Greenlane Renewables Inc. (GRN) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the Greenlane Renewables, Inc. Second Quarter 2024 Results Conference Call. [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 with Incite Capital Markets. You may begin your conference.

Thank you, operator, and good afternoon. Welcome to the Greenlane Renewables Second Quarter 2024 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 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, while this 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.

Good afternoon, and thank you, everybody, for participating on the call today. I would like to start off with a brief recap of our business progress before I turn the call over to Monty for a more detailed review of the numbers. We reported $14.6 million revenue and adjusted EBITDA loss of $0.8 million while continuing to work towards our goal of becoming adjusted EBITDA positive. We've seen robust sales from both our Airdep division and our service business this quarter. And building on the success of our biogas desulfurization product line in Europe, we have delivered the first Cascade H2S units in North America. These products and services contracts wins are helping drive our financial goals, valued by our stakeholders, as we shift into our next phase of market and related product development. The overall market backdrop for the biogas upgrading portion of our business, however, has been challenging. Our drive towards our goal of adjusted EBITDA this year requires refilling our biogas upgrading system sales order backlog. We have seen several project opportunities in the late stage of sales funnel process experience delays associated with our customers' final decisions to start construction. We continue to anticipate converting them into purchase orders soon. In the meantime, we've taken action to help reduce the costs in affected parts of our business. We realigned some resources and reduced the related workforce count, which Monty will get into shortly. As noted in our news release today, we've seen -- we've been awarded 4 new service contracts for biogas upgrading systems. The systems were recently supplied to a number of large U.S.-based RNG facilities. With 25 new biogas upgrading system projects recently completed or nearly completed. The company is pursuing service contracts for this new installed base by the end of the year. The company is generating profitable recurring revenue while securing -- from securing these multiyear, multi-tier service and maintenance agreements servicing these RNG facilities. Securing these new service contracts is a testament to the hard work and dedication of our service team. Our goal of acquiring multiple new contracts by year-end is ambitious but achievable, as we continue to provide first-class service and support to our customers. We are known for our large facility expertise where Greenlane services all facilities with variable gas flow rates and helps factor in winning these new contracts. I want to thank all those who have continued to support Greenlane as our business evolves as the leading global provider of biogas upgrading systems and join us in our mission to help clean up 2 of the largest and most difficult-to-decarbonize sectors of the global energy system, the natural gas grid and commercial transportation. I will now pass the call over to Monty.

Thanks, Ian, and good afternoon, everyone. As a reminder, all figures are in Canadian dollars unless otherwise stated, and all comparisons for the second quarter of 2024 are from continuing operations -- against the continuing operations from the second quarter of 2023. Greenlane's revenue in the second quarter was $14.6 million compared with $13.8 million in the same period 1 year ago. System sales revenue accounted for 90% of total revenue in the quarter, which is recognized in accordance with the stage of completion of our projects and the remaining 10% of revenue coming from aftercare services. The sales cycle for biogas upgrading system is difficult to forecast, which can create a challenge when projecting our results. We continue to monitor our sales order backlog, which currently is at $14.3 million and take proactive steps to manage the business. As a reminder, our sales order backlog refers to the balance of unrecognized revenue from contracted biogas upgrading system supply projects and excludes all other unrecognized revenue in the business, including that in connection with our Airdep subsidiary, aftercare services and royalty amounts. We understand this challenge in a purposely maintained our asset-light business model, which allows us -- allows for the organization to adapt to a cost structure, which aligns with our business activity levels. Given that we've now successfully completed and closed 7 upgrading system projects in the first half of the year, we have realigned our resources and subsequent to June 30, have reduced our workforce by 18%. We estimate that this realignment will reduce the company's cost structure by $1 million for the remainder of 2024 after considering -- consideration of severance costs. We delivered gross margin in Q2 of 28% or $4.1 million from continuing operations compared to $3.9 million or 28% in the second quarter of 2023. This quarter's gross margin benefited from some more provision adjustments totaling approximately $800,000. Excluding the warranty impacts, noted gross margin for amortization is 22%, which is in line with our first quarter results. We reported an adjusted EBITDA loss in the second quarter of $800,000 versus a $1.6 million loss in the second quarter of 2023. The net loss in Q2 2024 was $400,000 as compared to a net loss of $4.3 million in the comparative quarter of 2023. As Ian noted earlier, we're still driving to improve our adjusted EBITDA results. We exited the quarter with a cash balance of $9 million and no debt. And I wanted to take this opportunity to thank our staff who helped us this far and to the remaining team who continue to push Greenlane forward. And we look forward to keeping our shareholders apprised of our progress. And with that, I will open the call to questions. Operator?

[Operator Instructions] The first question comes from Nick Boychuk with Cormark Securities.

Ian, can you please expand a little bit on the demand dynamics that you're seeing right now? Specifically, what might have to happen in order to see some of these biogas system developments kind of turn into something that would be a backlog?