BioHiTech (BHTG) Stock: A Disrupting Force In Waste Management Sector

Few companies can live up to the claim or reputation as being an industry disruptor. Often, emerging companies use the phrase to highlight what they “might” do in the future, offering a glimpse into a hopeful future that may not be entirely attainable. However, while some propagate ideas that read more as a business plan rather than implementation, one company in the waste management sector is already in the process of changing the way waste gets handled, treated, and disposed of. That company is BioHiTech Global, Inc. ( NasdaqCM: BHTG)

Already entrenched into the waste management sector, BHTG is providing cost-effective proprietary technology solutions that can seamlessly integrate into traditional waste services and brings with them the processes to substantially reduce the volume of food and municipal solid waste that goes to public and private landfills. And, not only is BioHiTech a leader at what they do, they have a complimentary feature that may separate them from traditional competitors in the sector…the unique ability to turn waste into dollars.

BHTG Is Taking Waste And Turning It Into Dollars By Keeping It Out Of Landfills

BioHiTech Global is achieving what many in the industry believe is the long overdue and inevitable change to how waste gets processed and disposed of. Different than their competitors, BHTG takes advantage of proprietary technology, patents, and a strong IP portfolio to offer services that focus on innovative and cost-effective waste disposal that at the same time provides a high-margin return to the company. Not only that, while others have tried and failed at implementing new methods and procedures to address the obstacles facing traditional waste disposal, BHTG is now positioned as a disruptive leader. Already, BHTG is changing the direction of how the waste management industry must comply with new standards, bringing to market essential technology driven services that substantially reduce the amount of waste getting delivered to landfills. And, while reducing landfill deposits is becoming a targeted legislative concern, BHTG is far removed from the punitive crosshairs and sits as one of the few companies positioned to benefit substantially from imposed mandates and developing industry regulation.

Although most people don’t think much about waste disposal management, the dilemma that bothers industry players is that landfills are becoming far more unlikely to make it through the approval and permitting process, especially in those areas that need them the most. In many parts of the US, waste travels hundreds of miles to reach a landfill at considerable cost making local municipalities and state governments increasingly more sensitive to how trash disposal is managed. And, for companies that are not proactive in affecting change, the consequences can be very expensive.

While legislation is methodically getting passed that puts in place specific mandates that will be hard for existing companies to adapt to, there are other economic forces, including corporate social responsibility initiatives and ever increasing logistics costs that are creating an opportunity where BHTG can leverage its proprietary expertise to facilitate substantial and manageable growth well into the next decade.

Growth Is A Zero-Sum Initiative For BHTG

At BHTG, the endgame for waste is a zero-sum game, literally. With their unique and innovative sustainable technology solutions, BioHiTech can divert more than 90% of solid waste from landfills while generating revenue from end products that include renewable fuel and recyclable materials. But, the revenue kicker in the plan is that instead of paying for feedstock to produce fuel, BHTG also gets paid for managing and disposing of their client’s waste products, making waste a valuable and plentiful commodity for BioHiTech.

Not only is BioHiTech building a significant presence as a technology solutions provider in the waste management industry, but they are also doing it without reliance on outside assistance because their solutions are cost effective when compared to traditional services. BHTG is positioned to earn money without the need of government subsidies, has no want or need to own or maintain a landfill, and can establish long-term sustainable revenue streams with customers in almost any sector that produces or manages waste as part of their cycle. High-value customers already include several major hotel chains, Dunkin’ Donuts, and the Cheesecake Factory to name just a few. However, the breadth of the current client list widens to include organizations from almost all sectors that produce waste, with the Department of Veterans Affairs, the Philadelphia Eagles at Lincoln Financial Field as well as their NovaCare practice facility, and the Federal Bureau of Prisons also being part of the list of BHTG’s growing customer base.

But, while BHTG is focused internally on creating a dominating presence and competitive edge as a technology driven solutions provider in the waste industry, the traditional service providers are also paying close attention, and for a good reason. BHTG can either be a threat to take market share or be the technology partner that integrates sustainable solutions with traditional services to save customers money, meet sustainability goals, and ultimately help the industry achieve better margins through reduced costs.

BioHiTech’s “Revolution Series” Digester Sets New Standard For Food Waste Disposal

Filling a void in the US market, BHTG is executing a plan that integrates traditional services with data analytics. In other words, the technology services that BHTG provides their customers goes far beyond ordinary waste disposal, they actually help make customers smarter about what they are throwing out to ultimately make them more efficient. In fact, BHTG’s food waste disposal solution offers a real-time data analytics platform that provides clients with vital information that they can use for improved supply-chain management to increase profits. Hence, not only will BHTG offer necessary food waste management services, but they will also add valuable and tangible information to clients that will help drive their profits as well.

To facilitate the first steps of industry change, BioHiTech has introduced a line of food waste “digesters” into the market. These digesters provide an on-site solution that utilizes a biological treatment that converts food waste into a liquid that gets safely discharged through a standard sewer line meaning no food waste ends up in a landfill. To date, more than 500 digesters are already deployed, with many of the larger units being utilized in federal prisons and by food and hospitality companies positioned across the United States. BHTG has two branded digester product lines, the Eco-Safe Digesters ®, its larger units for high volume waste generators like the federal government, and its Revolution Series Digesters™ designed for lower volume generators. The newer Revolution Series Digesters™, serve as the perfect food waste management solutions for a target market that includes restaurants, grocery, hotel, and quick-serve chains. These smaller units efficiently manage customer food waste volume, cost effectively providing 100% diversion from landfills through a biological process that essentially takes the methodology used in waste water treatment plants upstream. These efficient units also provide real-time data analytics to help facilitate supply chain management decisions and to support Corporate Social Responsibility (CSR) reporting. This complete end-to-end food waste disposal solution offers both business and government a valuable alternative to traditional food waste management. But, while the functionality of the digesters is impressive, so is the technology behind them.

For instance, the company’s patent-pending IoT software platform leverages Amazon Web Services (AWS) and Slack to empower low-tech industrial machinery with high-tech data analytic capabilities and communication tools. The BioHiTech Cirrus™ and BioHiTech Alto™ both provide frictionless two-way natural language communication through chat-bot technology, functioning as a virtual assistant for the user. The company also utilizes proprietary Smart Mode Technology that drives equipment performance through cloud-connected machine learning capabilities, allowing for automated optimization to reduce water usage and lower energy consumption. These solutions enable simple management of a complicated process and provide BHTG customers with the ability to increase profitability through fingertip technology.

Digesters Make Money, And The HEBioT Solution Makes Even More

With more than 500 digesters already in the market, diverting hundreds of tons of food waste per week, BHTG is embarking on a more significant mission to place its sustainable High Efficiency Biological Treatment (HEBioT) solution for mixed municipal solid waste services into the market. Already, BioHiTech controls the exclusive U.S. development rights to build facilities using a patented high-efficiency biological treatment process in eleven northeastern states and the District of Columbia. These licenses will prove valuable to BHTG establishing a dominant position for providing innovative waste management solutions in the northeast corridor that will significantly reduce landfill usage and set the stage to develop additional regional placements based on proven expertise in the market. And, there are several reasons why clients will migrate toward the HEBioT solution.

As opposed to traditional waste processing centers and landfills, the HEBioT facilities are aesthetically pleasing, allowing for waste to get unloaded and processed inside of the facility in order to completely insulate the outside environment from exposure to waste. The process is also entirely automated, often with only fifteen people needed to manage a 70,000 square foot facility. In addition to the benefits mentioned, the HEBioT facility produces an EPA recognized solid recovered fuel and reduces landfill usage by almost 80%. The fully automated process ensures that workers are not exposed to waste products or hazards of operating heavy machinery, and the sophisticated filtration systems employed by the facilities protects the outside environment from any odors and contaminants. And, while the municipalities and customers enjoy measurable benefits, so does BHTG, as the HEBioT generates high EBITDA margins. Those two items combine to make the HEBioT a win-win proposition.

Mixing Traditional Services With Technology Driven Solutions

Emerging and integrating smartly into the sector, BHTG is building a vertically integrated sustainable waste management services platform that combines traditional waste management services with its sustainable technology solutions.

In January of this year, BioHiTech and Kinderhook Industries entered into a joint venture to acquire Gold Medal Services. Currently, BHTG owns a minority stake in parent company, Gold Medal Group, with an option to increase that stake by up to $5 million through future investment. Gold Medal is a traditional waste management services company operating in the Eastern Pennsylvania, Southern New Jersey, Maryland and West Virginia markets and offers traditional hauling and recycling services to its clients. Currently, BHTG receives a recurring annual management fee for oversight of Gold Medal’s daily operations and leverages the existing management team to optimize productivity and streamline cost.

The synergistic opportunities from the Gold Medal acquisition allows BHTG to leverage their technologies, serves to provide a captive distribution network for digesters, and provides BHTG significant feedstock for a future HEBioT facility in the Philadelphia area through Gold Medals customer base of more than 6,000 business and over 150,000 local customer locations in that general area.

The relationship with Kinderhook is expected to provide potential access to additional services and opportunities within the business plan and may serve to expedite and integrate other scalable solutions to generate additional sources of recurring revenue for BioHiTech.

Notably, privately held Kinderhook Industries manages over $2.0 billion of committed capital and have made over 140 investments and follow-on acquisitions since inception in 2003.

Leading The Industry Change With Substantial Benefits

Although most people never give waste more than a minutes thought, to those in the business the current methods of waste disposal in the US are both costly and unsustainable. Traditional waste disposal companies, like Waste Management, struggle to achieve sustainability goals and even more troubling from an environmental position is that they rarely offer solutions to the growing problems associated with landfill and processing solutions. But, quite frankly, larger waste management companies don’t want to fix the issues since the more tons of trash they take into their landfills, the more they can drive revenue growth. However, that vision is not sustainable either from an environmental perspective or a profitability standpoint.

An even more significant problem facing traditional waste management companies is that there is insufficient infrastructure in place to comply with food waste diversion mandates, and these established providers routinely send only 3% of waste to composting and the remaining 97% to landfills. Soon, those practices will be unacceptable. The fact is, implementing successful food waste diversion programs like composting, is challenging and costly. This has resulted in minimal change, even by the most well-intentioned large companies, that implement programs which are often ineffective, environmentally unsound, lack transparency and limit the ability to reduce food waste generation.

More problematic to traditional service companies is the lack of alternatives to landfill and waste-to-energy processing plants for non-recyclable materials, which makes the goal of “zero-waste” nearly impossible.

However, with the help of forward-thinking companies like BHTG engaging the markets, new processes can change the ways of waste management. And, to affect that change, BHTG is offering the market an end-to-end solution that makes zero-waste a distinct possibility. In fact, BioHiTech just might offer the traditional waste industry the right motivation to change their current mindset and embrace change, higher profit margins.

BioHiTech’s Game-Changer Is A Zero-Waste Solution

What BioHiTech has in place is a stark contrast to the 97% of waste currently being dumped into landfills by large waste management providers. In fact, what BHTG is deploying is a system that makes “zero-waste” highly possible.

The BioHiTech suite of facilities, technology, and equipment makes “zero-waste” possible through a strategy that contracts directly with a single proven technology solutions partner. Importantly, BHTG will not rely on inconsistent government subsidies or additional customer fees to generate the goal of zero-waste. And, not only is the plan actionable as early as 2018, once integrated and deployed, the additional placement of digesters to process food waste on-site at the point of generation, provides cost-effective waste management to customers that is environmentally sound. Those customers get the added benefit of BHTG’s proprietary cloud-based technology in each digester that offers robust supply chain management data in real-time to assist in reducing food waste and to help drive profit. For the environment, the benefits are tremendous.

Specific to the HEBioT facility, the initial patented process reduces weight through evaporation that is all filtered inside a fully enclosed building. Approximately 40-50% of the remaining mixed waste gets converted into an EPA approved renewable fuel, which is sold into the market, typically to cement kilns as a replacement for coal. When factoring in the automated sorting process which captures metals and other recyclables that can be resold, less than 20% of the total waste processed at a BHTG facility will be land-filled. Thus, where traditional waste processors may dump 97% of accumulated trash in a landfill, BHTG can handle, sell, and profit on diverting up to 92% of the waste from landfills, enabling high-margin revenues while providing a substantial benefit to the environment. And, according to the EPA standard of less than 10% of converted trash going to the landfill, BHTG’s end-to-end- technology solution meets the zero-waste initiative.

Beyond the inherent benefits to the environment, the solutions provided by contracting with BHTG also reduce customer cost. Traditional disposal methods average approximately $120 per ton for food waste disposal, again with about 97% heading for the landfill. By utilizing BHTG digesters, that cost could drop to as little as $40 per ton of processed waste, with 100% of the food-waste output sent directly and safely to the municipal waste-water treatment facility. Thus, for businesses that generate hundreds of tons of waste per year, the cost savings are meaningful, and places BHTG at the forefront of innovative solutions to manage specific company needs or to help other waste management companies to meet those needs. And, BioHiTech is making its own inroads in vertically integrated waste management services as well.

2018 Will Be A Big Year For HEBioT

BioHiTech Global is ushering in a new era in waste management through its 17.2% equity interest in the nation’s first HEBioT facility that will be commissioned in Martinsburg, West Virginia in 2018. The facility will be the first mechanical, biological treatment facility in the United States permitted to manufacture “engineered fuel” utilizing the HEBioT process. There are currently more than 10 facilities using this proven technology in Europe. The venture was funded through a $25 million Industrial Development Bond issuance by the West Virginia Economic Development Authority, with contracts for the feedstock and off-take of the solid recovered fuel guaranteed for ten years. That deal all but insures strong EBIDTA margins for the facility during the next decade.

Projections for the facility call for processing capacity of 110,000 tons of mixed municipal waste per year using mixed municipal solid waste. The site is expected to produce more than 40,000 tons per year of Engineered Solid Recovered Fuel. Best of all, despite the massive tonnage processed, the company expects that less than 20% of all waste will get deposited to landfills.

But, for investors more focused on the capital side of the company, the good news continues.

Strong Balance Sheet Positions BHTG For Substantial Growth

Shares in BHTG have traded between $2.50 and $9.50 over the past 52-weeks. Some of the overhangs may have to do with the most recent funding. However, with the growing sector position of the company, prices at these levels may be a short-lived, an assumption based on the strengthening balance sheet and partnerships in place at BHTG.

The completed acquisition of the first HEBioT renewable waste facility license from Entsorgafin S.P.A. cost the company $6.1 million in a cash and stock deal, providing a significant asset that is expected to generate many multiples of return. The company also partnered with Kinderhook Industries to acquire Gold Medal Services, a New Jersey-based solid waste collection business servicing the Philadelphia and southern New Jersey markets. In the deal, BHTG owns 9.2% of Gold Medal with options to purchase additional interest in the future.

Unlike many emerging companies that are forced to use convertible debenture financing, BHTG completed a $1.7 million Series A Preferred Stock offering convertible into common stock at a fixed price of $5.00 per share. In addition to that transaction, management completed a $5 million non-convertible senior secured debt financing with Michaelson Capital Partners and completed an exchange of $4 million of CEO debt into preferred equity convertible at a fixed rate of $4.75 per share. Thus, the capital structure is clean, the financing is void of floorless and opportunistic convertible debt, and the company also set in place a $1 million credit facility with Comerica Bank, bringing mainstream funding into the capital equation.

Significant insider Ownership And Fixed Rate Financing

Currently, BHTG has approximately 14.5 million fully diluted shares outstanding and just over 5 million shares trading in the public float. Notably, insiders own roughly 45% of the company stock, and current options and warrants are at fixed prices, mainly for over $4.00 per share. The market cap sits at approximately $46 million and appears to discount the significant balance sheet improvements made during the prior six months. But, market pricing inefficiencies are often an investor’s best friend, and at current levels, BHTG is positioned for near-term growth and a return toward year high levels. And, with insiders holding a significant stake bought and paid for with cash, the incentive is in place for management to deliver on its objectives to build shareholder value through prudent and strategic business practices.

Now, with a strong balance sheet, access to capital, a HEBioT facility under construction with two more in the planning stages in New York State, and a partnership with Kinderhook, all systems are a go for BioHiTech to generate substantial revenues and continue to develop a foundation to drive recurring and long-term revenue streams. Already stated, BHTG is both a disruptive and emerging player in the waste management industry. But, the best part of that deal is that they are in a position to deliver on what they do best…turning waste into dollars while benefiting the environment.

And, the manner in which BHTG is deploying its vision and opportunity, 2018 may prove to be the breakout year for BioHiTech Global.

This article was originally featured on CNA Finance!

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