AbTech Holdings’ Smart Sponge® Takes Multi-Billion Dollar Water Pollution Market by Storm

For decades, stormwater runoff has been identified as one of the leading sources of pollutants to the environment. As rainwater falls into developed urban areas, the initial flush of contaminants from dryland is transported via runoff to the nearest body of water. With it carries a mix of toxic chemicals, vehicle emissions, disease-causing pathogens, and more. It hasn’t been until recently that the EPA and government bodies started addressing this crisis with more urgency.

Local municipalities across the country are now figuring out various ways to help fund proper stormwater treatment, investing anywhere from hundreds of millions to multi-billions of dollars to improve their infrastructure to meet environmental standards.  

One company that’s been ahead of the curve on this trend is AbTech Holdings, Inc. (ABHD) , whose Smart Sponge® technology provides a cost-effective and scalable solution that is easily integrated into existing infrastructure. The company has already announced multiple ongoing projects that could serve as an inflection point to its growth trajectory and market adoption. While the company has significant inroads into the stormwater space, it’s also well positioned to capitalize on demands from the oil and gas market, especially with the growth in hydraulic fracturing (fracking), as well as industrial wastewater treatment.

www.equities.com had the opportunity to speak with Glenn Rink, Founder, Chairman and CEO of AbTech Holdings to learn more about their technology and the momentum of their strategic growth.

EQ: Can you provide us with a brief overview of AbTech Holdings and its operations?

Rink: AbTech stands for absorption technology, and AbTech Holdings is a company that has developed intellectual property that has leveragability in a number of different market segments and also has a subsidiary engineering firm called AEWS Engineering.

The core technology of AbTech Holdings is called Smart Sponge®, and it's smart because it has the ability to be chemically selective in drawing contaminants out of water. The Smart Sponge technology is highly useful in almost every type of water application other than drinking water. We apply the technology in the treatment of stormwater, produced water, oil and gas, fracking, industrial process water, and basically anywhere there's a flowing form of water that gets contaminated. We also have an amazing ability to draw-out hydrocarbons from water.

Our technology removes contaminants quickly and efficiently, which is the reason we call it Smart Sponge.  Not only is this technology chemically selective, but once it draws the contaminants and hydrocarbons out, it turns it into a solid. And unlike a traditional sponge, regardless of any amount of pressure you apply to it, you cannot pull the oil back out. We do have a proprietary process to retrieve the oil, but in the field the captured oil will not wash off or leach off.

EQ: Is your technology and intellectual property protected?

Rink: We have 17 patents on this technology, and we’ve also modified the Smart Sponge so that we can go after bacteria in stormwater and industrial process water. The ability to remove bacteria out of the water without electricity or moving parts is unprecedented, and we have several patents on the anti-microbial version of the Smart Sponge. More recently, we secured a complimentary technology that allows us to remove heavy metals out of water and that is particularly important when addressing contaminants like Selenium, Arsenic, Cadmium to name a few, which can be very costly and difficult to remove from water.

EQ: How does AEWS Engineering fit into your business model?

Rink: AEWS is our engineering subsidiary firm. It is a specialized consulting and design engineering company focusing particularly on stormwater. The firm that will go into any kind of municipality or private facility, evaluate their stormwater issues and identify the best solutions.   Depending on the need, those solutions could utilize a variety of technologies from many companies. If bacteria is a problem, AbTech's Smart Sponge Plus can be part of the solution. AEWS was recently awarded the stormwater engineering work in the Prince George’s County project that is being run by Corvias Solutions – the biggest stormwater public-private partnership in the country. Also, the engineering firm has collaborated with North Carolina State University on developing best management practices and deployed many in the field that are undergoing monitoring or have completed tests and been published.  It's a very exciting time for us.

EQ: As you stated, there are multiple markets that your Smart Sponge solutions can address. Each one of these areas can range from multimillion to potentially billions of dollars in terms of the market potential. Can you kind of give us a breakdown in terms of the scope of those target markets that you're addressing right now?

Rink: You're right. Each of these markets is huge and some have the capability to be billion-dollar market opportunities in the very near term, some of them are already in multi-millions of dollars. We know oil and gas is a massive market opportunity that is just beginning.

However, the market we’ve commercialized the most so far is stormwater, which is the water produced when rain hits the surface of the road and washes all the nasty stuff off. The contaminants can be made up of drippings from cars, animal fecal matter, but mostly it’s a lot of emissions from cars and other vehicles.  All that builds up and the longer it accumulates with no rain, the build-up increases even more. Then, when it does finally rain, the road gets very slippery and can even cause cars to hydroplane.  Eventually, all of this stormwater ends up in our flood control devices which feed to our oceans, rivers and streams.

The rainwater that first washes off impervious surfaces into our oceans, rivers and streams, is what the EPA calls the first flush. Generally, the rule of thumb is that the first 10% of all rainfall from storms washes off 90% of the contaminants from the roads into our flood-control devices. Our technology is a highly cost-effective solution to help address that problem.

The EPA has considered that 40-60% of the pollution contaminating our waters comes from stormwater runoff. Some say it’s an even higher percentage than that. So being able to treat it is a mandate that cities, towns, counties and even commercial and industrial customers have to deal with. There are numerous customers and entities throughout the country who are actually being charged various stormwater utility taxes or fees. The state of Maryland, for example, passed the first ever rain tax. It’s about $39 per person per year to help pay for stormwater treatment. But this is an evolving marketplace that is growing rapidly. It’s a problem that every community has, particularly those around bodies of water.

EQ: How does the technology work?

Rink: When we manufacture Smart Sponge, it comes out looking like popcorn. It’s produced through an extrusion process where we can mold it into any shape or size. We know the ideal shapes that the molded popcorn works most effectively.  For some application we use the Smart Pak® that happens to look very similar to a second base (baseball). It’s a square with dimensions to fit in the filter designed for each specific application.  It’s also modular, so you stack 15, 20 or even hundreds of Smart Paks in a particular site.

The large majority of the drains you see in the streets feed into pipes that eventually lead to an ocean, river or stream. Very few pipes, except in some of the older cities, go into a wastewater treatment plant. Since our technology can be molded in various shapes and sizes we can actually put it in existing drains or, where we like using it most, at the end of the pipe where we can deploy Smart Sponge less expensively to filter the water just before it is discharged into rivers, lakes or oceans. We originally focused on hydrocarbon removal and also bacteria.  Going forward we are adding the capability to address heavy metals which we hope to have available in the near future.

As I mentioned, our technology does not require electricity, and there are no moving parts. On average, in a residential neighborhood or an average site, you can anticipate the Smart Sponge life cycle lasting anywhere from three-to-seven years.  We’ve got retail outlets and shopping centers that have had installations last for more than 10 years without the need to replace this filtration media. Conversely, we’ve had airports and military bases that have used the Smart Sponge to effectively clean up spills requiring yearly replacement of the Smart Sponge.  Replacement cycle depends on the level of contamination.

The Smart Sponge is easily deployed and usually costs only a few hundred dollars per site for an average catch basin or end of pipe installation.  Pricing varies significantly based on size and scope. It’s a very effective technology and inexpensive. We’ve been ahead of the curve for a long time and we're finally gaining market traction.  So we're very excited about the fact that we are so well positioned as this huge market is now coming to a head.

EQ: In October 2013, AbTech was awarded a project from Nassau County in Long Island, NY. Can you update us on that project?

Rink: In October 2013, we were awarded a $12 million contract from Nassau County in New York for a design-build-operate distributive solution. It was basically 10 pipes for $12 million. It’s a project that will take place over three years. The first year is for installation and then two years for ongoing paid maintenance. Essentially the County is turning those 10 pipes over to AbTech to install, maintain, operate and take care of them. It was the first project of its type.

EQ: You mentioned Maryland earlier. AbTech recently announced a milestone deal for the company, entering into an agreement with Corvias Solutions on a $100 million project. We mentioned that these markets could be multi-million, hundreds of millions, and even billions of dollars. This, in a way, validates that. Can you tell us more about this deal and what it means for AbTech?

Rink: It's amazing for us. Maryland is leading the country in addressing the problem of stormwater contamination. Prince George's County in Maryland issued a statement indicating that they expected to spend over $1.2 billion in the coming years addressing stormwater. This will largely be funded by the $39 stormwater utility we mentioned earlier, and various cities and towns are collecting dollars to deal with their stormwater contamination.

So the county started by issuing the first $100 million project, which was awarded to Corvias. We have great familiarity with them, and so we were able to align our engineering subsidiary AEWS with them. We signed the agreement with Corvias to work on projects not only in Maryland but also in other areas of the Northeast and to continue to develop the turnkey solutions.

It’s a great marriage because it's very synergistic. There’s really little or no redundancy in it because Corvias has tremendous capabilities but their expertise is focused on managing projects. Having us contribute the technology subset, really allows us to complement each other’s strengths. We're very excited about this relationship.

We’re particularly excited about what this can bring forward, not only in these solutions but also in the areas of private public partnerships. That’s something Corvias has tremendous expertise in, so plugging AbTech and AEWS into this really helps beef up this entire program for both sides. We believe that Prince George's County, could be a model for the entire northeast region and possibly the rest of the country.

EQ: Are there any other highlights or recent achievements that you want to mention before we move on to kind of more specifics of the company's advantages.

Rink: We signed a deal with Waste Management (WM) about three years ago to work in the stormwater space. We had great expectations of that relationship and still do because Waste Management conducts business in 33,000 or so municipalities currently. They’ve got a great brand and they're very capable to being a part of this process.

As an example, in Nassau County there will be a little over $500,000 for the two years of maintenance for these 10 pipes. There’s going to be significant maintenance contracts for these sites. That would be a great opportunity for Waste Management or Corvias, or even other companies to handle it. We've been working with Waste Management for a while and we anticipate that they would be a good strategic partner in that regard, but time will tell. We're very excited about the prospects, because they think green, act green and want to be green, so we think of that as being a good fit.

EQ: What are some trends that could potentially serve as tailwinds for AbTech right now?

Rink: Various states are also passing EPA consent decrees to deal with stormwater runoff. They’re passing stormwater utility fees, so as an example, instead of a rain tax, they're actually putting little fees on your water utility bill. There are now more than 1400 stormwater utilities around the country that are collecting fees to pay for stormwater treatment. The momentum is there. You can have a problem and you can have a solution, but it’s hard to get anything done without the money. So as I mentioned earlier, we've been ahead of the curve. The problem's been there. The desire to address it is now really there, but most importantly, the money is following now. It’s a very exciting time for stormwater in general.

EQ: We briefly mentioned oil and gas earlier. Can you tell us more about what AbTech has planned for this market?

Rink: We’ve all heard about how popular fracking has become. It's stated that usually for every barrel of oil that is pulled out of the ground through fracking, five to 10 barrels of water waste is produced, depending on the age of the well. Right now, generally 98% of this water is re-injected into the ground or disposed of in some other way. Only about 2% is recycled. It’s believed over the coming years, you're going to start to see a significant reversal. It’s going to be a gradual process, but we have the ability to help remove hydrocarbons out of that water very efficiently, harvesting the last of the valuables from the water before it is disposed.

More importantly, we are a proponent of being able to clean the water well enough that the operators can actually reuse that same water and not have such huge water demands. That said, we are not the turnkey solution for dealing with all frack water or flowback water. We’re actually a pre-treatment. We’re used in many cases in advance of other systems as a pre-treatment for pennies per barrel treated. This pretreatment helps the downstream systems work better and more efficiently, and helps those systems last longer. It also reduces the total cost. In most cases, what we have found is that we don’t compete with the various technologies that are out there. We complement them and make them work better.

It’s the same thing in industrial process water for steel refineries and terminals. AbTech’s technology can be applied to any kind of process that uses a closed-loop system. Let me give you the best example of a steel mill where significant amounts of water are used in the production process. Hydrocarbons get into that water and must be removed. Removing the hydrocarbons sufficiently to allow that same water to be reused is a great value proposition for the steel mill. These days, it's even more valuable as water becomes more scarce and so much more expensive. We’re seeing much greater interest, even from places like China, in this technology primarily for recycle and reuse applications.

EQ: How does the Smart Sponge work with existing solutions in the oil and gas space already in use?

Rink: AbTech has spent a great deal of time and money validating its technology, both in the lab and in the field. We've recently completed the first mobile unit which can be transported to a site and deployed to handle 10,000 to 15,000 barrels a day of produced water. We can add additional module units to increase the flow rate to whatever level per day per site we would like it to be.

The beauty of that is it's a pre-treatment. It’s simple. It’s easy to do. It’s efficient. It’s effective and it can be designed and engineered very easily to meet the desired expectations or desired results that the customer wants to achieve. We plan to work with strategic partners who already have a footprint in this industry. We are working with strategics in various parts of the country and speaking with national entities that have a national footprint who will like to roll it out as an additional solution efficiently and effectively with their existing customers.

The takeaway for us in regard to all the market segments of contaminated water is that our technology removes contaminants as efficiently and cost effectively as possible.

EQ: Those are some compelling competitive and strategic advantages for AbTech. You mentioned the company is reaching an inflection point in your position to execute aggressively. What are some specific milestones or benchmarks over the next 12 to 18 months that we should watch for?

Rink: First, I think the Nassau County project being completed with those 10 pipes being installed will be a threshold to watch. I believe we'll be able to bring dozens of other cities and towns to see those sites to demonstrate efficacy and win new projects. We have other installed sites we can bring people to but Nassau County will be the first turnkey installation design-build-operate in the country.

AbTech has more than 15,000 installations that already exist. We’ve installed more than 1900 filters in Long Beach, California and Norwalk, Connecticut and many different parts of the country, but those are direct product installations. The work that we're doing now in Nassau County is not only installing the products but providing the turnkey solutions to design and maintain them. So the key milestone is the completion of the Nassau County project and then beginning work in Maryland.

Since the Nassau County RFP and award went out, there have been dozens of other cities that saw it as a milestone and have requested copies so that they can then copy it instead of having to re-create their own RFP. We’ve had numerous municipalities contact us to ask for copies. We’ve directed them to Nassau County for that purpose but there's tremendous movement and interest from people that want to replicate that model.

The milestones I see are not only Nassau being completed but other cities and towns nearby also following suite with similar structures. I think the Maryland project will start a domino effect as well not only with Prince George's County but also the counties and towns around it. I believe it will go into Pennsylvania, New Jersey and Connecticut. We expect to see a lot of movement in those areas.

This is disruptive. It’s a new approach to water treatment. Instead of ripping up the streets, you're treating water at the end of the pipe and you're treating it cost effectively with multiple solutions.

As for oil and gas, we’re looking to secure a key strategic relationship with a multi-million dollar company that can provide manufacturing for us of the treatment systems that could then be deployed across the entire U.S. market and potentially all of North America through a national distribution partner that already has a footprint in the oil and gas space. That would be my ideal pathway and the milestone that I would like to see in the coming months.

EQ: It's a very exciting story. The demand is obviously there. You’re well positioned and it looks like you have a lot of flexibility in terms of just the revenue model. Are there any additional takeaways or closing comments that you want to offer the readers?

Rink: I’ll just say that our story is about water and what we can do with our really great approach to treat it for cleaner discharge or reuse. Our approach is innovative. It’s green and it's economical. It can make a difference and do so very quickly. If you may recall what Federal Express (FDX) did for overnight shipping and changing that industry, I believe Smart Sponge has the ability to do that for water treatment.

I look forward to the future and what it will bring, and being a part of helping to bring about a better and cleaner environment, and doing it in a way that doesn’t hurt business or industry.

For more information on Abtech Holdinges, visit their website at www.abtechindustries.com