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Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the BioHiTech Global Third Quarter 2021 Financial Results and Corporate Update Conference Call. [Operator Instructions] A webcast replay of the call will be available approximately 1 hour after the end of the call through February 18, 2022.
I would now like to turn the call over to Scott Gordon, President of Core IR, BioHiTech Global Investor Relations firm. Please go ahead.
Thank you, Haley. Good afternoon, everyone, 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, November 18, 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, November 18, 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 third quarter 2021 financial results and corporate update conference call. Our third quarter 2021 performance marks the fourth consecutive quarter of record revenue growth since the company went public in 2015. Revenues for the quarter grew 31% to $4.5 million versus the prior quarter and 509% over the year-ago quarter; further demonstrating the consistent execution across both our complementary waste technology solutions.
Our message of driving sustainability and leading improved environmental outcomes, reducing carbon emissions, reducing landfill usage and creating alternative fuels from that which had been destined for a landfill is resonating loudly and getting louder. Our growth this quarter was driven by continued digester sales to the brands comprising Carnival Corp. and by additional sales orders from higher education institutions as well as the increased sales of our solid recovered fuel or SRF, through increased production at our Martinsburg plant. We are heartened by the resumption of cruising, and we look forward to continuing our strong relationship with Carnival in the future. We are pleased with our results and are committed to executing on our operating and growth plans. In addition to our strong revenue growth, we also made significant progress in our cost cutting efforts, improving our profitability. As Brian will cover later, we've had strong performance in reducing our losses, improving SG&A and strengthening gross margins. We will continue to focus on cost optimization as we work to achieve greater profitability. The exceptional accomplishments of our team this quarter were rooted in our continued determination to drive the value of BioHiTech solutions through a diversified and ever-growing mix of industry verticals. We were encouraged by the additional orders received from large university clients, expanding utilization of our digesters to an increased number of dining services locations. These installations represent the unwavering and innovative commitment to sustainability with our solutions. Our commitment to these educational institutions go beyond supplying them with our solutions. We're also working with them and supporting these future leaders in gaining practical experience and perspective and understanding how our solutions impact real-world problems. BioHiTech has created relationships with programs in higher education to enable students to become a part of waste management solutions. Students at West Virginia University, Marshall University, the University of Delaware, the University of Maryland, Shepherd University and Hagerstown Community College are all able to observe innovative sustainability technologies firsthand. Through site visits to our plant in Martinsburg and their coursework, students learn about aerobic food waste digesters and our process of creating solid recovered fuel from diverted non-recycled refuse that was destined for the landfill. As a part of the Capstone course students at Marshall University are also conducting research on glass, rock and dirt as well as other inert materials that are byproducts today of our Martinsburg operation. Results from the research will enable BioHiTech to not only increase landfill diversion, but also to once again put to use something that was once destined for a landfill. These students are seeing the value of our technologies and are encouraged to be a part of the early development of sustainability practices. Moreover, we are pleased with the ongoing progress at our Martinsburg plant as we have begun to achieve scale and production and address limiting issues. We're also excited by an ongoing program at a large supermarket chain, where we are jointly evaluating the impact of our digesters in their operations. We are confident that our solutions will drive tangible benefits and look forward to reporting on future developments as warranted. We continue to advance opportunities within the maritime sector as well as retail, health care, government, hospitality, food service and others, and look forward to further developments in driving market share growth in the coming quarters. We have long-held that our growth prospects revolve around our commitment to vertical expansion as well as organic growth within that diversified mix. We are also currently evaluating numerous complementary strategic alliances or acquisition candidates that are a part of our ongoing efforts to identify potentially accretive opportunities. We anticipate that our growth will continue to come from organic sales of our technology solutions. Sales of our solid recovered fuel as well as potential acquisitions that support our mission as a company and as a responsible corporate citizen. More on these developments as they occur. Thus far, 2021 has been a strong and highly transformative year for BioHiTech as we navigate the channels of the economic recovery. We are focused on opportunities to add value for our customers and further discover how bio high-tech can fulfill its promise as a major player in the journey towards sustainability. We continue to execute and achieve our goals. We continue to achieve record revenue. We are managing our operations prudently, and we continue to significantly improve our plant operations. We're communicating with and learning from our customers and our stakeholders alike, and we fostered a culture of dedication in the pursuit of excellence. 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 for the quarter ended September 30, 2021, with total revenues of $4.5 million, 31% over the prior quarter and 509% over a year-ago period. Our third quarter represents the fourth consecutive quarter of record revenue.
Also during the third quarter, all of our business lines reported revenue growth over the second quarter of 2021. The overall contribution, revenues less direct costs increased to 23% of revenue in the third quarter of 2021 as compared to 14% in the prior quarter. The improvement versus the prior quarter was primarily the result of equipment contribution margins increasing to 33% in Q3 versus 31% in Q2. And also rental service and maintenance contribution margins increased to 42%, up from 34% in the prior quarter. Additionally, the Martinsburg facility contribution improved from the second quarter negative contribution of 134% to a negative 53% in the third quarter. Selling, general and administrative expenses declined to $1.7 million in the third quarter, a decline of $313,000 from the prior quarter and $225,000 from the year-ago period. As a percentage of revenue, the third quarter was 38% down from 58% in the second quarter and 259% in the third quarter of 2020. The decline in SG&A was a result of increasing sales and cost reductions in SG&A. Our operating loss in the third quarter was $1.1 million, a significant improvement over last quarter of $2 million and $3.9 million in the third quarter of last year. Our operating margins improved to negative 25% in the third quarter of 2021, an improvement from a negative 59% last quarter and 527% in the third quarter of last year. The improvement in the operating loss was driven by higher gross margins and operating leverage. The company continues to grow in the digester corporate line of business that has been driven by sales to Carnival Corporation, such that the third quarter 2021 revenues increased by 28% to $3.9 million as compared to the second quarter revenues of $3.1 million. For the 3 months ended September 30, 2021, the company had a consolidated loss from operations of $1.1 million, a net loss of $1.8 million and a consolidated loss attributable to the parent of $1.1 million. At September 30, 2021, restricted cash was $6.4 million and unrestricted cash was $600,000. I will now turn the call back over to Tony before we turn the call back over to the operator for Q&A.
Thank you, Brian. It has been said, you must be the change you wish to see in the world. These words ring true. At BioHiTech, we are working every day to be the change we wish to see in the world. We embody that change in the culture we foster, in the products we make, and in the solutions, we help our clients implement to make real change happen.
It was Gandhi that -- who made this statement originally, and we at BioHiTech embrace that truth to guide our actions every day. I remain confident that we're on the right path and that our strategies are sound. We are executing and implementing. Together, we are all making a difference. Thank you for your time today and for your continued support as we carry forth our mission. Operator, please open the call to questions.
[Operator Instructions] Our first question today comes from Sameer Joshi with H.C. Wainwright.
Congratulations on a great quarter. It looks like your solid SRS sales were -- grew nicely. I just wanted to understand, was it because there were additional customers? Or was it because there was more sales, the same customers that you had in prior quarters?
No. That's a great question. Thanks for asking it. There are no additional customers that -- attributed to that sales increase. What it really came down to was the fact that our operations were performing at a level that we haven't performed that before. We are encouraged, deeply encouraged by that. We know we're not satisfied. We know there's a lot of improvement that can be -- still be achieved from it. And that gives us hope. So no, this was simply a situation where we had all systems working better than all systems have worked. So in regard to other customers however [indiscernible]. Yes. But I would tell you, your point about other customers is important. And we are also encouraged by the prospects that we see for additional customers for our fuel at this operation and others. And the other thing that is really heartening is when you look at the feedstock that we create, the SRF that we create; there are lots of other applications for it as well. So it was a good quarter for us in that part of our business.
And then one thing that we had noticed last quarter that you had received a $2.3 million-odd additional order from Carnival that was expected to be delivered within 2021. Was that -- all of that delivered during this 3Q? Or should we see some of that in 4Q?
No, you're still going to see some Carnival in the fourth quarter. That contract, we continue to be pleased with it. We continue to receive additional orders where that relationship is such that we're now working on parts and supplies and other pieces of it as well, that is a natural growth of any contract like that, that we enter into where we have certain recurring revenue features that occur. So you're seeing some of that, and you'll see the -- some of the other orders in the fourth quarter as well. It's an ongoing relationship at this point.
And then I think there was -- during the call and prepared remarks, there was an emphasis on success in the education or university field. And you mentioned Maryland. And is it that the students there are also working with you guys? Or is it that you've sold digesters to them? Can you just explain that relationship a little bit?
The relationship with all universities. Is that -- did I hear that correctly?
Yes. And I think you specifically mentioned Maryland, where the students are doing something?
Yes. Where the students are coming to our Martinsburg facility, and they are -- they make the visits to our facility. And part of that, I alluded to in the -- in my comments, one of the things that we are always on a quest for is to make sure that we can drive the diversion of the waste that comes into our plant to higher and higher levels. So the students who come there are helping us do a couple of things. One of them is identify additional uses for these different -- I won't -- I guess I'll call them product items, materials that are a byproduct of our -- of the process in Martinsburg. So the ability to take that and use it in a useful fashion perhaps as a base for a road or in a construction process or to be blended with something else. It's just another step along the way of getting to zero waste with what we bring into the facility. So that's part of the work. And the rest of the work is really a constant and deep dive always into the qualities of our fuel and the potentials of what we can do with it.
So we believe strongly that working with students, working with educational facilities; that's just smart, because these students are going to unlock things for us and help us understand our customer and our future better than we might do it by ourselves. So it's a part of that listening process. It's a part of learning and continuing to improve our process. We're grateful for the university to help us with that.
So looking at fourth quarter and beyond, do you have visibility -- we are almost 2/3 of the way in the fourth quarter now. Do you think you will be able to have another sequential -- sequentially higher quarter? And contributions should be expected from universities or continued annual contribution. How should we see the revenue build up for the next few quarters?
We're excited by the prospects for growth that we have. This -- as I prepared the remarks today, I talked about tests that we have going on. I talked about deep dives that we're doing with a supermarket retailer. I talked about the possibility that we have through acquisitions. And the reality that I've heard from so many people that organic growth is great, and that is one component of growth. But perhaps there are accelerants from an acquisition standpoint that will help us grow our company even more rapidly. So that's why I mentioned a lot of that today because as we look to the future, it's absolutely our intent to grow revenue. And we are absolutely confident in our ability to demonstrate that. We believe it comes from multiple sources. And we think that our mission of finding solutions for waste. Our mission for solving real-world problems is going to drive the revenue line for us as we go forward. So yes, we're working on a lot of things to accomplish that. That's our mission.
Are these acquisition targets? Do you already have a list that you're going through? What is the expected time line? Should we expect something to happen within the next 6 months, a year? Just a high level sense would be good.
I think the best way to describe that at this point in time is that we are actively evaluating and discussing. And to go beyond that, I've done enough acquisitions in my life, it's hard to predict, but we are excited about what we're seeing, and we're actively engaged in the process.
And 1 last one. SG&A was reduced nicely. Should we -- a 2-part question actually. What level of revenues can the current level of SG&A support? And should we expect SG&A to again creep up a little bit if activity on these various fronts on the supermarket and restaurants and education universities goes up.
No, I'm going to invite Brian to tag on to this. But I would tell you that to me, SG&A is a situation where you have to manage it aggressively and intentionally, and we're committed to doing that. We're not -- we don't want to say we're not going to spend smart money as we grow the company. We're going to spend smart money as we grow the company. But I think we've demonstrated, in the course of this past year that there are clearly efficiencies to be gained. And we've captured many of those already. There are more to capture as well. So Brian, I don't know if you want to add anything to that or not, but that's my overview.
Yes. I mean, there's not a direct correlation between the level of sales and the SG&A. We will be seeing in the future, possibly a little more on the sales cost side just because we're going out to distributorships and alternative methods of gathering customers. But from operating the corporation, we're well staffed. And as we evolve from a sort of a very small micro-cap into a bit more mature company there's always areas where we'll invest in, but that investment will pay dividends to the shareholders over time.
Our next question comes from Barry Sine with Spartan Capital Securities.
And nice to see good progress on both the revenue front and the expense front. So that's certainly noted. A couple of questions from me, if you don't mind. So if we talk about HEBioT, I don't know if I said that correctly. That line item. I think the record revenue that you've seen and that's also 1 plant was about $900,000 in 2Q 2020. So it looks like as strong as the results were, there's still more that you can get out of that plant. And then if I look at the profitability, again, as you pointed out in the script, tremendous progress on moving that toward profitability, but it's still not operating at a profit.
And then also on that same topic, I didn't hear you say anything about additional plants. And one of the, I think, key investor selling points is there probably ought to be 50 of these plants, at least across the United States to meet the waste demand, and you're still on your first. So a lot in there, but all in the HEBioT, and then if I can follow-up later on digester, please.
Thanks for the questions, Barry. I would tell you, when you look at that quarter -- that second quarter number that you quoted, you're right, there was higher revenue achieved there. That was driven in large part by loading the plant originally. These plants, they generate revenue coming in and going out. So you were filling it up in part during that quarter. But the bigger point is, we're not satisfied. I mean, we're -- this -- the revenue level that we see in the plant this quarter does not represent where we want to see it and it doesn't represent where we strongly believe it will get, okay? So we've made numerous modifications to the years. We talked about it a lot, modifying to this waste stream. We've got -- we had a plant this quarter that operated consistently, which is something that you and I have talked about us needing to do and generated revenue. But there are lots -- there is, lots of room to grow there.
In regard to additional plants and the fact that we didn't talk a lot about that today, it probably was an oversight, candidly, on my part. The opportunities for growth in this business continue to be strong. We talked a lot in past years about the project in Rensselaer. That project is still tied up in litigation. Litigation, which probably -- I can't predict when it will be resolved. The community has got a lot of things going on right now in that community. We still see the market as growing and the need is growing for these plants. And when you look at beyond that particular location, we're in advanced discussions in another -- for another location in West Virginia. We're in the final phases of a process for another one in New York but nothing really specific or tangible. These are simply advanced discussions and not something that we want to draw a lot of attention to just yet, but there are things that we're working on. And those are just 3 projects. There are additional states that create opportunities for us as well. And we're looking forward to what we can do with that. So Barry, there's -- there have been a lot of visitors to the plant in Martinsburg. There are a lot of discussions, and there is tremendous opportunity for growth in this part of the business. Candidly, we believe that it was appropriate for us to focus on improving our operations in Martinsburg during the first part of this year. And I'm happy that -- and optimistic with what we've accomplished there. So yes, there is a path to achieving our goals in Martinsburg, and we continue to be excited about. We're not satisfied with the pace, but we're not the least bit unconfident, if that's a word, of the ability to get there.
So just following up on that. On Martinsburg, I believe you measured the capacity of that plant in tonnage that you can take in. What is the quarterly capacity? If you could remind us, I know you've said it before? And what did you generate? And then also on that plant. I know, I guess I visited with you there early part of this year, which is some time ago. And one of my observations was the plant isn't -- it just operating incredibly. But when you come in, there's not a lot of curb appeal and you'd talked about paving that muddy parking lot because I know you got a lot of visitors, and that's kind of your showcase. If I was to drive by that plant today, what does it look like?
That plant, if you do by it today, we had -- we -- it's still not paved. Okay. I'll answer that question first. It's still not paved. But what's going on with our people in that plant is pretty remarkable today. We had people out there have planted over 100 trees, Barry, in cooperation with the community recently. We continue to have, as you saw that day, we continue to operate a facility that is odorless. It's amazing to think of that. So you continue to see those aspects of the plant today.
In regard to the capacity of the plant, it's designed for about 110,000 tons a year. So you can spread that out. One of the things that does exist in the U.S. waste stream, however, to an extent that it doesn't in the European waste stream, which, of course, we were modeled after since we've got the only one of these here is the fact that the C&I waste, commercial and industrial waste stream in the United States is much larger than, as a percentage of what you see in Europe, it offers much more possibilities for processing. It allows you -- and we create a good fuel with a consistent BTU value, but it also allows you to exit that production of fuel there. So we are encouraged by what we see as possibilities with that particular waste stream as well. And it can, and we think will, over time, have an impact on our capacity levels as well. We're looking at a lot of things there. That we think would be good solutions for -- to keep some of that waste out of the landfill. So that's some of what you're seeing there today. I'd love to take you back through it again, Barry. It is, I think the number now is somewhere over 700 tours that we've taken through the facility. And we don't shine it up for -- towards an operating plant, doing what it needs to do. And I had a group there just last week, and I asked your question of one of the [indiscernible]. What do you think? And because we're in a discussion about showplace. I said if this is the showplace, what else should we do? And the answer I got from that particular individual was, this is a showplace. But what you're showing off is what's inside as much as what's outside. And I think right now, you're showing really well with what's inside. So that's our focus. That's -- we will -- it's not limited us one little bit in exciting people about what's going on there.
Yes. And I noticed with all the dryer sheets that you take in as waste, it actually is the only waste plant I've ever been in that actually smells good. Can you give me the tons for the quarter?
Barry, I don't have that in front of me. Brian, I don't know if you have it there with you or not. I don't have that in front of me. I can get it to you later.
I do not. I'm sorry.
Can I ask just on moving to digester. So again, another phenomenal quarter. I think when you announced Carnival initially, you talked about $14 million in total over the years. And I think if I added up all your order announced orders, you're still just under $9 million. My concern is we haven't seen an announcement of an order since May. So I don't know if you're kind of just working off backlog, if your book-to-bill is less than 1 or maybe there's a difference in your policy for announcing orders, you're just not tooting your own horns, so they're still coming in. And then Carnival was an incredible win. It's nice to see the universities. Hopefully, the supermarket comes in. Other opportunities. I'm looking across the cruise line industry. I think the second one -- second largest one, for example, is Royal Caribbean. And their motto is, "You've got some Royal Caribbean coming." And you certainly are, I would think, entitled to an order or they should be looking at your products. Where do we stand in terms of contract outlook, both, what you've booked, your book-to-bill and then the outlook for somebody like another cruise line?
Yes. Yes. No, good question. If you look at Carnival, I'll start with that. You are correct in that we have not been announcing orders with the frequency that we did. A bit of that is attributable to the backlog that we're working through with them. We had visibility to orders early on that would be delivered. In regard to the $14 million number that was announced in January of 2020. I think we've always said that is a target that we feel good about getting to -- in spite of the fact, in spite of the fact that, that was announced pre-pandemic when cruise lines were still cruising in their entirety. If we might recall, after the pandemic, while they were shut down, 2 things happened to Carnival, one of them was the -- they reduced the size of their fleet. The other thing that happened was they increased the size of the percentage that we were going to fulfill of the orders. The 2 basically balanced each other out. So we did not have to come off of our number nor am I coming off of our number today. It's something that you'll get to over time though. It's not exactly time-bound and it's somewhat a function of how they come back online.
Carnival was clearly the tremendous success and the largest order that the company ever did. Execution of that opened a lot of doors and a lot of opportunities for us. You mentioned the other cruise lines. And I think that's clear. I think it's clear that the solution works. I've talked about it before on this call. I think we've got a maritime solution that we absolutely have deployed with the world's largest operator on the sea, and it works. Opportunities with other cruise ships are evident. Discussions continue to evolve. There is -- so I would just tell you that, that did open opportunities on the cruise lines. But the other thing it did is it opened opportunities with other major players and other industries, these other verticals that I've talked about as well. And a major company will look at this and say, "Wow, that company fulfilled the Carnival order, they went through their process. They want -- they have executed. They can execute at scale. They can fulfill the orders. They can keep a large company satisfied with the product and delivery schedule." So we proved execution and that opens doors. We've had people call us because they know what we did with Carnival. And we've also are doubling down on our own ability to grow in each of these verticals. So we talked a lot about university in the text today, and that is an important one for us. But I don't want to minimize the opportunity in government, let's say, or in -- we talked about retail, that's a broad opportunity for us. Health care is another one. So we're focused, Barry, on all fronts here. We recognize that, that's as we look at organic growth, that's a path to organic growth that is most immediate for us is growing our sales pipeline with the digester business. So our focus on sales is digesters, improving the plant's operations and being very smart in a change and aggressive in looking at other opportunities that round out these solutions that we bring to waste. So we're doing -- we're looking at it on all fronts.
Our next question comes from Edward Woo with Ascendiant Capital.
Congratulations on the quarter. My question is as we're seeing elevated prices of oil, natural gas, how does that affect your business? And does that help your Martinsburg plant?
Well, I mean, we're creating an alternate in margins for us, certainly. So we understand that we're competing in a market, providing a fuel that delivers a value that is in part measured by the price. So that helps us probably to compete on the price equation. So yes, I mean, we think that the market demand is growing for our product at an incredibly rapid rate. And I mean, it's just -- it is time for us and this country to understand that it does not make sense. I mean, to talking about Martinsburg by itself. It does not make sense for us as a society to continue to bury in the ground, what could be put to a useful purpose. So we think that there are a lot of factors that are playing in our favor in that part of the business, lots of room to grow that part of the business.
And then my other question is on your digesters as you build them out. Have you had any supply chain issues in terms of getting components?
We got ahead of it. We got ahead of it early on with the visibility to the Carnival contract. And you have an isolated instance here or there, but nothing that really created large problems for us by any stretch of the imagination. So no, I mean, it is -- it continues to be something we watch very carefully. We manufacture and source our products domestically to a large, large degree. There are a few component parts that are overseas. But as we go through some of the supply chain evaluation with people who are looking to do business with us, that's a step in the process that you go through. And we were able to overcome what we needed to. And I'm confident that the way that we did that and the approach that we took on it will allow us to be just as successful as we go down the road.
And this will conclude our question-and-answer session. I'd like to go ahead and turn the call back to Tony Fuller for some closing thoughts.
I'll be brief. I want to thank all of you for your participation in 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 good day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.