All right, thank you guys for joining us. Welcome to the Chicago's Ideas Conference. I'm Philip Cooper, Managing Director of Three Part Advisors. Our next presentation is from Energy Recovery, which is traded on the NASDAQ under the ticker symbol ERII. Energy Recovery designs, manufactures, and sells various solutions for the seawater reverse osmosis, desalination, industrial wastewater treatment, and CO₂ refrigeration industries worldwide. Presenting for the company today is Jim Siccardi , Vice President of Investor Relations. Jim?
Thank you, Philip. As Philip said, my name is Jim Siccardi, Vice President of Investor Relations for Energy Recovery. With me today is my assistant, Lionel McBee, who is the Director of Investor Relations. He'll be here shortly. For most of you, I see a lot of new faces, for most of you, you probably don't know this company. We're a small cap industrial company, and we really engage in handling pressurized fluids or pressurized gases. Over the last decade, you know, we've been public since two thousand and eight, but over the last decade, we've grown our revenue each year, and over the last decade, only two of those years have been single-digit revenue growth. While we've been growing the revenue, we've also been growing our profitability.
As I'll talk about later, we've got some very strong gross margins, but over the last decade or so, most of those gross margins were lost as we used a high level of OpEx. Our OpEx, as a percent of revenue, was roughly 77% in 2018. It's now gotten down to closer to a little bit below 50%, and over the next couple of years, we believe it's gonna gravitate closer towards the mid to high 30% rate, which is closer to the rest of the industry. As I started to allude before, our gross margin over the last decade has been close to 70%. Last year, it was about 68%. So that 68% gives us some flexibility as we start to move into some of the other businesses that we're doing.
At the same time, unlike the company before me, we have a very clean balance sheet. We have a flexible balance sheet. We have $138 million of cash in the balance sheet with no debt. It's one of the reasons that we're here. You know, with that type of capital structure, we don't appeal to a lot of the bankers on most sell-side firms, but we're not worried about making money for the sell side. We're worried about making money for our investors, generating good returns to you all. With that, Three Part Advisors has been fantastic. They helped get us in front of names of investors for whom our stock makes sense in their portfolio. Now, a question people ask is: What's driving the value of this company? And when we come up with it, it's gonna be a product that looks extremely simple.
This is our pressure exchanger. It's only got four parts. It's got a sleeve. Within that sleeve is a little rotor, which is this part here, and we've got two end covers. Those two end covers are where the different columns of fluids or gases come. We take one high pressure, one low pressure, slam them together, and move that into a— We exchange the pressure. So the low pressure becomes high pressure, the high pressure becomes low pressure, and we do that with great efficiency. In desalination, we do it at 98% efficiency. We're recovering wasted energy in industrial processes. Most of that's been coming from desalination, but we've been moving into other industries as well. Over the last, or basically, since this company was founded, we have generated annual savings of energy for our customers, about $3.9 billion.
We're making our customers far more efficient than they were without us. We're also impacting the industries that we're in. We've essentially eliminated one, 14.5 million metric tons of emissions that would be equivalent to basically taking 3 million vehicles off the road. The product revenue is almost all coming from energy-efficient sources, mostly through the PX itself, and we've saved over 30 terawatts or gigawatts, whatever T means, in electric consumption. For the desalination industry, prior to the turn of the century, the main focus of getting seawater into a drinkable form or a potable form was using thermal. You'd boil the water, and you'd catch the condensation, similar to what we've all done in high school. The problem is, it's very cost and energy-intensive. With our device, we've helped lower the cost of desalination by about 75%.
With reverse osmosis and technologies like our energy recovery device, desalination can, is now 25% of what it was with thermal. That delta was so strong that you've not seen a thermal plant built since 2018. Essentially, we caused the end of thermal desalination. Now, every large-scale desal plant, and we're in every large-scale desal plant around the world, uses reverse osmosis. When we transfer the energy, that, as I said before, that transfer is coming at 98% efficiency. We're 1% of the CapEx of a desal plant, but we're giving them 60% of their energy savings, which is why we are-- we don't like to use the term monopoly, but we have a 99.9% market share in the large-scale desal plants.
These products, which don't lead to a whole lot of recurring sales, are designed to last for the life of the desal plant, and most folks will say, "Well, we want that recurring sales because we can model that better." The competition we had about eight or nine years ago had a model that was predicated on recurring sales. Their product required annual maintenance, and it broke down every three to five years. But the EPCs that build these large-scale desal plants are also the ones that are running it. So over time, people started realizing that the overall cost for the life of a plant was significantly less with our device, which is why we've displaced our competition while we're also displacing thermal. Our device needs no maintenance. You put it in there, and you can go to sleep at night.
That's one of the reasons why we've effectively been building a moat around our competitive position. The issue, though, is as long as we are 99% or 100% of the desal market in the large-scale size, we can only grow with the market's success, with the market itself, which is one of the reasons why we've started branching out into other vertical opportunities. This product right here, this picture right here, kinda shows how we work in a desal plant. When you're making desalination from seawater, you take low-pressure seawater, and you get a high-pressure pump, you supercharge that water, and you slam it against membranes. On the other side of the membrane, about 40% of that water is low-pressure, drinkable water.
The high-pressure brine that's gonna go out to the ocean eventually, and used to go out to the ocean before our device, had pressure that was getting lost. We take that high pressure, put it into our system, and slam it against new seawater that's low pressure. We transfer those pressures and put it back into the system, effectively reinjecting or recovering that wasted energy. We do so at 98% efficiency, which is about as good as you're gonna get physically. We're also doing it in a manner where we're also, as I said before, we're basically saving these companies 60% of their energy costs by doing this. We're using that same technology in desalination, and we've started to express it or move it into other wastewater. That revenue number that I gave you back here is almost entirely made up of water or wastewater.
We had $1 million in CO2 sales last year, but the rest of the product revenue that we've generated from the onset of this company has been through water. So we're about as close to a pure play on global water scarcity as you're gonna find in the public arena. The fact that water scarcity has taken on a greater prominence globally over the last several years is something that plays to our focus. We're able to take advantage of that and help offset some of these dire needs, whether it's through desalination, which is allowing folks to really scale up in terms of the volumes of water they have, or whether it's through wastewater. On the desalination side, we are currently targeting roughly $200 million of revenue by 2026.
This year we're targeting revenue, or we've guided revenue of $140 million -$150 million total, but that includes $12 million -$15 million of wastewater. That wastewater business came out of basically nowhere. Four years ago, we had $1 million in sales, then it went to $4 million in sales. Last year was $7 million in sales, and this year we're expecting that to be $12 million -$15 million in sales. Initially, on the wastewater side, we've been riding the regulatory wave in China and India, where the governments have basically forced industries to no longer put their wastewater back into rivers or tributaries, but instead turn it into a solid or a liquid, or a minimal liquid. ZLD, which is zero liquid discharge, or MLD, which is minimal liquid discharge.
To do that, they essentially have to boil up that water or somehow get that, get the solids out of the water. We do that through the reverse osmosis, which again, is saving significant amount of energy. As this slide talks about, with desalination, it's basically an unlimited, drought-resistant supply of water. It's taking the water from the ocean. It's something that has been prominent for many years, and over the next decade or two, should start to become more prominent, even in the U.S. As the scale of these projects get larger, you're seeing the cost per cubic meter of water come down accordingly, which is why, you know, we've been able to see that revenue growth that we've had. On the wastewater side, we believe that the potential TAM there is close to $1 billion.
We would not be surprised over the next decade if our wastewater revenue did not replicate what we're doing in desalination. The margins are already similar. We're seeing mid-60% margins, which is a big jump from two years ago, when our margins in wastewater was roughly 55%. In wastewater, the initial verticals that we're getting into have been in lithium, whether it's lithium battery manufacturing, lithium battery recycling, or lithium mining. We're also moving into chemicals or other chemicals, textiles, and municipalities. The municipal side is very exciting because we've got two projects that we're trying to get into, one in the UAE, one in Los Angeles. They're two of the largest municipal wastewater projects in the world, and we believe that we can generate, by utilizing reverse osmosis, significant cost savings.
If this does pan out, it would not be surprising to see other municipalities throughout the world start to use this. In Los Angeles, they're moving towards a marketing campaign that's called Toilet to Tap, which sounds disgusting, but if they're going to get water that was wastewater and get it to a tap type of water, the only way you're gonna be able to do that health-wise is to use reverse osmosis. And if you're gonna use reverse osmosis, you're gonna use our technology. This graph right here shows what our market share is compared to our peers. As you can see that lower line down here, the competitive market share has not really changed. If anything, it's gone down marginally as we've replaced what our competition used to have.
Our competition has not won a large-scale desal plant award in the last eight or nine years. In fact, they came out with a new product that was devised by our founder, and they tried to license that technology two years ago amidst a lot of fanfare. When they came out, the anticipation was that they were gonna break into the industry, and it was gonna hurt our market share. Well, that was two years ago, and they still have yet to win one large-scale award. At the same time, five months later, we came out with a new product called the PX Q400, which was 33% larger and it was able to handle 33% larger volumes of water than our PX Q300. The competition, the Flex from Flowserve, was out to go after our PX Q300.
They were asked by our customers how their technology was gonna compete against our PX Q300 and how it was better. Their response was: "Well, it's not better, but it's almost as good." These are the guys who had the recurring revenue stream from the annual maintenance and the breaking down. So the customer asked: "Why should I even try it then? If I've got one device that I know works, that's working at 98% or so efficiency, and I can put it in and not worry about it, and you've got a reputation of a product that breaks down and needs maintenance, why should I risk my reputation or my job by trying your product?" Four or five months later, when we came out with the PX Q400, we explained how this could be even more efficient, marginally, and handle much larger volumes.
Since then, the PX Q400 has significantly impacted the industry. This year alone, we're expecting 50% of our large-scale desal plant revenue to come from the PX Q400. Meanwhile, as I said before, the Flex has still not made a market penetration. So while the goal of Flowserve was to cut into our market share, it's almost as though the moat around our competitive position has gotten larger rather than smaller. The really exciting part of our business structure, in my mind, is CO2 and where that can go. The entire world has agreed to the Kigali Amendment, to the Montreal Protocol, to the Paris Accord, which is essentially saying, "We're gonna outlaw hydrofluorocarbons." Now, hydrofluorocarbons are man-made gases that have been used for refrigeration. They're very, very efficient, but they're terrible for the environment and for the ozone. Natural refrigerants are the opposite.
They're great for the ozone, but they're not as efficient as the man-made gases. When you look at the use of natural refrigerants, you need to use significantly more pressure to pull away the heat. When you're freezing something, you're not necessarily making it colder, you're removing the heat from it. With hydrofluorocarbons, you need pressures that are more replica of what you're using in your car tires. But with natural refrigerants, you need significantly more pressure. You need thirteen hundred to fifteen hundred PSI to get the same heat removal effect that you have with man-made gases like HFCs. The problem, though, is as temperatures rise, as the ambient temperature of a place gets hotter and you need refrigeration the most, it becomes the most costly.
Grocery stores around the world essentially said, "We will accept this rule, this regulation, that says we have to move away from HFCs and the manufacturing of HFCs and use of HFCs, move towards those natural refrigerants, in the hope that technology will catch up." Based on the response that we've gotten from the industry, from the industry experts, and from the grocery stores themselves, the indication is that they believe that this technology has caught up in the form of our PXG. This slide right here gives you a timeline of what the global phase down rules have been, especially in the EU and the U.S. Europe is about half a decade or close to a decade ahead of us in terms of the phase down.
With Europe, about roughly 80% of that phase-down has already occurred, whereas in the U.S., only 40% of that phase-down has occurred. So what it means from an Energy Recovery standpoint is, if we're going to put our PXG into grocery stores in Europe and in the U.S., in Europe, it's gonna be a brownfield opportunity, meaning that we've got to take the CO2 refrigeration racks that are already in place and essentially bolt our device onto what's existing. With that, you're gonna see increased efficiency, but we think it's gonna tap out at around 40%. Whereas in the U.S., once the technology is accepted in the industry in Europe, and we show them the cost savings, our hope is that the refrigeration racks will start to be built with our device in it.
Our device in CO2 operates very similar to what it did in desalination, but it operates as a compressor and as a valve. If you build a rack around our device, you don't need to worry about the issues of any ancillary components, whether it's pipes or what have you, breaking or causing inefficiency. If we can get that device to be in the middle of a CO2 rack, and the reliability has been proven or at least accepted by the OEMs, the belief is that you could effectively remove a compressor or a valve or two from the CO2 refrigeration rack. If and when that happens, you essentially have cost parity with a refrigeration rack that doesn't have our device in it. It would make the choice of choosing a rack with our device essentially a no-brainer.
In this picture, you see a depiction of how the device works with the refrigeration rack itself. Essentially, what we do is we take that pressure, as you pressurize the gas and you pull away the heat, we take that pressure and reinject it back into the system, not unlike what we do for desalination. We do that at a very strong efficiency level. In an ambient temperature range of about 70%-75 %, our device can provide efficiency of about 20%-25%, even as a bolt-on. Whereas the only competitive product that's out there, the ejector system, tends to do the same thing in that same window at about 10% efficiency. The problem is, once the temperatures rise into the 80s, 90s, or 100, the other device is no longer used because it becomes inefficient.
Our device, on the other hand, the hotter it gets, the more efficient we get. Our device, especially if it becomes inside a rack itself, we believe can get up to as 40 % , 50 % , even 60% efficiency. Essentially, the hotter it gets, the better we get, which is when the refrigeration is used the most and when it's needed the most. With that, our main focus on CO2 is to make sure that the payback from an industrial side, from the grocery store side, is within two years. The one thing, though, that is interesting is, in addition to providing greater efficiency in warm temperatures and when refrigeration is needed, it also expands the load capacity of the refrigeration unit itself. We had one grocery store chain in Canada, a grocery store chain called Loblaw, that reached out to us two years ago.
This chain had to close down about a half dozen different grocery stores because a heat wave hit, and these racks are built to handle the highest temperatures that they've experienced before, plus a little bit of a delta. But the heat wave that came through Canada in June of two years ago was beyond that delta, and Loblaw had to choose: either lose their inventory or shut down the stores. They chose to shut down the stores. Well, if we can use our device as an insurance policy to effectively increase the load, and we avoid the need to shut down for a day or a week, your payback is almost instantaneous, and it's almost a no-brainer. 'Cause our device is only selling for between $13,000 - $15,000 apiece.
Loblaw is one of the ten grocery stores that are utilizing our device right now. This summer we've got ten grocery stores that are utilizing the PXG, broken up between Europe and the U.S.. We've got chains like Delhaize and Carrefour in Europe, and recently, Kroger in the U.S. has used our device. The thought was that if the grocery stores can see the ability to expand their margins, or at least avoid the margin compression of using CO2 with our device, that they would start asking for these devices. What we realized was, it's not the grocery stores that ultimately have the final say. It's the OEMs that are building these racks and installing it, that will control how this transitions.
Because they wanna make sure their reputation remains intact. With that in mind, we've engaged dozens of OEMs around the world to help understand how the technology works and push this into their clients or their customers. Our goal right now is take the data of the cost savings that we're generating this summer in Europe and in the U.S., have a third party write a white paper, we hope to have done by late September or early October, and give this to the other OEMs to show them that in the real world, we've had two summers now of cost savings, and this is what they can anticipate, this is what the downtime is, and this is how efficient it is and how reliable it is. With that in mind, we think that the sales can significantly increase.
The beautiful thing is, once we start to make penetration on CO2 refrigeration in Europe and in the U.S., we can start looking at what those other vertical markets that CO2 offers. And that is heat pumps, which, when you talk to a U.S. investor, you usually get a blank stare, but when you talk to a European investor, their hair catches fire. They want to have one immediately. When you talk about the PX, to get it to be a heat pump, you're simply reversing the process. It's basically refrigeration in reverse. But the really exciting thing is what we can do when it comes to data centers, because while data centers are excluded from the initial phase down of HFCs, they're gonna be facing the fact that they can't access more supply of HFCs. So their feedstock cost that they can access is gonna rise precipitously.
They've already started looking at different alternatives to HFCs for their cooling needs. If they, if we put ours, our PX device, and we align it into arrays, similar to what we do with desalination, we believe that we can solve the issue for data, for our data centers. The opportunity set that we see from the verticals of wastewater and CO2 gives us the belief that the growth that we've seen in the last decade is gonna pale in comparison to what's in front of us. With that in mind, we're gonna be issuing a deep dive strategic playbook in late October.
We're gonna give some highlights in our earnings call on October thirtieth, and on November eighteenth, we're gonna have a webinar that's gonna go deep dive in terms of what we see over the next three to five years, the milestones for investors to be looking at to see if this product is working, the areas that we need to have concerns on to show that it's not working and we'll be scrapping it, and basically, where we anticipate the use of our cash. We've got over $100 million of cash that's been on our balance sheet for half a decade. We need to make sure we generate a greater return on that cash, and by helping spur the growth opportunities in front of us, we think we can do that. With that, I'm happy to open up to any questions. Crickets, huh? Yes, sir.
I have two questions. The first one is, who are the big OEMs that you work with? The second one is, if grocery, data center, desalination, all sort of ramp up at once, do you have the ability to manufacture, you know, enough of these, in due time?
It's a good question. Both those questions are good. The first one, on the OEMs, we're talking to Epta, we're talking to their sister in the U.S., Kysor Warren, we're talking to Hussmann, we're talking to Carrier, we're talking to, Let's see.
You said Hussmann.
I said Hussmann, Epta, basically all the OEMs. There's another one in the U.S., I think it starts with an H. But the beautiful thing is, our new CEO came from Carrier, and before Carrier, he was at Lennox. He spent his entire career as an OEM. So when he first came on as a CEO, back in late October, the first thing he did was he arranged meetings with all the OEMs in the U.S. and then all the OEMs in Europe. He got attracted to the company and joined our board in June of last year, because when he was at Carrier, he saw that Carrier had two of our devices, two of our PXGs, that were being looked at from a heat pump standpoint.
He said that in the industry, you tend to have one or two game-changing technology opportunities each decade, and he saw that with our PXG. The second question was?
Would you be able to ramp up production?
Capacity, yes. We believe we've got the capacity to handle the revenue that we expect to have through 2026. After that, we're gonna need a new facility. Our prior CFO has said that the next new facility would not be built where our current two facilities are in the state of California. They might be in Texas, might be in Georgia, might be in Europe, might even be in China. But what we've been telling people is, a new facility should cost $20 million-$25 million. Shouldn't be a problem, especially with the cash in the balance sheet. We've got $138 million of cash in the balance sheet, and we believe by the end of the first quarter next year, we should have close to $170 million of cash in the balance sheet.
The real question is: How can we best use that cash to increase the returns for our investors? But the capacity shouldn't be an issue. Yes, sir, you had a question in the back?
Yes. So I was at the Ideas Conference in October, in Dallas.
Okay.
You talked about the UAE wastewater contract.
Right.
I was curious to see if any progress has been made towards that, or if that's coming online.
No, I talked to the water guys last week, and the question was really about the municipal facility that is being built in the UAE, and I think it's gonna be the largest in the world. There was a bit of a delay on that. We still believe that we are going to win that award because there are three or four different EPCs that are bidding on it, and we are used in each one of those bids. That's one of the things that we've noticed in desalination, is we may not be entirely spec'd into every project. We are spec'd into many of them. But the ones that we're not spec'd into, we are what's used in each one of the bids.
So if we've got three or four or five EPCs bidding on a project, and all four or five of them are using our device, we can't tell you we're gonna win it, but we feel pretty confident that we will. But we've currently have not seen the bidding process be completed on the UAE. But once that happens, we believe it's gonna be a nice vertical opportunity for us, and could be part of the low-hanging fruit opportunities in wastewater.
You know, what we saw this summer when we were in Europe, was we saw a lot of investors saying that they're turning to their industrial companies that they own in their portfolios and saying, "Clean up how you handle your industrial wastewater, because if you don't, then we're gonna exit your shareholder base, and your cost of capital will rise accordingly." Other areas around the world, there's water scarcity, and companies are not able to use the water they need for their facilities. In Chile and in Argentina, you can't use the water that's gonna be used for the rest of the population for your mining activities, so they need desalination, and the water that they use, they need to be able to reuse that water, and that's where we come in play.
So as I said earlier, until CO2 really starts to take off, we're basically a pure play on global water scarcity, whether it's in developing new water through desalination or reusing the water that's currently being used in the industrial and commercial wastewater opportunities. Yes, sir?
You mentioned that you were thinking $200 million by 2026 in just desalination. What's the line of sight on that, and how confident are you?
The confidence is probably about 70% to get $200 million, closer to 90% to get $190 million. It's kinda splitting hairs. The line of sight tends to be 12 months- 18 months or 24 months in terms of the visibility. When I first started this company in 2018, one of the concerns I had was, we thought we were in a cyclical business because the Global Water Institute that puts out the CapEx spending for the industry always gave a chart that looked like this: It'd be a slight increase in year one, sharp increase in year two, slight decrease in year three, and sharp decrease in year four. Very cyclical in nature.
And my predecessor, and his predecessor, had been telling folks that we're a cyclical business, but we've had four or five consecutive record years of revenue. Which means no investor's gonna get in, they're gonna wait for the cycle to turn. But when I turned to our water guys and I asked them: "How could it be that we're cyclical?" This is as close to a secular business as I've ever seen. As long as I can remember, the world's needed more water, and it seems every five years it gets worse. So what we did is, we backtracked and looked at the actuals versus the projections, and while the projections went like this, the actuals went like that. Once we stopped talking about the cyclicality and started talking about the secular shift in demand for global desalination, we were able to attract the long-term investors.
Since then, you've seen a change in the shareholder price, because we've been bringing long-term investors in, and right now, there's argument that you're getting that CO2 opportunity as a free option. Yeah, if we fail on CO2, the stock will probably take a hit initially, but we'll be able to spend less money, and you'll should see it start to rebound with what we're doing in water and in wastewater. But if CO2 does play out, and we've already seen it being deployed in Europe and in the U.S., we believe that the opportunity set is significant. Yes?
Can you talk— You alluded to operating cost efficiency you've got. Can you expand on that a little?
Sure. Back in, like, the early 2010s, like 2014, 2015, 2016, and 2017, when we made a foray into the oil and gas business, our hope was that we would take the fracking proppant and chemicals away from pumps and just have it go through our device. We spent an awful lot of money building up the infrastructure internally for the back office, but also trying to make this work. Since then, we've started to become more efficient from the production side. We've started to automate a lot of the production. We've automated a lot of our reporting systems, so we've become more efficient from a spending, from an OpEx standpoint, so our OpEx has gone from 77% down to, it was like 48% last year.
I wouldn't be surprised if it came up a little bit this year, because we've got to be building our marketing and our sales teams to really support the CO2 business and to support our wastewater business. In desalination, it's very easy. You know, right now, they basically mail in the orders. You know, if we're the only player in town, everybody comes to us. You have a handful of orders every year that are massive in size. In industrial wastewater, it's the opposite. You've got a massive number of awards or a massive number of requests for your product, but it's, each order is very small in nature, so we need to have the sales teams around that.
But the sales teams that we're building, whether it's in China or in Europe or in the U.S., is negligible compared to the cost that we had been spending on things previously. So with the curtailment and the greater efficiency on the operating side, we've seen our OpEx coming down. Now, while we expect the overall number to be relatively flat, as CO2 and wastewater continue to pick up, as a percent of revenue, that number will continue to decline. And our goal is to get it back towards what most other companies have, you know, in the 30%-35% range. As a small-cap company, you're gonna be spending more than you should be to stay public, and that's one of the reasons that we had such an elevated OpEx to begin with. Yes, sir?
Jim, are the devices for both the desalination and the wastewater treatment identical, or are they, is there an actual difference in the design?
This core design is used in all three of the business segments, whether it's desalination, wastewater, or CO2. The same material science, it's all through ceramics, and it's all through the vertically integrated facilities that we have in California. We tweak them to handle higher pressures. We make them smaller, we make them larger. We tweak what's around it. Like on the PXG, we've got a metal casing around it, so that it can handle the higher pressurized pumps and such or pipes and such. But it all comes down to the same core manufacturing, the same material science, same guys on the floor are building the PX for desal, wastewater, or for CO2. And even when we get to heat pumps and hopefully to the data centers, it'll still be that same technology.
That's one of the issues we had half a decade ago when we went into oil and gas. We needed something that could handle 14,000 psi of pressure and, you know, hundreds or thousands of tons of proppant that went through there. You couldn't use ceramics for that. Instead, we used tungsten carbide. We proved that the technology could do what we said. The problem is, we couldn't make that cartridge last long enough to generate the economic returns that we needed to, so we scrapped that business. But the lessons that we learned enabled us to go seamlessly into wastewater and subsequently into CO2.
And following up on that, as you move from lower volume desalination, in terms of number of devices sold, to assuming you're successful in grocery store refrigerants, that there will be thousands of devices that will be built, is there a manufacturing efficiency, whether it be robotics or some level of automation, that you'll be able to have with your new plant that will be, I mean, just relevant to cost structure, et cetera?
That's a good question. We're already embarking on that, and we've already started to implement some of those efficiencies, which is why the costs are starting to come down. We do realize we're gonna need significant volumes if we're gonna hit those targets that we're gonna be projecting over the next couple of years. We believe that with the new facility, we should be able to handle the capacity needs that we have, and we should be able to reduce the cost per unit as we scale in size, especially as we become more and more automated. But we're using automation, and we're starting to use AI technology to become more efficient in how we produce. Ultimately, our goal is to maintain those margins that we like so much.
Not many industrial companies can claim to have 70% margins, and sometimes, you know, even in the, when they plummet, and it goes down to 65%-68%, it's still a nice competitive advantage. Yes, sir?
I assume they're patent-protected when you patent them?
All of our products are patent-protected. The original patent expired for desal probably, I think it was like ten years ago, but we continued to tweak what we're doing in our PX in desalination, including the Q400, which came out last year. And I believe that those patents are, what? 15 years , 20 years? And everything on the wastewater side, and especially on the PXG side, for CO2, is patent-protected globally.
Any additional efficiencies, we patent that as well?
Right. Thank you, Lionel. Anything else? Yes, sir.
What is the usual sales cycle with selling devices? Who's selling it? Is it you, or are you selling on, based on a system that's sold?
We sell our PXs and desalination to the EPC, so we don't take on the company or the currency risk. We sell it to the EPCs directly. When we're selling wastewater, we're going to the companies within the different industries. The key there is to convince the industries of the need to use reverse osmosis. In China, where we benefited, there was a— when we went into the industry, and we started talking about the efficiencies of 92%, hoping to get it to 96%, people looked at us like we had three heads 'cause nobody else talked efficiency, 'cause they were using thermal. When we did that, though, there was a membrane producer, DuPont, with whom we'd worked for 15 years in desalination, and they asked us if they would, if we'd be willing to joint market with them.
Given the fact that their marketing department is multiple times larger than our company, it was a no-brainer for us, especially if they're gonna do most of the heavy lifting and explain why reverse osmosis needs to be needed. So that sales cycle there is closer to 3 months -6 months, closer to three months, really. In desalination, once a bid is announced, it is usually 12 months -18 months before we ship the product. But we usually know when the bids are gonna be announced, and we put that into our backlog or into our line of sight. Once we sign the contract, we put it into our backlog.
All of our backlog numbers that we refer to from time to time are signed contracts, which gives us greater confidence in the numbers that we put out to the street.
CO2, do you have time?
CO2, it will be determined, I think, over the next six to 12 months as we start to get real.