BioHiTech Global, Inc. (BHTG) Q2 2021 Results Earnings Conference Call August 9, 2021 4:30 PM ET
Scott Gordon - CORE Investor Relations
Anthony Fuller - Chief Executive Officer
Brian Essman - Chief Financial Officer
Conference Call Participants
Amit Dayal - H.C. Wainwright
Christopher Souther - B Riley.
Stewart Flink - Dillon Capital
Edward Woo - Ascendiant Capital
Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the BioHiTech Global Second Quarter 2021 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Participants of this call are advised that the audio of this conference is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of this call will be available approximately one hour after the end of the call today through November 9th, 2021.
I'd now like to turn the conference over to Scott Gordon, President of CORE IR, BioHiTech Global's Investor Relations firm. Please go ahead, sir.
Thank you, Gary. Good afternoon and thank you for participating in today's conference call. Joining me from BioHiTech Global's leadership team are Tony Fuller, Chief Executive Officer and Brian Essman, Chief Financial Officer.
During this call, management will be making forward-looking statements, including statements that address BioHiTech Global's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements.
For more information about these risks, please refer to the risk factors described in BioHiTech's most recently filed periodic reports on Form 10-K, its 10-Q filed with the SEC, today August 9, 2021 and BioHiTech's press release that accompanies this call, particularly the cautionary statements in it.
The content of this call contains time-sensitive information that is accurate only as of today, August 9, 2021. Except as required by law, BioHiTech disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.
It is now my pleasure to turn the call over to CEO, Tony Fuller. Tony, please go ahead.
Thanks, Scott. And good afternoon to everyone on the call. We welcome you to BioHiTech Global's second quarter 2021 financial results and corporate update conference call.
Our second quarter 2021 performance demonstrates consistent execution across both of our complementary waste technology solution. We achieved total revenues of $3.5 million, representing our third straight quarter of record revenue since the company went public in 2015.
This was largely driven by digester purchases by Carnival Corporation as we continue to fulfill orders across the vast expanse of carnival brands. We are encouraged by these results and remain confident in our approach to executing on our operating in our growth plans.
Our complementary waste technology solutions are but two of many both employed and those yet to be developed or deployed in the broad spectrum of solutions. Our vision is to drive sustainability and lead improved environmental outcomes, reduce carbon emissions, reduced landfill usage and create alternative fuels from that which had been destined for Landfill.
Action and deep commitment are needed to reverse the damaging impact of climate change. We are more driven than ever to provide real-world solutions that make immediate impact. The continued expansion of our relationship with Carnival Corporation is encouraging.
We support their commitment to drive sustainability through environmentally friendly food waste disposal. Moreover, our digester data analytics platform provides real waste transparency, which promotes changes in the supply chain, management, purchasing, handling and food preparation, all reducing food waste at its source.
We are actively engaged in opportunities across not only the maritime sector, but also retail, healthcare, government, hospitality, food service and others, which we hope to convert into new client wins in the coming quarters.
We are keenly focused on driving client utilization of our EPA recognized Solid Recovered Fuel, SRF is what we call it. This -- we produce this at our Martinsburg, West Virginia HEBioT plant.
This facility capable of processing 110,000 tons of municipal solid waste annually, while producing 50,000 to 60,000 tons of SRF for use by cement manufacturers and others as a replacement for coal.
We have improved plant operations throughout the quarter. As our investments in solving past inefficiencies and curing mechanical and operational issues sets the stage for reliability and process and consistency in production.
Maintenance and repairs shutdowns at our SRF customer led to weaker than anticipated sales performance. Those issues have been largely resolved and we expect more consistent production, delivery and sales growth in the coming quarters.
With the passage of West Virginia Senate Bill 368 into law in May of 2021, the state actively eliminated solid waste assessment fees for mixed waste processing and resource recovery facility such as ours in Martinsburg, West Virginia.
This is most promising for our expansion plans and traditional communities within the state. We expect this to drive positive and near-term environmental impact through landfill diversion, transportation and fuel conservation.
This bodes well for BioHiTech and our stakeholders as we forge ahead to make renewable energy the norm and leverage the opportunities offered by the states actions to make the development of additional renewable facilities economically more attractive.
To those ends, in June we entered into a project management services agreement with Lone Cypress Energy Services, a firm specializing in the development of waste-to-energy solutions.
Together, we are evaluating and developing new plans for HEBioT project. We're also exploring additional uses for our SRF. This includes additional projects in connection with hydrogen and other renewable technologies, including the use of our feedstock for gasification and bioplastics.
In summary, we are executing on our growth plans, our corporate objectives and our overarching goals of 2021. We continue to drive record revenue. We are smartly leveraging our expenses. We've significantly improved our plant operations.
We've engaged with and learned from our shareholders as we've shared our story, and we strengthened our team and executed at record levels.
With that, I will now pass the call over to Brian Essman, who will review our financial results. Brian, take it away.
Thanks Tony, and hello everyone. The company continued its revenue growth in the quarter ended June 30, 2021 with total revenues of $3.5 million increasing 14% over the first quarter of 2021, 38% over the fourth quarter of 2020 and 171% over the comparative second quarter of 2020.
Total revenues of $3.5 million marks the third consecutive new quarterly high since the company went public in 2015. During the second quarter of 2021, all of the business lines reported revenue growth over the first quarter of 2021.
The overall contribution, revenues, less direct costs increased to 14% of total revenue in the second quarter of 2021 as compared to 8% in the comparative second quarter of 2020. However, decreased from 29% in the first quarter of 2021 primarily driven by supply chain pressures and an increase in stainless steel prices that are used in our equipment sales.
The selling, general and administrative expenses as a percentage of revenues increased to 58% in the second quarter of 2021 as compared to 54% in the first quarter of 2021, and decreased as compared to 149% in the comparative second quarter of 2020.
The increase in the second quarter was a result of a decrease of $190,000 in the digester and corporate line offset by an increase of about 305 in the HEBioT line. The loss from operations as a percentage of revenue decreased to 59% in the second quarter of 2021 as compared to 186% in the comparative second quarter of 2020, an increased from 42% in the first quarter of 2021.
The company continues to achieve growth in the digester and corporate line of business that has been driven by sales to Carnival Corporation, such that the second quarter revenues increased to this -- in the second quarter of 2021 by 15% to $3.1 million as compared to the first quarter revenues of $2.7 million.
The revenues of the HEBioT line have continued to be hampered by maintenance and repair shutdowns at its SRF customer resulting in a 7% increase in revenues to $377,000 during the second quarter of 2021 as compared to the first quarter of 2021.
As compared to the second quarter of 2020, the second quarter of 2021 digester and corporate line of business revenues increased by over 700% from $381,000 to $3.1 million driven by carnival corporation equipment sales.
While the HEBioT line decrease by 58% from $893,000 to $377,000 due to the continued maintenance and repairs shutdowns at its SRF customer, as well as by an adjustment in 2020 relating to a take-or-pay provision in the SRF customers contract.
For the three months ended June 30, 2021, the company had a consolidated loss attributable to the parent of $2.4 million, a consolidated net loss of $3.1 million, incurred a consolidated loss from operations of $2 million and for the six months ended June 30, 2021 use net cash and consolidated operating activities of $4.2 million. At June 30, 2021, unrestricted cash was $2.3 million.
I will now turn the call back to Tony before we turn the call back over to the operator for Q&A.
Thank you, Brian. It is essential that we do everything in our power to drive sustainability and positive environmental outcomes. It's essential that we adapt to the needs of tomorrow. BioHiTech is exceptionally positioned to lead this charge and drive immediate impact.
That is our responsibility. That is our charge. And we take it very seriously. We recognize that change is a slow process. But our products and services and the team that stands behind them, all drive to a singular goal. A goal to evolve the ways in which we address our future world. We do have a choice. BioHiTech Gobal enables the right one.
Thank you for your time today and for your continued support as we carry forth our mission. I am confident that we're on the right track. And our strategies for growth are sound. We are executing and implementing. Together, we are all making a difference.
Operator, please open the call to questions.
[Operator Instructions] One moment please for the first question. Our first question comes from Amit Dayal with H.C. Wainwright. Please go ahead.
Thank you. Good afternoon everyone. Tony, just you know with regards to the Carnival contract. How much of those orders have been fulfilled so far? What remains? And the portion that is remaining, do you expect to complete that by the end of the year? Or will that maybe spill into 2022?
Thank you, Amit. The bulk of the carnival orders will certainly be fulfilled in 2021. I think you'll see just a little bit of spillover in regard to maybe some parts and a few other pieces where perhaps the deployment was underestimated as Carnival tried to balance their occupancy with their needs here. We're seeing some early results that might make us think that could happen. But we are originally said that we would execute in 2020 and 2021. And I think you'll see the bulk of this happen in 2021. So we feel good about where we're positioned with that. So, I think you'll see you'll see us continue to progress with Carnival throughout the year.
Understood. And then, outside of Carnival are we -- do we have any significant other customers for the digesters in the pipeline. Just any color on what's in the pipeline, would be very helpful? Thank you.
Yes. Now, one of the things that we had hoped for as we did Carnival. And one of the things we recognized is that for us that was a transformative relationship. And we knew that our ability to execute on that was going to be observed. And that depending upon our success with them we could earn other opportunities and then we would attract the attention of other people. We've seen that. So, to tell you specifically who we're working with in the pipeline at this moment, not free to do that yet. But we are -- we have seen our results attract attention. We're in discussions and evaluation with some others. As I said in my previous comments that we hope to have some news on here in the coming quarters, absolutely, but we are heartened by the attention and by the digesters have attracted and our execution in the contract has attracted.
Understood. Thank you. Just one last from me, Tony. With respect to the Martinsburg plant, I know, it seems the numbers were a little pressured because of maintenance and shutdown related issues. Getting into sort of the third quarter and fourth quarter of this year, do you see some sort of a bounce back over there? Any color on that would be helpful? Thank you.
I think you're right. I mean, we would have liked to have seen better revenue numbers for Martinsburg. There's no way that we are going to communicate that we're comfortable with that level of revenue. I think the important thing though to take note of here is that we are operating the plant consistently and that the shutdown or the lack of revenue that we saw in the second quarter was really a result of our customers ability to take our product. It was not at all the result of our inability to produce the product. So, we are heartened by that. And we do anticipate better results as we go through the last half of this year. I think I mentioned in the comments, we have been working closely with our customer there and believe that we are certainly positioned now to do better the last half of this year, and are excited to prove that to everybody honestly.
The other thing that that does and I want to -- I don't know that this is a last half of the year solution, but I think it's an important data point for all of us. The other thing that does is it underscores for us the reason that we're looking at other uses for the fuel. The reason that we're investing the time and energy that we are into broadening the marketability for this fuel. And we're encouraged by what we're finding there as well. So hopefully that's help.
It is, Tony. Thank you so much. That's all I have.
The next question is from Christopher Souther with B Riley. Please go ahead.
Hey guys. Thanks for taking my question here. It's great to see the momentum with Carnival. Maybe you could just talk a little bit about the runway potential beyond what you currently have in orders. Do you think there's other potential follow-ons with that customer? And then, maybe you could just kind of rank the multiple digester end markets by areas where you see the highest potential for additional wins here over the next year or so between marine, food service, hospitality, grocery, et cetera?
Sure. Okay. Let me let me first address Carnival. I think that as we look at completing he execution of what we originally contemplated with Carnival, we feel really good about where we are with that. I think there is opportunity with Carnival from a perspective that there may be some of their lines or some of their ships that might find they need a few extra digesters as capacity increases for those cruise ships. That's not -- that that is kind of my crystal ball for that relationship. There's also, of course, with the data analytics, there is a continuing opportunity to provide services and transparency to Carnival and other customers in the way that their supply chain works and their food works.
So this ability to do that on an ongoing basis through our data analytics, we think is important and something that we're committed to growing with everyone, because it's a part of the solution to this problem of food waste at its inception. Because we think we offer the solution at inception and at disposal. From the standpoint of looking at the other verticals that are out there, I mean, we've long talked about the fact that doing this with Carnival establishes the fact that we have a solution that works on the ships and works on the water. We also have an industry there that has been slow to come back and is still working through that. And other players in the industry that are smartly and judiciously managing their capital structure as you go forward. There's opportunity there. There's no doubt about that.
But when you look at the other verticals and I appreciate your question. As we discussed it today, we do see the opportunity in retail. We do see the opportunity in healthcare. I've got some background as a retailer and I know the benefits that will come from managing that supply chain as you provide this solution in that sector. So I believe that there's opportunity there. We see that -- healthcare obviously there we've done deployments before in the healthcare arena and we're encouraged by what we can do there and are excited to see the solution go that direction as well.
Government, is another area that if I just kind of took the top three besides Maritime, I would say, government is another one that's just logical. You look at the appropriate pressure and direction that we're taking from a government perspective to be more environmentally conscious, our solution works and it should work in those facilities. So those would be -- that would be the grouping that I give you as the as the top three there. Fair enough.
Yes. No. That's very helpful. And then maybe just you could elaborate on a bit on the targeted deliverables and timelines potentially with the agreement with Lone Cypress. It may be kind of too early to tell at this point, but just what are kind of the key focuses of that program that you've got there?
Yes. I'd be glad to give you a little bit more color on that. Really the area where we have focused first has been on this area of the alternative uses for the fuel. To take the SRF and to take that which we were digging holes in the ground and burying and convert it not we but we as a society. And convert it to a fuel. I mean that is a beautiful circular economy type of a story. And to broaden the use of that not only makes sense for us as a society, because it encourages the use of this that we were all thrown away. But it makes sense for us as a company. Because you then have broadened your customer base for the product that you produce.
So, with the efforts in West Virginia recently, I talked about Bill 368 and what it does. But the other thing that it does is we have been deemed a manufacturing facility. So we take municipal solid waste, so we manufacture fuel out of it. So to broaden the market ability for that fuel that's been a initial focus of Lone Cypress as we've worked on that together. The other thing and kind of the next step in the process with them is the evaluation of additional projects in our pipeline. And we entered into this because we recognize the fact that as we look at the multiple additional projects that people have had brought our way we need to evaluate with them, which is the most economically viable. Where is the best market to do it? Where can we best leverage some of this new technology for additional uses of our fuel? And candidly we don't have an in-house capability of managing large-scale construction projects that we are determined to bring the resources to bears so that we use our resources wisely as we build the next plan. So they will help us with that. So that's been -- that's a little bit more information on what we're doing with them. And that's the priority that we've been approaching the work with them.
That's very helpful. And maybe just the last one here. Would you be able to quantify from ROI or profitability. What you think the impacts in what -- on the bill in West Virginia would have in that current plant in Martinsburg in near future potential plants in the state there? And are there any other states you think where there might be similar momentum with similar types of help for you guys?
There are still a lot of moving parts with that. So it's hard to specifically quantify it. The thing that it does for you though is it allows you to address the different avenues of waste in a manner that reflects the market. So we're able to take a market approach to how we dispose of different streams of waste with more confidence, with more freedom than we had before. The other thing that is kind of the other non-economic factor there that I think we can miss if we're not careful is the fact that it is such a cooperative working relationship with the State of West Virginia. A state that is positioned in a key spot as our country develops energy policies. And the fact that we have been able to work with the State of West Virginia and be recognized for what we are, which is a manufacturing operation that's using solid waste.
That's helpful. Appreciate the color. Thanks.
[Operator Instructions] The next question is from Edward Woo with Ascendiant Capital. Please go ahead.
Yes. Has there been any inventory or component shortages that you've seen?
Our team has really done a good job of managing this supply chain and they got out in front of it. So, I can't say that there have been shortages. I can tell you there has been impact. And we alluded to that in the script and then in our filings. We have seen stainless steel pricing go up. And that that did have a bit of an impact on our margins over the course of this quarter. But we've not been impacted by shortages, although, we know they're out there. And I just give a lot of credit to our team for looking down the road and addressing that even while accelerating the rate of production on the Carnival orders. So I rightly brag on them for what they've done there.
Great. Well, thank you for answering my questions and wish you good luck. Thank you.
The next question is from Stewart Flink with Dillon Capital. Please go ahead.
Hey Tony and Brian, congrats on a great quarter.
Hey, good afternoon.
So my first question is I'm looking at the balance sheet. And I see two sets of restricted cash, one under current assets and one under total current assets. Could you comment on what they're for? And at what point if any they may be released into general cash for working capital?
Those two are all related to the Entsorga, West Virginia bonds. The non-current portion is a bond reserve fund. Those come back to us at the end of the bond. Those that are up in the current assets are a mix of operational funds that are specific to such items as taxes insurance as well as that is where they accumulate the payments that we make towards the interest and principal.
Okay. I have one other question. I'm looking at G&A of little over $2 million for the quarter. Is that something that you expect to be normalized over the next four quarters? Is it -- I think it may go higher or lower. What's your thoughts on that?
One of our goals is to keep it rained in, so that it's not as heavy as it has been in the past. The second quarter was impacted by some solid waste assessments and property taxes at the HEBioT facility, that is just the reality of the facility becoming operational, as well as effectives July 1st under the Senate Bill we will no longer be responsible for paying the solid waste tax going forward. Historically, the state has treated us as a landfill and we've contested that and we're moving forward from that. So two million we bring another HEBioT plant up. Hard to say where it will be. Our focus is to not increase it unduly without a reasonable return.
Great. Thanks. Keep up the good work guys.
Hey, thank you.
Showing no further questions, I will now pass the call back to Tony Fuller for closing thoughts.
I want to thank all of you for participating on today's call and for your interest in BioHiTech Global. We look forward to sharing our progress with you in future updates. Thanks, and have a great day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.