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Midwest Energy Emissions Corp. (MEEC)·Q3 2021 Earnings Summary

Executive Summary

  • Revenue of $5.02M grew 78% year over year and marked the company’s highest quarter in over three years; Adjusted EBITDA improved to $0.56M versus $0.02M in Q3 2020, reflecting stronger mix and demand in sorbent product supply .
  • Actual Q3 revenue exceeded the preliminary “at least $4.9M” provided Oct. 19; management guided Q4 core-business revenue to ~$4.0M and indicated positive operating cash flow for the foreseeable future .
  • Litigation against refined coal entities moved into discovery with court approval, strengthening MEEC’s positioning as refined coal tax credits sunset in Dec. 2021—a potential supply-side catalyst for incremental business in 2022 .
  • Management highlighted commissioning of a Texarkana batch plant with capacity to support up to $100M annual revenue as demand shifts from refined coal toward MEEC’s patented SEA process .

What Went Well and What Went Wrong

  • What Went Well

    • “The third quarter of 2021 represented a key inflection point…our highest revenue quarter in over 3 years,” driven by heightened demand in sorbent supply and litigation progress catalyzing license-to-supply conversions .
    • Rare earth elements (REE) initiative: Phase 1 testing with Penn State confirmed 80–90% extraction efficacy; Phase 2 and field trials slated near-term, expanding optionality beyond core mercury capture .
    • Preliminary guidance beat: Q3 revenue came in above the “at least $4.9M” preliminary disclosure; management expects continued growth with Q4 core revenue guided to ~$4.0M .

  • What Went Wrong

    • Despite improved margins, MEEC posted a net loss of $0.21M (EPS $0.00) in Q3; while near breakeven, interest expense and SG&A (legal) remain elevated amid litigation and capital initiatives .
    • Balance sheet constraints: cash was $0.87M with a working capital deficit of ~$10.9M; going concern language persists pending execution of a debt repayment/exchange contingent on an equity raise by year-end 2021 .
    • Profit share liability increased (fair value) due to model assumptions, adding non-cash headwinds and complexity to capital structure until resolved under the planned debt exchange .

Financial Results

MetricQ3 2020Q2 2021Q3 2021
Revenue ($USD Millions)$2.812 $2.300 $5.020
Net Income ($USD Millions)$(1.125) $(1.700) $(0.207)
Diluted EPS ($USD)$(0.01) $(0.02) $0.00
Adjusted EBITDA ($USD Millions)$0.024 $(0.312) $0.562
Gross Profit ($USD Millions)$0.930 (calc from $2.812–$1.882) —$1.779 (calc from $5.020–$3.241)
Gross Margin (%)33.1% (calc) —35.5% (calc)
EBITDA Margin (%)0.9% (calc) (13.6%) (calc) 11.2% (calc)

Segment breakdown (Q3 2021 vs Q3 2020):

SegmentQ3 2020 ($USD Millions)Q3 2021 ($USD Millions)
Product revenue$2.781 $4.688
License revenue$0.000 $0.196
Demonstrations & Consulting$0.027 $0.079
Equipment revenue$0.005 $0.058
Total$2.812 $5.020

Selected KPIs:

KPIQ2 2021Q3 2021
Cash and Equivalents ($USD Millions)$1.700 $0.866
Adjusted EBITDA ($USD Millions)$(0.312) $0.562
Accounts Receivable ($USD Millions)—$3.067
Working Capital Deficit ($USD Millions)—$10.944

Key drivers and commentary:

  • Demand tailwinds from higher coal generation and refined coal program sunset supported sorbent sales; license revenue began contributing post litigation settlements .
  • SG&A increased on legal fees; interest expense decreased Q/Q with note conversions but remains sizable YTD due to amortization and conversion incentives .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ3 2021At least $4.9M (prelim) Actual $5.02M Beat vs prelim (raised/achieved)
Revenue (core business)Q4 2021—~$4.0M New
RevenueFY 2021“Significant growth over FY2020” (directional) Direction maintained Maintained (directional)
Cash from OperationsForward—“Positive cash flow from operations for the foreseeable future” New directional

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3)Trend
Litigation against refined coal and infringing utilitiesQ1: Filed suits; four utility settlements and licenses; awaiting refined coal decision . Q2: 20 subpoenas issued; 9 utilities in negotiations .Court approved proceeding against refined coal defendants; discovery underway .Momentum improving; court approval accelerates path to supply conversions.
Supply agreements and license-to-supply conversionQ1: Multi-year supply in Southwest; extensions in Midwest; goal to convert licensees to supply . Q2: Announced multi-year supply with a licensee; seasonality noted .80% of Q3 revenue was supply; Q4 ~$4M core revenue expected .Mix shifting toward supply with higher margin stability.
Capacity expansion (Texarkana batch plant)Q2: Facilities can handle >$100M annual product revenue .Commissioning batch plant to support up to $100M annual revenue; operational in Q1 2022 .Capacity in place ahead of refined coal sunset demand.
REE technologyQ1: Set up Eleclear; targeting improved extraction economics and environmental footprint . Q2: Penn State confirmation testing through Sept; planning pilot/in-field .Penn State confirmed 80–90% efficacy; Phase 2 underway; field trials early 2022; commercialization targeted in H2 2022 .Advancing toward field trials; potential 2022 commercialization.
Capital markets (uplisting)Q1: Target NASDAQ/NYSE; balance sheet simplification . Q2: Convertible debt conversions; uplisting on track; working to avoid reverse split .Uplisting efforts continue; limited disclosures due to S-1 review .Ongoing; contingent on operational and financing milestones.
Macro and refined coal sunsetQ2: Rising natural gas prices increased coal dispatch; refined coal program ending impacts demand .Majority of non-licensed plants using refined coal expected to transition; potential $65–$80M annual supply opportunity .Structural tailwind into 2022 as refined coal sunsets.

Management Commentary

  • “Our proprietary mercury emissions technologies continue to provide significant value…We saw notably heightened demand in our growing sorbent product supply business, which continues to be driven by both our litigation successes and increased coal usage…” — CEO Richard MacPherson .
  • “Completed Phase 1 testing of the Company’s Rare Earth Element Technology…confirming 80–90% efficiency rate…moving forward with the next testing phase…introduce real-world conditions…concurrently progressing with in-field testing in the fourth quarter.” — CEO .
  • “We are now commissioning our batch plant in Texarkana, which has the capacity to support up to $100 million in annual revenue…operational in the first quarter of 2022.” — CEO .
  • “Revenue in the third quarter of 2021 was just over $5 million…loss…was $207,000 or zero per basic and diluted share…Adjusted EBITDA…approximately $562,000.” — CFO Jami Satterthwaite .

Q&A Highlights

  • Revenue mix: Approximately 80% of Q3 revenue was supply; management expects supply-side growth to continue as licensees convert to supplied sorbent .
  • Refined coal opportunity: Post-program transition could represent ~$65–$80M annual supply-side revenue potential as prior refined coal users adopt MEEC’s SEA solution .
  • Litigation progress: Discovery process (including subpoenas) advancing as planned; counsel is “very pleased” with information uncovered .
  • REE commercialization timeline: Field trials planned early 2022; potential commercialization in latter half of 2022 assuming successful results .
  • Margins: Analyst requested blended gross margin; discussion deferred, but CFO highlighted improved margin on higher sales at near breakeven net income .

Estimates Context

  • S&P Global consensus for MEEC’s Q3 2021 EPS and revenue was unavailable due to missing CIQ mapping; comparison to Street estimates cannot be provided. Values retrieved from S&P Global were unavailable due to mapping limitations.*
  • Relative to company-issued preliminary guidance, actual Q3 revenue of $5.02M exceeded “at least $4.9M” .

Key Takeaways for Investors

  • Supply-led inflection: Mix is shifting toward supply contracts, driving revenue growth and margin leverage; Adjusted EBITDA improved materially in Q3 .
  • 2022 demand catalyst: Refined coal sunset positions MEEC to backfill compliance solutions with its SEA process; management quantified ~$65–$80M annual supply potential .
  • Execution capacity: Texarkana batch plant commissioning (Q1 2022) provides scalable production to meet anticipated demand .
  • Optionality in REE: Validated lab results (80–90% extraction efficacy) with Penn State; field trials and potential 2022 commercialization expand TAM beyond mercury .
  • Balance sheet watch: Working capital deficit and going concern language require vigilance; debt repayment/exchange hinges on equity raise by year-end .
  • Legal tailwinds: Court-approved discovery against refined coal defendants bolsters negotiating leverage for licenses and supply conversions .
  • Near-term trading: Strong Q3 print and Q4 revenue guide ($~4M) are positives; stock may react to progress on debt exchange/uplisting and incremental supply wins, including refined coal transitions .