374Water Q4 2024 Earnings Call Transcript

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March 27, 2025

There are 5 speakers on the call.

Operator

Greetings and welcome to the three seventy four Water Fiscal Year twenty twenty four Financial Results Conference Call. At this time, all participants are in

Speaker 1

a listen only mode. A question and answer session will follow the formal presentation.

Operator

As a reminder, this conference is being recorded. At this time, I will now hand the call to Chris Tyson, Executive Vice President of MZ Group. Please go ahead.

Speaker 2

Thank you, operator. Before we begin the formal presentation, I'd like to remind everyone that statements made on the call and webcast may include predictions, estimates or other information that might be considered forward looking. While these forward looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events.

Speaker 2

Throughout today's discussion, we will attempt to present some important factors relating to our business that may affect our predictions. You should also review our most recent Form 10 K for a more complete discussion of these factors and other risks, particularly under the heading Risk Factors. Your host today, President and Chief Executive Officer, Mr. Chris Gannon and Chief Financial Officer, Mr. Russell Klein, will present results of operations for the fiscal year ended 12/31/2024.

Speaker 2

A press release detailing these results crossed the wire this afternoon at 04:01PM Eastern Time and is available in the Investor Relations section of the company's website, 374water.com. I will now turn the call over to three seventy four Water's President and Chief Executive Officer, Chris Gannon. Chris, the floor is yours.

Speaker 1

Thank you, Chris. Good afternoon, everyone, and thank you for joining us today. Three seventy four Water is a global industrial technology and services company providing innovative waste destruction and treatment solutions to municipal, federal and industrial market verticals. Our proprietary AirSclo system is designed to destroy both solid and liquid non hazardous and hazardous organic waste and in the process our technology produces safe dischargeable water, safe mineral effluent, safe vent gas and recoverable heat energy. Our goal is to provide the best in class waste construction solutions, which we believe can disrupt the $450,000,000,000 global waste destruction and waste management market, whose participants seek alternatives to outdated conventional solutions.

Speaker 1

We believe our scalable and customizable air flow system, which is designed to augment or replace conventional inefficient waste management approaches is an ideal solution for our target markets. In addition, we provide a flexible go to market strategy offering multiple procurement options to meet specific customer needs including capital sale, lease and waste destruction service offerings. Further, we have developed a robust, actionable and growing backlog and pipeline of opportunities, which we are converting to revenue. As a result, we believe we have a viable path to generate $250,000,000 to $500,000,000 in annual revenue over the next five years or so. Before I discuss our operational highlights and business updates, I would like to play a short video that introduces our AirSculope technology and provides a brief overview.

Speaker 1

For those dialing into the call, there will be approximately ninety seconds of silence, so please bear with us. This video is also available at the link within today's investor presentation.

Operator

Uh-huh. Uh-huh. Uh-huh. Uh-huh. Uh-huh.

Operator

Uh-huh. Uh-huh.

Speaker 1

Moving on to our operational highlights and business updates for 2024 and 2025 year to date. I would like to discuss some of the many things accomplished over the past twelve months since the new team arrived. Our focus was on righting the ship, building a foundation for growth and placing the company on a commercial path of growth in revenues. During 2024, we not only outlined a new strategic plan and tactical roadmap, but also committed to executing key initiatives. We delivered on these promises, materially advancing our company.

Speaker 1

Throughout the year, we made material improvements to advance our technology, including ruggedizing and optimizing our Air Squo system, upgrading our pre and post treatment systems and significantly expanding our destruction capabilities across solid and liquid waste. During this time, supercritical water oxidation was also identified as an emerging PFAS destruction technology by the EPA. In Q3, we relocated our AirSQUO and pre and post treatment systems, as well as our manufacturing and engineering operations to Orlando, Florida. This important move allowed us to begin delivering on previously deferred contractual commitments to municipal, federal and industrial customers. We also hosted a wide variety of municipal, federal and industrial participants as well as investors to see Air Squo in action and we began manufacturing AS1 and additional AS6 systems.

Speaker 1

In Q4, we completed a registered direct offering of $12,200,000 in gross proceeds to further fund our company, including material investments from management and the Board. We also announced our intent to begin offering waste destruction services in 2025 and started bidding on waste destruction opportunities. We were excited to announce yesterday a waste destruction contract with the University of North Carolina at Chapel Hill Collaboratory to destroy AFFF Firefighting Foam on behalf of the state. This multi phase contract could be worth north of $5,000,000 to our company. During Q4, we also continue to advance partner negotiations with treatment, storage and disposal facility operators to establish one or more waste destruction service operations in 2025.

Speaker 1

We finalized the expansion of our laboratory operations with our move into a new state of the art Iowa Safety Level 1 facility, greatly increasing our capabilities to service customers and we moved our production facility to a new location at Orlando's Iron Bridge facility. During Q1 twenty twenty five, we confirmed we remain on track to mobilize AS system components to Orange County Sanitation in the first half of the year. During the year, we also released numerous press releases, white papers, completed media interviews and third party articles were published highlighting the three seventy four Water and Air Slow, including our work with the U. S. Navy where we successfully destroyed El Nafo waste.

Speaker 1

Arcadis published an article regarding AFFF firefighting foam destruction highlighting the effectiveness of three seventy four Water's Air Squo technology and we announced our participation in an upcoming Department of Defense project aimed at identifying commercial scale PFAS contaminated waste destruction solutions. Note, we have already successfully destroyed the waste streams identified in the Department of Defense announcement. We also expanded our intellectual property portfolio to ensure we have a defensible moat around our company and technology. We filed multiple patent applications throughout the year and you can expect we will continue this practice throughout 2025 and beyond. Finally, we further enhanced our leadership team with the addition of Russell Klein as Chief Financial Officer and Raj Mukolte as our Chief Technology Officer.

Speaker 1

In addition, we hired additional engineering, manufacturing and field personnel. We believe our proprietary AirSQUO system, which harnesses the power of supercritical water oxidation or SCO sits at the forefront of waste destruction and waste management innovation. Air SCO leverages the unique properties of water in its supercritical phase, which is above three seventy four degrees Celsius and above a barometric pressure of two twenty one bar. The supercritical phase of water has unique properties, which when combined with ambient air rapidly oxidizes or destroys organic matter, yielding safe water, safe minerals, safe vent gas and recoverable heat energy. Our continuous flow waste destruction process consists of our air flow, pretreatment and post treatment systems.

Speaker 1

Our pretreatment systems are installed upstream of the Airswell and are designed to condition solid and liquid waste for improved processing. Once organic waste is pretreated, it is injected into our Airflow systems proprietary tubular reactor, where it is combined with supercritical water and air. Our tubular reactor is effectively a high pressure and high temperature continuous flow chamber or pressure cooker of sorts. Our waste oxidation or destruction occurs within a matter of seconds. Note this destruction process is highly tunable allowing for specific destruction results according to waste stream and customer preferences.

Speaker 1

Once the waste is destroyed to customer specifications, our post treatment process commences. Our post treatment systems which are installed downstream of the Air Squares system reactor are designed to valorize meaning optimally process and enhance the safe water, minerals, cement gas and energy byproducts into valuable resources, thereby promoting sustainability and reducing environmental impact. Stated simply, our post processing capabilities include water purification, vent gas utilization or sequestration, mineral recovery and upgrade and energy recovery and recycling. Our Aresco system has been proven to effectively process and destroy a wide variety of organic solid and liquid waste reaching non detect or below EPA levels of four parts per trillion. These include traditional waste such as biosolids, landfill leaching, industrial waste and military waste, as well as emerging contaminants like short and long chain PFOS forever chemicals, which were a large class of synthetic chemicals known to be toxic and negatively impact human health, as well as pharmaceuticals and plastics.

Speaker 1

Let's walk through a few examples. First, let's start with wastewater treatment facilities and biosolids. Take the City of Orlando Ironbridge Water Reclamation Facility, where we have our commercial scale AirSqo system installed. On a typical day, Ironbridge processes millions of gallons of residential, commercial and industrial wastewater at their facility. Following a lengthy and complex process, Ironbridge dewaters the produced biosolids from less than 1% to around 15% solid content.

Speaker 1

Orlando then ships these biosolids long distances to those out of state landfills still willing to accept this type of waste. Also many municipalities ship their biosolids to be converted into fertilizer, which is known to contain PFAS and other toxic substances, which are then land applied on agricultural and other lands. Either way, these expensive, convoluted and time consuming processes are less than optimal and municipalities nationwide seek alternatives for on premise waste destruction solutions. And we believe we are well positioned to provide a compelling solution. Finally, we have started our ninety day extended duration demonstration with Orlando and will provide updates as we progress.

Speaker 1

Turning to landfills and their leachate issues. Landfill leachate is a liquid that forms when water percolates through waste material in a landfill, taking up various dissolved and suspended solids. This contaminated liquid as a result of rainfall, surface runoff and decomposing waste, which can include organic chemicals, heavy metals, pathogens and biosolids. Landfill leachate can and does contaminate surrounding areas including groundwater. Landfill operators are seeking a means to destroy landfill leachate before it becomes a problem.

Speaker 1

We believe our Air Squad technology has the potential to be a solution here. Turning to water utilities, which are increasingly impacted by contaminants like PFAS, microplastics and pharmaceuticals, leading to a widespread adoption of treatment methods like granular activated carbon or gas and ion exchange resin or IX, which are used to filter these substances. As these materials become saturated with PFOS, processes like Air Squo are essential for safely destroying the spent GAC and IX, offering a more complete solution for PFOS disposal. We believe we are well positioned to provide a compelling solution. There are many other examples of market opportunities where we believe we have a viable and compelling value proposition, which could drive demand for our Air Score solutions.

Speaker 1

We believe our ability to provide scaled waste destruction solutions is a significant differentiator across waste treatment and destruction providers. We intend to offer four commercial scale Airflow systems and corresponding pre and post treatment technologies to support customer needs. These Airflow models include our highly mobile Airflow one or AS1, our mobile Air Score six or AS6, our semi permanent Air Score 30 or AS30 and our bespoke Air Score 100 plus We are currently manufacturing our AS1 and AS6 units.

Operator

We

Speaker 1

are also designing our AS30 and may begin building one of these units in 2025. We are currently tracking several long sales cycle opportunities for our highest capacity AS100 units, which as a reminder will be designed for specific customer needs. Three seventy four Water is at an interesting growth inflection point as it relates to the rollout of our technology as we are circling multiple additional 8S capital sales as well as waste destruction service opportunities in 2025. We will naturally update you on these material events throughout the year. Here's a high level overview of our current and near term operational footprint.

Speaker 1

Right now, we have facilities in Florida and North Carolina. We encourage investors to visit our Orlando site for a facility tour as part of your due diligence on three seventy four Water and our Airflow systems. We find seeing the technology in action is truly believing. In the near future, we will be deploying AirsClo systems to Orange County Sanitation in California, Clean Earth in Detroit, Michigan for our DIU demonstrations, the City of St. Cloud, Minnesota for a full scale demonstration and Peterson Space Force Base in Colorado.

Speaker 1

Just this week, we announced a new contract by the state of North Carolina for the destruction of AFFF. We are thrilled to be providing waste destruction services to the University of North Carolina at Chapel Hill Collaboratory. This initiative stand as one of the most ambitious state led PFAS disposal efforts to date. We will destroy AFFF secured by the state of North Carolina as part of their Take Back program as per North Carolina's Responsible Firefighting Phone Management Act H. Three seventy of the twenty twenty three-twenty twenty four session.

Speaker 1

First phase aims to treat 1,000 gallons of AFFF with a structured expansion plan for a total of potentially 50,000 gallons. This phased approach demonstrates a strong commitment to eliminating PFOS contamination at scale, while setting precedent for future large scale environmental remediation projects. In addition, we are negotiating the capital sale of AS6 and AS30 units, targeting close in 2025 and actively working on multiple other waste destruction contracts and waste destruction services partnerships. Looking ahead, our goal is to establish multiple regional waste destruction facilities in partnership with TSDFs, which would cover the Continental U. S, Alaska, Hawaii and beyond.

Speaker 1

We also aim to develop a mobile AS fleet for on-site waste destruction services, especially for military applications. Additionally, we plan to scale production of AS1, AS6 and AS30 units while laying the groundwork for AS100 plus plants, which will require an expansion of our manufacturing capabilities in the future. These are exciting times and we look forward to keeping you updated. Now turning to the approximately $450,000,000,000 global waste treatment addressable market opportunity within the municipal, federal and industrial markets. Let's discuss each market segment briefly and why we are excited here.

Speaker 1

First, the municipal water and wastewater treatment markets is estimated to be worth more than $347,000,000,000 annually, growing at approximately 7.5% annually. This market includes approximately 152,000 water utilities, 16,000 wastewater treatment facilities, 3,000 capped and uncapped landfills and more than 52,000 state and local firefighting units. All these facilities have waste streams which must be managed, disposed of and or destroyed. We believe our Air Squad technology is well positioned to provide a compelling waste destruction solution to these markets. Second, the U.

Speaker 1

S. Federal waste management market is estimated at approximately $15,000,000,000 The federal market includes seven twenty two DoD sites, 53 DoE sites and 150 airports under the oversight of the FAA. Federal agencies have stockpiles of contaminated waste streams such as AFFF firefighting foam, chemicals, narcotics, biosolids, filtration media, hydrocarbons and other waste, which must be stored, treated, destroyed and disposed. Federal agencies are actively seeking solutions to eliminate these contaminated waste streams. Again, we believe our Aresco system is well positioned to provide a compelling waste destruction solution to these markets.

Speaker 1

Third, the industrial waste management market is estimated at $128,000,000,000 This market is driven by key sectors such as battery recycling, pharmaceuticals and oil and gas, all of which generate significant organic waste. The rapid growth in battery recycling is largely fueled by the rise in electrical vehicle demand, while the oil and gas and pharmaceutical industries continue to contribute substantial amounts of organic waste. Additionally, numerous lawsuits and stringent regulations related to PFAS contamination along with ongoing cleanup efforts further drive the need for innovative waste destruction solutions creating yet another compelling opportunity for Airswell. While it is early days for us in unlocking these market verticals, we feel confident there are substantial opportunities for us. Finally, the Resource Conservation Recovery Act or RCRA, Part B permitted treatment storage and disposal facilities market includes more than eight sixty sites in The U.

Speaker 1

S. As part of our growth strategy, we're engaging with TSDF market participants to establish a national partnership network of waste destruction sites to service customers within our three core markets municipal, federal and industrial to provide waste destruction services, which we believe will enable us to generate substantial recurring services revenue. We seek to partner with TSDFs who are known to our customers, have experience in non hazardous and hazardous waste treatment and have appropriate local, state and federal operating permits. We believe our Airscale technology is well positioned to provide a compelling waste destruction solution to these market participants. Our go to market strategy is diversified and focused on established end markets desire waste destruction technology like our Aeroscope system.

Speaker 1

We offer customers several procurement options, including capital purchases, leases and waste destruction services. Municipal officials remain eager to begin waste destruction operations and have expressed interest in capital purchase and WDS models. Federal government officials have plans to remove and destroy PFAS and other waste from numerous military and civilian facilities and have appropriated hundreds of millions of dollars to perform waste destruction work. We believe we are well positioned to secure federal and state government contracts. We've also increased our focus on pursuing industrial waste destruction opportunities and we believe there is significant opportunity to generate material industrial revenue in the future.

Speaker 1

Finally, we are actively pursuing strategic partnerships with TSDF to establish waste destruction service operations. We expect to finalize one or more of these TSDF agreements and to begin operations in 2025. Our team is actively pursuing these market opportunities to add to our growing pipeline and will provide further updates throughout the year. We have discussed at length the market need for our Air Squall waste disruption technology. As we look forward and we continue to expand our business development efforts, further scale our technology and expand our tinging, we see a very real opportunity to scale the business.

Speaker 1

Our growth outlook involves a combination of capital sales, leases and waste destruction services. This growth will be achieved through a combination of strategic partnerships, market development and geographic expansion across our municipal, federal and industrial markets. Our initial focus remains The U. S. Market.

Speaker 1

For 2025, we have line of sight to $4,000,000 to $6,000,000 in revenue. Based on current and anticipated future demand, we believe we have a path to $250,000,000 to $500,000,000 in revenue in five years. I would now like to turn the call over to Russell Klein, our Chief Financial Officer, to discuss financial results for the fiscal year 2024.

Speaker 3

Thank you, Chris. Before I discuss our financial results for the twelve months ended 12/31/2024, I would like to highlight that in November 2024, we completed a registered direct offering, which resulted in gross proceeds of $12,200,000 and net proceeds of $11,300,000 That funding is being utilized to continue to ruggedize and improve our AS technology, deliver in process AS systems, prepare to launch our AS waste destruction services offering, further expand our team including engineering, operations and manufacturing, and expand our manufacturing and engineering facilities. Importantly, this financing helped replenish our cash reserves with cash and cash equivalents as of 12/31/2024 of $10,700,000 as compared to $10,400,000 as of 12/31/2023. And our working capital, which was $11,500,000 as of 12/31/2024, compared to $13,500,000 as of 12/31/2023. Now turning to our financial results for the twelve months ended 12/31/2024.

Speaker 3

The company generated revenue of $445,000 compared to $743,000 in the prior year. The company's business in 2024 had been focused on the development and commercialization of its Air Squo system. Revenue generated was primarily attributable to manufacturing assembly services and from treatability study services. During 2024, we reached fewer milestones and thus incurred less direct contract costs. Costs associated with our sold unit have started to decline as we reach the end of our fabrication and testing, which have had a direct correlation to the reduced revenue recognized this year.

Speaker 3

That said, we have gained significant momentum on many promising sales opportunities, which have occurred as a result of lab and full scale demonstrations. We are in active late stage negotiations with multiple parties for AS6 and AS30 capital sales. We are also launching our waste destruction services business and recently received an award for AFFF Destruction within North Carolina. We believe 2025 will be our best year for revenue. Total operating expenses increased 59% to 11,900,000 for the year ended 12/31/2024, compared to $7,500,000 for the year ended 12/31/2023.

Speaker 3

The increase was primarily due to an increase in professional fees of $1,700,000 an increase of $1,200,000 in general and administrative expenses, an increase in compensation and related expenses of $800,000 and an increase in research and development expenses of $600,000 The increase in our professional fees are primarily non recurring expenses related to the settlement of a legal matter and the changes in our executive leadership and Board of Directors that have been previously disclosed. Further, we incurred additional professional fees for executive search services related to the finding and hiring of certain executives we have hired in 2024. The increases in general and administrative expenses is primarily because of an increase in stock based compensation, travel and other general and administrative expenses as we continue to build out our executive team. We also incurred relocation related expenses as we move to our new leased manufacturing facility in Florida. The increase in our research and development expenses is primarily due to an increase in engineering costs and expenses stemming from continued efforts to commercialize our systems.

Speaker 3

Net loss for the year ended 12/31/2024 was $12,400,000 as compared with $8,100,000 in the prior year. Based upon our current cash position, we project to have adequate cash to support our 2025 business plans. We are in active discussions with possible strategic partners to support our business growth. I will now hand the call back to Chris for his closing comments.

Speaker 1

Thank you, Russell. In closing, during 2024, we built a strong foundation to grow our business. And now in 2025, we are focused on becoming a growth company and delivering material revenue. Three seventy four Water and Airflow seeks to address the waste destruction problem domestically and internationally. We are focused on serving large markets who desperately need waste destruction solutions at commercial scale.

Speaker 1

In addition, the regulatory environment supports demand. Our Airflow system is scalable and customizable, allowing us to address large and small customer needs. We have a flexible go to market strategy, which includes capital sales, leases and waste destruction services, and we have an actionable and growing opportunity set which provides us a path to substantial revenue over the coming years. Taken together, we are excited to move forward as the market demand for innovative waste management and destruction solutions has never been greater, further demonstrated by this week's AFFF Waste Destruction Services contract with North Carolina. Throughout 2024, we executed our plan reaching critical milestones, including industrialized and optimized AS system.

Speaker 1

Operationally, we expanded our lab facilities, leadership team and operational capital. We believe we are now well positioned at a major inflection point for the company with a robust and aggressive plan and a clear set of priorities that will enable material growth in 2025. We are confident in our 2025 rollout and the potential for double digit revenue growth in the future. Both Russell and I, as well as the rest of the leadership team, joined this company because of the immense potential to disrupt industries. We believe we are on the right track and appreciate your being shareholders.

Speaker 1

We look forward to sharing more of our story and meeting new investors at the upcoming Gabelli Fund's eleventh annual Waste Recycling and Environmental Services Conference in New York City next week. I would like to thank all of you for attending and we'll now hand the call over to the operator to begin our question and answer session. Operator, please go ahead.

Operator

Thank you. We'll now be conducting a question and answer session. Our first question is from Jeff Grampp with Alliance Global Partners.

Speaker 4

Afternoon, appreciate the time. I'm curious to expand a bit on the North Carolina opportunity. And I guess maybe in the context of things you guys are working on in the pipeline, what is the timeline to evaluate? I think it's 1,000 gallons was kind of the initial up to 28,000 gallons. What kind of determines where it falls on that spectrum?

Speaker 4

And what's the general timeline for when you could, I guess, communicate to the market as far as that opportunity progressing? Thanks.

Speaker 1

Hey, Jeff. Thanks so much for joining the question. So as regarding North Carolina, look, they're a very forward looking state. And so I think they're going to be the model really going forward on large scale the destruction of AFFF. But specifically to answer your question, that first one thousand gallons, we literally have six months to complete that waste destruction once we receive it.

Speaker 1

Now we don't need that because of the throughput of our system, but that's the amount of time we have until the next phase would start. What they're focused on is the complete elimination of AFFF. And so that's going to be the measure that they're looking for is that it's completely destroyed. It's been destroyed effectively and has been destroyed quickly.

Speaker 4

Perfect. That's super helpful. And for my follow-up, I'm curious, it sounds like there's a lot of different opportunities here to deploy the AS systems. Can you contextualize like what kind of, I guess, manufacturing capacity you guys currently have? Is that a constraint at all to the growth of the company going forward at least in the near term?

Speaker 1

Yes. Thanks for that question as well. So in terms of our capacity right now for manufacturing, we can manufacture roughly two to four systems at a time. So eventually we will have to expand our facilities. But right now we're in a good position.

Speaker 4

In the two to four range Chris that's I guess irrespective of the size of the given system?

Speaker 1

Yes, that's correct. I mean the when we think about our Aeroscope one and that's certainly a small system, we are currently manufacturing that and that will get deployed very, very shortly. And then when you think about the AS6 or the 30, the 30 is actually not that much larger kind of from a square feet perspective than the six. So yes, we're comfortable in that range, but eventually yes, we will have to move on to a larger facility. But right now we're actually manufacturing at the City Of Orlando's water reclamation facility.

Speaker 1

So those of you who've actually visited that facility and seen our air squo in action and you saw that video that we put up at the front end of the call, that's at that facility in the City Of Orlando. We have a neighboring facility, which is a pitching wedge away from there that we are doing our manufacturing in currently.

Speaker 4

Got it. Okay. That's really helpful details. I'll turn it back. Thank you.

Speaker 1

Thank you.

Operator

Thank you. I would now like to turn the call back over to Mr. Gannon for his closing remarks.

Speaker 1

Thank you, operator. I would like to once again thank everyone for joining our conference call today. And we look forward to continuing to update you on our progress going forward. If you were unable to, or we didn't answer all of your questions and you have ones that come up, please reach out to our IR firm, MZ Group, who will be able to assist you and get you to the right people. Also, as another offer for those of you that find yourself in the Orlando area, we would love to schedule a time to have you come down and see our technology in operation.

Speaker 1

And as I mentioned earlier, seeing is truly believing here. Well, that concludes our fiscal year twenty twenty five update call and thank you

Operator

everybody. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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374Water Q4 2024
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