Transcript From Recording:
Riggs: Happy Halloween everyone. Riggs Eckelberry here, on the 31st of October. Last briefing of October, and one month into the fourth quarter of 2019. And as I've been reporting on MoneyTV and elsewhere, we're happy with the performance of the company in Q3, that report will come out on November 15th.I'm trying to get some early guidance numbers, and we may be able to get you some numbers before then publicly. But we are operating with an expectation, which is great news.
Before I get to the topic of this call, I wanted to quickly discuss the recent events. On Friday, we performed a reverse split of the stock, 2000 to 1, and that was really done to start to clean up our equity table, our cap table, in order to promote better growth. And ultimately, and again, this is not something that I'm predicting is going to happen but it is certainly my goal. And that is to get on the NASDAQ, and here's why. All of us, every single person in the company, has a grant of restricted shares, and for them to be released in bulk, the company needs to achieve a large revenue number. I believe it's $15 million trailing 12 months. And I think 1.5 million dollar net profit, trailing 12 months, and be listed on a national exchange. Those are the three requirements. So, you best believe we are motivated to get to those numbers, because that's the only way we'll get anywhere. For our own family, shall we say anyways.
So that's going well. We're very pleased with the progress, and there's some good things coming in terms of company initiatives but can't really talk about it just yet. Needless to say, I'm pleased with how we're doing.
|So the project today is to discuss what I got into in the CEO update that came out on Monday and again this morning, a little reminder. What we ran across was the fact that roughly 86 portfolios in the world, that's the world of what's called ESG, Environmental, Social, Governance funds.
These are funds that are basically following up on what used to be known as impact investing, sustainable investing, green investing, blue investing, you name it investing, virtuous investing. Now, it's called ESG, and ESG is important because a quarter of all assets under management in the world today, which is $22 trillion worth of assets, are ESG assets. Now when you look at what is required for an ESG company, their company to be investible as an ESG portfolio company. A big piece of it is water management, and so public companies, that is because they have to be investible so they're public companies, that also are in the water business, are hard to find. Those companies have seen huge increases in their stock prices, because they're part of a scarcity. That's the chart that I sent around, so it's that 80% of those 86 funds are invested in these four or six water stocks, It's ridiculous.
So we need, the two things which that tells us, number one is ESG is an important thing and very important when you want to gauge whether or not a stock is going to get that extra bump. So companies are motivated to get the ESG green light, be ESG compliant. And let me tell you, there are thousands of people in the world who are ESG analysts, that's their job. I'd love that job. Go around looking for good companies, have that as a day job. So, these people are on the lookout, and if a company that's public and now become ESG compliant, be eligible for ESC investment, there's going to be a big rush of these huge funds in to that company's stock. So it means a lot for a company. And aside from that, when they invest in water systems, they get an appreciation of their asset. But that's really a topic for another week.
Just to back up a second, the old model was all the water treatment was being done centrally, and don't you worry. We'll be happy to take care of it for you. That was the old 1950s way of thinking. And unfortunately, that model is broken because whenever there's growth of a business or community, the local municipality can't keep up with it and we're not allocating enough infrastructure money. Nobody is. And so, they are requiring businesses to do their own treatment. So that's a huge trend, and we call that decentralized water treatment. Movement to the edge, self-reliant water, et cetera, all that good stuff. What it really is, as I called it the week before, is privatization of big water. Big water is being broken up into a lot of small water, being done by businesses that are using the water. Poultry farms, pig farms, oil and gas operations, you name it.
These are now water managers, and they're not being allowed to send their dirty water to the municipality. It's a huge mega trend of thousands of businesses going into the water treatment business. Last week we told you about this automotive dealership that in order to expand, they bought some cheap farmland and they built a closed loop, reflush system. In other words, all the poop came around and got treated and [clean water] got put back in the toilets so that they didn't have to connect to the sewage. Well, maybe they paid $1,000 an acre for that rural land, and it's probably worth $50,000 an acre now because of the improvements. And they only paid $130,000 for the water treatment system, so you can see how the math is great. They have a dramatically increased asset value at relatively low cost, and they are now in the water business. Now, that automotive dealership is not public, so they don't care about being investible for ESG. But if they were, boom! All of a sudden, they would be an ESG portfolio company.
So with that, I would like to bring in the man who was the inspiration for all this and he's a financial tech wizard, fintech as we call it. And he's got all kinds of badges, for one thing, back in 2014, he was helping the Chicago Mercantile Exchange get ready for Bitcoin. So, he's been in a lot of interesting spaces, and he was the first one to bring the ESG factor into play here at OriginClear. He's our Chief Operating Officer, Tom Marchesello. Tom, are you with us?
Tom: Hey thanks everybody, appreciate it, and thanks Riggs for the thoughtful introduction as well. Yeah, I'm very excited actually about the ESG conversation, and I'm really glad that we're having it with everybody because it's such a cool topic. It's a new trend that's an old trend, but it's actually on trend right now. That's the way I think about it. What we've got is a whole area of environmental, social, governance, which is what the ESG stands for. And it's really picked up where the old sustainable development and impact investing topics really had come into play some years ago and have now matured.
And for folks that have been following it, there's always been about, I would say almost like two decades of conversation about these topics on sustainable investing and green investing and blue investing. But then, about 10 years ago, everybody got a lot more serious about it on the corporate side. They're trying to get their head around it, and I think what happened is you have corporations who wanted to address it. They were trying to figure out the proper way to address it. But what was really driving it was investors. Investors are saying, "I want this." And what you can see in even some of the statistics, if you look at 2010 to today. Just in a less than 10 year period, you went from $2 trillion invested 10 years ago in these ESG related environments, to $20 trillion assets under management.
I mean that's a massive jump. It's basically the hockey stick of investing. When you look at the graph and it's plodding along for a while and it just goes zoom! you know? It really took place in 2007, 8, 9, 10, 11, 12, until today, and it just kept accelerating and it's really been driving even harder in just the last two, three years. I was looking at some stats on the millennials, millennials are like the next generation beyond the baby boomers, and they're pretty socially conscious. They chat a lot and they are on social media and they seem to really be tuned in to all this cool stuff.
|When they did their review using Charles Schwab and Fidelity and everybody and they said, "Hey. What do you want to invest your money in?" Years ago, they were picking the hot stock like the Facebooks and Twitters and so forth. Probably about two, three years ago, they started saying, "But I also had this real huge desire to put some money in something that's got some sustainability to it."
Between 2017 to '19, their numbers went from 38% of those investors who said, "I'm interested in this thing," to 89% of those millennial investors who said, "I got to have an ESG investment and a sustainability strategy as part of my investment portfolio because not only do I want to make money, but I need to feel good about making money, and I want those companies to do good while they're making their money."
You see this big push and pull taking place between the corporate side and the investor side where people are really putting the charge out there and saying, "Hey, I really want to do this." I think that's a super cool change in behaviors and sentiment to where the investing trend went. Wall Street reacts to it and says, all right, well, let's put these funds together. Let's put ETFs together. Let's put instruments together that allow us to understand what is an ESG compliant opportunity? What does it look like? How does that still let us make good financial returns yet also do something good? That's where the story got super slick as far as people wanting to support this type of thing.
Where does the rubber meet the road? That's where we come into it. The rubber meets the road where for a while, there's all this money, tons of it actually, and not a lot of companies to invest in, the way Wall Street thinks about it because they're trying to figure out, well, is that a farm? Is that a windmill? Is that solar panels? Obviously, Tesla pops up. Oh well, Tesla, that's a green deal because we got electric cars. Tons of money goes to Tesla, but how many people can all pour their money into the same one company? You get stuck between not being able to do that one investment, and they're like, well, we need to expand it.
Now we get into really traditional environmental topics of which water is clearly one of the most significant, obvious, most important thing to all people on the planet. Clean water and water security and water quality is one of the most important things that people care about, and there's actually not a lot of companies that actually do it, not publicly, but here we are, OriginClear. We publicly are investible. We are actually in the water space. We enable lots of people who are working in the water industries from our engineering partners to the people who actually implement it on their facility sites, our industrial and commercial clients, and we help enable all these people to be ESG participants.
|All of a sudden, we go from being one company who's in the space to hundreds and thousands of clients with our products and services also participating in the ESG trend, not just from an eyeglass whitewash standpoint, but also because they're actually legitimately participating in doing something good. They're actually making an impact. That's really where this comes to play.
Riggs: That is fantastic. As you say, there is a double-barreled benefit. First of all, we are a prospective ESG portfolio company, although granted we're going to have to probably get on a national exchange to get qualified. Most of these funds have stock price requirements and so forth, but nonetheless, we're being virtuous and we're a player and an eventual ESG-investible company. More important even than that and perhaps the most important part is we are literally making these ESG players. Perhaps you could give me a couple of examples without naming names of some recent deals that you and your team have been working on where it's an ordinary business that's all of a sudden a water management business.
Tom: Well, in the real operational world of doing water treatment, you've got your water treatment and water conveyance. In water treatment, let's just take potable, drinkable water. It's the most simplistic thing we can do. You take some form of water that's not so perfectly drinkable. We clean it up using our equipment and turn it into pristine, wonderfully clear, pure, drinkable water that everybody could enjoy and be confident in. During the course of doing something like that, take a commercial client, say a hotel or an office building where there are literally hundreds of people on site in this facility drinking the water. By putting our water treatment system on site, you're now basically allowing hundreds of people to walk straight up to a tap for a crystal-clear perfect bottle of water into a glass bottle and basically drink that bottle.
What did you just do? You basically just have perfectly pure water. You did not use bottled water. You didn't have to go waste a bunch of plastic that basically contaminates our landfills. You didn't have to waste a bunch of material that burns up a bunch of carbon. You didn't have a waste stream that basically has to go into the garbage dumps that basically emit carbon into the atmosphere. Basically, your footprint has now been reduced on your waste. Your footprint has reduced on the poisons that you're putting in to the system, into the ground, into the water, into your body, and all because you just simply put in a more simplistic piece of equipment. That's a great easy way of doing something.
More recently, we've had a nice success with a commercial business who wanted to do treatment for actual wastewater. Wastewater obviously being tricky because it's got a lot of contaminants in it. In this case, this effluent is toilet water, that would just dump straight into the city sewer system. Nowadays, there's a lot of environmental rules, you just get restricted on how much you can dump back into the city, and you should be because you know who the city is? Me, the public. My tax dollars are going to pay for a bunch of other people to dump their waste into my city sewer system then I’ve got to pay for it? I don't like that.
Instead, now businesses have to treat some of that waste at their sites since they created it and actually clean up that water and either reuse it on their property before they dump it, maybe for irrigating their lawn, or they had to clean up the water and then dump a cleaner stream into the city sewer system so that the city doesn't have to work so hard to clean up that waste, which again doesn't waste so much of my dollars or yours.
Those are areas where that's just a waste, but where you're dealing with the ESG side of it, because the E was environmental, the waste itself, the S is social, which is all of us, we the people, and the G is governance -- the city, and your government didn't have to be burdened with the runoff from a commercial industrial property. You're actually hitting all three of the ESG things when you put in a waste treatment system at a commercial property.
In this particular scenario, we actually put a really elegant system in there that took that waste stream, first treated the water to turn it into water that can be reused, which is typically called purple pipe, for example. Now you take that water and you can then easily use it to irrigate your lawn, rather than using water for my toilets and my showers and washing things down on the property. Also paying for new water, which is wasting environmental water, to just irrigate my lawn. Instead, I basically buy the water one time and then I use it twice, which is really good, so I've used half the water. That's cool. That commercial property basically has really reduced its footprint as to how much water fundamentally it's using just on the intake.
Basically, that water can then be reused for other things. It can actually be processed again and pushed into using for the toilet. You could actually use toilet water twice technically and basically have flushable toilets with perfectly usable water that's clean. Basically you get the double flush effect because we all know lots of gallons just get flushed away there. In this case, again, you're really reducing your footprint of the water being used on site. Of course, when you're finally dumping it back to the city, you have a less impactful, contaminated stream of water that's coming back to the city so they don't have to treat it so diligently. Meaning, that they're not going to have to pay even more money to do something, which means you're not going to have to pay your tax money to your city to treat somebody else's waste.
It's an interesting way of thinking about it. Does that make sense, Riggs?
Riggs: Absolutely. Yeah. There was that case of the brewery that wanted to double its capacity but literally the municipality said, no, can't do it. They had to do it in-house. They had to do it themselves.
Tom: Yes, I personally went to that brewery.
Riggs: Look, you look at the players in the poultry food industry. 60% of all poultry is grown by Tyson Foods, Pilgrim's Pride, Sanderson, Perdue, and Koch Foods, so five companies. I would venture to say that their PR is not great. They are not considered ESG investments, even though they're very large companies. Just think about it. If all of a sudden, Tyson started being water responsible and had implemented zero waste policy so that all the water got cleaned and reused and then the manure got turned into useful fertilizer. By the way, I hear that chicken manure makes exceptional fertilizer for reasons that only a gardener can tell me, but it happens to be true. That is a huge strategic card both for PR and investability for a Tyson Foods, right?
Tom: Oh God, yeah. Well, think about it. Take a food processor as a good example or an industrial food manufacturer, industrial chemical even for that matter. Traditionally, if you want to think about all the protesting you've seen of big corporations, you've seen this, oh, you're contaminating or whatever is happening out there. There's some truth to some of it, and then other times, there's a lot of hyperbole.
But take a real issue which is a large farm or a large corporate industrial food manufacturer which is massive, and they do use a lot of different things, from pesticides to nitrates, to chemicals, to hormones, to whatever you want to call it, in their processes. And then they also have, obviously, part of the waste that comes from all the animals, and all the processing that goes into it.
|The real question is how do you get rid of all that waste? It's a real topic. The bigger you are, the more waste you've got, so it's almost like these businesses have to run their own waste management environment, because you're now outside the boundary of what a city's going to do. A city is not going to go walk into that industrial location and deal with its waste; they're going to say, "Industrial guy, go clean that stuff up."
Now the industrial guy has got a big problem, because for a long, long time, the management of that waste was pretty expensive. It was hard to do. It gets more complicated the more sites you have, as you acquire other locations. I might've had a really good processing system in location number one, but I've just acquired location number two and three, or I built another barn, and so, as they grow their operations, which typically grow fast, their infrastructure typically doesn't grow as fast. So now they're just stuck with this problem of, "I've outgrown my infrastructure." So, maybe they were on track for a little while, keeping up with their waste management, and then they're not. So, guess who steps in now?
This is where OriginClear comes in with our Instant Infrastructure™, and we can walk in the door and go, "You know what? You want to grow your industrial business; that's great, but do it in a smart way. Be sustainable, be polite, don't impact the environment, be ESG. Here's a nice piece of equipment, instant infrastructure; boom. Modular water treatment for the stuff you need to do. Keep growing but be a good steward." And I like that that's what we're able to do for people. I don't want people being all upset and doing bad things, but we do have to come to the table with solutions to allow people to have a choice, and now they do have a choice.
Riggs: And when you came on board, you were amazed to see that there was literally organic lead flow of people emailing us, filling out forms, saying, "I want that thing."
Tom: Yeah. Amazingly so. Even last night, honestly, I was just trying to get some dinner and I can hear the phone's still ringing. I had some of it forwarded to me at home, and I'm just picking up and thinking, "I don't know what this is." And it's this major order of, like, "we're really looking for this." And I'm like, "You are? Great. I do that. Instant infrastructure; I'm all about it. Let's talk."
Riggs: And not only that. If I'm thinking of the same one, this is a deal that a major water company screwed up, and now we're getting to step in.
Tom: Yeah. That's really interesting, too. I think there's other companies obviously in the space for water treatment, but guys really in the old business model of doing custom integration and custom development, and custom everything for water treatment, that means you got to go really long lead cycle, long engineering, months, sometimes years, of putting stuff in place. Then, still have to deliver the darn thing and get it to work. But if you've got to go dig holes and pour concrete, and wait for the concrete to set, and then put your equipment in, that's some serious building. That takes a while. The truth is, that company just could not meet the timeline with that style of business model, and they can't perform on that contract.
|However, with our Modular Water Systems™ which are drop and go, they're manufactured at our factory, they're quicker to assemble, quicker to deliver, quicker to plug and play, a lot less training; it's a much more feasible way of getting a piece of equipment for that instant infrastructure, to get it on site faster.
Riggs: Yes. This is, of course why you and I have been putting so much heart and soul into developing this Dan Early-led Modular Water Product Line, and it is why we can say we're helping create the instant infrastructure, because we're more than just talking about it. That's amazing.
Tom: Yeah, If we could clone Dan a few times, that'd be great, but there's only one him.
Riggs: Well, what I like is what we’re doing, which is standardizing, right? Like our pump stations are now fully standardized and they're being popped out, so Dan becomes more of a “wave-topper”, as I call them, and less of a grunt, because at least standardization's moving in. So, I think that's going to be how we scale the business.
Tom: Absolutely. But everybody loves to talk to the man, so it does come up sometimes, which is great. So, that's why I really like that you had Dan on your call the other week, because he was just wonderful and detailed explaining what he does. And that always helps people, too, because they do like to know that there's real people behind the scenes in our team, and they're smart and they've been doing it a long time, just like our guys in Texas have been out there a real long time. It's nice that we have so much experience of guys who are capable because, no matter what it is, it's a phone call or an email and I've got an answer, and somebody's like, "I've done that before; I totally know what you're talking about." And I'm like, "Great, let's get on it.”
Riggs: And I really appreciate the fact that you are riding herd on these guys, and in fact there's this other great reality, or fact, that you came up with, which is the fact that we are increasing the asset value of these businesses. I don't think we want to jump into that in this call, but I'd like to get you back in a week or two to cover that in greater detail; how businesses become more valuable, both in terms of real estate but also in terms of the enterprise value, through implementing a beneficial water treatment system.
Tom: Absolutely. Well, I don't know how much time we have on this call, but there is a dovetail there that caps our ESG talk. And it's just when you're doing ESG related business, so, when a corporation, or an industrial or commercial site, puts one of our pieces of equipment in place, they reduce their liability because they become a good steward of the environment. But they also become a good business, who basically reduces their chances of liabilities from contaminating the environment or getting fines or having problems, which is one of the other reasons why ESG is an important topic for people; not just that's just a trendy thing. It's good business.
Riggs: I love that, and I often talk about the fact that the water service industry worldwide is a trillion dollar industry, but yet only two thirds of the water is treated; the industrial water.
|And so it really tells us that it's really a $3 trillion industry, and it's not going to be done centrally anymore; it's going to be done on a distributed basis by these businesses. And I think we've got a tiger by the tail.
Tom: Well, hold on!
Riggs: So, we will definitely get into that. As Ken Berenger just piped up and said, improving real estate values accelerates the shift, it's already happening. So, as people see better real estate values, then the CFOs are going to be very, very interested. I would like to make that a whole other session with you and get into it in great detail. What I'm going to do is wrap it up. I wanted to let everyone know that you should feel free to call 323-939-6645, and Devin, my assistant, is extension 116. Any questions, concerns, comments, you go to him. If you're interested in our private placement, which is going to be changing soon; just a word to the wise, Ken Berenger is the man at extension 201. So, 323-939-6645, extension 201.
We're doing wonderfully. Very happy with how it's going in 2019. Tom, thank you for being on board and for doing a great job, and we'll be seeing you again on this briefing soon.
Tom: Well, thanks much. Have a great night.
Riggs: Good night. Good night, everyone. Enjoy your weekend.
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