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What's The Big Trend In Water?

Jan 16, 2020 10:00:00 PM

OriginClear's First Live CEO Video Cast Webinar Briefing of 16 January 2020


Riggs: All right everyone, this is the very first CEO webinar, and I'm going to be trying out some new features here. So, the general structure of this webinar is to have some basic slides that recap what's going on and then we will have maybe some special things, run some videos.



20200116 CEO Briefing Title Slide 3

Riggs: All right everyone, this is the very first CEO webinar, and I'm going to be trying out some new features here. So, the general structure of this webinar is to have some basic slides that recap what's going on and then we will have maybe some special things, run some videos. I've been experimenting with the video capability, it's quite good, but I'm not going to show you skiing videos although I'd love to, but things that are of interest of course in the water industry. actual CEO briefing. So, here we go.

All right. Of course, today is the 16th and it is our briefing for today and you should know that we're a public company and so, we say that we think that something will happen or that we're planning for this but that actual results could differ materially and you need to understand that and I can always discuss that.

20200116 What Where When

Now, you can chat with me anytime. There's a chat button at the bottom and if you click that then you can pop me a chat and I can get feedback from you. You won't be able to talk to me during the webinar, but I’m happy to receive your chat. Now if you're listening on phone only, then there's an archived version of this webinar that will be on the website. You'll be able to watch it in full, anytime. 

OriginClear 2020. What, Where and When!

So, what we have here is a company that I think is going to do amazing things in 2020. Well, what about, specifically? The big trend as I've been talking about for some time is a decentralization. Decentralization is the big trend, here's why: big central water treatment systems are not being built anymore.

Big Trend

There are budget issues, there's “not in my backyard”—where people don't want to have things built in their area—environmental concerns, et cetera. And so, we know what these things are. The market is static in the area of big central systems and that means that the growth is at the point of use increasingly. There's many different words we use, decentralized, point-of-use, on demand, at the edge and so forth. This is where businesses have to their own water treatment. And that's a growing trend.

As I've said many times, when you are sending all your water to a central system downstream somewhere - San Bernardino or El Segundo or wherever, I'm talking the LA basin, it's not coming back uphill to you, it's gone forever so it won't be recycled.

The other issues going on is that we're not maintaining our infrastructure, we're doing a great job of conducting wars in the Middle East and elsewhere, but we're not fixing our infrastructure and that's becoming a big, big problem.

Capacity issues: we have a great example of a brewery that was trying to expand and they we're trying to double and the local municipality said, "Sorry, you can't do it. We can't handle it." And so, they ended up building their own water treatment system. And in the process they saved a lot of water, which in some places like California is a big deal.

Potential profit. We did a case study back in the fourth quarter about this auto dealership that was interested in expanding. They went into land that was not connected to sewage, therefore cheap. And they put in place a fully closed loop, blackwater re-flush system, which basically catches the poop (we're going to say), and it cleans it up and the residue goes into a sludge tank and then, that's picked up every half year or every year. But that means that they were able to be off city sewage and they had much more value for their dealership as a result. So, that's a big deal. Now, I've got some research, this is the original research that got me excited about this. Without further ado, I'm going to flip to it and let's review it.

Closing the Loop, the Future of Decentralized Water

CEO Briefing Slide Closing The Loop

This was in June, 2016 and once I read this, I actually listened to the webinar and it's well worth listening to. If you send an email to ceo@originclear.com, I can send you a link to the webinar and you can actually listen to the comments of Mr. Basu, the research associate which are enlightening. There's a lot more information in the actual webinar.

But following this, I expanded on this with a bunch of more research and I started writing in industry trades. There was a big article I wrote in Water Online at the time, that said this is the new thing. At the time, nobody believed me, now it's becoming a reality.

About Lux Research

So, what's this all about? Well, first of all, Lux Research is a matchless research agency. They work with the high-level customers. They're not cheap, but they're really fantastic.

And what is he talking about? Well, first of all, aging infrastructure. We have a majority of operating and maintenance spending is in repair and replacing old pipes and mains.


And you can see that O&M spending is just growing and growing rapidly and that's like paying interest on your debt. It gets you nowhere, you’re just fixing something that's there and what you need to do of course because it's aging is to put in new stuff. That's going to be more efficient, it's going to leak less, which is something else. There we go.

Non-revenue water (NRW), losses as high as 30%. This is a big deal. Now, interestingly enough, London is losing almost a third of its water. Tel Aviv and Melbourne are doing great jobs. They both have invested heavily in water treatment systems and they are around the 4% range. An average utility loses about $35 per connection per year in NRW. If you have a million connections, you're losing $35 million a year. It's as simple as that.

Now, interestingly enough, at the very bottom here, the countries that strategically manage their water charge high tariff as cost of desalinated water and reclaimed water is higher. So, this is like Israel, which really are serious about water. They're spending money on desalination. Now often people say to me, what about desalination? Isn't that great? Yeah, but it's expensive. In Israel, where they've fixed a lot of cost issues is about $700 per acre foot, that's one acre of water, one foot deep, which is good for two to three households per year.

It's about $700 or $800 in Israel, it's about $1,300 in San Diego. Whereas you can get Colorado water, for as little as $25 an acre foot. So, that's a big deal. Reclaiming water, desalinating, if you can not lose it in the pipes, that's a big deal.

Now, billions are being required to invest and you can see how big expenses and things like conveyance systems at the bottom right there. They're all in the $40-$50 billion range and modernization's important. The ability to handle storm runoff for example, is a big deal and the problem is getting worse, right?

Access to centralized treatment systems is widespread, but the condition of many of these systems is also poor with aging pipes and inadequate capacity. So, there's a gap that's going to be $100 billion per year, and guess what? The government is not handing out money for that. It's got to worry about a health insurance and a whole bunch of other things.

Also, we have population and climate pressures. We have extreme storm events, that are dramatically increasing. These are these big dots and you can see top right New England actually has extreme storms 85% more frequently, right? We're lucky in California, but that is a big deal, and of course, population is increasing at the same time.

Combined sewer overflow, that's CSO, that's where all the sewers in a particular area, just completely get overloaded and you've got these communities that had a lot of these events, look at Michigan, 33 million cubic meters, 33 million tons of untreated discharge because of these CSO events. So, a lot of this is on the Northeastern Seaboard, et cetera. Now, these stats are from 2014 because of the date of the webinar, but they're quite valid, in fact, it's gotten worse.

Answer, decentralized treatment model. Okay, so today’s normal centralized system—these green pyramids, triangles, are lift stations and the gray lines are sewage lines. And so that's your sewage network with these lift stations, pumping stations that push things around.

And then you overlay the actual industrial plants, you have the housing - this is a 900,000 person community, and you have the various sewage plants and that's what it looks like.

Now, in the US a few mega systems treat all the wastewater. The small facilities treat less than 10%. A small number of mega systems serve most of the people. And so, only a few mega facilities treat wastewater from 90% of the population.

Evolution of decentralized systems, which is reusing water from homes, clusters of homes, et cetera, at or near the point of waste generation. And big problem with septic systems, which I've spoken about, is that they tend to fail and that has to move to a new model.

Water Scarcity

Decentralized CommunityWater scarcity and high reuse are drivers for a future decentralized infrastructure. Again, because it's decentralized, you can have smaller pipes, there's less loading of the facilities and you can also have localized reuse recycling because you use the advanced treatment technologies and here's a diagram of a decentralized environment [“The Future of Decentralized Infrastructure”], with reuse scenarios throughout.

Where has this worked? The analyst was talking about how it works well, for example, in California and also in Florida. Reuse capacity is one billion tons per year, so that’s happening. We have a lot of bad news in Florida, but this is actually good.

Doing it on a Wide Scale

Plotting a CourseNow, why don’t we do it on a wide scale? Primarily because scaling conventional technologies has not scaled down well and we need the remote monitoring because you can't have expert personnel at all these small sites. So, it's got to be run from remote and there are still regulatory issues.

So, there is a course forward with basically three major areas. Number one is how do you make the footprint more compact? We have a solution to that, Modular Water Systems. You need the remote monitoring, and you need to be able to reuse the water for things like sprinkling the lawns.

Okay, so the conclusion that he made was that where we have to rethink the centralized infrastructure, that’s just not happening.

We are now seeing redistributed everything, smaller emerging systems, getting more efficient, et cetera.

Remote Monitoring and Industrial Internet of Things (IIoT) in Water are Where we see a lot of Growth

ConclusionsYou look at the bottom here, $30 billion opportunity in the US for wastewater treatment, $22 billion for end to end monitoring and 10 billion for the recycling. So, that is the picture that Lux Research put out in 2016. And we see it's happening now.

Okay, the research associate was talking about making what we call the form factor of these water treatment systems more compact and that's a big challenge.



What we Bring to the Party

What We BringWell, in 2018, Dan Early joined us with his wonderful technology and these are examples, on the left is a 10,000 gallon per day unit, on the right is a 40,000 gallon per day system and you notice that you truck them in site, and then you strap them down to pads and you're done. They're completely self-contained, they're built in the factory and this is really the answer – modular, prefab, factory-built, drop in place water systems. So, we have the technology to address that problem.

Now, Modular Water Systems™, which is what Dan Early was involved with creating along with Tom Marchesello originally, who's now our COO, has now become part of our Texas manufacturing division and Progressive Water Treatment. This is actually good news for our investors who are investing in the current private placements because these are secured by the Progressive Water Treatment business and that has now been enhanced by adding Modular Water Systems. So, that's a good thing for our investors.

Modular & Progressive

Modular & ProgressiveThere's end to end modular design, construction and management because of that, but they're still doing custom work. On the right, you see it's a picture of a trailer and some VIP is looking at it and what it is, it's, I call it a pool dialysis system. What happens to pools is that after a while you can no longer shock them. You have to get rid of the water. The water itself becomes exhausted and so that system that we actually built here and delivered to a company in Arizona is there to prevent the water from having to be drained out. Instead, it gets run through the system and you've saved all that water. It's a big deal in Arizona and California. So that's a custom job that was done and now we're looking at how we can turn that into a standardized product and make it modular and so forth.


Organic Growth in 2020

Organic GrowthAll right. Now, organic growth in 2020, We have a growth forecast for 2020. I'm happy with it. It's going well.

Also, I've worked with Bill Charneski and Tom Marchesello to reorganize our international network. Bill's done some great work and I'm going to get into that in detail next week, so I think you'll like where things are going there.

And the operating team headed by Tom Marchesello is ready to absorb new companies. Tom is a veteran operator, been around the block. Retired from the US Air Force Space Command as a Captain and then went on to work in investment banking, as well as various product companies, Fortune 500 companies. And so, he has a wide array of talents and he is basically prepping the operating team to receive. Almost like we have Grey's Anatomy in there. Okay, we got the intensive care unit and they're all ready to go. “Here comes the patient!” So, he's basically lined them up to do that.


Next Up, Acquisitions

Nex Up - AcquisitionsNow, organic growth is not enough for a water company. Water companies grow by acquisition. And the reason is that you have these big systems, even when they're small and modular, they have to be designed, approved, the permitting, then building it, then delivering it and putting it in the ground. It takes months. What we've learned really is that it's great that we're growing, but without acquisitions, we will not grow fast enough.

Now, we have some new ideas to not just acquire companies, but actually to start to duplicate their secret sauce. And we're going to get into that very soon. We'll discuss that in much greater detail because it's a brilliant concept that the teams come up with.

We have a very, very dynamic corporate development team with Ken Berenger as the VP of Business Development and our VP of Sales, Michael Mann, who is also an M&A (mergers and acquisitions) expert. And they're coming up with brilliant ideas. As always, we don't rely on acquisitions because it's a big deal, but we're very, optimistic. That's the picture on that.


About PFAS

PFASI wanted to touch on what is going on with PFAS: perfluoroalkyl and polyfluoroalkyl substances.

And these are polymers that are used for things like non-stick coatings. And a very small amount is toxic and they do not get out of your body and it's tough to get out of the water. It's a big deal.

Now, EPA has an action plan, Congress doesn't think it's aggressive enough and they’re now passing a bill. And of course the administration says, "Well, no, we don't need it." Whatever's going on in Washington, hopefully it stays in Washington.


But the bigger problem is that the technology is not completely settled. And one of the ways to get these things out is through the Electro Water Separation process and Advanced Oxidation (AOx™). And we've actually equipped our lab downtown to deal with that in a very effective way in terms of research. We went ahead and invested in a spectrometer system that would take care of that activity.


We have a very good system that we think is going to be effective, but it's going to have to be in a larger environment. Rather than try and tough it out by ourselves,

To measure minute quantities of toxins, we installed this sophisticated Liquid Chromatography – Mass Spectrometry (LC-MS) device at our HQ in 2017.

today I reached out to offer to contribute our knowhow without obligation and sure enough we started getting reaches. So, I'm very excited about that. If PFAS is the only thing we help with, we're going to help save a lot of lives.

So, that is the end of the presentation for today, in terms of the live presentation. I'm also going to tell you a little bit about the team and how they're here to help you because things are going extremely well. So, remember to dial (323) 939-6645 and there's three people, Ken Berenger at extension 201, Michael Mann extension 206, and Devin at 116, or you can just use the email, invest@originclear.com.

Now, I've got some questions, I haven't forgotten you guys, so let's take a look. There's two questions. Well, it's more than two, but the first one is how big is the PFAS problem? Why did Congress and the EPA step in this week with urgency? I think it's because a huge amount of it's just not being treated. If you go to the Environmental Working Group website, EWG, and put in your zip code, you will get an idea of what's in your neighborhood and you will be amazed to hear or see what your local municipality is not treating.

And so PFAS has been, "Well no, it's not a problem. It's all good." And that now is over. So, it is a big problem. It's everywhere, but it's especially big in the military. Military bases, anywhere there's been a lot of firefighting for example, there's a lot of PFAS in those substances. So that frankly the military are greatly affected and in fact the Pentagon is going to be getting a lot of funding to deal with that.

As I say, the EPA has got a plan, but Congress wants to rev it up, and that's important. Now, when I get a lot of mail from you guys, and I try to answer it all, from you guys and girls, which says, “Why don't you go talk to Washington,” or whatever. What we've learned is that, when you talk to Washington, well, good luck, but there are large players who have good lobbying activities already in Washington and we can help them. Our idea here is to help the people who are already in a good position to do something about it. So, that's our plan.


Acquisition Criteria

Let's talk a little bit about acquisition criteria. That's the other question. In terms of what we're looking for, number one, we don't want to buy companies and the guy just goes and plays golf. That is the business model in the water industry because basically a guy or girl or a family is going to run a water company for 30- 40 years and then they're going to go, "Well, I'm exhausted, I'm done." And they'll sell their company to a major player. The major player will then destroy the water company and take the customers and everybody knows that, that's how it works. I had that experience during the dotcom. Two of my companies were sold and people said, "Oh wow, aren't you glad it's happened?" Yeah, but what happened is the acquirer destroyed everything that we built.

So I vowed that we would not do this at OriginClear and so instead we go to these business owners and we say you are going to stay in place, and you get to operate your business, and we'll take care of all this stuff you don't like, accounting, marketing, PR, e-commerce, you name it. And that's very, very popular. We have a long list of companies interested and we have companies that have signed non-binding letters of intent with us. They're ready to go. It's extremely popular. Now, we don't want these companies to be too big either. Why? Because we would like them not to own our company. We would like to be able to absorb them. And so these deals are done on performance typically and with a minimum of cash up front if possible.

What we also are looking for of course, is companies that are going to grow. So, can their business scale up? And that's where I'm talking about this replication idea that I'm being vague about on purpose.

Of course, they need to be profitable and finally they have to be stable. We can't have a crash truck situation with each one of these companies that we acquire because of course we would lose all our forward motion.

Well, that's it for today. It's been a great pleasure. It's been about a half hour and that's going to be about the length of these in the future. Maybe a few minutes less or more, but, what I'm going to do here is invite you in the future to go ahead and give me your suggestions and all you have to do is reply to the CEO update email that you get from me or just email ceo@originclear.com.

It goes into my inbox and I will note it as a topic and I really invite that because I want to know what you guys care about. And I'm really happy with the team as it's developing. I was just reviewing our new website with Kevin and our marketing agency, Keith Kaplan over at Maykr and they are doing an amazing job.

If you happen to go to the website and you see there's something wrong, speak up. We're still integrating the old stuff into the new, but it's exciting. It's a modern website. I like to tell people that the old website, I wrote it on my honeymoon in 2013. Don’t ask me what I was doing writing a website on my honeymoon! Nonetheless, it was very old and outdated. And so, I'm very happy that they're building that and more to come.

So, great team, I'm very happy with what's going on. We're excited and I'm happy that I've managed to complete this webinar. And Keith Kaplan says, "Thank you for all that you're doing." I'll just pass that on to you guys.

Thank you for being here, and I appreciate your joining me. Good night.

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