief Technology Officer; and supported by our Senior Vice President of Operations, Jim Trettle and his team, who are the best team in the business bar none.

The technology that we have is now over 20 years and $65 million

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to invest significant resources in our intellectual property as it is what we believe to be the bedrock and the biggest future value of the company. Recent expenditures in multiple millions have placed us in a position to monetize this fast adoption of our patented processes across the nation by coal-fired utilities. Our EBITDA has improved dramatically from the first quarter of 2018 while we continue to invest in our IP.

In the initiative side of things, to unlock this inherent value in our IP, we took several steps during 2018. As I noted in my opening remarks, we are exporting the patented technologies we develop in the U.S. to international coal-fired utility markets. I'd like to now elaborate on how we are pursuing these international markets.

In Europe, we're actively working to penetrate the market through our licensing agreement with Cabot Corporation, which we announced in April of 2018. This capital-light licensing model we've established leverages our proven 2-part mercury capture technology as well as our proprietary scrubber additive technologies, both of which are expected to provide meaningful additions to the extent -- to the extensive Cabot Corporation product line. Paired with our partner's global reach and immense sales network, this agreement presents a massive opportunity for our technology to see rapid widespread global adoption, and we're already conducting initial plant visits and plenty of demonstrations at a number of different sites throughout Europe.

We're excited to partner with a corporate leader such as Cabot and offer our technology solution to reduce cost and increase profits for electric-generating units. This agreement is not only symbolic in reaffirming the strength of our technologies, but it's expected to be a materially positive tailwind to our business from a financial perspective as we move forward with operations expected to start in the latter part of 2019 and ramping up over the long term.

Aiding our efforts in Europe and around the world is the Minamata Convention on Mercury, which is a global treaty to protect human health and the environment from the adverse effects of mercury. This convention was approved and adopted by approximately 125 countries in 2017, with implementation starting in '21. In 2017, the European Commission adopted VREF standards for large coal-fired electric-generating units. VREF are a series of reference documents covering certain industrial activities. And with that, we expect Europe to become a significant opportunity

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while we're testing for compliance, and ramping up is now underway. Europe's coal market, coal-fired utility market, is substantial and includes more coal-fired boilers, although somewhat smaller in size than in the U.S. In other key global markets such as Asia and elsewhere, we are in different stages of negotiation for similar agreements such as the one entered with Cabot. We look forward to providing further updates on these initiatives as appropriate and are actively underway with that at this time.

In Canada, as we've mentioned, we have several boilers under contract, having secured first in 2017, which was the first expansion outside of the U.S. And we continue to work with that account at this time to develop and bring on other boilers in its fleet.

Now as part of our efforts to broaden our reach, we've been presenting at several key industry-specific conferences both domestically and internationally, and we expect to continue being active on this front.

And this brings me, folks, to the U.S. market, which is where we presently derive nearly all of our revenues and continue to present a massive opportunity for our company. In early October of '18, we announced that we secured a 3-year supply contract extension with our largest customer for a full product supply to meet their mercury requirements. Also in that same month, we announced that we successfully expanded into this customer's fleet, securing 2 additional coal-fired boilers. Both the expansion and extension are significant as they're each expected to generate multimillion dollars in revenue over the next 3 years and beyond and ensure our ability to continue growth moving forward. There's still a significant amount of opportunity with this fleet, and we announced in March 2019 that we secured yet another 2 additional coal-fired boilers within the fleet expected to generate multimillion dollars annually over the course of 3 years. Our ability to expand into other boilers for this client is a result of what we believe to be the best available control technology in the mercury field. We believe that our unique ability to bring boilers into emission compliance with the most efficient cost-effective system will continue to drive new business to our company in the coming months and years both with current and new customers.

In addition to securing these 2 additional boilers in 2019 with our largest customer, we have continued to make significant strides in the early part of this year. In March, we announced that we secured a multiyear contract valued in excess of $1 million annually with a new U.S.A.-based utility client. Also in March, we announced that we signed another multiyear contract renewal with a long-term client expected to generate in excess of $1 million annually in product sales. All of these recent announcements are a strong testament to the value that we believe we provide with our SEA program and our ability to continue to grow our business base while adding new business in this competitive space.

But the core message today, folks, along with the numbers that we presented in the report, is to bring you up to speed on what we have carried out as a complete corporate pivot. And I look at it as a complete reset of the company and where it is -- has been and where it's going. We introduced a technology a number of years back. It was disruptive to the industry, and its effectiveness was shown by being massively adopted by the industry. We recognized quite clearly about 1.5 years ago that we were competing against our own technology as a number of utility -- roughly 60-plus percent of the industry were utilizing our technologies without actually doing it through us. So we've made the steps necessary and invested the money necessary to back up and monetize that situation.

And I'll explain that now in point form. So one of the steps we've taken to drive significant value creation with our IP portfolio in the United States was first to analyze and validate the strength of our extensive patent portfolio. Secondly, to retain Caldwell Cassady & Curry, a leading IP firm based out of Dallas, Texas to lead our licensing and patent program throughout the United States coal fleet -- I should say the coal-fired power fleet. Our SEA technologies via enhancing of a sorbent with a halide-based substance have been adopted by a significant number of coal-fired utilities across the U.S. The adoption of this SEA technology is also growing due to the effectiveness of our approach in mercury capture overall.

The use of this EERC-developed process, which ME2C introduced and brought to market, is the key to our future growth here in the U.S. Our expertise in this field will assure the present users of the SEA technologies that we will be able to offer optimization and improved efficiencies once we partner with them. We're actively engaged with several utilities in this effort to realize the true potential of these recognized technologies across their fleets, which currently addresses nearly 50 boilers. In total, we believe there are over 150 additional boilers that we can pursue within this licensing and patenting program. Our recently announced new client was one of those initially approached with regards to us working with them directly rather than trying to operate the system without us being involved. The resources are in place, and we look forward to updating you on this front continuously as we build our book of business that we've begun since early March of this year.

We also announced in February this year that we completed a restructuring of all of our unsecured and secured debt obligations with Alterna Capital. We believe this debt restructuring is another important step forward for us, and we believe this restructuring will assist us in being able to sustain a positive operating cash flow given current business only and provide a solid financial footing on which to continue to grow for the foreseeable future.

Given our current base of business, recent contract signings and renewals, penetration into the existing customer fleets as well as anticipated future business, coupled with the debt reduction, we are on firm financial footing. We will expect to achieve positive EBITDA in the 2019 Cabot -- calendar year.

So I'd like to turn the call now over to Rich for his run-through on the numbers, and then we'll come back and deal with questions that you might have. Rich?

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Richard H. Gross, Midwest Energy Emissions Corp. - CFO, VP & Secretary [3]

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Thanks, Rick. As Rich -- as Rick touched on earlier, we generate revenue from 3 primary sources as we implement our technologies: first, demonstrate -- demonstration and consulting services; the second, our equipment sales associated with the processes we employed; and the third are the product sales, which are typically recurring in nature and recognized as we provide an ongoing supply of our proprietary SEA material and sorbent materials. Product sales going forward will drive over 95% of our revenue base and continue to do so as it has in the past year.

In the fourth quarter of 2018, total revenue was $3.5 million compared to $5.7 million in the same year-ago quarter. Total revenue for the year ended December 31, 2018, was $12.3 million compared to $27.5 million in 2017. These decreases from the prior year are primarily due to the loss of customer EGUs that were shut down as a result of competitive disadvantages to other EGUs early in 2018, optimization efforts with our customers that are ongoing as well as lower capacity factors seen at a few customer sites, resulting in decreased product needed to keep our -- keep them in MATS compliance.

Costs and expenses were $4.1 million and $7.2 million during the 3 months ended December 31, 2018, and 2017, respectively, and were $17.1 million and $29.9 million for the full years 2018 and 2017. These decreases were primarily attributable to the decreased cost of sales associated with the decrease in sales seen above.

Net loss in the fourth quarter of 2018 was $0.6 million or $0.01 per diluted share compared to a net loss of $2.1 million or $0.02 per diluted share in the fourth quarter 2017. Net loss for the full year 2018 was $4.8 million or $0.06 per diluted share compared to net loss of $2.9 million or $0.03 per diluted share in 2017.

Adjusted EBITDA was a negative $1.5 million for the whole -- for the entire year 2018 compared to a positive $2.9 million achieved in 2017. Adjusted EBITDA for the fourth quarter 2018, however, was a positive $0.1 million compared to a negative $0.2 million in the same year-ago quarter.

Finally, on December 31, 2018, the company had cash on hand of $585,000 compared to $450,000 at September 30, 2018, and $2.4 million at year-end 2017.

And with that, I'll turn this back -- call back over to Rick.

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [4]

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Rich, thanks so much. Thank you to all that have joined us today. I'll conclude with sharing my enthusiasm and excitement about where we are now but more importantly where we're going.

Our new growth curve really started in Q4 of '18 with a positive EBITDA, showing significant improvement in that measurement moving forward, slowed only by enhanced invest -- IP investments that we've been making. Our work to penetrate international markets such as Europe and Canada is paving the way for a significant opportunity as we move forward and is expected to pay dividends starting this year. Our major international partner, Cabot, with their global reach and immense sales network, should accelerate this penetration throughout Europe.

Our technologies have been adopted by 60% to 70% of the entire U.S.A. coal fleet in one form or another. We're now actively engaged with several utilities, which in total operate dozens of boilers, to recognize the value to our shareholders of this adoption and work with them to optimize this process even more either through direct sale of products or licenses. Caldwell Cassady & Curry are leading this effort from a position of great strength given the IP portfolio we have in place and continue to improve on. Throughout 2018 and into '19, we've invested significant amounts in strengthening our existing IP as well as adding new patents in the U.S. and abroad, which is expected to pave the way to our future growth.

Also, although a substantial doubt regarding our going concern had been expressed at times in the past in our financial statements, our audited financial statements for the recently completed year reflect that we have concluded there is no substantial doubt regarding our ability to continue as a going concern. The restructuring of our debt with Alterna Capital has given us a fresh start on the financing side, clearing the way over the next 3.5 years to make significant financial gains without any significant undue financial strains. It also speaks volumes to their belief in our long-term prospects and their investment in that long-term success.

In closing, the creation of the SEA technologies by the EERC, the subsequent commercial introduction of those technologies by ME2C along with the vast adoption of the technologies, has positioned us, ME2C, to realize its true value in the coming years with both utilities and shareholders both here and around the world.

So I'd like to open it up now for questions, please, James?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question today will come from Steven Ralston with Zacks.

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Steven Ralston, Zacks Investment Research, Inc. - Senior Special Situations Analyst [2]

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Congratulations on the quarter and the year. I do want to start saying that the news flow this year -- or late last year and into this year has dramatically improved versus last year. And I'm also impressed that you haven't had to access the capital markets, either debt or equity, during this transition. Looking at your news announcements, is it fair to say that you've added -- well, you've expanded into 2 EGUs with your large customer last year and again this year. That's 4. And then you announced a new contract, which you said is greater than $1 million. That's a fifth -- I would assume a fifth one. You've added 5 EGUs in the, let's say, last 6 months.

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [3]

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Yes, that's a fair statement. I must say, Steve, I'm not sure exactly if it's 2 small units or 1 large one on that last new client, but 5 is most likely correct, yes.

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Steven Ralston, Zacks Investment Research, Inc. - Senior Special Situations Analyst [4]

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All right. And in your comments, you mentioned that all these new contracts -- or excuse me, all the contracts involving your largest customer, the renewal and the 2 tranches of 2, they're all 3-year contracts?

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [5]

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That's correct.

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Steven Ralston, Zacks Investment Research, Inc. - Senior Special Situations Analyst [6]

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In the new contract and also in that multiyear renewal with a long-term customer, you've mentioned that both are greater than $1 million. First, just to clarify, is that annual or cumulative?

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [7]

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No, that's annual. And the contracts are written for specific terms, but they're open-ended and expected to be renewed similar to the renewals we've already announced. I can't say that -- we've not failed to renew any of our ongoing client business, so we would expect that they would continue.

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Steven Ralston, Zacks Investment Research, Inc. - Senior Special Situations Analyst [8]

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And can I infer that this -- the renewal with the long-term customer is one EGU?

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [9]

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Actually, it's a couple.

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Steven Ralston, Zacks Investment Research, Inc. - Senior Special Situations Analyst [10]

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It's a couple. Okay.

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [11]

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Yes.

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Steven Ralston, Zacks Investment Research, Inc. - Senior Special Situations Analyst [12]

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Okay. Great. And did I hear you correctly that you're giving guidance for a positive EBITDA in 2019?

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [13]

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That's correct.

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Steven Ralston, Zacks Investment Research, Inc. - Senior Special Situations Analyst [14]

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All right. And one picky question, and it just came up as I'm doing my work. The average number of shares in every quarter has been the same and -- but the year-end average shares dropped. I just don't understand how that happened.

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [15]

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Do you mean in shares traded? Or what are you referring to?

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Steven Ralston, Zacks Investment Research, Inc. - Senior Special Situations Analyst [16]

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No. The average weighted -- the weighted average shares used to calculate your earnings.

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [17]

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Rich, would you care to comment on that?

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Richard H. Gross, Midwest Energy Emissions Corp. - CFO, VP & Secretary [18]

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It was a fresh look at the calculation based on some vesting of some shares that were issued in prior years.

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Steven Ralston, Zacks Investment Research, Inc. - Senior Special Situations Analyst [19]

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Okay. Understood. All right. Again, congratulations on the quarter.

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [20]

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Thank you, Steve.

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Operator [21]

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(Operator Instructions) We'll now hear from [Tim Quinlisk].

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Unidentified Analyst, [22]

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My question for you relates to the licensing program that you're about to embark on. Am I -- I just wanted to make sure I have this correct. In the U.S., there's approximately somewhere in the neighborhood of about 300 to 330 plants, RGUs, coal-fired. And am I hearing correctly that you think that between 60% and 70% of those are using your 2-part process without paying for the value of your intellectual property?

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [23]

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That's correct.

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Unidentified Analyst, [24]

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Okay. So you've engaged Caldwell Cassady to help you pursue that effort, but it seems to me that -- how are these people getting around this at the current time? And they've been doing this for the last couple of years presumably since you've brought this technology to market. What's the strategy as you look forward? And is this -- am I thinking correctly -- I think you said 150 units. Assuming a typical RGU is somewhere in the 500,000 megawatts, you're talking about potentially a contract of some million dollars per. I mean, that's -- those are some really big numbers. And how is -- how have you engaged Cassady to help you to sort of realize that on a licensing basis?

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [25]

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Tim, thanks so much for the question. So what we're doing is going at this with a business-first mindset. We very much want the utilities to be able to use the very best possible technology at the lowest possible price to stay in compliance. And we're trying to add to that effort positively, not just add cost to it. So in keeping with that mindset, what we're doing is approaching the utilities that we know are utilizing the process of our SEA approach and offering that we would come in and further optimize that for them, and they would then switch over to utilize our supply side. Other than that, should they elect to carry on with what it is they're using now, then we would be seeking a license agreement, which is basically on par with what our profit picture would be should we be operating the system for them. So we are approaching the utilities and have done so in a dozen or more cases at this time. The last piece of business we announced as new business came out of that effort, so we're having -- we're actually now getting traction in our IP-driven efforts, but we would very much prefer at the end of the day to secure all of those boilers, 150-plus, as new clients rather than just issuing licenses because we feel our expertise and know-how in working hand-in-hand with the utilities as an operating partner will be far much more valuable for them and to the enterprise value of our company if they were clients rather than just licensees. So we're moving forward aggressively to have those meetings with the utilities to present the opportunities and be able to move forward in either fashion.

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Unidentified Analyst, [26]

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And what's been the pushback? I mean, this is something -- I mean, you're -- they're clearly infringing on your technology. What's the pushback that says we don't want to use your technology or we're not -- we don't want to pay you?

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [27]

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Typically, what we've seen so far, and it's just the first few, is that, first of all, there's a lack of understanding that this is a patented technology. Secondly, there's been some effort on behalf of the main chemical suppliers to provide the material without any indication that there is a patent covering this approach. And thirdly, because it's an environmental effort and cost, which, in a majority of cases, is passed through to the rate structure, they have to go through a significant amount of due diligence in order to be able to add this additional cost, whether it be through operations or licensing into that rate structure. So there's quite a process involved of them actually adopting it which takes

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for them to be able to

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our system. But that's fine. We very much expect that. And once established, it's very long-standing and

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for us. So it is a process. My estimate is that it takes anywhere from 3 to 6 months to convert somebody even with the best efforts on behalf of ourselves and Caldwell Cassady & Curry, but we're moving down that road and starting to have success.

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Unidentified Analyst, [28]

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Okay. And then, Rick, is there an opportunity -- presumably, they've been infringing for some long period of time here. Is there an opportunity for you to go back after some of the historical damages? Or is that something you'd go to these utilities and say, look, sign this deal with us going forward, and we'll -- it's something we can discuss? Or how do you approach that? And finally, how is -- what's the compensation structure? And what's the cash cost for you to employ Caldwell on your behalf?

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [29]

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Two questions. Good ones. I'll answer them in a general sense. First off, if there is a utility that is using our technology and continues to do so without us being involved in the equation, then the final alternative for us, of course, would be to seek damages, and Caldwell Cassady & Curry would lead any and all of those efforts. Secondly, with regards to Caldwell Cassady & Curry themselves, much in keeping with Alterna's complete restructuring and belief in our long-term IP value has a way to get return on their investment, Caldwell Cassady & Curry, after completely vetting our position, have come to the same conclusion and are looking after our licensing program on a 100% contingency approach with very favorable terms, very reasonable percentage of the winnings going to them. And we've extended that into the actual operating income side of things so that it doesn't undermine our efforts to grow our business rather than just our licensing book.

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Unidentified Analyst, [30]

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Okay. All right. Okay. And then just finally, can you talk about Europe specifically? It seems like that opportunity is just beginning given the regulations that are going in place in 2021. Cabot's your partner there. Are they -- sort of how aggressive will they be in presenting your 2-part process as part of the solution over there? And what's kind of the timing you expect that to sort of play out over -- as you move forward?

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [31]

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Sure. Interesting enough, I had breakfast yesterday morning in [Waco] with the head of the Americas division and previous to that, his boss. They're putting a new person in place to run the European operation. I'm looking forward to meeting with that individual as soon as they're appointed sometime in the next 60 days or so. They learn the hard way as did the ADA CS company here in the U.S. that activated carbon alone in the back end is not the best solution for the majority of the mercury capture situations. So rather than secure a big chunk of business and then only see it fall off when competed with -- by the 2-part process, which is what happened here in North America, they've astutely stepped forward, secured the rights through this license, through our 2-part process in Europe. And once the new guy is in place, we're technically now up to speed with all of their people. We expect to be moving forward aggressively this summer. They have already secured significant business in a couple of major countries in Europe and expect to be able to expand on that. So although the regulations come in fully in 2021, there's mercury capture going on in the tens of millions of dollars annually at this time and growing. So I very much expect that we're going to see significant testing ongoing this summer, and I would expect that it would -- we should see our initial commercial wins there this fall. So although the full regulations come in 2021, I can see where this will add to our special operations nicely starting in the fall of this year.

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Unidentified Analyst, [32]

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Okay. And just one final question, and I'll get off in the queue. Notwithstanding the contraction of the U.S. market, international markets primarily driven by China, Asia, India, have seen significant growth in coal-fired generating capacity and represent almost, what, 40% of the world's electrical generation. Are the opportunities the same there to bring the 2-part process to those markets? And is your intellectual patent portfolio sort of solidified within those markets as well? Appreciate your response.

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [33]

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Okay. Tim, thanks. And we'll have to move on to another questioner after this. But to answer your question, there is a great deal of opportunity. The capacity is huge. China will have added between 2016 and 2021 as much capacity as the entire U.S. fleet. So they continue to grow and will continue to, at some point, need to start addressing their mercury control. We are patented there. To answer your question, we will need an extremely strong partner in that region to be able to manage our patents without them being misused. And so our approach at this point, which we've been working on for the past year, is to expand throughout Southeast Asia, which is what we are now actively involved in. I hope to be able to speak more openly about that in the next quarter or 2, but we see the other countries in Asia as being the prime targets over the next couple of years and are working in that regard, with China being the big bear that we would try to deal with 2 or 3 years down the road once we've made inroads in the

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Operator [34]

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We do have a follow-up question from Steve Ralston with Zacks.

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Steven Ralston, Zacks Investment Research, Inc. - Senior Special Situations Analyst [35]

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Yes. I'd like to delve a little deeper into the expected timetable in Europe. You mentioned that you expect some announcements in the fall. Could you go a little deeper into that? I assume you'd start doing -- it would begin with -- well, once a relationship opens, that you would start with some demonstrations. And after that, there would be a decision made by the customer, and then you'd announce a contract. And after that, there would be the installation. First of all, just to back up for a second, is the structure of the utility market much like in the United States where it's a little sort of like an old [Boeing] network with very long-lasting relationships? Or is this new regulation going to be different?

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [36]

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So Steve, just let me try to summarize what I think would be the best answer for you. We expect that testing will begin with the 2-part process this summer. We expect, as it's worked here in the U.S., it would work there. We think that we would then end up most likely having a commercial agreement in place in the fall, and it would be the first of what we would expect to be a ramp-up of sell-through in the European market as the boilers go online. There's a significant number of boilers capturing mercury now in a couple of significant countries. We expect to add to that with our process. So I think we'll start to see some real results this fall. With regards to the network or the means and ways of acquiring business, Cabot has proven itself already very adept at that, having secured a significant amount of business in Europe, and we expect that they will be able to bring our technology into the fray and be successful with that as well. And so...

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Steven Ralston, Zacks Investment Research, Inc. - Senior Special Situations Analyst [37]

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Is it the same seasonality that you would expect greater usage of sorbent during summer months?

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [38]

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Yes. It's all, again, based on the boilers. So it's seasonally allocated accordingly. So as I see this go country-to-country, so would the capacity factor.

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Steven Ralston, Zacks Investment Research, Inc. - Senior Special Situations Analyst [39]

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All right. So a contract, for example, that would be consummated in the fall of 2019, you would want to see the installation and the testing and that it would truly ramp up in mid-2020 during the summer season.

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [40]

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Yes.

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Steven Ralston, Zacks Investment Research, Inc. - Senior Special Situations Analyst [41]

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Okay. And do you think that Europe will actually move that quickly?

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [42]

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They already are moving. They're already capturing mercury in a couple of significant large countries moving forward ahead of the regulations, and the rest of it will come in line with testing and have to be up and running by the end -- or middle of 2021.

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Operator [43]

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Thank you. That will conclude today's question-and-answer session. At this time, I'd like to turn the conference over to Mr. MacPherson for any additional or closing remarks.

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Richard A. MacPherson, Midwest Energy Emissions Corp. - Founder, CEO, President & Director [44]

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Well, folks, thanks so much. As you can see, if you've taken a hard look at the numbers of late and the press releases we've issued, we've really started to turn the corner in the quarter of -- in the last quarter of 2018, and I look forward to talking about the first quarter of 2019 when we get back together in just several weeks' time. We've had significant growth recently, and we will continue with that growth. The EBITDA projection for 2019 is sound, and I think when we get to the first quarter earnings call, you'll get a sense of the volume of increase year-over-year as it comes through.

The heavy lifting on our reorganization is complete, and it has been accomplished without any dilution or additional debt load. We're now poised to increase the enterprise value with a strategic, well-planned business model on multiple fronts. Between licensing our adopted technologies, converting present users across the U.S. and dealing with long-term users, we've positioned ourselves for tremendous multilevel growth in the coming years. The international markets are truly encouraging, and I look forward to reviewing the Q1 results, like I said, with you all over the next few weeks. And I want to thank you very much, again, for listening in today and look forward to chatting with you in the near future. Thank you.

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Operator [45]

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That will conclude today's conference call. Thank you for your participation. You may now disconnect.