Greenlane Renewables (TSX:GRN) Q3 2026 Earnings Call

0:00 Good afternoon, ladies and gentlemen. Welcome to GreenLane Renewables' third quarter 2026 video conference. My name is Darren See, President of 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. will begin with prepared remarks followed by a Q&A, which I will moderate. 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 to differ materially from those projected in these 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.

1:01 Please feel free to submit any questions you may have through our investor email address at ir at greenlanerenewables.com. Now over to Brad.

1:13 Thanks, Darren. Welcome everyone to our third quarter 2026 results. It was an outstanding quarter that was highlighted by the second highest quarterly adjusted EBITDA result, which was 2 million or 16% of revenue. Also in the quarter, we had solid progress towards completing production readiness for our new products by the end of the year. These results are from disciplined execution of our strategic plan. So what was our strategic plan or what is our strategic plan? And it's made up of three strategic initiatives. And these have been enduring for a couple of years for us. So firstly, continued sales growth in our most profitable business areas, which are parts and service, biogas desulphurization products, and technology licensing.

2:05 Second is reconfiguring our upgrading systems business area by completing the ramp down of legacy low margin contract to ramp back up centered on our proprietary new products and royalty revenues. And that's to do number three, which is to add step change profitable growth potential with our new product lines, which are Cascade LF, and Cascade MS. And that's going after 1.3 billion annual total addressable market for those new products in our launch areas, which is Brazil, the US and Canada. Let me just step back and take a brief look back at the three-year financial history. This is important relating to strategic initiative number one, which you'll see from Stephanie in a moment, that these factored large in our quarter.

2:57 So first, the foundation, parts and service, aftermarket maintenance, spare parts, technical support. Over the last three years, the revenue CAGR has been 34% at 40% gross margin. The biogas desulphurization products, typical unit selling price between $100,000 and $1,000,000 Canadian dollars. That revenue CAGR was 27% at around 50% gross margins over the last three years. and then finally our royalty revenue, which came out of our technology license for one of our water wash product lines in Brazil. Well, that was 80% gross margin over the last three years. So it's provided a very strong foundation for the business and that's what we mean by continuing sales growth in those elements of the business.

3:46 Now, when we talk about reconfiguring our upgrading business area, Completing the wrap down and then wrapping back up based on our new products, Cascade LF and Cascade MS. Cascade LF is our next generation landfill gas upgrading technology, higher performance and lower cost. And that's in partnership with Panasonic. And Panasonic is making solid progress towards achieving production readiness in Brazil, which is our launch market for both products. The target timing is the end of this year, and that's subject to Panasonic receiving its permits. Upgrades to one of Panasonic's facilities in Brazil is nearly complete. Panasonic has issued purchase orders for manufacturing equipment and long lead time bill of material items for the first production units.

4:37 And finally, Panasonic is continuing to add new team members to support its ramp up. Now on the GreenLane side, while Panasonic is progressing production readiness, the GreenLane sales team has been advancing several opportunities through the sales funnel. Some of those are in the late stages of the process. Quoting began about a year ago after we did the product reveal last fall. and just a reminder, sales cycles in our industry are long. They can be one to two years, but again, we're well into that process with some in the later stages. With Brazil being the launch market, sales efforts have focused there, but several opportunities in the North American market are advancing too.

5:24 And speaking of North America, we expect to complete the production readiness to serve the North American market in 2027. As a reminder, the agreements that we signed with Panasonic earlier this year, they are to have these products, Cascade LF and Cascade MS, our new products produced by Panasonic in Brazil under a technology license. and Panasonic brings not only its manufacturing expertise, but its balance sheet strength to support sales growth, where GreenLane retains the responsibility for product design, supply chain management, marketing and sales, commissioning and servicing of the products. Panasonic's initial investment at the time we made our announcement was expected to be in the range of two to three million Canadian dollars.

6:14 And it's a performance-based exclusive license in Brazil as the region. and the manufacturing plan to serve the North American market that I mentioned. That's separate from Panasonic. I've talked about this many times. These are our key strategic success criteria. We've said I've said if we do these four things, then as a company, we'll be successful. So I just want to take you through this, because, again, this matters for understanding our quarterly results. So firstly, price and performance. To be successful in our market, we must deliver attractive return on investment results to our customers with the best combination of product price and performance.

6:59 And we think we've done that with CascadeOF. I'm also very pleased and happy with the team's performance to be able to be agile and quickly innovate to respond to customer needs and changing market dynamics. Number two is manufacturing. I'm going to talk about two and four together, manufacturing and partnerships, because that's really what we've done with Panasonic in Brazil. And and that is all about enabling our customers to secure tax incentive, avoid import tariffs and secure project financing at attractive rates, all because of domestic content rules. That has to happen. We've done that in partnership with with Panasonic. And then thirdly, don't link this up a bit, the intellectual property.

7:48 It's essential that with our new products that we fortify a sustainable comparative advantage by capturing and protecting a growing portfolio of strong IP. We continue to do that. The step change profitable growth potential, I keep talking about 1.3 billion annual total addressable market. You've heard me say many times that we use the International Energy Agency data. It tends to be quite credible and I trust it. Based on our assumptions in terms of the number of units that need to be built out to meet the volumes projected by the IEA, and that's just for the markets of Brazil, the US and Canada.

8:34 That equates that 1.3 billion equates to 113 systems per year in an ASP, average selling price of 11.5 million. and under the Royalty Revenue Model, which is how the Panasonic deal will play out, that Royalty Revenue Model, we demonstrated that with the licensing of one of our water wash products in Brazil in 2023 to a partner that's focused on the sugar mill space. That I mentioned already that generated 80% gross margins. The Royalty Revenue Model going forward is enabled by our licensing agreement with Panasonic for the new products. And we expect to see that as the model that we put in place to realize the opportunity to capture a big share of the $1.3 billion.

9:27 And now over to Steph.

9:30 Thanks, Brad. And good afternoon, everyone. As a reminder, all figures are in Canadian dollars unless otherwise stated. Our strong third quarter financial performance was driven by increased parts and service and biogas desulfurization activity, as well as improved margins on system sales. Revenue increased 7% compared to the same quarter last year to $12.3 million, supported by a 55% increase in parts and service revenue to $5.0 million, partially driven by the timing of a significant order from an existing R&G project developer customer in the United States. Gross margin for amortization improved to 46% compared with 39% in the prior year quarter, reflecting a favorable project mix driven by higher parts and service and biogas to sulfurization system sales are most profitable business areas.

10:22 Biogas upgrading system sales decreased in the quarter as three contracts were completed, releasing approximately $0.7 million in project contingency. Adjusted EBITDA increased to $2.0 million, up from $0.5 million in the third quarter of 2025, benefiting from higher gross profit and lower operating expenses. Operating expenses also reflected the capitalization of $0.7 million in development expenditures following the achievement of key milestones from our next-generation Cascade LF and MS product lines. These results demonstrate the positive contribution from our most profitable business areas as we continue investing in new product development and commercialization. We ended the quarter with $12.2 million in cash, no debt, and a $20 million standby letter of credit facility, providing financial flexibility to support ongoing operations, product commercialization, and future growth opportunities.

11:17 I will now pass it back to Darren for some questions.

11:24 Thank you, Stephanie. So let's touch base on the Cascade LF and Cascade MS commercially. Brad, in your remarks, you mentioned that the Green Lane sales team is advancing a number of opportunities through the sales funnel, with some now in late stages of the process, with Brazil being the focus area, but also quoting opportunities in North American market too. Is there any more color you can share with investors about the level of customer interest?

11:54 Well, I can say customers are interested. A few things. So let me just repeat a few things that I said. So firstly, the sales cycles are long in our industry. They've been long. They continue to be long. Maybe it's a year, maybe it's two years, but we're well into that with a number of opportunities in the advanced stages of the process. I can also remind folks that we've been in Brazil for a long time, about a dozen years. We were the first to provide an upgrading system into the country. We know all the customers. We know them well. We continue to dialogue with them. And like I said, in a number of sales processes with a number of them. So the initial response to CascadeLF, and that's really the key focus because Brazil right now of the biomethane that's produced in the country, 80% of it's derived from landfills. So it's really CascadeLF that's our core focus to serve the major part of the market. The response has been positive.

12:54 So our ambition with this product was to come down the cost curve and go up the performance curve, and we're getting that positive feedback from the customers. I can also say, and just as a reminder, we announced earlier this year some breakthrough performance related to Cascade LF, which is our NRU, our nitrogen removal unit. We demonstrated, our ambition was to have breakthrough performance, and we demonstrated that this spring with 99% methane recovery in the nitrogen removal step, that's separating nitrogen from methane. and that's compared to an industry benchmark of around 90 or lower than 90. So that's a really dramatic improvement in performance with a lower cost architecture and we're getting that feedback from customers.

13:44 Thank you, Brad. Now let's touch base on the fundamentals of government policies around RNG and how it can impact customer demand. What can you tell us about government policies in the geographies of focus and what those might drive?

14:00 Well, let's start with Brazil. So Brazil's our main focus area for sales right now for Cascada Left, the new product. This year, the Future of Fuels law came into effect. It came into effect halfway through the year. The first year was supposed to be 1%, Let me back up. It's 1% reduction of greenhouse gas emissions by suppliers and distributors of natural gas in the country. They have to do that 1% GHG reduction by way of adding bioethane into their mix. Given that it started halfway through the year, the target for 2026 is half a percent. And that legislation enables it to climb up to 10%, 10% GHG reductions by way of adding biomethane to the fuel mix. So there's a good response to the industry as it relates to that.

14:55 Just in September, in the U.S. market, the Section 45Z, those credits came out. The IRS came out with clarity on what that means and how that will be implemented. There was a long wait. That originally came under the Biden era IRA. It came into the big, beautiful bill. under President Trump. So that clarity has finally been released to the market. And so there's a good amount of enthusiasm as it relates to that new piece. The CFR in Canada, the Clean Fuel Regulation, that has been highly effective. It's been around for about three years now. I think it was just this week they came out with amendments.

15:43 They're continuing to tweak it, enhance it to try and drive more volumes. It's currently the highest value source in North America valuing the RNG. And then finally, in Europe, we've enjoyed strong policy support. That policy support has only strengthened since the Russian invasion of Ukraine. For example, in Italy, which is the fastest growing biomethane market in Europe, and where we're located with our factory, of course, in Italy, Just this earlier this year, they extended the scheme in Italy by 24 months from the middle of 2026 to the middle of 2028. So we're seeing a lot of positive policy support from a lot of governments.

16:30 I will finally also add, because I always get a chance to say this, RNG benefits from policy, but policy in fact impacts all energy. So we're just part of that energy mix and RNG is a crucial part of that energy mix.

16:48 Thanks, Brad. Now, GreenLane generated $2 million in adjusted EBITDA in the third quarter, its second highest quarterly result. Given the contribution from certain items, Stephanie, how should investors think about the sustainability of profitability and the company's ability to generate consistent positive EBITDA going forward?

17:11 Yeah, good question, Darren. So we did see some events during the quarter that contributed towards our profitability. We had timing of a large part sale. We had some project completions and release of contingency and capitalization of development costs. But at the same time, we are seeing growth in our profitable business areas. Brad and I have been talking about this for many quarters now. We're seeing increased contribution from biogas to sulfurization and parts and service, which historically have seen about margins in the 40% to 50% range. So if you look, our Q3 revenue is up compared to last year, but the makeup of that revenue is different. That's when we talk about product mix. So as we're seeing growth in biogas disauthorization and parts and service, we're also seeing the ramping down of our legacy biogas upgrading sales, which have historically had lower margins. And so that's really contributing to where we see our margin percentage increase coming from. and all of this is happening in the backdrop of the potential step change where we see the 1.3 billion of total addressable market where we can launch our Cascade LF and MS product and see what the future profitability holds there.

18:28 Okay, thank you, Stephanie. Now, as Greenlane prepares for the commercialization of Cascade LF and Cascade MS, how do you expect capital requirements to evolve? To what extent will the Panasonic manufacturing arrangement help limit Greenlane's capital expenditures and preserve cash as production volumes increase?

18:50 Yeah, so I'll start off by saying we currently have $12.2 million in cash and we believe we have the necessary cash resources to realize our strategic plan. With that, under the agreement with Panasonic, they're responsible for the costs related to the manufacturing facility upgrades, purchasing all the manufacturing equipment, and the production parts. On top of that, we're also currently working on a manufacturing plan for North America a couple of decisions we have to make either going a more capital heavy plan or a capital light plan with a partner but targeting for production readiness to be completed in 2027. Currently the main cost outlay GreenLane has is the cost of our people.

19:38 Thank you, Stephanie. Now, what are you seeing in the R&G industry that is really exciting, Brad? And how do you expect Greenlink to participate?

19:50 Yeah, there's a few things that have captured the imagination of our industry. I'd say this year there's been a lot of effort and focus around the IMO, that's the International Marine Organization, and the Net Zero Framework. So that's something that came up last year. And this is all the countries in the world that ship goods around the world, ocean-going freight. and putting a net you know basically decarbonizing that whole stream and so what we're seeing there is an interesting dynamic of a switch to LNG. LNG provides the scale but RNG provides the decarbonization and those two things go together really well so there's a lot of work and energy focused on that new opportunity what that presents our customers is additionality and optionality in their offtake of the RNG that gets produced by the equipment that we sell.

20:44 So that's all beneficial should that be realized. The next meeting of the IMO comes up this December, so we'll see what happens. and a few other notable events. You know, we had some interesting activity this year on the competitive landscape in the U.S. market. Air Liquide, for example, one of our key competitors, they ended up exiting their nitrogen removal technology, which is, we've been saying, that's the hardest thing to do in this industry. That's why we're leaning into it. There's few companies that are capable of doing it. GreenLane's one of those. And so, you know, we see that as a positive, at least for GreenLane. in terms of having new opportunity with one key competitor, having realized that the technology path that they selected wasn't quite the right one.

21:33 And then finally, I've been spending a lot of time with customers over the last couple of months, Canada, US, Brazil, and a lot of the feedback that I'm getting from our customers, I've had this more than once, is that our customers are saying they're not hearing from Greenlane's competitors the kinds of things that they're hearing from Greenlane. in terms of our commitment to advance the state of the art of technology to bring to market products that come down the cost curve and go up the performance curve. And that's all in the spirit of making our customers more successful. And I think our messages are resonating. I think we're starting to get a lot of interest in the products and people understand our mission and want to join with us to really see the success in the industry.

22:22 Okay, well, thank you, Brad. Thank you, Stephanie. And as a reminder, if you have any questions, please email us at ir at greenlanerenewables.com.