Greenlane Renewables Inc T.GRN

TD Report

[retiredcf]

I think you're going to need to take this one with a grain of salt. Overall, the comments were positive and they acknowledged the beat for results. But it's worth remembering  that they got their fingers very badly burned with XBC. At one point, they had a target around $10.00 but they have now discontinued coverage given the pending bankruptcy. As a result, they are exercising extreme caution with any company in this sector. One could argue that in this case, likely unfairly so. GLTA 

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.

[bmbruce]

  yes, perhaps a reaction to their XBC mistake....they state that the California market is weakening however they fail to mention the acceleration in the growth of the overall market for RNG projects…yes GRN is increasing it’s staff but it’s in relation to the growth in the sector..