Earnings Transcript for GRNWF - Q3 Fiscal Year 2024

Operator: Good afternoon, ladies and gentlemen, and welcome to the Greenlane Renewables Third Quarter 2024 Conference Call. [Operator Instructions] Today's call is being recorded, and a replay will be available on Greenlane's 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 Third Quarter 2024 Conference Call. I'm joined today by Brad Douville, Greenlane's 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 these 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 the Canadian securities regulators. Lastly, in this conference call, as it's open to the public and for the sake of brevity, questions will be prioritized for analysts before opening the call for others. Now I'll turn the call over to Brad.

Brad Douville: Good afternoon, and thank you, everyone for joining us today. It's been over a year since I last spoke on a Greenlane quarterly conference call, and I'm excited to be back; so let's get to it. I'll start with Greenlane's third quarter performance. Our performance in the quarter demonstrates our commitment to diligent completion of biogas upgrading system contracts, disciplined cost management and realizing operational efficiencies. The result is an increase in revenue over the same quarter last year and a substantial improvement in our cash balance and adjusted EBITDA. Monty will expand on the numbers in a moment, and I encourage investors to look at our adjusted EBITDA trend over the last 18 months, which is heading in the right direction, demonstrating strong improvements. We've adapted accordingly and in Q3, implemented changes to our cost structure through a reduction in workforce. This was to adjust for completion of projects, realized operational efficiencies and opportunities in front of us. Our stated goal of achieving positive adjusted EBITDA for the full year depended on signing new biogas upgrading system contracts that have experienced delays associated with our customers' final decisions to start construction. As a consequence, while we maintain our goal of positive adjusted EBITDA, we have determined that it will not be achieved in 2024. As recently announced, we have increased our service business by adding maintenance contracts to generate additional opportunities from Greenlane's large installed customer base. Greenlane continues to expand its impact in RNG markets, completing over 20 biogas upgrading system projects in the last two years, over 145 in total. While uncertainties in customer project starts and competitive pressures continue to affect new biogas upgrader system sales, we are excited about Greenlane's future. We are well-positioned to capitalize on the global push towards decarbonization, and our ongoing projects underscore our commitment to supporting a sustainable energy transition. We're confident that our streamlined, agile organization will continue to make meaningful contributions to the RNG industry. The RNG industry has seen some positive developments, and I wanted to encourage listeners today to check out the Greenlane Digest for RNG-related content we find interesting. For example, the IEA's recent report reflects optimism for the global renewable sector, emphasizing a collective effort to unlock the potential of bioenergy and biofuels. Notably, this year's report includes for the first time, a dedicated chapter on renewable fuels, covering bioenergy, biogases, hydrogen and e-fuels and anticipates a 30% increase in global demand for biogases, including both biogas and biomethane from 2024 to 2030. Referencing a separate article from the digest, the Brazilian market is advancing its renewable natural gas initiatives with the recent passage of the Future Fuels Law, a pivotal framework supporting decarbonization in sectors like transportation. The growth of the overall RNG industry continues to gain traction. A coalition for renewable natural gas reported that 433 RNG-producing facilities are now operational across North America, marking a 44% increase from last year's 300 facilities. An additional 436 facilities are now in various stages of planning or construction, creating a robust pipeline of forthcoming projects. Beyond our evolving marketplace, service and other business updates, Greenlane is a pioneer and a leader in driving change, actively contributing to the decarbonization of our planet for over 35 years. It's not just a line, it's what we do and while that's not easy, what we do matters. We set ourselves up for the longer term with a more nimble, fully capable organization as the foundation to continue to make a sustainable difference. With that, I will now turn the call over to Monty to take you through the numbers.

Monty Balderston: Thanks, Brad, and good afternoon, everyone. As a reminder, all figures are in Canadian dollars unless otherwise stated, and all comparisons are for the third quarter of 2024 against the third quarter of 2023. As of September 30, 2024, we had a cash balance of $15.4 million, which was a 70% increase from Q2 2024, driven by the conversion of accounts receivable to cash. We reported revenue of $10.5 million for Q3 2024, a 10% increase over Q3 2023. Our revenue growth was driven by both system sales and aftercare services. System sales contributed $8.5 million, while aftercare services grew to $2 million, reflecting increased demand for our support services. Greenlane's gross margin before amortization for the third quarter of 2024 of 34% of revenue or $3.6 million benefited from the positive impact of $400,000 related to the release of expired warranty provisions. Excluding the warranty impact, gross margin before amortization is 30%, which is higher than our overall third quarter of 2023 comparative period and second quarter of 2024 financial performance as a result of higher aftercare service contribution to the revenue mix. Furthermore, we've completed three upgrader projects in Q3 2024 and 10 upgrader projects over the first nine months of 2024. We realized operational efficiencies together with experiencing delays in new system contract awards, and we have reduced our G&A cost run rate by over 25%. We incurred a $500,000 restructuring charge in the third quarter of 2024 related to the workforce reduction, and we estimate that the changes will result in a $5 million annual reduction in general and administration costs. In addition, we incurred an impairment charge of $1 million on our outstanding notes receivable. For our shareholders, we saw an improvement in our adjusted EBITDA, reducing our loss to $200,000 from a $4.4 million loss in Q3 2023. Our net loss and comprehensive loss of $2 million was a 61% improvement from a net loss of $5.1 million in Q3 2023. Airdep has become a much more prominent part of our business due to its consistent and profitable growth. And accordingly, we are now including Airdep's sales contracts in the sales order backlog. As of September 30, 2024, Airdep contributed $5.9 million to our total sales order backlog of $14.3 million. As you can see from our results, our financial position has a solid base, and we continue to monitor our cash flows and liquidity closely. We look forward to keeping our shareholders apprised of progress with that. And with that, I will open the call to questions. Operator?

Operator: Thank you. [Operator Instructions] One moment please, for your first question. There are no questions at this time. I'd now like to turn the call back over to Darren for final closing remarks. Please go ahead.

Darren Seed: Thank you everyone, for participating on today's call. We appreciate any ongoing interest and support and look forward to seeing everyone on the next conference call.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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