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

Welcome to the Greenlane Renewables Fourth Quarter and Year Ended December 31, 2025 Video Conference. My name is Darren Seed, President of Incite Capital Markets, responsible for Investor Relations at Greenlane. I'm joined today by Brad Douville, Greenlane's Chief Executive Officer; and Stephanie Mason, Greenlane's Chief Financial Officer. We will begin with remarks followed by Q&A, which I will moderate. Before beginning our 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 Canadian Securities Regulators. Please feel free to submit any questions you may have through our investor e-mail address at [email protected]. Now over to Brad.

Thanks for joining today. So firstly, let's take a look back. Let's look at our strategic initiatives that we had at the start of fiscal year 2025. We had a relentless focus on improving adjusted EBITDA results and maintaining healthy cash reserves. And we would do that with 3 key strategic initiatives. The first one being continued sales growth in our most profitable business areas, which are proprietary standard products and parts and service. #2 is our -- improve the profitability of our system integration and delivery business area. We would do that by executing our projects on time, on budget, delighting customers and selling standard products versus one-off engineered solutions. Thirdly, develop Cascade LF, our compelling next-generation landfill gas upgrading product line, capturing additional IP and planning manufacturing. So how do we do? While we overachieved our 2025 objectives, we generated $2.3 million in adjusted EBITDA versus a loss in 2024, and we increased, not just maintained, but we increased our cash balance over the same period last year. Let's also take a look back. And just as a reminder and maybe a recharacterization, our 3 business areas: proprietary standard products, system integration delivery, parts and service. So what are those? Let's start with proprietary standard products. So our product lines beginning on the right of this chart, CASCADE H2S. So this is our biogas desulfurization system. Below that, CASCADE Water. This is our long-standing water wash product line. It's the foundational technology upon which Greenlane was founded more than 35 years ago. And then our new product line that's built on all the previous products that we had delivered to date. So that's Cascade LF, which is our next-generation landfill gas upgrading, higher performance, lower cost. And then Cascade MS, which is our membrane separation. It's upgrading of anaerobic digester gas for larger flows and has low-cost synergy with Cascade LF. So in 2025, the development of our Cascade LF, including our new proprietary linear NRU marks significant advancement in our technology portfolio. The new product line, which is engineered to improve methane recovery, methane recovery being the #1 performance indicator of an upgrading system, reduced system complexity, lower operating and capital cost, and that's spawned 4 new patent application filings since December of 2024. That, of course, further enhances our intellectual property portfolio. Our system integration and delivery business area. So this is where we take our proprietary standard products shown on the right -- on the upper right. So that is the proprietary portion of our Cascade LF that's before integration. And then the image below that is after integration. So that's after -- for those customers that require it. So it's turnkey project delivery, where we integrate our proprietary standard products with third-party equipment and deliver to customers complete biogas upgrading systems. So the scope of that is system engineering, third-party equipment specification, procurement, quality control, project management, installation at site, interconnecting piping, wiring and then, of course, system integration, performance testing and ultimately, operator training and handover. So in other words, full turnkey. Our third business area, parts and service. So this is an attractive growing recurring revenue part of the business. We're adding value with an increased customer base. That increased customer base is from more than 500 systems sold into 32 countries. That gives us a large and growing pool of customers. So the kinds of things that we deliver is services here, remote monitoring, 24/7 technical support, proprietary software upgrades, scheduled and scheduled maintenance, priority spare parts, priority spare parts supply and performance optimization. Let's look at the financial performance of all 3 business areas, and it's easiest to do this in a bit of a build here. So let's start with parts and services, the financial foundation. Our parts and service over the last 3 years has provided strong positive adjusted EBITDA growth. And in 2025, approximately 15% adjusted EBITDA was generated on $14 million in revenue. If we layer on top of that, the proprietary standard products, so you can see that takes the combined adjusted EBITDA growth up to 28% on $39 million in revenue in 2025. Very strong adjusted EBITDA growth from these 2 parts of the business. And then we layer in our third business area, the system integration and delivery. You can see in the revenue chart, we're ramping down, we're deliberately ramping down. We're completing legacy low-margin contracts to ramp back up centered on Cascade LF with lower risk, higher margin. So that on a consolidated basis is 5%. So in other words, the system integration and delivery brought down our results from the 28% to the 5%. Looking forward, our 2026 strategic initiatives are aligned with what we had last year, but of course, updated because we've made substantial progress. They continue to be underpinned by financial discipline that's foundational to our objectives for 2026. Strategic initiative #1 remains unchanged from last year. It's working. So let's keep doing that, which is continued sales growth in our most profitable business areas, proprietary standard products and parts and service. Reconfigure -- the second one, reconfigure our system integration delivery business area. So complete the ramp down of legacy low-margin contracts and ramp back up centered on Cascade LF. We'll enter into new contracts that are structured for lower risk, higher margin and lower overall cost for customers. And then thirdly, add step change profitable growth potential with Cascade LF. So complete the final development, commence manufacturing in Brazil with the aim of being ready to ship of the first unit by the end of this year and also this year, establish our manufacturing plan to serve the North American market. And now over to Steph for the financial results.

Thanks, Brad. I'm going to talk through our highlights of 2025. As a reminder, all amounts are in Canadian dollars, unless otherwise stated. 2025 saw Greenlane back to a positive adjusted EBITDA, ending the year at $2.3 million, which was an improvement of $4 million, up from a loss of $1.7 million in 2024. A big contributor to this adjusted EBITDA is the $2.9 million gross margin contribution, which was received under the technology licensing agreement with a local partner in Brazil. The agreement triggered a onetime minimum volume commitment. Now if we look down to revenue, revenue was $10.8 million, which was up by $2.3 million from Q4 2024. This increase consists mainly of $1.7 million in higher system sales and $0.6 million increase in parts and service revenue. Looking to the full year of 2025, revenue was $44.4 million. This is a decline of $7.4 million. This consists of a $16.2 million reduction in system sales, which was partially offset by a $6.3 million increase in parts and service revenue and a $2.5 million increase in royalty revenue. Now if we go to look at gross margin before amortization, Q4 of 2025 was $4.4 million or 41% of revenue compared to $3.8 million or 45% of revenue in Q4 2024. Now for the full year of 2025, we achieved gross margin before amortization of $19.1 million or 43% of revenue compared to $16.3 million or 32% of revenue for 2024. The change in margin contribution reflects mainly the product mix as we have products -- projects at varying margins at different stages of completion, and we're also seeing a growing contribution from our higher-margin parts and service business and royalty revenue streams. I also want to highlight Q4 2025 net loss and comprehensive loss of $1.2 million versus net income and comprehensive income of $1.9 million in Q4 2024. In Q4 2025, we did see an increase in R&D expenses as we advance our Cascade LF product line. And in the prior quarter, we saw a gain in the change in fair value of note receivable, which was fully paid in January of 2025. There was also movements in foreign exchange as we had a gain in Q4 2024 versus a loss in Q4 of 2025. We ended the year in a strong position with a sales order backlog of $33.6 million and a cash position of $17.7 million compared to $16.2 million in 2024, which was an increase of $1.5 million. This shows that Greenlane has a stable financial platform to support our backlog execution and our product development. And with that, I'll send it back to Darren.

Thank you, Stephanie. Brad, you spoke today about the Cascade LF system. And how excited are you about its opportunities? And how should investors think about timing on revenue for this product?

I'm very excited, Darren. So I think that's clear. It's going to be a great product. So in terms of timing, provided we get through the steps to complete the activities to deliver or be ready to ship for the first unit by the end of this year. As you've heard from us before, that we do our revenue on a percent for the completion basis. So as we sign contracts, we get those build slots filled up. Remember, the first build slot with completion or being ready to ship by the end of this year and then thereafter, we'll start to see revenue recognition from those contracts.

Got it. And so looking at R&D, is this still an important factor and a related expense when considering Greenlane?