Hidden gems #4; Biorem

Highlights and updated thoughts on the interview with CEO Derek Webb.

This week, Paul Andreola released an interview with Biorem $BRM.v 🏷️ CEO Derek Webb on youtube. I wrote down the highlights, and provide my conclusions below.

Highlights

• Smallcap discoveries started coverage 3-4 weeks ago

• Biorem is an environmental biotechnology company. It uses naturally ocurring bacteria and fungus that use air pollution as a food source. Its “bioreactors” can be used to remove odors from waste water plants and solid waste facilities, or cancerous emissions coming from heavy industry like petrochemicals or pharmaceuticals.

• Some 18-24 months ago, Biorem started to branch out in physical technologies, particularly dryscrubbers. These act as a sort of sponge. They use an absorbant that draws certain compounds out of the air. At some time, the sponge gets filled and needs to be replaced, creating a recurring revenue model for Biorem.

• The North American addressable market is split about one-third/one-third/one-third biological, phyiscal, and chemical. Six months ago, Biorem also started to target the chemical market segment. The full NA market is several hundred million dollars in size, and is growing about 7-9% per year.

• Roughly CAD 25m of new bookings came from the new product initiatives. In 2024, Biorem looks to further expand geographically and launch more products.

• Noise (reduction) technology is another offering Biorem is looking into, to build a full range of services to meet all needs from customers.

• 10:50 Competitive edge;

  • reputation and credibility

  • superior salesmanship and features,

  • internal structure allows Biorem to handle a lot of volume of custom work with a small team,

  • cost position; Biorem can compete on price if/when needed

• 15:40 Infrastructure bill

• 18:24 Business momentum; there have been a lot of project delays, but projects are still moving forward. In 2023, these project delays in combination with above normal booking rates led to a record order backlog. The sales funnel is typically between CAD 130-250m. A small portion of that is the formal tender work. Biorem’s win rate ranges between 35-52% in North America. The outstanding bid number is currently hovering around the CAD 75m range, which is a record level (just like the backlog).

• 26:50 Competitive landscape; fragmented landscape. Transportation costs of the equipment makes it difficult to be as competitive in other geographic areas.

• 30:00 M&A; management has looked at a lot of companies, but most did not get further than the due dilligence stage. Biorem also wants m&a to be immediately accretive. It is still in discussion with a couple of candidates.

• 31:55 Backlog conversion; historically backlog converts to revenue in a 12-18 month period. Given the magnitude of the backlog now, a bigger portion will likely ship out later. Roughly CAD 10m for 2025, CAD 2m or so beyond 2025. Three-quarters could ship in 2024.

  CAD 16m of contracts was pushed out of 2023, into 2024.

• 33:50 Physical systems; Biorem reached CAD 25m in new orders with these new products, mostly in just 1 province. With geographic expansion, Derek expects a larger portion of the order mix will be physical systems. It is a commoditized product.

• 40:00 Replacement opportunity

• 41:00 Addressable market; 20-40% is addressable

• 42:10 Sales model; internal sales team, supported by drafters, technicians and engineers. Each sales managers has a team of distributors; 100-115 external sales people.

• 43:50 Ancillary product and R&D; Product development needs to serve the immediate market needs.

• 48:00 Backlog recognition; Backlog is a signed contract.

• 49:00 Challenges; Lots of challenges, but nothing existential. Stars are aligning that 2024 can be a good year. Webb is working on the repeatability of 2024 numbers, into 2025 and 2026. Focus is on growth and stability.

• 52:18 End game?; To become a full-service cleantech provider. The next milestone is CAD 50m topline, CAD 5m bottom-line, and the second will be CAD 100m topline.

• 54:00 Toughest competitor; Impossible to say; it’s regional, technical, and price. That all depends project by project.

• 55:00 Input cost pressures; The vast majority of contracts do not have price escalation clauses. Biorem has a vast number of tools to maintain profit without having to go back to the customer to ask for more money to offset inflation.

• 57:10 Key message; The convergence of factors all see positive. We are not out of the trough yet. Webb expects to see more (project) delays, but things do look rather positive.

Conclusions

The main takeaway I have from the interview, is that the short-term thesis is playing out like I discussed in; Hidden gems: Biorem.