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RENOVARE ENVIRONMENTAL, INC. (RENO)·Q3 2020 Earnings Summary

Executive Summary

  • Q3 2020 revenue fell 47.9% year over year to $0.74M, driven by a temporary HEBioT facility reconfiguration and a $0.248M negative take‑or‑pay adjustment; loss from operations widened to $(3.92)M and EPS was $(0.16) .
  • Management recorded a $0.92M impairment tied to Martinsburg facility construction/start‑up services and raised $8.44M net in an underwritten offering, ending Q3 with $4.95M unrestricted cash .
  • Commercial momentum improved: $1.4M digesters purchase orders from Carnival in Q3 and $1.9M subsequent orders (cumulative $3.3M since July); initial Altapure AP‑4 disinfectant deployments and a 7‑unit order from Hackensack Meridian Health .
  • Strategic actions and catalysts: appointment of Anthony Fuller (former Walmart SVP) as CEO, and a strategic land venture in Rensselaer, NY to develop a renewable energy campus (NY’s first waste conversion facility) .

What Went Well and What Went Wrong

What Went Well

  • Carnival and healthcare wins: “Carnival Corp. has placed $3.3 million worth of food waste digesters orders since July... Hackensack Meridian Healthcare system provides further validation” .
  • New product traction: “Altapure AP‑4 disinfectant system saw initial deployments in a school district as well as on a cruise ship” .
  • Strategic footprint expansion: “Made strategic investment in Rensselaer, NY land venture... establishing a renewable energy campus, including New York state’s first waste conversion facility” .

What Went Wrong

  • Operations/headwinds: HEBioT revenue collapsed to $0.0006M after a $0.248M negative take‑or‑pay adjustment; Q3 revenue down 47.9% YoY and operating loss rose 143% YoY to $(3.92)M as fixed costs persisted during reconfiguration .
  • Impairment and expense inflation: $0.92M impairment at Martinsburg; total operating expenses up 53% YoY to $4.66M, including higher insurance, D&O, stock comp, and transition costs .
  • Balance sheet/going concern risks: covenant waivers on senior secured notes; WV EDA bond forbearance; disclosure of substantial doubt about going concern despite capital raise .

Financial Results

Headline metrics – quarterly trend

MetricQ1 2020Q2 2020Q3 2020
Revenue ($USD Millions)$1.359 $1.274 $0.743
Loss from Operations ($USD Millions)$(2.394) $(2.365) $(3.917)
Net Loss per Common Share ($)$(0.16) $(0.16) $(0.16)
Total Operating Expenses ($USD Millions)$3.753 $3.639 $4.660
Unrestricted Cash at Quarter‑End ($USD Millions)$1.935 $0.342 $4.950

Segment/Disaggregation – Q3 YoY

Revenue TypeQ3 2019 ($USD Millions)Q3 2020 ($USD Millions)YoY Change
Rental of digesters$0.369 $0.356 (3.6%)
Services$0.960 $0.250 (74.0%)
Product sales$0.097 $0.137 +41.0%
Total Revenue$1.427 $0.743 (47.9%)

Selected KPIs and items

KPI/ItemQ3 2019Q3 2020
HEBioT processing costs ($USD)$786,680 $945,810
HEBioT revenue ($USD)$609,905 $625 (after $(247,649) adjustment)
Impairment expense ($USD)$0 $917,420
Equipment sales ($USD)$62,565 $293,876
Contribution margin – Rental/Service (%)63.9% 67.1%
Contribution margin – Equipment (%)71.6% 41.8%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/DisclosureChange
Formal financial guidanceFY/Q4 2020None providedNone provided; CEO outlined five operational goals (increase revenue; reduce SG&A; improve plant ops; clarify messaging; team effectiveness) Maintained (no formal guidance)
Digesters order backlog (Carnival)Q4 2020 fulfilmentNot previously quantified~$2.1M unfulfilled orders as of Oct 31, 2020; ~$0.6M shipped in October; many to be fulfilled in Q4 New disclosure
Strategic developmentMulti‑yearN/APlan to develop Rensselaer renewable energy campus; permitting appeal underway New initiative

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2020)Previous Mentions (Q2 2020)Current Period (Q3 2020)Trend
COVID‑19 impactsCarnival contract delayed; customer deferrals Continued delays; financing completed Plant staffing limits; used window to reconfigure Martinsburg; digesters installs resumed Stabilizing operations; demand resuming
HEBioT plant operationsRamp‑up; SRF customer commissioning Improved H1 revenue; Q3 reconfiguration planned Completed mechanical/electrical reconfiguration; expect improved throughput; impairment recognized Turning point post‑reconfiguration
Digesters (Cruise/Healthcare)Contract signed with Carnival ~$1.0M orders received; installs resumed $3.3M cumulative orders since July; new 7‑unit healthcare order Strong momentum
Altapure AP‑4 disinfectantDistribution agreement (May) Demos live; financing program First deployments (SeaDream; Hazleton School District) Early adoption
Regulatory/PermittingNYSDEC Rensselaer application under review N/AInitial NYSDEC denial; appeal filed Active appeal

Management Commentary

  • “While the third quarter fell short of our expectations financially, a number of significant events during the quarter and after September 30 provide reasons to believe better quarters are ahead.” – CEO Anthony Fuller .
  • “I’ve laid out five goals... 1) increase revenue appreciably, 2) reduce SG&A meaningfully, 3) improve the plant operations measurably, 4) tell the story clearly, and 5) function as a team effectively.” – CEO Anthony Fuller .
  • “Total revenue in the third quarter of 2020 was $740,000... HEBioT revenue declined 59% year‑over‑year to $249,000 prior to a $248,000 negative adjustment... Equipment sales rose 370% year‑over‑year to $294,000.” – CFO Brian Essman .

Q&A Highlights

  • COVID vs reconfiguration: Management emphasized COVID impacted staffing and timing but used the window to “reconfigure… and prepare… for better performance in the future” at Martinsburg .
  • New York facility timing: Learnings from WV support a larger, more efficient Rensselaer facility as part of a broader campus concept; specific timing comparisons not apples‑to‑apples .
  • Additional revenue streams: Flexibility to adjust waste blend and campus adjacency could introduce ancillary revenues over time; focus on maximizing opportunity post‑reconfiguration .

Estimates Context

  • Wall Street consensus (S&P Global) was unavailable for RENO; we attempted to retrieve Q3 2020 and prior quarters, but no CIQ mapping exists for this ticker in our SPGI dataset. As a result, we cannot quantify a beat/miss versus consensus for revenue or EPS at this time (consensus unavailable via S&P Global) [SpgiEstimatesError: Missing CIQ mapping for 'RENO'].

Key Takeaways for Investors

  • Near‑term revenue inflection likely shifts to digesters and Altapure as cruise and healthcare demand resumes; expect Q4 benefit from ~$2.1M Carnival backlog disclosed as of Oct 31 .
  • Martinsburg reconfiguration completed; fixed‑cost drag in Q3 should moderate, but watch for execution against Fuller’s SG&A reduction and plant KPIs to narrow operating losses .
  • Balance sheet improved with ~$8.44M net equity raise and $4.95M unrestricted cash at Q3‑end; covenant waivers and WV bond forbearance remain key risks to monitor .
  • Strategic optionality: Rensselaer campus investment and NYSDEC appeal could catalyze multi‑year growth if permitting advances; adds credibility to a regional waste‑to‑fuel platform .
  • Trading implications: Q3 print was weak on reported metrics and impairment; stock reaction may hinge on visible Q4 order fulfillment (Carnival) and tangible progress on SG&A cuts and Martinsburg throughput .
  • Medium‑term thesis: Combination of on‑site digesters, Altapure disinfection, and HEBioT can diversify revenue and move mix toward higher‑margin sales; execution, regulatory outcomes, and financing discipline are pivotal .
  • Risk flags: Going concern disclosure, related‑party concentrations (GMG), and insurance/operational cost inflation warrant conservative positioning until sustained operational improvements emerge .