Greenlane Renewables Inc.
(GRN-T) C$0.90
Q2/22 Results
Event
Greenlane reported Q2/22 results.
Impact: SLIGHTLY NEGATIVE
Q2/22 Results: Greenlane reported Q2/22 revenue of $18.1 million, 8% above our estimate due to System Sales segment revenues that were 5% above our estimate and higher-than-expected Aftercare Services revenues ($1.7 million vs. our estimate of $1.2 million) that can be materially impacted by parts and service orders. Gross margin of 25.3% also exceeded our estimate of 24.8%. However, G&A of $5.8 million was above our estimate of $4.4 million, resulting in an EBITDA loss of $1.8 million, greater than our estimate for a loss of $0.8 million. Importantly, G&A included $0.8 million in strategic-initiative spending focused on potential M&A opportunities, as well as a conscious decision to increase staffing, in anticipation of what it expects will be heightened demand. Details on page 2.
Conference Call Takeaways:
What is driving demand? North American natural gas utilities and an emerging opportunity in South America (sugar mills, high biomass landfills) are making up for a pause in projects linked to the California LCFS market, given the recent weakness in credit pricing. Incentives arising from the proposed U.S. Inflation Reduction Act may represent a meaningful opportunity.
M&A Potential: Management indicated a willingness to be acquisitive, particularly for opportunities that grow market share and add to or improve the product portfolio. Management indicated that go-forward M&A-related expenses would be lumpy in nature.
Estimate Changes: With quarter-end backlog right in line with our estimates, we are not materially changing our revenue forecast. Our 2022 and 2023 EBITDAS estimates decrease by $3.0 million and $3.0 million, respectively, to reflect an increased G&A run-rate. Details on page 3.
TD Investment Conclusion
Greenlane is an asset-light engineering services firm, serving a high-growth, low- carbon market at the early stages of commercialization, with a solid reference base of project deliveries and what we believe is a competitive product portfolio. We view the increased cost structure as a near-term phenomenon and continue to believe that the fundamental growth outlook for the sector remains strong. As a result, we are maintaining our SPECULATIVE BUY rating and $1.45 target price.