Greenlane Renewables Inc T.GRN

TD

[retiredcf]

Greenlane Renewables Inc.

(GRN-T) C$.46

Q4/22 Results

Event

Greenlane reported Q4/22 results.

Impact: NEUTRAL

Q4/22 Results: Greenlane reported Q4/22 revenue of $17.0 million, 14% below our estimate, driven by lower-than-expected System Sales. Gross margins of 19.3% were below our estimate of 24.8% due to commissioning costs beyond the company's control and unrecoverable scope changes. G&A of $5.3 million was also above our estimate of $4.5 million due to bad-debt expense of $0.5 million. Quarter- end backlog of $27.7 million was above our estimate due to lower-than-expected revenues. Details on page 2.

Conference Call Takeaways

• Food Waste RNG Projects Picking Up: Yesterday, Greenlane announced a $7.2 million award associated with a biogas project that utilizes food waste (full report). Notably, the customer has 15 additional proposed projects (website), including four in the permitting and design/feedstock contracting phase. To the extent that Greenlane can execute in line with client expectations, it may be the beneficiary of future orders as the incumbent.

• Gross Margin Weakness Likely One-time: As noted above, Q4/22 gross margins were below expectations and historical performance, approximately half related to increased commissioning costs (occurs infrequently), with the balance a result of unrecoverable scope changes (non-recurring). As a result, we expect gross margins to bounce back to historical levels (~25%).

  Estimate Changes: We are making minor modifications to our estimates, and our broader outlook remains unchanged. Details on page 3.

  TD Investment Conclusion

  Greenlane's Systems Sales segment book-to-bill ratio (excluding Airdep related revenues) was below 1x in Q4/22 (0.3x) and on a trailing 12-month basis (0.6x). This is consistent with our expectations and note that we have already taken a very cautious approach with respect to the outlook (Updating our RNG Sector Outlook, Q3/22 Results: Downgrading to HOLD). As a result, we have characterized the quarter as 'NEUTRAL', but note that our 2023 revenue estimate heading into the quarter was the lowest on the Street and 37% below consensus. Based on our updated estimates, our target price decreases to $0.45 (from $0.60 previously), and we are maintaining our HOLD rating.

[Tan4646]

Thanks retiredcf,    TD is  not as negative as I feared they would be in terms of GRN specifically but more so RNG generally ,,  Note: aprox. 78% of GRN decrease in cash is attributed to the Airdep acquisition.   TD has learned from the past two years to be much more conservative in their price targets on everything they cover.