Greenlane Renewables Inc.

Thank you for standing by. Welcome to the Green Lane Renewables, Inc. 4th Quarter 2023 Results Conference Call. At this time, all participants are in listen-only mode. Following the results, we will conduct a question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. Today's call is being recorded and the replay will be available on the Green Lane website. I'll now turn the call over to Darren Seed from Insight Capital Markets. You may begin your conference.

Thank you, operator, and good afternoon. Welcome to the GreenLane Renewables fourth quarter and fiscal year-end 2023 conference call. I'm joined today by Ian Cain, GreenLane's President and Chief Executive Officer, and Monty Balderson, 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 those forward-looking statements. Greenland 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. Lastly, while the 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 for participating on today's call. I'll cover some of the events in 2023 and then focus on our goals in 2024 and the path ahead. In 2023, our focus was on preparing the business for future growth, scaling and positive adjusted EBITDA in 2024. We continue on this journey of business foundation building and are happy with our progress to date. We have invested in and implemented processor systems to enable us to scale sustainably. We are transitioning from an engineered-to-order to a configured-to-order business model, emphasizing standard products to streamline our costs and enhance our competitiveness in the market. This accelerates our ability to increase the sales pipeline, revenue, and enhance our bottom line. In 2023, we've progressed 28 active biogas upgrading projects, demonstrating our team's experience and capacity. This puts us among the global industrial industry leaders and with a broad variety of solutions and configurations that are unparalleled. We announced $42.5 million in new sales Contracts featuring $35.3 million for landfill to RNG projects in Brazil announced in October. As we mature our business, we have prioritized cost management or realigning our cost structure and focusing on efficiency in our supply chain execution. These efforts are expected to contribute to our goals of achieving positive adjusted EBITDA in 2024, as was achieved in 2021, and maintaining cash reserves. Our dedicated team closely aligned with our customers ensures the delivery of quality services and products. I am confident and excited about our strong future, considering the foundation work we have done and continue to do. With respect to the market backdrop, the RNG market is maturing and customers are becoming more sophisticated, shifting towards both larger projects and larger portfolio of projects. And this is influencing how we are orientating our business model going forward. Our sales funnel is robust, giving us confidence in our approach. And we're particularly excited about Brazil and North America. with extensive interest from multiple repeat customers and new customers. Additionally, the collaboration agreement that we entered into last year with ZAG Biogas to establish industrial-scale volume production locally in Brazil is structured to provide revenue under a new royalty-like business model together with service contracts. While the changes underway will take time, for the full benefit to reflect in our financial results. We expect to reflect our resilience, adaptability, and commitment to deliver on our overall long-term results to grow our product sales into existing and exciting new markets. I look forward to keep the public informed of our progress. and want to thank Greenland employees for their continued hard work and drive and I look forward to bringing you further updates as we progress. With that, we will now turn the call over to Monty.

Thank you Ian and good afternoon everyone. As a reminder, all figures are in Canadian dollars and all comparisons are for the fourth quarter and fiscal year 2023 against the respective periods of 2022 unless otherwise stated. Greenland generated revenue in the fourth quarter of $17.3 million compared to $17 million in 2022. This was a significant improvement over Q3 2023 as the company commenced work on its $35.3 million sales order announced in October. For the fiscal year, 2023 revenue of $57.8 million was a decline of 19% over 2022 revenue of $71.2 million. System sales revenue accounted for 84% of the total 2023 revenue, which is recognized in accordance with the stage of completion on the projects, with the remaining 16% of revenue being generated from aftercare services. Our gross margin, excluding amortization in the fourth quarter of 2023, was 18%, or $3.2 million, compared to $3.3 million, or 19%, in the fourth quarter of 2022. For the full year, we delivered a gross margin excluding amortization of 25% or $14.4 million compared to 24% or $16.8 million in 2022. The company has a portfolio of active projects at different stages of completion and at different gross margin levels. While the quarter and year-over-year results were effectively similar gross margin percentages, I do want to provide some additional color on the current quarter. During the fourth quarter, gross margin before amortization reflects additional commissioning and related costs from three projects and an inventory obsolescence charge of $300,000. Furthermore, the October 2023 $35.3 million sales order I previously mentioned was a significant portion of our activity in Q4, and the contract reflects volume pricing, hence a lower gross margin profile in comparison to the company's historical run rate. As Ian noted earlier, we are transitioning our business model and emphasizing product standardization and cost streamlining together with royalty revenue from our ZEGG biogas agreement, which should assist in our gross margin improvement efforts in fiscal 2024. Adjusted EBITDA in the fourth quarter was a loss of $2.3 million, versus a loss of $2 million in the fourth quarter of 2022. For the full year, adjusted EBITDA was a loss of $10 million versus a $2 million loss in 2022. The adjusted EBITDA results for 2023 reflect the overall decrease in system sales revenue and an increase in G&A expenses as we made a conscious investment in 2023 to improve our systems and processes facilitate the company's ability to scale and be more cost effective. The company incurred a net loss and comprehensive loss of $17.7 million in the fourth quarter of 2023 compared to a net loss and comprehensive loss of $1.5 million in Q4 of 2022. For fiscal 2023, the company incurred a net loss and comprehensive loss of $29.4 million compared to a net loss and comprehensive loss of $6.1 million in the prior year. The net loss and comprehensive net loss was largely reflective of an impairment of goodwill and intangible assets charge taken in Q4 of $14.4 million. The impairment removes the remaining balance sheet value of our 2019 biogas upgrading business acquisition, which is reflective of Greenland's current enterprise value. The company sales order backlog was $36 million at December 31st, 2023. And as a reminder, Our sales order backlog is a snapshot at one moment in time and it varies from quarter to quarter. The sales order backlog increases by the value of new system sales contracts and is drawn down over time as the projects progress towards completion with those amounts being recognized in revenue. Further, our sales order backlog does not include our cascade H2S sales, service revenue, or revenue from our royalty-like agreement with Zeg Biogas. As at December 31st, Greenland had cash and cash equivalents of $11.8 million and working capital of $16.7 million with no debt. We look forward to keeping your shareholders apprised of our progress. And with that, I will open the call to questions. Operator?

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two.

We will pause for a moment as callers join the queue. The first question comes from Hamza Fares with Cormark Securities.

Please go ahead.

Hey, good evening. I just wanted to get a little bit of color on the market. So what are you currently seeing in the Brazil market compared to the U.S. and Italy in terms of market tailwinds and headwinds?

Yeah, that's a good question. I mean, there's no doubt in Brazil, there is a drive for biogas. And a lot of that's partly because Brazil doesn't have their own source of gas. And secondly, they have a lot of large sugarcane facilities and landfill facilities that are great sources of biogas. So overall, you know, the the country is well suited for the biogas RNG market.

Okay, great. And then second question. Can you help me understand the thinking around this $35.3 million sale order you secured? You quote that the sale is at a lower margin. What's the reason behind accepting this order? Do you expect to see future sales from different projects from the same customer? Or has the competitive landscape changed?

then how much of uh how much did this project contribute to q4 revenues um so it was uh loosely about half of our our bio or our upgrader sales revenue in the fourth quarter maybe a little bit more than half and and obviously the logic behind um the lower margin is uh we were in a competitive process and um you know, certain things have a larger dollar value, but they don't necessarily require more physical work, you know, the engineering work, the procurement work, that type of thing. And so in absolute dollars, you know, we're seeing a bigger number, but as a percentage of the revenue, the margin is less than what we, you know, historically quoted. And so there's always gives and takes in that exercise. But, you know, when you look at our, you know, cost of goods sold on upgraded projects, essentially 85-ish percent, plus or minus, maybe even 90%, is third-party acquisition of materials. So the labor component, which is often ours, is loosely in that 10 to 15%. So that's where the kind of the math comes into on a larger contract being able to be more aggressive and obviously we were in a competitive process with other parties and to secure it that's why we went down that path okay great i'll pass it on thank you once again any analyst who wishes to ask a question may press star then one please press star then one now

As there are no more questions from the phones, this concludes the question and answer session.

I would like to turn, pardon me, we have another question from Mr. Hamza Fares of Coremark Securities. Please go ahead.

Yeah, sorry, just one final question. Of the 11 contracts completed this quarter, how much revenue do you believe is remaining, and can you provide any color on how you expect these revenues to be distributed across 2024?

Well, you know, at December 31st, we still had a backlog of $36 million. Obviously, that's going to largely be realized in, you know, the first six months to nine months. So you're going to see a lot of that revenues, you know, coming through here, in particular in Q1 and Q2. It'll tail off, you know, the project isn't linear. There's a lot of heavy lifting at the beginning, and then there's a bit of a lull, and then there's a push when you go to commissioning. So hopefully that answers the question there. And then obviously, as Ian had mentioned, we do have a number of projects that are at various stages in the sales pipeline. Obviously, they're not done because if they were done and contracted, we would have announced them. But we do have a stable of projects that we're working at the present time in both North America and in South America and Brazil.

Okay, perfect. Thank you. This concludes the question and answer session.

I would like to turn the conference back over to Darren Seed for any closing remarks.

Thanks, everyone. Thanks, operator. I appreciate your questions and ongoing interest and support and look forward to seeing you on the next conference call.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a blessed day.