It would be remiss of me to conclude without acknowledging the ongoing hard work of all of our employees who are committed to making ours the safest, lowest cost and most profitable company in our industry. Our operational team continues to deliver innovative ways to make our PAC business more profitable, while maintaining the rigorous high quality standards that have made us a trusted partner for all our customers. In closing, I’m proud of all that our team has and continues to accomplish. While pleased, I am far, far from satisfied. I remain confident that the best remains ahead of us. We look forward to providing you with further updates as we have them. With that, I will turn the call back to our operator to move us to Q&A.
Operator: [Operator Instructions] We will go first to Gerry Sweeney with Roth Capital. Please go ahead.
Gerry Sweeney: Rob, I was wondering, obviously you had the contract that you announced, but I wanted to see if you could maybe discuss the market, what is going on out there, sales initiatives, obviously with the PFAS regulations coming down, the other people must be seeing this GAC deficit coming. Just curious as to how many people are talking to the funnel just maybe even the tone and tenor of people looking for new contracts.
Robert Rasmus: As we have spoken in the past that the market for activated carbon in general, not just granular, is very opaque. And so one of the things we set out to do early on was we identified over 100 potential lead adopters for our granular product. And they were across a wide variety of industries. And so what we did is we went out and marketed to them, brought up our technical specifications, brought them samples, and that is in essence what we did in terms of our increased R&D expense. And that helped us form an even better view of market and market demand. The market is, as we have mentioned before, is under supply demand was continuing to grow even before the PFAS regulations were promulgated. I think the best indication of demand is that were able to contract approximately 20% of our future granular production, six to eight months in advance of beginning that production and that we are in very active and final stages of negotiations on several other contracts.
So hopefully that provides the color you were looking for.
Gerry Sweeney: And also just speaking of the contract that five million pounds reading your press release on that, it sounds as though that is actually with maybe an environmental service provider, not necessarily a water utility. And you had discussed looking for different end markets not necessarily selling entirely to the water utilities, I’m assuming, I read that correctly on the environmental service provider. And is that actually a better pricing opportunity than the water utility side?
Robert Rasmus: I think that, one, we don’t comment on the specifics of individual contracts, but you are correct that it is not a municipal water utility. We view municipal water utilities as a stable, everyone knows that is where the market is and that there are going to be substantially increased needs in terms of demand to meet the upcoming PFAS regulations. But there are wide variety of other users of granular activated carbon at what we consider even higher pricing and higher margin than what the water utility market is going to be.
Gerry Sweeney: I would suspect that environmental side that is probably front and center and people want to deal with PFAS, whether it is coming leach from landfills or industrial sites, I would imagine that would, as you were saying, that probably has significantly better pricing opportunities than the dare say boring water utility market
Robert Rasmus: I wouldn’t say the water utility market is boring because it is certainly a core component of both the powdered business and the granular activated carbon business. But as you correctly point out, there are a wide variety of uses. It is not just eliminating PFAS from municipal water treatment facilities. It also relates to groundwater, soil contamination, preventing groundwater from that is contaminated, trapping those contaminants before they leach out of the soil and into the drinking water or into the creeks and streams and rivers of the various communities. There is also biogas, bio methane. They are a wide, wide variety of applications. And again, that is what makes the granular business so attractive. It has been turbocharged and will be turbocharged by the EPA PFAS regulations, but that is far from the only component of the increasing demand for granular activated carbon.
Gerry Sweeney: And then switching gears to the PAC side, obviously multiple quarters of price expansion. I think you even alluded to in your remarks that there are a couple lower price, lower end contracts total roll off. Curious as to how much more opportunity on pricing there is for on the PAC side?
Robert Rasmus: At some point the pace of price increases has to abate. You can’t maintain double digit price increases forever. I wish we could. But it is certainly not realistic, but it is really a testament to the quality of our business development team, how they have been able to repackage those former loss making contracts and get the average selling price increase. But one component of the price increase is not just better relationship management, but it is also penetrating new markets, such as there still is a usage for pack and groundwater remediation, soil remediation, and we have been able to tap these attractive new markets which have higher average selling price than the traditional coal-fired power plants scrubbing those emissions. So it is a combination of factors. It is improving the price point and our existing power generation business, as well as the expansion into new markets which carry higher prices.
Gerry Sweeney: Just curious on the PAC groundwater remediation opportunity, is that PFAS related or is that just other opportunities?
