midard wrote: Greenlane Renewables Inc. (GRN) has announced its financial results for the fourth quarter of 2023, revealing a slight increase in quarterly revenue to $17.3 million from $17 million in the same period last year. However, the company faced a decline in annual revenue, down 19% to $57.8 million from $71.2 million in 2022.
The results were shared during Greenlane's earnings call, which also highlighted the company's transition to a configured-to-order business model and its emphasis on cost management. The call included discussions on the company's robust sales funnel, particularly in Brazil and North America, and its collaboration with ZEG Biogas in Brazil. Despite facing challenges, Greenlane remains focused on achieving positive adjusted EBITDA in 2024, building on the foundation established in the previous year.
Key Takeaways
- Greenlane Renewables' Q4 revenue increased slightly to $17.3 million.
- Fiscal year 2023 revenue declined by 19% to $57.8 million.
- The company is transitioning to a configured-to-order business model.
- Greenlane announced $42.5 million in new sales contracts, with significant projects in Brazil.
- The company is aiming for positive adjusted EBITDA in 2024, replicating the success of 2021.
- A robust sales funnel in Brazil and North America indicates potential growth.
- Greenlane ended the year with $11.8 million in cash and cash equivalents and no debt.
Company Outlook
- Greenlane Renewables is focused on scaling and achieving positive adjusted EBITDA in 2024.
- The company's shift to a configured-to-order model is expected to streamline costs and enhance market competitiveness.
- The RNG market is maturing, with customers shifting towards larger projects, influencing Greenlane's business model orientation.
- A collaboration agreement with ZEG Biogas in Brazil is anticipated to provide revenue under a new royalty-like business model.
Bearish Highlights
- Fiscal year 2023 revenue saw a significant decline from the previous year.
- Adjusted EBITDA for Q4 and the full year were both losses, with a larger loss reported in 2023 compared to 2022.
- A net loss and comprehensive loss of $17.7 million were recorded in Q4 2023, and $29.4 million for the fiscal year, mainly due to an impairment charge.
Bullish Highlights
- The company has made progress with 28 active biogas upgrading projects.
- Greenlane's sales funnel is robust, with extensive interest from multiple repeat and new customers.
- The company's sales order backlog was $36 million at the end of 2023.
Misses
- The company's gross margin excluding amortization for Q4 was 18%, a slight decrease from 19% in the same quarter the previous year.
- An inventory obsolescence charge of $300,000 impacted the gross margin in Q4.
- The $35.3 million sales order in October 2023 reflected volume pricing, resulting in a lower gross margin profile.
Q&A Highlights
- Brazil's market is well-suited for biogas RNG due to local conditions and lack of sources.
- The $35.3 million sales order secured at a lower margin due to competitive pricing and the nature of the project work.
- Revenue from the 11 contracts completed in Q4 is largely expected to be realized in the first six to nine months of 2024.
Greenlane Renewables' financial results reflect a year of strategic transitions and investments aimed at future growth. While the company experienced a decline in annual revenue, the slight increase in Q4 revenue and the ongoing project pipeline, especially in Brazil and North America, suggest a positive outlook. Greenlane's efforts to streamline its business model and manage costs effectively are expected to contribute to its goal of achieving positive adjusted EBITDA in the coming year. With a solid sales backlog and significant interest from customers, Greenlane Renewables remains poised to capitalize on the maturing RNG market.
Full transcript - None (GRNWF) Q4 2023:
Operator: Thank you for standing by. Welcome to the Greenlane Renewables Inc. Fourth Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. Following the results, we will conduct a question-and-answer session. [Operator Instructions] Today's call is being recorded and a replay will be available on the Greenlane website. I will now turn the call over to, Darren Seed from Incite Capital Markets. You may begin your conference.
Darren Seed: Thank you, operator, and good afternoon. Welcome to the Greenlane Renewables' fourth quarter fiscal year-end 2023 conference call. I'm joined today by Ian Kane, Greenlane's President and Chief Executive Officer; and Monty Balderston, Greenlane's Chief Financial Officer. Before beginning our formal remarks, we'd like to remind listeners that today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in those forward-looking statements. Greenlane Renewables does not undertake to update any forward-looking statements except as may be required by applicable laws. Listeners are urged to review the full discussion of risk factors in the Company's annual information form, which has been filed with Canadian Securities Regulators. Lastly, while the conference call is open to the public and for the sake of brevity, questions will be prioritized for analysts. Now, I'll turn the call over to, Ian.
Ian Kane: Good afternoon and thank you for participating on today's call. I'll cover some of the events in 2023 and then focus on our goals in 2024 and the path ahead. In 2023, our focus was on preparing the business for future growth, scaling and positive adjusted EBITDA in 2024. We continue on this journey of business foundation building and are happy with our progress to-date. We have invested in and implemented processes, systems to enable us to scale sustainably. We are transitioning from an engineered-to-order to a configured-to-order business model, emphasizing standard products to streamline our costs and enhance our competitiveness in the market. This accelerates our ability to increase the sales pipeline, revenue and enhance our bottom line. In 2023, we've progressed 28 active biogas upgrading projects, demonstrating our team's experience and capacity. This puts us among the global industrial industry leaders and with a broad variety of solutions and configurations that are unparalleled. We announced $42.5 million in new sales contracts featuring $35.3 million for landfill to RNG projects in Brazil announced in October. As we mature our business, we have prioritized cost management, realigning our cost structure and focusing on efficiency in our supply chain execution. These efforts are expected to contribute to our goals of achieving positive adjusted EBITDA on 2024 as was achieved in 2021, and maintaining cash reserves. Our dedicated team closely aligned with our customers ensures the delivery of quality services and products. I am confident and excited about our strong future considering the foundation work we have done and continue to do. With respect to the market backdrop, the RNG market is maturing and customers are becoming more sophisticated shifting towards both larger projects and larger portfolio of projects and this is influencing how we are orientating our business model going forward. Our sales funnel is robust giving us confidence in our approach and we're particularly excited about Brazil and North America with extensive interest from multiple repeat customers and new customers. Additionally, the collaboration agreement that we entered into last year with ZEG Biogas to establish industrial scale volume production locally in Brazil is structured to provide revenue under a new royalty-like business model together with service contracts. While the changes underway will take time for the full benefit to reflect on our financial results, we expect to reflect our resilience, adaptability and commitment to deliver on our overall long-term results to grow our product sales into existing and exciting new markets. I look forward to keep the public informed of our progress and want to thank Greenlane employees for their continued hard work and drive and I look forward to bringing you further updates as we progress. With that, we will now turn the call over to, Monty.
Monty Balderston: Thanks, Ian, and good afternoon, everyone. As a reminder, all figures are in Canadian dollars and all comparisons are for the fourth quarter and fiscal year 2023 against the respective periods of 2022 unless otherwise stated. Greenlane generated revenue in the fourth quarter of $17.3 million compared to $17 million in 2022. This was a significant improvement over Q3 2023 as the Company commenced work on its $35.3 million sales order announced in October. For the fiscal year 2023 revenue of $57.8 million was a decline of 19% over 2022 revenue of $71.2 million. System sales revenue accounted for 84% of the total 2023 revenue, which is recognized in accordance with the stage of completion on the projects with the remaining 16% of revenue being generated from aftercare services. Our gross margin excluding amortization in the fourth quarter of 2023 was 18% or $3.2 million compared to $3.3 million or 19% in the fourth quarter of 2022. For the full-year, we delivered a gross margin excluding amortization of 25% or $14.4 million compared to 24% or $16.8 million in 2022. The Company has a portfolio of active projects at different stages of completion and at different gross margin levels. While the quarter and year-over-year results were effectively similar gross margin percentages, I do want to provide some additional color on the current quarter. During the fourth quarter, gross margin before amortization reflects additional commissioning and related costs from three projects and an inventory obsolescence charge of $300,000. Furthermore, the October of 2023 $35.3 million sales order I previously mentioned was a significant portion of our activity in Q4 and the contract reflects volume pricing hence a lower gross margin profile in comparison to the Company's historical run-rate. As Ian noted earlier, we are transitioning our business model and emphasizing product standardization and cost streamlining together with royalty revenue from our ZEG Biogas agreement, which should assist in our gross margin improvement efforts in fiscal 2024. Adjusted EBITDA in the fourth quarter was a loss of $2.3 million versus a loss of $2 million in the fourth quarter of 2022. For the full-year, adjusted EBITDA was a loss of $10 million versus a $2 million loss in 2022. The adjusted EBITDA results for 2023 reflect the overall decrease in system sales revenue and an increase in G&A expenses as we made a conscious investment in 2023 to improve our systems and processes to facilitate the Company's ability to scale and be more cost effective. The Company incurred a net loss and comprehensive loss of $17.7 million in the fourth quarter of 2023 compared to a net loss and comprehensive loss of $1.5 million in Q4 of 2022. For fiscal 2023, the Company incurred a net loss and comprehensive loss of $29.4 million compared to a net loss and comprehensive loss of $6.1 million in the prior year. The net loss and comprehensive net loss was largely reflective of an impairment of goodwill and intangible assets charge taken in Q4 of $14.4 million. The impairment removes the remaining balance sheet value of our 2019 biogas upgrading business acquisition, which is reflective of Greenlane's current enterprise value. The Company's sales order backlog was $36 million at December 31, 2023 and as a reminder, our sales order backlog is a snapshot at one moment in time and it varies from quarter-to-quarter. The sales order backlog increases by the value of new system sales contracts and is drawn down over time as the projects progress towards completion with those amounts being recognized in revenue. Further, our sales order backlog does not include our Cascade H2S sales, service revenue or revenue from our royalty-like agreement with ZEG Biogas. As at December 31, Greenlane had cash and cash equivalents of $11.8 million and working capital of $16.7 million with no debt. We look forward to keeping our shareholders apprised of our progress. And with that, I will open the call to questions. Operator?
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Hamzah Faris of Cormark Securities. Please go ahead.
Hamzah Faris: Hey, good evening. I just want to get a little bit of color on the market. So, what are you currently seeing in the Brazil market compared to the U.S. and Italy in terms of market tailwinds and headwinds?
Ian Kane: Yes, that's a good question. I mean, there's no doubt in Brazil there is a drive for biogas and a lot of that's partly because if Brazil doesn't have their own source of gas. And secondly, they have a lot of large sugarcane facilities and landfill facilities that are great sources of biogas. So, overall the country is well-suited for the biogas RNG market.
Hamzah Faris: Okay, great. And then second question, can you help me understand the thinking around this $35.3 million sale order you secured? You quoted the sale is at a lower margin. What's the reason behind accepting this order? Do you expect to see future sales from different projects from the same customer or has the competitive landscape changed? And then how much of this project contribute to Q4 revenues?
Monty Balderston: So, it was loosely about half of our bio or our upgrading sales revenue in the fourth quarter, maybe a little bit more than half. And, obviously the logic behind the lower margin is, we were in a competitive process and certain things have a larger dollar value, but they don't necessarily require more physical work, the engineering work, the procurement work that type of thing. And so, in absolute dollars, we're seeing a bigger number, but as a percentage of the revenue, the margin is less than what we've historically quoted. And so, there's always gives and takes in that exercise. But, when you look at our cost of goods sold on upgrading projects, essentially 85%ish plus or minus, maybe even 90% is third-party acquisition of materials. So, the labor component, which is often ours, is loosely in that 10% to 15%. So, that's where the kind of the math comes into on a larger contract being able to be more aggressive and obviously, we were in a competitive process with other parties and to secure it. That's why we went down that path.
Hamzah Faris: Okay. Great. I’ll pass it on. Thank you.
Operator: [Operator Instructions] As there are no more questions from the phones, this concludes the question-and-answer session. I would like to turn pardon me, we have another question from Mr. Hamzah Faris of Cormark Securities. Please go ahead.
Hamzah Faris: Yes, sorry, just one final question. Of the 11 contracts completed this quarter, how much revenue do you believe is remaining? And can you provide any color on how you expect these revenues to be distributed across 2024?
Monty Balderston: Well, at December 31, we still had a backlog of $36 million obviously, that's going to largely be realized in the first six months to nine months. So, you're going to see a lot of that revenues coming through here, in particular in Q1 and Q2. It will tail off. The project isn't linear. There's a lot of heavy lifting at the beginning and then there's a bit of a lull and then there's a push when you go to commissioning. So, hopefully that answers the question there. And then obviously, as Ian had mentioned, we do have a number of projects that are at various stages in the sales pipeline. Obviously, they're not done because if they were done and contracted, we would have announced them. But, we do have a stable of projects that we're working at the present time in both North America and in South America and Brazil.
Hamzah Faris: Okay, perfect. Thank you.
Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Darren Seed for any closing remarks.
Darren Seed: Thanks, everyone, and thanks, operator. I appreciate your questions and ongoing interest and support and look forward to seeing you on the next conference call.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day. https://www.investing.com/news/stock-market-news/earnings-call-greenlane-renewables-reports-mixed-q4-results-eyes-growth-93CH-3355179