Greenlane Renewables Inc.
(GRN-T) C$0.56
Q3/22 Results: Downgrading to HOLD
Event
Greenlane reported Q3/22 results.
Impact: MIXED
Q3/22 Results: Greenlane reported Q3/22 revenue of $19.9 million, 11% above our estimate, driven by higher-than-expected System Sales, including higher-than- expected contributions from its recent Airdep acquisition. Additionally, G&A of $4.5 million was below our estimate of $5.2 million, due to lower-than-expected spending on strategic initiatives. As a result, the company broke even on an EBITDAS basis this quarter, above our estimate for a loss of $1.3 million. Details on page 2.
Estimate Changes: While the company's Q3/22 results featured another record revenue quarter, trailing 12-month system sales revenue (excluding Airdep-related revenue) of $62.3 million is above implied trailing 12-month system sales bookings of $51.9 million. As a result, we are taking a more cautious approach to our near-term growth expectations and outlook. Specifically, we are now forecasting 2023 revenue of $72.3 million, which is down 11% relative to our prior estimate and essentially flat on a year-over-year basis. Details on page 3.
TD Investment Conclusion
Greenlane has featured exceptional revenue growth since it commenced trading on the TSX (and TSX Venture) in 2019. While we appreciate that the timing of new orders can be lumpy, the company's Systems Sales segment (excluding Airdep- related revenues) book-to-bill ratio is meaningfully negative on a trailing 12-month basis (was relatively flat last quarter and positive previously), making continued revenue growth less likely in our view. While only one of several end markets that Greenlane serves, we believe that the deterioration in this ratio is due in part to continued demand weakness in the California transportation market (California LCFS/Federal RIN) that has featured an oversupply of credits over the past five consecutive quarters. Additionally, we have not yet seen a meaningful inflection point in margin performance as the company continues to add administrative costs as it scales the business. Based on our revised outlook, our target price decreases to $0.75/share ($1.30/share previously) and the implied return to target no longer justifies a Spec Buy rating. As a result, we are downgrading Greenlane to HOLD.