374Water - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 revenue accelerated to $0.76M, up ~9x year over year, driven primarily by Waste Destruction Services (WDS) project activity; net loss was $4.35M and EPS was $(0.03).
• Management guided 2025 revenue to ~$4M and introduced 2026 revenue guidance of $6–$8M, underpinned by WDS scaling at TSDF partners and municipal equipment deployments; cash runway extended into Q2 2026 via ~$7.0M ATM proceeds.
• Strategic catalysts include: completion of the DoD Clean Earth commercial-scale PFAS destruction demonstration, commencement of NC AFFF destruction (Phase 1), and a ~$4M AirSCWO-6 + dewatering order from Olathe, KS.
• OC San deployment timeline pushed to late Q4 2025/early Q1 2026 due to component supply and permitting delays; interim CEO emphasized throughput improvements (Lean Six Sigma) and prioritizing higher-return WDS opportunities.
• Street consensus appears unavailable; comparisons to estimates are not applicable this quarter. Values retrieved from S&P Global.*

What Went Well and What Went Wrong

What Went Well

• Commercial validation milestones: Completed Clean Earth Detroit DoD demo treating six concentrated PFAS waste streams over 80 hours runtime and ~900 gallons processed; final report expected by Q1 2026.
• WDS scaling partnerships: Signed WDS collaboration with Crystal Clean to host AirSCWO systems and build a national TSDF network; management highlights recurring revenue potential and higher margin profile for WDS.
• New municipal sale: Secured Olathe, KS order (~$4M over two years) for an AirSCWO-6 and full-scale pre-treatment/dewatering system to assess scale-up for sustainable sludge management and PFAS removal.
• Quote: “I prefer the waste destruction services model as it produces stable, recurring revenues and higher EBITDA margins for 374Water.” – Stephen Jones, Interim CEO.

What Went Wrong

• OC San deployment delay: FAT and startup moved to late Q4 2025/early Q1 2026 due to supply chain and permitting issues in California, necessitating system upgrades ahead of acceptance.
• Operating expense growth: Total OpEx rose 64% YoY to $4.57M on higher compensation (+$0.9M), R&D (+$0.3M), and G&A (+$0.8M), sustaining quarterly net losses while commercialization ramps.
• Liquidity tightness and capital needs: Cash declined to $0.93M at quarter end; management used ATM (~$7.0M) and disclosed need for additional capital, along with a planned reverse split proposal to maintain NASDAQ listing.

Transcript

Operator (participant)

Greetings, and welcome to the 374Water Q3 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this time, I will hand the call over to Jim Siccardi, Senior Vice President of Investor Relations at 374Water. Please go ahead, sir.

Jim Siccardi (SVP of Investor Relations)

Thank you, Operator. Before we begin the formal presentation, I would like to remind everyone that statements made on this call and webcast may include predictions, estimates, and 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. We are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of this date of the presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release results of any revisions to these forward-looking statements in light of new information or future events. 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 10Q and Form 10K for a more complete discussion of these factors and other risks, particularly under the heading Risk Factors. Your hosts today, Interim President and Chief Executive Officer and Board Director Stephen Jones and Chief Financial Officer Russell Kline, will present results of the operations for the third quarter ended September 30, 2025. A press release detailing these events crossed the wire this afternoon at 4:01 P.M. Eastern Time and is available in the Investor Relations section of the company's website, 374Water.com. With that, I will now turn the call over to 374Water's Interim President and CEO and Board Director, Stephen Jones.

Stephen Jones (Interim President and CEO)

Thank you, Jim. Good afternoon, everyone, and thank you all for joining us today. We very much appreciate the support, collaboration, and constructive feedback from shareholders, as your active engagement demonstrates your commitment to 374Water's mission. Before we begin, I'd like to take a moment to introduce myself to those of you whom I have not had the opportunity to meet yet. Last month, I accepted the board's request to serve as Interim President and Chief Executive Officer, in addition to my role as a Director of the company. As Interim CEO, I'm focused on leading the 374Water team on its continued commercialization of our proprietary supercritical water oxidation technology, or AirSCWO, as we like to call it, and accelerating conversion of our growing pipeline of opportunities, including the further development of our waste destruction services business.

My goal is to turn our immediate opportunities into profitable deals and deliver value to you, our shareholders. I was asked to assume this role owing to my extensive experience as an operating executive, with expertise in the waste and environmental services spaces, and in the development of own and operate on-site business models employed in the industrial gas and chemical sectors, which is very similar to 374Water's waste destruction services model, which you've heard us speak about in the past. Previously, I was Chief Executive Officer of Comanca Holding Corporation. That company is now owned by private equity and renamed ReWorld Waste. ReWorld is a world leader in developing, building, owning, and operating waste facilities, and providing environmental and clean tech services.

I led Comanca through a rapid growth phase focused on owning and operating waste destruction facilities and acquiring environmental services companies, providing waste and wastewater services to third-party customers. Prior to that, I was with Air Products, which was an early adopter in owning and operating on-site facilities at customer locations globally, a model which will be an important part of 374Water's strategy going forward. This role with 374Water is an opportunity to step into a company that I firmly believe has significant value, creation potential, and incredible demand for its facilities and services. I appreciate the board's confidence, and I'm excited to lead the 374Water team on this journey. With that, let's jump in. As many of you know, 374Water is an industrial technology and services company providing innovative solutions for the destruction of solid and liquid organic waste across the industrial, municipal, and federal markets.

Waste by PFAS, the forever chemical. Our AirSCWO technology is designed to efficiently destroy a broad spectrum of non-hazardous and hazardous organic waste, producing safe dischargeable water streams, safe mineral effluent, safe met gas, and recoverable heat energy in the process, and has the potential to assist our customers in meeting discharge requirements, reducing or eliminating disposal costs, and reducing other risks. Our flexible strategy includes several commercial options for our customers. First, the provision of waste destruction services, or we sometimes like to call it WDS. I think of this as the own and operate business model I spoke about in the industrial gas industry a few minutes ago. Second, we get involved in capital sale of equipment to our customers. Third, potential lease options that would include the opportunity for 374Water to also provide long-term operating and maintenance services to our customers.

This is another form of recurring revenues. I want to be clear, and I have been clear with our business development team on this issue. I prefer the waste destruction services model as it produces stable, recurring revenues and higher EBITDA margins for 374Water. We're targeting the waste treatment market, which, including the destruction of PFAS and other forever chemicals, is roughly $450 billion. Most companies couldn't even imagine an addressable market of that size, and it presents a significant growth opportunity for us over the next few years. The size of the market and the urgency related to dealing with issues like PFAS destruction create significant demand for our facilities and services and should generate a strong, profitable revenue stream for the company for the foreseeable future. Moving on to our operational highlights and business updates, I'd like to discuss some of the team's many accomplishments.

During the third quarter, we signed a waste destruction services collaboration agreement with Crystal Clean, a leading provider of environmental and waste management solutions. We're excited about working with Crystal Clean at their Oregon, Ohio location as we introduce our waste destruction services business at a transfer storage and disposal facility. These are a lot of times you'll hear these; they're called TSDF facilities in the industry. We expect our waste destruction services business to address growing demand across a wide array of market verticals and waste streams. This agreement serves as a model for future collaborations to create a national network of TSDF partnerships with companies like Crystal Clean and other similar companies that work in this space. We expect that this is the first of many similar arrangements in the industrial waste space, as this is a large market segment that is underserved.

In Q3, we successfully deployed our AirSCWO technology to a Colorado School of Mines and Department of Defense project aimed at comparing technology solutions for the destruction of PFAS-contaminated waste. We treated PFAS-impacted sediment from the Peterson Space Force Base. We believe this initiative demonstrates our ability to destroy PFAS-impacted waste streams as a treatment option for DOD installation. We are awaiting the final report on this project so we can provide additional technical details to the marketplace. We also successfully completed a commercial-scale field demonstration at Clean Earth’s Detroit facility as part of a DOD project. For six weeks, we executed PFAS destruction of multiple concentrated waste streams at a commercial TSDF site using an AirSCWO-6 unit, once again demonstrating the effectiveness, scalability, and versatility of our technology.

This project represented a major step forward in our effort to provide the DOD with commercial PFAS treatment options for a variety of scenarios and waste types. We expect this project to open up a number of additional DOD projects for us in the future. More recently, we secured an order from the city of Olathe, Kansas, for the sale and deployment of an AirSCWO-6 unit and the related pre-treatment and dewatering system. Olathe will use the AirSCWO process at its wastewater treatment facility and assess its potential as a sustainable alternative to traditional sludge management practices and disposal methods, like landfill application and landfill disposal, which are becoming more difficult to utilize for these types of customers. Olathe will deploy the system to treat various waste streams over a six-month period, after which they will determine the potential to further scale 374Water's technology at their facility.

We recently began processing an award by the state of North Carolina for waste destruction services to destroy Aqueous Film Forming Foam, or better known as AFFF, in the market, utilizing our AirSCWO technology. In the first phase, and we're in this process now, we'll process 1,000 gallons of AFFF for North Carolina. As I mentioned, we're doing that now. If selected for the second phase, we could treat up to an additional 28,000 gallons of AFFF, with millions of gallons of AFFF in the U.S. and even more globally, if you think about Europe, needing to be eliminated or destroyed. This award is an opportunity to show the market that our technology can be the solution for AFFF liability and returns that are advantageous to the company.

As you know from prior calls, we are preparing for our AirSCWO-6 system deployment to the Orange County Sanitation District, or OC San, in California. We expect to complete our factory acceptance test in the fourth quarter. We continue to be focused on late Q4 2025 or early Q1 2026 to start up this unit. We have undertaken certain system upgrades to the AirSCWO-6 unit over the last month or so to improve system performance and ensure our successful completion of the factory acceptance test. Things like improving our waste reactor in our AirSCWO unit and adding a heating block to the process, all of which will lead to improved performance and throughput for the AirSCWO-6 unit. OC San remains committed to working together with 374Water on the evolution of AirSCWO technology to address their ongoing treatment needs.

Also note that during the quarter, we took several initiatives to strengthen our balance sheet and support long-term shareholder value. Most recently, we fortified our balance sheet from our at-the-market, or ATM, facility, which resulted in gross proceeds of approximately $7 million, extending our cash runway into the second quarter of 2026. Also note that certain officers and directors purchased shares of 374Water in the open market in the third quarter, further evidencing their positive view of the company. We're talking about hitting two very important milestones that will greatly impact revenue in 2026: the commencement of the first phase of our award by the state of North Carolina, pursuant to which we will be providing waste destruction services related to AFFF, and the sale of AirSCWO-6 units to the city of Olathe.

I believe that both of these awards provide validation to our alternative business models, whether waste destruction services, a capital sale of equipment, or a lease of an AirSCWO unit to a customer. Taken together, along with our anticipated startup at OC San, we now have a line of sight towards 2026 revenue that is expected to be in the $6-$8 million range. That is a 50%-100% increase over our expected 2024 revenues. Note that this does not include additional opportunities in our pipeline that we're working on to monetize during fiscal year 2026. I believe we're setting ourselves up for a very successful 2026. Finally, on a more personal note, I'd like to formally welcome Jim Siccardi, who is on his first 374Water earnings call. Jim is our Senior Vice President of Investor Relations.

Jim has been an investor relations expert for over 20 years and has focused his entire career on driving shareholder value, strategic growth, and market expansion within the energy, natural resource, and industrial sectors. Jim is an expert at developing relationships with investors and will work to raise awareness of 374Water and our related market opportunities. Expect to hear more from Jim as we further advance our business plans at 374Water in 2026. Now, with that, I'll turn the call over to Russell.

Russell Kline (CFO)

Thank you, Steve. As Steve mentioned, we are aggressively pursuing our three-pronged business strategy: waste destruction services, capital sale of equipment, or lease of equipment based upon customer business needs. Based on internal assumptions and modeling, we estimate our mobile AirSCWO-1 unit has the potential to generate more than $2 million in annual revenue, as the mobile fleet will generate higher tipping fees due to the nature of on-site waste destruction services. We will naturally increase the size of this mobile fleet as the market expands. Also, based on our internal assumptions and modeling, we estimate our AirSCWO-6 unit has the potential to generate $3-$5 million in recurring annual revenues with attractive operating margins. We plan to initially utilize the AirSCWO-6 units at TSDFs to provide waste destruction services.

We also plan to utilize a modular solution in building these types of AirSCWO units in order to both lower our capital costs and be quicker in delivering these units to our customers. Once ready, we plan to utilize AirSCWO-30 units at TSDF partner facilities to dramatically increase our waste destruction capacity, decrease operating costs, and increase revenues. It's important to note the revenues I just highlighted are based on non-hazardous waste tipping fees. We expect that tipping fees associated with processing hazardous waste with our AirSCWO units will be materially higher and will increase returns on these assets. We are excited about the waste destruction service opportunity to drive shareholder value. For the third quarter of 2025, revenue increased to $760,000 compared to $81,000 in the prior year.

Our business has been focused on the development and commercialization of our AirSCWO units to fulfill ongoing projects. Revenue generated was primarily from waste destruction services. The approximate $679,000 increase is primarily due to an increase in our service revenues of approximately $643,000 from the completion of waste destruction service projects and $36,000 in equipment capital revenue. Total operating expenses increased 64% to $4.6 million for the three months ended September 30, 2025, compared to $2.8 million in the prior year period. The increase was primarily due to material increase in commercial activities, including deployments and projects to be delivered. We are focusing our resources on the manufacturing and operations side of our business from a cost standpoint. There was a $0.9 million increase in compensation-related expenses, an increase of $0.3 million in research development, and an increase of $0.8 million in general and administrative expenses.

Net loss for the three months ended September 30, 2025, was $4.3 million, as compared with $2.7 million in the prior year. Cash and cash equivalents as of September 30, 2025, were $0.9 million, as compared to $10.7 million as of December 31, 2024. As of September 30, 2025, working capital was $1.9 million compared to $4.5 million as of September 30, 2024. In September, the company entered into a $600,000 short-term promissory note, which we expect to repay in January 2026. Based upon our current cash position, including the $7 million raised from the ATM facility that Steve mentioned earlier, and expected billings and related collections, we project to have adequate cash to support our business plans into Q2 2026.

Jim Siccardi (SVP of Investor Relations)

To deliver on the planned business growth, we will require additional capital and are actively pursuing additional capital raising opportunities to fund waste destruction services and our strategic growth initiatives. The company is currently actively engaged with potential investors and possible strategic partners to fund these capital needs. Looking to the remainder of 2025, our revenue projection is $4 million in revenue based upon year-to-date activity and expected project milestones for the fourth quarter. As discussed, we have completed our DIU project and our Peterson Space Force Base DOD work, which were both recognized in Q3. Importantly, we continue to make progress in our Orlando biosolids destruction project and our OC San factory acceptance test and deployment to California. In addition, as noted earlier, we have begun processing the North Carolina AFFF at our facility in Orlando.

Finally, we expect to recognize a portion of the revenue related to the capital sale of equipment to Olathe later this year. Based on current and anticipated future demand, and the fact that we are beginning to convert our commercial pipeline into actionable backlog, we project revenue to be in the range of $6-$8 million in calendar 2026, with growth in both waste destruction services and capital sale of equipment. One final item I would like to highlight: the company recently filed a proxy statement with the Securities and Exchange Commission in connection with the company's upcoming special meeting of shareholders to be held on December 15, 2025. The purpose of the special meeting is to request that stockholders approve amendments to the company's certificate of incorporation to affect a reverse stock split of our common stock.

As many of you know, in July 2025, we filed a Form 8-K highlighting for investors that the company's stock listing listed on NASDAQ had been trading for less than $1 per share for more than 30 consecutive trading days, and therefore, the company was not in compliance with the bid price requirement of the NASDAQ listing rules. The company must regain compliance by January 12, 2026. The company's goal is to meet the NASDAQ requirement by executing on normal business operations, but if we are not successful, the board felt it was appropriate to request shareholder approval to effect a reverse stock split at the board's discretion to ensure that we maintain our NASDAQ listing. If the reverse stock split is approved and we maintain a trading price above $1 for at least 10 consecutive trading days, then we expect to maintain our listing on NASDAQ.

The board of directors of 374Water believe it is important to remain listed as a publicly traded company on NASDAQ. Among other things, our NASDAQ listing will greatly increase the company's access to capital markets, like use of our ATM, which has been important to our ability to obtain sufficient working capital to finance our ongoing operations. A reverse stock split will also improve trading liquidity by increasing the price per share of our common stock, which could enable a broader range of institutions which may have a minimum level of price restriction to be able to add 374Water to their portfolios. It also allows the company to potentially pursue alternative financing options as we grow our business. The board and management team remain fully confident in 374Water's long-term prospects and view this measure as one of several potential steps to strengthen the company and position it for future growth.

I will now hand the call back to Steve for his closing comments. Thank you.

Stephen Jones (Interim President and CEO)

Thanks, Russell. I appreciate it. I've been asked by many of you where I'll focus my attention in the immediate future. I think there are two specific areas I'd like to drive improvement. First, I believe we need to continually improve on the throughput of our AirSCWO units. The ability of our AirSCWO technology to effectively destroy PFAS is well known now in the marketplace. However, as a company, we need to continue to drive improvement by using tools many other larger companies use, like Lean Six Sigma, so that we can process more PFAS materials through our units. We're spending a great deal of time and energy improving in this area right now and are currently making several important upgrades to our AirSCWO units. As I noted previously, we've had great results with the destruction efficiency. A lot of times, it's non-detectable or 99.999% destroyed.

We need to go up that continuous improvement curve as it relates to throughput, making sure that we can process increased volumes of materials. Higher throughput means higher EBITDA margins. Second, we need to focus our resources. We're not a very large company. We have about 50 employees or so at this stage. As I've said, there's a vast market for destruction of PFAS and other organic waste out there in the marketplace. We need to focus our business development efforts on those opportunities that have the highest likelihood of success and the greatest return on capital for our shareholders. I'll be spending my time working with the business development team, and I've started it already, to focus on those opportunities where we can be most successful and get the highest returns.

Recently, I had the opportunity to speak with a lot of the employees on a trip down to our Orlando facilities, and it was very exciting. I was really impressed with the talent and the passion of our team, and they're very dedicated to making 374Water a success. I see a very bright future for the company. Finally, as I mentioned earlier, we anticipate 2026 revenue in that $6 million-$8 million range on a combination of waste destruction services and capital sale of equipment to our customers. This is a 50%-100% increase in revenues over our current 2025 revenue expectations. We're growing fast, and I expect that to continue in the outlying years. I'd like to thank everyone for joining us today. I appreciate your taking the time to listen to the 374Water story.

I'll now hand the call over to the operator to begin our question-and-answer session. Thanks again. Operator, please go ahead.

Operator (participant)

Thank you, sir. We will now be conducting a question-and-answer session. If you would like to ask a question, please press Star then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star and then 2 if you would like to remove your question from the queue. For those on the webcast, please submit your question via the webcast platform now. The first question that we have comes from Rob Brown of Lake Street Capital Markets. Please go ahead.

Rob Brown (Senior Research Analyst)

Good afternoon. Congratulations on all the progress.

Stephen Jones (Interim President and CEO)

Thank you.

Rob Brown (Senior Research Analyst)

Maybe first on the TSDF facilities, you've got the first one kind of going now. How is the pipeline in that segment? I know it's a large segment. What are sort of the steps to getting that pipeline going? I assume it's one of the main areas that is worth focusing on, but what's the pipeline there?

Stephen Jones (Interim President and CEO)

Yeah. There are a lot of TSDF facilities in the U.S., and there are also many, many more material processing facilities. I operated a few of the—I operated a lot of these when I was at ReWorld. TSDF basically deals with hazardous waste material. We are in discussions with a number, maybe a majority, I'd say, of the TSDF operators in the U.S. right now about putting AirSCWO units on their site. Crystal Clean was the first one. We have discussions underway with others. I know a lot of the operators since I operated in this space, so I've reached out to my network to see who's interested in utilizing our technology to destroy PFAS. There are not a lot of good options that are out there at this point, and our technology, like I said, is very efficient in destruction.

We're going through that process now. Our business development team, and I've been kind of riding them recently, is—I've been making sure that they're following up with the various TSDF owners across the U.S. and seeing who wants to partner with us in this process. Ultimately, I see us as the TSDF being a host customer. Again, it's a lot like the industrial gas business model, the own and operate on-site business model, where we're going to put one of our units on their site. They'll probably have some access to the unit for their own PFAS needs. We'll also bring PFAS in from, let's say, the federal government, Department of Defense, AFFF, for example, and we'll process AFFF through the AirSCWO unit. Like I said, there's a number of opportunities that are out there. That's in the hazardous side.

On the non-hazardous side, as companies—and again, there's public companies like Clean Harbors, for example, and there's a lot of companies out there that play in this space, as does ReWorld, my old company. As they start to look at how they're going to destroy non-hazardous material, they can also use our AirSCWO technology at these material processing facilities, and there are a lot of those in the U.S. I mean, it's a very large market. That's what we're going through right now. We're basically looking at the various leads, and as I said, what I really want to focus on is those opportunities that are close to send, and that will lead to the highest internal rate of returns, so return on capital for our shareholders.

Rob Brown (Senior Research Analyst)

Okay. Excellent. I guess second question on the North Carolina contract. I know you're doing the first phase, but how is that phasing set up, and what's the timeline on sort of the second larger phase?

Stephen Jones (Interim President and CEO)

The first phase is 1,000 gallons of AFFF. We're in the process of putting that through the unit now. We started that last week. We're two weeks into it. Once that gets processed, North Carolina. They have representatives from UNC, and I think also NC State, who are out periodically at our facility, and they're picking samples and doing various technical readings. They'll take that back and start to get some thought to how they get rid of the 28,000 additional gallons that they want to process. That's how it'll play out. I'm not sure exactly what the timing of their decision-making will be, but like I said, we're in the process now of destroying AFFF, and it's working well.

Rob Brown (Senior Research Analyst)

Great. I guess last question on the 26, it looked good growth there. How do you sort of see the mix of business in that number between the waste services and the capital sale?

Stephen Jones (Interim President and CEO)

Why don't you answer that? You're probably closer to the mix in 2026.

Russell Kline (CFO)

Thanks, Steve. Rob, thank you for joining us and for your questions. For 2026, we have a mix between our launch and expansion with waste destruction services and the capital sale that we recently announced for Kansas, as well as expected capital sale for another project that we have out for bid. As Steven mentioned earlier, there are other opportunities that we are actively pursuing that we would look to build into 2026 as we continue to progress in those discussions.

Rob Brown (Senior Research Analyst)

Okay.

Stephen Jones (Interim President and CEO)

I'm going to say, Rob, over time, and I brought this up—sorry to jump in. I brought this up. A services business, so a waste destruction services business, is going to provide higher EBITDA margins and then ultimately a higher valuation for the company. It does require more capital because you own and operate the asset. Sale of capital equipment will bring in cash more quickly, but you got to sell—and the sale of equipment business, which I've run both of these types of businesses in my career at both Air Products and also at Covanta/now ReWorld. A sale of equipment business, you got to sell equipment every year, and the margins aren't as high, and the valuation of sale of equipment companies is not as high either.

Ultimately, my vision is we push this company towards waste destruction services, but we will meet the customer where they sit because there are certain customers, if you think about municipalities, that are going to want to own their own asset. In those cases, I think the play is, and we want to have an O&M agreement, an operating and maintenance agreement, operate the equipment for them, maintain the equipment for them, much like if you remember GE's turbine business, right? You bought the turbine, but you signed up for a services agreement. That is my vision on, if we go down the sales route, how we get more recurring revenues with customers who want to actually own the equipment versus my preferred case, which is 374Water owns and operates these AirSCWO units.

Rob Brown (Senior Research Analyst)

Okay. Great. Thank you. I'll turn it over.

Stephen Jones (Interim President and CEO)

Thank you. Appreciate the questions.

Operator (participant)

Thank you. The next question we have comes from Michael Matheson of Sidoti. Please go ahead.

Michael Matheson (Research Analyst)

Congratulations on the revenue you've got.

Stephen Jones (Interim President and CEO)

Thanks, Michael. Appreciate that. We've been working hard.

Michael Matheson (Research Analyst)

Coming back to waste destruction as a service, because I tend to agree with you that that's going to be a much higher source of profit for the company going forward, can you just give us a little bit of detail on the Crystal Clean deal, particularly the revenue-sharing agreements, things like that?

Stephen Jones (Interim President and CEO)

I am reluctant to provide commercial terms in the. On our earnings calls. I will tell you about the deal, but I prefer not to get into details because I do not want my competitors to know or future deals, the folks we do deals with, to know what the terms and conditions are. This is my view on a waste destruction services project. We are going to have a host customer, and in this case, it is Crystal Clean. As the host customer, they deserve some benefit. They can take it in a lease payment, they can take it in a revenue share, or they can take it in lower costs to utilize the AirSCWO unit. I have talked to another—I have talked recently to another TSDF operator who has multiple sites along the same lines.

I'm indifferent in how they want to take their host fee, if you will, but that's how it'll play out. It'll be one of those three buckets. It's a bag of money, and however they want to take it is fine by us. Ultimately, what we need is a site where we can bring in our own PFAS-laden material. I think mostly the government trying to get rid of their AFFF. There's a large, large market there. I mentioned it during my prepared remarks, whether it's in the U.S. or even outside the U.S., there's a large market there. To the extent that we can bring AFFF in and process it at an AirSCWO unit at a host site is going to be, I think, very valuable to us. That's how those deals are going to be structured.

They're very much like the industrial gas business. I mentioned I spent a number of years at Air Products. We called these types of deals piggyback deals, which was basically we put our site—we put our facility on a customer's site. They took some of the output from the facility, and we took some of the output from the facility. It's the same concept here. If you look at returns in those kinds of business, EBITDA margins are much higher than sale of equipment and the company valuations. You guys can run a valuation model on Air Products or look what it trades for on a PE basis. Those types of companies are much more highly valued in the marketplace than a simple sale of equipment company.

Michael Matheson (Research Analyst)

Great. Thank you. Just looking to the growth of 374Water going forward, you mentioned you have about 50 employees now. How many of those are salespeople? I'm sorry?

Stephen Jones (Interim President and CEO)

This is a great question because I just asked this question. Again, I'm new, so I asked this question the other day. 80% of our employees fall into, I'll call it, market-facing organizations. 80% of the employees, and this includes both number of employees and the cost of the employees because I think there's been a view out there that we're somehow top-heavy or our burn rate's too high. 80% of the employees are focused on either operations, manufacturing, R&D, or business development, which shows you that we are focused on delivering into the marketplace. Right now, I'd say on a business development standpoint, and I'd like to add a few people here, we probably have about seven business developers that are out there trying to sell our technology. I think we could probably use a few more to penetrate the market faster, is my personal view.

Michael Matheson (Research Analyst)

Great. Thank you. Very helpful. My last question just looks to your 2026 guidance. It looks to me that in Q3 year-to-date, you've hit break-even gross margin, essentially. When I did some back-of-the-envelope arithmetic, it looked like the midpoint of your revenue guidance, about $7 million. That might be pretty close to hitting operating income break-even for 2026. Does that feel feasible, or would we be better to look to 2027?

Stephen Jones (Interim President and CEO)

A lot depends on the pace of the rollout of the technology and the business plan. As you know, and I've mentioned this, it's a very large amenable market. There's a lot of possible deals. We're gaining traction, and that's why we spent a lot of time on this call already talking about the several types of business models and deals that we were able to land already. The pace of these contractual arrangements and the types of deals we undertake will have a big impact on that timing you're asking about.

Also, as we load up our manufacturing and operation system, and I just mentioned 80% of the people work in that market-facing group, as we sell more units or we do more waste destruction services, that fixed cost there will get loaded up higher, and that will all positively affect the overall timing of when we go cash flow positive. I think it's tough to say right now. I think from where I sit today, my hope would be that we become cash flow positive in the 2027 timeframe, but it's a tough question to answer at this juncture. You can see how I'm thinking about it. I got to load up—we got to load up our system with more and more deals.

That's why I've said I'm focusing the business development team on deals that are closer in and have a higher return on capital for our shareholders.

Michael Matheson (Research Analyst)

Great. Thank you. That's all very helpful. I'll just wish you good luck for next quarter. Thanks again.

Stephen Jones (Interim President and CEO)

Thanks. I appreciate that.

Operator (participant)

Thank you. There are no further questions on the conference call. We will now turn to the webcast questions.

Jim Siccardi (SVP of Investor Relations)

All right. First webcast question asks, "Can you provide us some additional color on the third-quarter performance by 374Water?

Stephen Jones (Interim President and CEO)

Sure. Yes. Sales are accelerating very nicely. I think you picked that up in my prepared remarks. Year over year, or I should say quarter over quarter. Quarter three 2024 versus quarter three 2025, revenues were up significantly, but admittedly off a low base. With that in mind, we're confident in meeting the 2025 revenue target of approximately $4 million. I think that's really good performance by the team. You saw we introduced 2026 guidance, which is funny because we had a discussion, because normally I wouldn't—other times I've done this at other public companies that I've run, I wouldn't give guidance this early. I thought, being a new CEO and from what I've seen so far, it probably makes sense to give the guidance at this time of the year.

The guidance of $6 million-$8 million in revenues for 2026, that range, I think that range is very good. It's 50%-100% higher than our expected 2025 revenues. I think this shows investors that we believe our technology is taking hold and the customers are valuing our offering. We're getting really good traction in the marketplace. I won't go through what I did in the prepared remarks, which was these various deals. I think I was already clear that my preference would be to have more of a service business than a sale of equipment business for obvious reasons because returns are higher. You'll see me pushing in that direction as we move forward. I just think that's a more valuable—we'll get a higher multiple in the marketplace with a service-based deal than a sale of equipment-based deal.

All very promising, I think, and very promising signs to investors that things are moving in the right direction. We also had another recent deal that we won. I'm going to be a little coy like I was last time. I spoke previously to some folks about this. We're going to have a press release coming out, so I don't want to say a lot about that. We have another deal that we were awarded over the weekend, and we'll be announcing that in the near term. Again, I've been pleased with what I've seen so far as we take what is a very large pipeline of opportunities and start to turn that into revenues and then ultimately EBITDA.

Jim Siccardi (SVP of Investor Relations)

Our second webcast question asks, "You've been interim CEO for a little over a month. Do you have any additional observations other than what you've spoken to previously or on this call?

Stephen Jones (Interim President and CEO)

Sure. I think first off, we have a first-class team of employees. I mentioned I think they're really dedicated in making 374Water a success. They're focused on ensuring our technology is effective in the destruction of organics like PFAS, and we've had amazing, extraordinarily good destruction results so far. Also note, because I think there's some confusion in this area, and I mentioned this a little bit already, we're trying to focus most of our resources on that market-facing part of the organization. I mentioned that a little bit already. We're also focused on continuous improvement. I mentioned Lean Six Sigma. I'm a Greenbelt from my Air Products days. I think that's a good tool to be able to drive additional throughput through our AirSCWO units.

One of the things that we've been doing over the last couple of weeks is making some changes to our reactors in order to drive more throughput through those reactors. We've made some changes to our reactor. We've added a heating block in one case in order to be able to increase the throughput through those units. More throughput, as I said earlier, means more EBITDA. That's a key observation I've had so far that we have to do—we have to do better in that area. I think they're the main points that I'd like to bring up. I will say that around pricing, this is a new market, and we're undertaking a pricing study now. We're just getting ready to kick that off so that we can develop an economic model.

We've started to put the economic model together that allows us to toggle or alter a number of factors related to value, like pricing, so that we can get the highest internal rate of returns on our projects. In short, I want to focus on those projects that are bringing the greatest value to our shareholders. At the same time, as I said, focusing on continuous improvement, particularly around making sure that the throughput in our units continues to increase as time goes on.

Jim Siccardi (SVP of Investor Relations)

Our last webcast question asks, "What is your view of the PFAS destruction market?

Stephen Jones (Interim President and CEO)

It is a massive market, as we have talked about. The waste destruction market alone is $450 billion, and most companies would be jealous of that kind of amenable market. PFAS is part of that market. There are verticals within that market, and there are different solutions or business models for different verticals. If you think about industrial wastewater players like Crystal Clean or Clean Harbors or Veolia or ReWorld, which is my prior firm, and dozens of other players in this space, they could all be customers of 374Water. They collect liquid waste from their customers. That is what I did when I was at ReWorld. We needed a vehicle to destruct or destroy the organics like PFAS. That is one vertical, and it is a big vertical. There is also another massive vertical, which is the municipal market.

Customers we've been actively involved with already, like the Orlando Water Reclamation folks and OC San, or the new project for the wastewater treatment plant in Olathe, Kansas. You can look at our recent press release around that. These customers have biosolids and sludges that contain PFAS, and they need to deal with the issue. Their previous solution was putting stuff on the land, and there's a lot of legislation now coming out that prevents that from happening. We have a solution for them, and we're talking to many of the municipalities in that vertical. Finally, the federal, state, and local governments all have large stockpiles of AFFF. They cannot use that material anymore for firefighting, and it's got to be destroyed. There's a large market here, and I'm mentioning Europe, probably also even Asia.

We have not even explored Asia yet, that have similar PFAS issues that need to be addressed. There are not many folks out there like us that have a technology that has such effective destruction and can be used to deal with these three different verticals. One of the things I am doing with our business development team, and somebody asked this question earlier, is we are getting a lot more organized around those three verticals, and the pricing may differ in those verticals. That is why I am going through a pricing exercise now to figure out what is the right pricing in each of those verticals and what does our competitive landscape look like. Again, driving so that we get the highest returns that we can on our AirSCWO technology so that we drive up our multiple for our customers. Excuse me, multiple for our investors. Sorry.

Operator (participant)

Thank you. At this stage, there are no further questions. I would now like to turn the call over to Mr. Jones for closing remarks. Please go ahead, sir.

Stephen Jones (Interim President and CEO)

Thank you, Operator. I would like to once again thank each of you for joining our conference call today. We look forward to continuing to update you on our ongoing progress and growth. If we were unable to answer any of your questions, please reach out to Jim Siccardi or our IR firm, MZ Group. We would be more than happy to assist. This concludes our Third Quarter 2025 Update Call. Thank you for your participation.

Operator (participant)

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.