BioHiTech: Blowout Quarter

| About: BioHiTech Global, (BHTG)
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BioHiTech has announced its most successful quarter since inception.

BioHiTech, with the recent announcement, is now not only showing that its model-shift is having success but that it's gaining momentum.

I outline how Q1/16 digester sales should prove out as model-derisking points on all durations.

If you haven't yet taken notice of BioHiTech Global (NASDAQ:BHTG) - a cleantech startup leveraging propriety, hardware-based, food-digester systems as well as a software-based, data/analytics-platform value proposition - now might be a good time to do so. Closely following the release of full-year financials, financials in which I recently made the case clearly evident that the model-shift at BioHiTech is showing traction and success, BioHiTech is out with news that it's completed its single most successful operational quarter in company history. BioHiTech's model-shift isn't just showing success, as I have already alluded to, it's beginning to show serious momentum. Again, this is momentum that might be worth a few round lot investment orders into. Let's break this out.

First, if you're new to the BioHiTech story or haven't yet had a chance to read my full-year financial breakout (linked above) - please do; knowing the current financials and the current model-shift traction is important to risk managing the story here. And who knows, you might disagree with my thoughts on the company entirely. Regardless, playing catch-up in this instance, I believe, is a big value-add to total analysis.

Assuming those reading this update note are up to speed at least as of "year-end," what BioHiTech announced regarding total digester sales could not be more encouraging. BioHiTech announced it sold a whopping 20 Eco-Safe Digesters during Q1/16. Now, while this might seem like something of a trivial number in volume - to some not familiar with startups I'm sure it does - the reality is it just isn't; this is meaningful.

BioHiTech now exits Q1/16 with a total backlog (a non-GAAP key metric that BioHiTech reports regularly and a key metric that I believe is indicative of company health - at least at this point in its maturation) of 90 units. Why is this important? Because BioHiTech doesn't manufacture its own product and doesn't carry the necessary inventory to fill orders on an immediate basis - this helps keep its balance sheet as efficient as possible - it also can't "fill" orders "on-demand." More importantly, this prohibits it from recognizing revenues associated with sales on-demand. Put another way, BioHiTech's backlog figure (again, at least at this point in maturation - prior to it being able to carry necessary inventory to satisfy orders on-demand) is directly indicative of future financial performance (inclusive of cash flow performance). BioHiTech's backlog being at 90 units currently and BioHiTech having the single most productive quarter since inception are something I like to see, especially considering I've stuck my neck out for this startup. BioHiTech is coming through in a big, big way and it has been impressive so far.

But the good news from the recent announcement didn't just stop at the "numbers" level, there was more. The "internals" of the sales, in my opinion, were equally as stellar:

  • BioHiTech's unit sales were diversified across both domestic and international customers - fragmenting regional customer concentration, evidencing clear brand and value-prop recognition across regionally diversified areas, evidencing resonating marketing messaging, evidencing successful sales traction at scale, and maybe most importantly evidencing an immediate-term ROI on international subsidiary launches as well as international distribution agreements. All told, any maturation of any of the above will be derisking moments for the BioHiTech story - which still does possess significant risk - and should do well to reprice future funding rounds higher. Again, this is meaningful.
  • One of the BioHiTech new customer launches was with Camelback Resort, an interactive mountain resort in the Pocono Mountains (and the biggest indoor waterpark in the Northeast U.S.). This, like the 2015 announcement that BioHiTech had placed digesters at franchise locations of large restaurant chain Golden Corral, leaves open the door for much, much larger "in-book" or existing customer selling. Anybody with a background in sales knows these sales, assuming some are created, have faster sales cycles, greater retention levels and numerous ancillary benefits (more efficient marketing spend, potential network effect, more efficient G&A, etc.).
  • BioHiTech again evidenced multiple enterprise vertical-traction with its digester sales, selling into verticals representing hospitality, retail, healthcare, food service and entertainment. While this might seem similar to the first bullet point, it isn't. Diversification by "region" shows potential for scale, diversification by vertical shows potential derisking of current and future revenues by fragmentation of customer concentration. To put the potential future derisking into context - consider the following: according to BioHiTech's SEC filed 2015 10-K, during full-year 2015 two customers represented at least 10% of revenues, each accounting for ~13% of total revenues; during full-year 2014 one customer represented at least 10% of revenues, accounting for 13% of revenues; during full-year 2015 four customers represented at least 10% of accounts receivable, accounting for 17%, 15%, 11% and 10% of accounts receivable; during full-year 2014 three customers represented at least 10% of accounts receivable, accounting for 42%, 33% and 13% of accounts receivable. Quite clearly, because of its immaturity, there is some customer concentration risk here. BioHiTech continuing to evidence a derisking of this is going to be huge into driving investor confidence and building out its shareholder base.

All told I continue to be impressed with BioHiTech. I also continue to be impressed with CEO Frank E. Celli - who has come through on all things he's promised he'd come through on in phone conversations and email correspondence; this isn't all too usual, unfortunately, on the startup scene. BioHiTech appears to have momentum and it appears that its quantifiable, data-based ROI story is resonating more and more (and with acceleration) on sales calls. All of the above should do well to reward those early investors.

Good luck everybody.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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