Renovare Environmental, Inc.
Q1 2019 Earnings Call Transcript

Published: 16 May 2019

[Operator:]

Greetings and welcome to BioHiTech Global First Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host. Rich Galterio.

[Rich Galterio:]

Thank you operator and good afternoon listeners. Welcome again to the BioHiTech Global first quarter 2019 financial results conference call. In addition to myself with us today are Frank E. Celli, our Chief Executive Officer and Brian Essman, our Chief Financial Officer. I would like to start off by providing a brief overview of our business progress in the quarter followed by a more detailed discussion of our results from Brian Essman and then we'll turn the call over to Frank our CEO to provide an overview of our growth strategies as we move through the remainder of 2019. During the quarter we achieved 14.2% revenue growth led by 79.4% increase in our management services revenue from Gold Medal and 10.7% growth in our food waste digester business. In our digester business we saw improving metrics compared to Q1, 2018 and overall rental revenue, number of units under contract and the contribution margin of that revenue. While Q1 digester revenue was up modestly, the number of units under contract increased by 37.5% reflecting market acceptance of our less expensive Revolution Series Digesters. We continue to expand our pipeline of multi-unit leasing opportunities with larger customers and strengthen our distribution capabilities with our recent distribution agreement with a national waste management services company. We're confident in our plan to accelerate growth in this business that Frank will discuss later in the call. Our sustainable food waste solution is also starting to get media attention with our installed at Lincoln Financial Field, The Home of the Philadelphia Eagles being featured in an article by Ford's [ph]. The largest driver of revenue growth in 2019 came from management services to Gold Medal. As we've stated previously this business relationship offers many synergistic opportunities for our technology and provides a revenue stream with almost no incremental cost. We achieve several significant milestones this quarter that will help us to rapidly grow revenue beginning in the second quarter and most significantly in the second half of 2019. First, we commence commercial operations at the nation's HEBioT facility located in Martinsburg, West Virginia on March 29, 2019. The Martinsburg facility began ramping operations in April and is expected to contribute meaningful revenue in the second quarter that will become more pronounced in the second half of the year. We anticipate the facility will generate $7 million of high margin revenue each year by processing up to 110,000 tons of municipal solid waste each year while diverting as much as 80% of that waste from landfills. As you were probably aware, our HEBioT technology produces an EPA recognized solid recover fuel. Second; we submitted an application for final approval from the State of New York for a second HEBioT facility in the City of Rensselaer's southern industrial area. The planned facility is expected to generate approximately $12 million of high margin revenue annually and we've already received local permit approval for the facility from the City of Rensselaer. We continue to target completing construction of this facility late in 2020. Third; we signed a distribution agreement with a national waste management services company to market our line of food waste digester and patent to data analytics technology to its expensive customer base. And fourth, we completed the development for the launch of our new Sapling Digester. A larger capacity addition to BioHiTech's line of revolution series digester. Each Sapling Digester is capable of diverting up to 800 pounds of food waste per day of 146 tons from landfills each year. We recently received our first multi-unit Sapling order from a grocery chain with 19 locations. The six Sapling units to be installed at this grocery chain's locations are capable of diverting from landfills as much as 2 million pounds of food waste each year. The elimination of the transportation of this waste would result in a reduction in CO2 emissions by the equivalent of removing over 120 trucks from the road which gives you an idea of the positive environmental impact of this technology. At this time, I would like to turn the call over to Brian Essman, our Chief Financial Officer to discuss our financial results.

[Brian Essman:]

Thank you Rich and good afternoon to everyone. Total revenue grew by 14.2% in the first quarter of 2019 with total revenues of $738,000 compared to $646,000 in the comparable 2018 period. Year-over-year growth was driven by our management services revenue from Gold Medal which increased by 75.4% to $250,000 as well as buy a 10.7% increase in recurring revenue from our digester rental and data analytics platform that totaled $488,000 in Q1, 2019 compared to $440,000 in 2018. As Rich mentioned earlier, we focused much of our marketing efforts during the first quarter on larger multi-unit opportunities with longer sales cycles and establishing new distribution partnerships with waste management services providers. Still the number of digesters under lease grew by 37.7% to 176 units compared to 128 units in the first quarter of 2018. Our pipeline of multiple unit opportunities has growth substantially and we expect to see the results of these efforts become more evident in the second half of 2019. We also achieved improving metrics from our digester leasing business with cost of revenue declining as we benefit from a great base of revenue generating units in the field and less maintenance expenses associated with our Revolution Series Digester. In fact, margins improved to 37.5% compared to 23.1% and exceeded our target of 30% to 35% we stated in our yearend call. We continue to deemphasise the de-emphasis of direct unit sales. Well there were no sales in this quarter, we do expect some future sales and certain reseller markets mainly internationally where leasing models are not common. Revenue from Gold Medal services has not resulted in incremental cost through the leveraging of our existing management team. Operating expenses for the first quarter of 2019 increased by 34.8% to $2.7 million compared to $2 million in the first quarter of 2018. Selling, general and administrative expenses increased by $746,000 primarily the result of $544,000 increase in other expenses including the write-down of cost associated with an MBT site and the start-up cost of our marketed [indiscernible] HEBioT facility. Personnel related expenses increased by $138,000 or 13.1% quarter-over-quarter included in this number stock compensation a non-cash expense increased by $218,000 as a result of grants made in the second half of 2018. Base salaries and payroll decreased by $65,000 or 7.8% due to staff reduction we made in late 2018. That decrease was offset by increases in staff and payroll expenses at our Martinsburg, HEBioT operations. Our loss from operations in the first quarters of 2019 increased to $1.9 million from $1.3 million in the comparable 2018 period. The increase in operating loss is a result of the $700,000 increase in operating expenses partially offset by increased contribution margin dollars. Now to our balance sheet, we ended the first quarter of 2019 with $1.4 million of unrestricted cash with shareholders' equity of $8.8 million compared to $2.4 million of unrestricted cash with shareholders' equity of $10 million as of December 31, 2018. I will now turn the call over to Frank to discuss our growth strategy as we move through 2019.

[Frank Celli:]

Thank you Brian. In the first quarter of 2019, we're just beginning to scratch the surface of the tremendous potential of our sustainable technology platform for the waste industry. This past year, we laid the foundation that set us up for significant future financial growth through our acquisition of controlling interest in our Martinsburg, HEBioT facility while we strengthened our partnerships with Gold Medal, Kinderhook and our technology partner [indiscernible]. Now we're full swinging to execution mode and we're very excited about what lays ahead for BioHiTech and our stockholders. When we talk about execution the first and most important accomplishment in this area is commencing operations at the nation's first HEBioT facility in Martinsburg. The opening of this facility is the cornerstone of our future growth plan. It represents the hard work of all of our employees and the belief of all of our stakeholders that we can effect positive cost effective change in the waste management industry when it comes to large scale municipal waste. We commenced operations at the end of the first quarter and we're very pleased in our progress thus far. Since the plan is opened commercially, we've quickly developed ramping operations including received lease on a daily basis and progressing through each stage of the plants mechanisms. As you can imagine, it does take some time to fill 55,000 square foot facility even as we're processing over 200 tons per day and at each new stage the plant has operated as expected or in some cases better than expected leading to a progressive ramp in revenue as well. Based on our first month in half of operations, we're confident that we'll be receiving the economic benefit of running a full planned operations in the second half of this year and thereafter. In addition to driving high margin revenue the Martinsburg plant commencing operations also serves a very important function for our company. The ability to showcase how we can divert 80% of waste from landfills and potentially be a part of the solution to the growing plastics problem in the US. We've mentioned several times about conducting tours of the facility, the members of the waste industry, large corporations and municipal officials from numerous states. While that may seem like a small thing we believe it's critical to building a roadmap for success in this business. It's creating awareness and we've already begun to have discussions regarding a number of business relationships including several with municipalities seeking to potentially use our facility and technologies as a solution for their waste disposal needs. The second major part of executing our HEBioT business is layering on additional facilities and we're excited about where we are, with a number of potential future locations including Rensselaer which we've discussed in this call. We're far into the permitting process and believe are on target for completing a facility at that location in late 2020. We're also making progress and discussion to sign additional facilities in the North East and look forward to updating on our progress in the coming quarters. In discussing our Digester business, I want to emphasize that while revenue growth has been modest we're making significant progress in building value that we believe will lead to accelerating unit growth and more importantly a solid and predictable, time margin revenue stream that grows every year. We've finished the first quarter with base of lease contracts that was 37% greater than this time last year and we believe we can prove on that with our strategic plan to grow the business. First as we stated in the third quarter of last year, we focused the majority of our sales efforts on larger multi-unit opportunities either through direct relationships or by establishing distribution relationships with traditional waste industry partners. While these sales cycles improved to be longer than we anticipated our pipeline continues to grow and we're excited about where we are headed. During the quarter, we announced our first distribution agreement with a major nationwide waste services provider and we expect to add other large companies as distributors this year. That first relationship is already opening the door to some very interesting large scale unit opportunities. We're looking at some of our success in multi-unit opportunities companies like Sprouts Farmers Market have installed 18 units and we're hopeful to expand significantly further into their store network. We've installed multiple units for our health services network that can potentially grow to more than a dozen units. We also recently announced a seven unit order with another regional grocer that included six of our new Sapling Digesters. In speaking about the new Sapling Digester it's another example of how we design products to meet customer needs and achieve better performance. The Sapling is a larger capacity unit similar to our Eco-Safe 400 that does not require special or electrical or plumbing hook ups. We've also completed the development of our BioHiTech [indiscernible] a bolt-on product for high volume food generators. Our penetration into the hospitality market continues in earnest with expansion opportunities in hotels, sporting venues and travel hubs. Both of our technologies are starting to gain media awareness a solutions for the growing race problem in this country. Our [indiscernible] and Bloomberg are helping our cause to get the word out and lead environmentally responsible change in this industry. Before I turn the call over to your questions, I'm pleased to announce that on May 10, we closed $1.25 million Series D Preferred financing led by management and several long-time investors in the company. The Series D is convertible on a fixed price of $3.50 a share. This financing demonstrates the sheer belief in the value of what we've building here. The total offering is $2 million and we expect to close on the balance in the near future. This financing will help us to continue our growth plans and build value for our stockholders. Once again, we'd like to thank our investors for entrusting a portion of their investment dollars in our company and our dedicated employees for their efforts. Operator, this concludes our prepared remarks and you can now open the call to questions.

[Operator:]

[Operator Instructions] our first question comes from the line of Walter Nasdeo with Ardor Capital. Please proceed with your question.

[Walter Nasdeo:]

Obviously you're moving forward on all fronts here and [indiscernible] and we're impressed with the progress. One of the things that I wanted to ask about is, a little bit more high level and how is the development of the recycling aspect of the business coming. Are you able to kind of pull in like plastics and things like that to have more of like a general appeal to the municipalities instead of just for the municipal solid waste, but to come in with more of a like a renewable, recyclables kind of aspect from it. Is there any development on that front?

[Frank Celli:]

Interesting question, Walter. The recycling industry in the United States is in a pretty significant crisis right now as you're probably aware, it's probably I'm assuming the driver for the question. When we initially developed both of our products, the emphasis wasn't on necessarily solving for this, this recycling problem nobody really quite frankly saw that coming. But with China's ban and with some additional countries like Vietnam and India coming online, it certainly has created a significant issue around plastics in particular as well as paper recycling in the United States. Municipalities where they a year ago were getting rebated for the recyclables are now looking at paying significant [indiscernible] for their recyclables in many cases as high if not higher than for solid waste, which is not something quite frankly, we really anticipated however it's huge opportunity we think for us in the sense that, it's another stream of feedstock that would yield high quality and high volume of alternative fuel, so as we kind of go forward we certainly are thinking about areas where there's recycling prices and where we can potentially be a solution for that plastics problem. The unique thing about recycling is if you're not handling municipal solid waste, the permitting process is exponentially faster. So we're definitely evaluating it, we believe there's an opportunity to be a solution for some of this problem and we think we can deploy technology quicker than what we would otherwise be able to do for municipal solid waste, but there's also that social sort of element where folks still envision recyclables being turned into recyclable park benches and so there's little bit of an education process I think that has to take place. But no doubt we see it as a huge opportunity for additional development projects for us.

[Walter Nasdeo:]

Just to be clear, your current technology would need to be modified to be able to handle the prospects or could it currently go right into your waste business [indiscernible].

[Frank Celli:]

No, we certainly could handle plastics with our existing technology. The fact and the matter is, the technology we've got deployed in Martinsburg is significantly more extensive than what would be needed if you were handling just specifically plastics. So the plant in Martinsburg is a solution for plastics today but there are other development opportunities that would be less costly and probably quicker to deploy, if we were just receiving plastics and paper products.

[Rich Galterio:]

Walter this is Rich, just to add on to that. The Martinsburg facility today and mixed municipal solid waste there's a lot of plastic still. I mean people sometimes don't recycle so there's whether it's plastic wrappers or there would be occasional plastic cups and things like do make their way into the trash and the facility is more than capable of handling plastic it does so every day now that it's open so it is a solution today, it does work today and I think what Frank's getting at, is if we want it to really gear it towards specifically plastic, we could build facilities towards that, we're looking into that and strictly handle that. So it does handle plastics right now and it could potentially be part of a solution moving forward.

[Walter Nasdeo:]

When you look at the municipalities handle the municipal solid waste along with the recycling typically they have to separate, one would assume that they have to do that, it would dramatically reduce the cost of cap gathering, trash, recyclables everything into one container and just delivering to you guys. Is that something that you could market that type of solution to the local municipalities to reduce their internal operating expenses to manage this?

[Rich Galterio:]

Yes that's a great point. With some of the things that's going on with China not taking recyclables, India and all of those countries moving out of it. I think that you can make the case that, if they went to a single stream and didn't pick up that separately and sent it directly to our facility the ultimate outcomes from a less CO2 emission, less methane, with all of those bad greenhouse chemicals will be reduced significantly by going through our process and ending up with a solid recovered fuel as opposed to plastic ending up in the ocean and a lot of other places where ultimately it ends up now because the recycling effort as you can read every day in papers and on the internet is starting [indiscernible].

[Walter Nasdeo:]

Thank you very much. I appreciate the answers guys. I'll get back in the queue.

[Operator:]

Our next question comes from the line of Vincent LaBarbara with Network 1 Financial. Please proceed with your question.

[Vincent LaBarbara:]

Hi, Frank. As someone who's been following the process from the start it's pretty exciting to see how far you've come and it makes me very excited for the future. Have you started producing the fuel? And what [indiscernible] the demand the type of [technical difficulty]?

[Frank Celli:]

Yes we have started producing the fuel, in fact. We manufactured our first loads of fuel earlier this week. So we're pretty excited about that, we sent it out for testing initially the review based on sort of visual inspection whatnot is that, the fuel is really high quality. So we're pretty excited about the yield of the fuel that we got, we're not surprised based on the amount of packaging in waste in United States, but we're still waiting on technical sort of testing to come back to tell us, “hey, do we meet the criteria or not?” we're pretty excited about it. The demand for alternative fuels in general is growing, enormously. So I can tell you that there's - we have more demand right now from users of this fuel than what we could possibly supply which is good problem to have, I think it's a great catalyst for us into our sort of next development projects. So the users of coal are under continued scrutiny in the United States as far as the emission standards and lowering their carbon footprint. So right now we've got demand around the Martinsburg facility. We've got demand in the Baltimore market will be high value [ph] at Pennsylvania and all the experts are not seeing demand for alternative fuels shrinking. So it's a good thing to have in support of our future development project. So we think not only will we able to sell all the fuel that we can manufacture, but we think - there should be a pretty positive effect on pricing as well.

[Vincent LaBarbara:]

Great. Thank you Frank. I'm really looking forward of your future execution.

[Frank Celli:]

Thank you.

[Operator:]

We have no further questions in the queue at this time and I'd like to turn the call back to Frank Celli for closing remarks.

[Frank Celli:]

Thank you. Well I'd like to once again thank everyone for joining today. Thank you for continuing to monitor the progress of the company and we look forward to hearing and speaking with you again next quarter. Thanks very much.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.