Greenlane Renewables Inc. (OTCPK:GRNWF) Q2 2022 Results Conference Call August 9, 2022 5:00 PM ET
Company Participants
Darren Seed – Incite Capital Markets
Brad Douville – President and CEO
Monty Balderston – CFO
Conference Call Participants
Aaron MacNeil – TD Securities
Yuri Lynk – Canaccord Genuity
David Quezada – Raymond James
Ahmad Shaath – Beacon Securities
Sean Keaney – Eight Capital
Operator
Good afternoon, ladies and gentlemen. Welcome to the Greenlane Renewables Second Quarter 2022 Conference Call. At this time, all participants are in a listen only mode. Following the results we will conduct a question-and-answer session. [Operator Instructions] Today’s call is being recorded and a reply will be available on the Greenlane 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 Second Quarter 2022 Conference Call. I’m joined today by Brad Douville, 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 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 Brad.
Brad Douville
Good afternoon and thank you everyone for participating on today’s call. I’d like to start off with a few financial and business highlights from the second quarter as well as provide some high-level industry commentary before I turn the call over to Monty for a more detailed review of the numbers. Greenlane delivered another record revenue quarter and we remain optimistic about our long-term outlook. We achieved revenue of over $18 million and maintained a consistent gross margin 25%. Gross margin was impacted on two of our projects that are in late stages of completion. However, we have a portfolio of more than 20 active projects all at different stages of completion and different gross margin levels, which on average offset these negative impacts. The execution during these challenging times is a real testament to the relentless performance and determination of our team here at Greenlane.
In line with our strategic plan we’ve accomplished a great deal, including the first quarter results from our newly acquired Airdep division in Italy and our first deployment of development capital. As a reminder, through our Airdep division, we’ve supplied proven and effective biogas to desulphurization and air deodorization products that have compelling price performance. Opening our first deployment of development capital opportunities is a major milestone for Greenlane after formally launching our program last year. We launched this program with the aim of adding incremental value to the community of project developers around the world to help derisk projects and build scale in RNG origination. This is the first of what we expect to be many opportunities to provide specialized RNG project development capital to accelerate RNG projects to the ready for construction phase, securing Greenlane system sales and providing ongoing services for each project.
Our success in winning new biogas upgrading system supplier awards continued in the second quarter as Greenlane announced over $20 million in new contracts, plus another $13.5 million subsequent to quarter end, for a total value of $33.6 million in new contract wins since March 31. This highlights not only the competitive advantage of our multiple core technology approach, but also that we are benefiting from our singular focus on a global RNG market, which continues to build momentum and size. Due to the company’s extraordinary growth over the last two years, we are rapidly adding talent to new team members and accelerating systematic and process enhancements. We continue to build the company and strengthen the team to position for further growth.
We continue to maintain a strong financial position with no debt and over $23 million of cash on hand, which provides us with ample flexibility to invest in our core business and in our strategic growth initiatives, including evaluating acquisition opportunities that can expand our market presence and technology offerings. We remain convinced that our products, our people and our role in the RNG industry will contribute significantly to decarbonizing the World Energy systems. Several recent announcements continue to highlight the growing importance of RNG as the decarbonization tool that is readily available today with significant capital continuing to flow into the sector. In Europe, the Russian-Ukraine conflict continues to have an outsized impact on energy markets and is widely expected to accelerate the pace of growth of biomethane. Under its REPowerEU program put in place earlier this year to create lasting independence from Russian energy, the European Commission pledged EUR37 billion to increase biomethane production to 35 billion cubic meters by 2030, up from 3 billion in 2020, which represents approximately 20% of current Russian natural gas imports.
In the United States, Senators, Joe Manchin and Charles Schumer announced agreement on a spending and tax package titled the Inflation Reduction Act that provides $369 billion over the next 10 years on expanding tax policies to reduce greenhouse gas emissions and spur the expanded production and use of domestic clean energy. It contains provisions supported and advocated by the RNG industry including biogas upgrading equipment as qualifying equipment for purposes of the Section 48 Energy Investment Tax Credit. The base credit is 30%, of which 6% would be immediately available with another 24% available if certain prevailing wage and apprenticeship requirements are met. On Sunday, the U.S. Senate passed the bill and it is scheduled to go to the U.S. House this Friday, August 12.
RNG continues to gain traction in the heavy-duty transport sector. As part of its global goal to achieve zero emissions in its operation by 2040, Walmart will be field testing heavy-duty transportation trucks outfitted with compressed natural gas engines that will utilize fuel sourced from RNG supplied by global super major Chevron. The two largest landfill operators in North America, Waste Management and Republic Services, announced earlier this spring that they have committed nearly $2 billion for new RNG installations across their respective landfill assets.
BlackRock, the world’s largest asset manager, announced the acquisition of Vanguard Renewables for $700 million in order to accelerate Vanguard’s growth trajectory, including plans to commission more than 100 anaerobic digesters to produce renewable natural gas across the country by 2026.
In Canada, several announcements point towards continued strength in RNG markets. FortisBC nearly tripled RNG supply in 2021 compared to 2020. And by the end of 2022, it expects to triple its RNG supply again, meeting the natural gas needs of approximately 43,750 homes in British Columbia. FortisBC now expects to meet or exceed its original 2030 goal of 15% of its supply being renewable and noncarbon. The Government of Quebec is seeking to amend its current renewable gas standards through which it would increase the provincial government’s commitment to require a 10% renewable gas blend by 2030, equating to approximately 20 million MMBtu of RNG demand, including 7% interim target in 2028. Current regulation requires gas utilities to incorporate RNG blends of 2% in 2023 and 5% in 2025.
I’d like to once again take this opportunity to thank the Greenlane team for their dedication and commitment to our mission of helping to decarbonize the world’s energy systems as well as our customers for choosing Greenlane as a trusted partner.
I’ll now pass the call over to Monty.
Monty Balderston
Thanks, Brad, and good afternoon, everyone. As a reminder, all figures are in Canadian dollars unless otherwise stated, and all comparisons for the second quarter of 2022 are against the second quarter of 2021. As Brad mentioned previously, Greenlane posted another record quarter. Revenue in the second quarter was $18.1 million, which represented a 44% increase over the comparative period of 2021 and is the highest quarterly revenue achieved in the company’s history. System sales revenue accounted for 91% of total revenue in the quarter, which is recognized in accordance with the stage of completion of projects, with the remaining 9% of revenue coming from aftercare services.
We delivered a gross margin in Q2 of 25% or $4.6 million compared to $3.2 million or 26% in the second quarter of 2021. As Brad mentioned, the gross margin was impacted by two of our projects that are in late stages of completion. However, we have a portfolio of active projects at all different stages of completion and different gross margin levels, which on average offset these negative impacts.
Adjusted EBITDA in the second quarter was a loss of $400,000 versus the $1.1 million profit in the second quarter of 2021. Greenlane posted its first adjusted EBITDA loss after six consecutive quarters of positive EBITDA. The added expenditures have been made consciously by management as we continue to scale up our staffing levels to build and strengthen the company to match the future growth we anticipate. The labor market remains extremely tight and highly competitive to attract and retain top talent.
We reported a net loss in Q2 2022 of $2.2 million compared to a net loss of $1.1 million in the comparative quarter of 2021. During the quarter, the company secured new biogas upgrading system supply contracts with an aggregate value of $20.1 million and another $13.5 million subsequent to the quarter end. The company began order fulfillment and revenue recognition immediately upon signing of these contracts. On April 28, Greenlane announced the signing of an $11.4 million contract with a single customer for the supply of our PSA biogas upgrading systems for new food to waste RNG projects across three states in the U.S.
On May 30, Greenlane announced a new contract for $8.7 million with a dairy manure-to-RNG project in the United States owned by an international energy company. This contract marks the third project within 18 months with this customer. We will supply our membrane separation biogas upgrading systems for this project.
On August 2, Greenlane announced new contracts with a combined value of $13.5 million for the supply of our water wash biogas upgrading technology for two landfill gas to RNG projects in South America.
As at June 30, the company’s sales order backlog was $40.7 million. And as a reminder, the sales order backlog is a snapshot in time which varies from quarter to quarter. The sales order backlog increases by the value of new system sale contracts and is drawn down over time as projects progress towards completion with amounts being recognized in revenue. Our sales pipeline of prospective projects is approximately $900 million as at June 30, which was consistent with Q1 and is an increase over the $800 million we reported at the end of Q2 of last year. We continually update our pipeline of active system sale opportunities based on quote activity, which represents visibility to a significant number of opportunities that funnel down through our sales process and those opportunities are successfully converted into contract wins, then moves into our sales order backlog.
In July 2022, Greenlane increased its credit facility with TD Bank from $12.5 million to $20 million. The facility is secured by a guarantee from EDC and allows Greenlane to enhance sales by providing further guarantees and letters of credit to our customers who require them.
Our balance sheet remains robust as we exited the quarter with a cash balance of $23.2 million and no debt, providing ample flexibility for Greenlane to invest in and grow our core RNG business as well as pursue other strategic initiatives. We look forward to keeping shareholders apprised of our progress.
And with that, I’ll open the call to questions.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Aaron MacNeil of TD Securities.
Aaron MacNeil
Hey, afternoon, all. Thanks for taking my questions. Brad, would you be willing to give us any additional details around the sales pipeline? I’m not looking for any exact splits by any means, but just want to get a sense of what you think the breakdown is by project profile. And I guess more specifically and just thinking about what are the incentive mechanisms that are driving order flow? I assume, based on your comments that a lot of the demand might be driven by the gas utilities or the transportation market? Just trying to get a sense of what that might look like.
Brad Douville
Yes. All good questions Aaron, as usual. And many that I can’t answer, but good questions nonetheless. I think as I said before, a good reflection of our sales pipeline, the opportunities that sit in front of us, is to look back at our most recent orders. We’ve had some good success continuing in the U.S. and in South America. And that’s not dissimilar to the kind of things that we’re seeing in our pipeline, as you might expect.
To answer your question around — I know where you’re going with this, on the kinds of what’s influencing the order flow, we do know that in the U.S., there has been some recent depression in pricing as it relates to the LCFS and the RINs markets. That combined with some inflationary pressure, that from the Greenlane perspective, we tend to pass that along to our customers, well, we do pass it along to our customers. That’s caused a few projects to probably pause a little bit. However, we’ve seen more and more shifts to the voluntary markets and the voluntary markets being the gas utilities in this case predominantly. That’s the U.S. market.
And then the success we’ve been having in Latin America, of course, don’t have those dynamics at all. It’s quite different, and the fundamentals there are largely driven by the extremely high price of fossil fuels, especially in regions like Brazil, far from the coast that don’t have well-developed pipeline infrastructure and have to travel great distances into remote areas to haul diesel fuel. So that means the fuel prices in those local geographies are rather expensive. They can be easily displaced by sugarcane ethanol waste-derived RNG and that’s part of the dynamic, but not the only dynamic there. So different cause and effect in our sales pipeline, but we are still seeing order activity and order flow, not just from the Americas, but also in Europe. But I think it’s pretty clear that our sales success of late has largely been in the Americas. So hopefully, that gives a bit of color, Aaron.
Aaron MacNeil
That’s great. Maybe I’ll ask another question you won’t answer. Surprised to see how prescriptive you were with respect to what the strategic initiative spending was focused on. I mean, you specifically called out pursuing acquisitions. So — again, I know you’ve mentioned consolidating a fragmented market in the past. You’ve mentioned liquefaction in the past. So maybe if you won’t answer exactly what you’re looking at, I guess what I’m wondering, what the purpose of any future acquisition might be? Like is it growing your market share? Is it adding to the product or technology portfolio or something else entirely?
Brad Douville
It’s both of the former. So we’ve been consistent in our M&A strategy, which is firstly a recognition that a market of our maturity or call it young stage of maturity, that consolidation is inevitable. So we want to be at the front end of that, we want to be proactive in that regard. And also look at those opportunities for attractive and compelling technologies, just like we did with the Airdep acquisition that closed earlier this year. So two main categories, one is competitive kind of acquisition to take a competitor that would build our market presence in a certain geography or strengthen it. That’s one category, and that’s the inevitability of consolidation.
And then the second category would be technology bolt-ons that would increase the attractiveness of our technology portfolio and our products. So those — and we’ve been consistent in that regard. We’ve done one deal to date. We have been active. I think if you scrutinize our statements, you’ll see some dollars spent in that regard. And yes, we’re still active in pursuing the kind of deals.
The one thing I will say is when you get targeted on that, if there’s a house on the block that you like, it may not be for sale. That’s not always the way it works. But we’re trying to be proactive in there and not just stand back and wait for deals to come to us, but be on the lookout for deals.
Aaron MacNeil
And then just maybe a follow-up. I guess the run rate on the strategic initiative spending, which is a bit elevated quarter-over-quarter, is that reasonable to expect going forward then as well?
Brad Douville
I think you should fully expect it to be highly lumpy. Just by the nature of the M&A transaction spend, there’s activities in high levels of spend, so if you’re in deal mode and then it goes off a cliff and things go quiet. That’s what you should expect.
Aaron MacNeil
Okay. Thanks. That’s all from me. I’ll turn it over.
Brad Douville
Thanks, Aaron.
Operator
The next question comes from Yuri Lynk of Canaccord Genuity. Please go ahead.
Yuri Lynk
Hey, good evening, guys.
Brad Douville
Hey, Yuri.
Yuri Lynk
Can we dig in a little bit on gross margin? Can you talk about supply chain and inflation? I think that was called out last quarter. And just how — what else was in the gross margin. And the two contracts that you talked about, would they be wrapping up this quarter or are they going to stretch into Q4?
Brad Douville
Yes. So good questions, Yuri. Let’s talk about gross margins and how inflation and supply chain impact or don’t impact those. As you know, with our business model, its asset light, and we have a global supply chain for components and then select fabricated partners that we work with. So when we get a customer contract, we tend to immediately lock in our prices with our collaborative partners in the supply chain side. And that reduces, and in many cases eliminates, any exposure of us facing inflationary pressures in the interim period. That said, if there’s a global supply chain challenges, which we have experienced, so everyone knows about the worldwide shortage of computer chips and electronics components more generally, so those kinds of things we are not immune to.
However, that tends not to reflect in a negative way in gross margins, but it can have extended periods of time on the project execution phase of work. So that’s the long and short of it. I think with inflation, the only times it would really impact our gross margins is if it would be the 80/20 rule of 20%, we don’t lock in, if that 20% covers, I’m just using those numbers here that would be impacted by inflationary pressures, although we try and do our best to predict that at the time of contract signing for our contracts with our customers. And then we do our best, which we’ve done a pretty good job of, but we haven’t been completely immune about managing through any sort of delays of components. Was there another question?
Yuri Lynk
Yes, just the kind of the wrap-up date of the two projects —
Brad Douville
Oh, yes, that was it. I knew there was another one. Yes. For those two, the update — the one should be wrapped up, the other probably into Q4, but that particular one, the expense was a one-time deal, so it’s behind us now.
Yuri Lynk
Okay. Just switching to the capital deployment strategy in RNG projects, can you talk about — what kind of math can you share with us on that in terms of either the payback period or your targeted rates of return? Or what can you share with us on that? And secondly, how much capital do you think you can deploy over the next year or so?
Brad Douville
Both good questions. With our deployment and development capital program, again, just as a reminder everyone, it’s a preconstruction finance, so the checks that we cut are rather small, typically sub-$1 million. And our ambition is to be able to deploy this kind of capital to a large number of projects into which we supply our equipment so it’s synergistic with our core business and accelerates ordering and services contracts for Greenlane and is helpful in the industry. I mean, that’s really what we’re trying to do. So the returns that we expect, firstly, we’re not trying to make gobs of money on this, but what we want to do is to be able to get repaid more or less our principal through the construction phase.
And that may happen towards the beginning or towards the end of the construction phase, but it’s a relatively quick payback of the deployed principal to de-risk it. And then over time, and that over time could be 10 to 15 years, where we would have a participation, typical developer’s participation, as a carry in the project that would return another call it 1x of the principal amount, roughly speaking, I’m over-simplifying here. So that approximate timeframe, the approximate return and that’s pretty much market, because we’re first money in at kind of the risky phase and we’re uniquely positioned in the market to help de-risk these because of our track record and experience with biogas projects. So that’s piece one.
And then your second question around realistically how many of these could we deploy, within our sales pipeline, that’s currently at around $900 million. That’s a couple of hundred projects call it. So we think that — of that, realistically we’ll have 20% or maybe 10% of higher quality ones being the key targets for that. And higher quality is not the right adjective now that I’ve said it. Really, what we’re looking for is many of the customers set in our pipeline, they have all the money they need. They don’t need our help and that’s just fine. We’ll sell the equipment, as many as they like. And really, this is a targeted set for smaller, less well financed developers, and that’s approximately — I don’t want to set a number because that’s not really the right thing to do, but I think it’s not unrealistic to think it’s around 10% of that 200 number-ish, that would be the kind of targets.
But we’ll see what happens over time. I mean, so far, the response has been positive in the market. It certainly solves a problem that exists with that profile of developers that are out there. And that’s global, right? So our first deal was California, but we are talking to folks in South America and Europe as well.
Yuri Lynk
Okay. That’s helpful. I’ll turn it over.
Brad Douville
Thanks, Yuri.
Operator
Our next question is from David Quezada with Raymond James. Please go ahead.
David Quezada
Thanks. Hi, everyone. My first question here, just maybe a follow-up on the capital deployment model. It sounds like from the wording in the MD&A that the potential ownership stake that you could convert into is a stake in the company as opposed to a specific project. So I’m just curious if that’s, well, A, if that’s accurate and B, if that’s how you expect that model will work going forward?
Brad Douville
Yes, that’s a really good question, David, because I did say it, I oversimplified. So if you think about it on a project-by-project basis, the way I described it a minute ago is exactly right. However, the subtlety and the nuance here is that we are looking for those developers who have a pipeline of projects. So it is a lot of work, as you can imagine, doing the due diligence on each of the projects. We’d rather do due diligence on the developer, the team that they have and their portfolio at the same time. So yes, what we’ve noted is correct in that we would preferably invest at the developer level and get essentially the same economics as if we were investing on a project-by-project basis. And that’s helpful for gaining scale, which is the whole point of this program.
David Quezada
Okay. Great, that makes sense. And then I expect you’re not able to give too much detail here, but I’m just wondering if there’s any color you can provide on this particular company’s development pipeline? Is it primarily RNG or dairy RNG primarily in California? Any I guess goalposts around that?
Brad Douville
Yes. I think it’s safe to say that developers tend to do two things. They tend to operate in a certain geography because development is inherently a local activity. So that’s piece one. And piece two is they tend to have a certain space competency, if you will, right? If you’re doing dairy, you’ll probably stick with dairy because that has not a whole lot in common with food waste, for example. From where we sit as biogas upgrading, we can certainly go across all those markets. But really at the feedstock level, the kind of development expertise and competency can be quite distinct and different. Especially if you’re one day dealing with a farm and the next day dealing with say a municipality that owns a wastewater treatment plant, those are dramatically different kind of skillsets and approaches that would be carried out.
David Quezada
That’s really helpful. Thank you. And then maybe just one more for me. Obviously, pretty topical, the Inflation Reduction Act and the inclusion for R&D under the Section 48 tax credit. Just curious, since obviously there’s been a lot of growth in RNG through the LCFS and the RINs, and as you noted in the voluntary market as well. So I’m just curious how meaningful you think that could be on the context of incentives already out there? And what kind of timeline do you think before that translates into maybe increased demand in the U.S.?
Brad Douville
Yes. It’s always hard to predict on that result in demand. But I think typically, we see in the U.S. things are pretty automatic. I mean, if something happens, then the reaction happens quite quickly. This one, I think the investment tax credit is attractive for sure. It has — that’s been — there’s been one in the past that’s kind of fallen off, so if it does get to 30%, and I believe, although we still have to wait for the final language after Friday, but it could get to 40% from what I’m told. I could be wrong on that. But if that’s the case, then that’s meaningful, that’s really potentially dial moving. So we’re excited to see what happens later this week and then obviously, it has to go through signature, the President’s desk, but crossing fingers, then it should all be pretty positive.
David Quezada
That’s great. Thanks very much, Brad. I’ll turn it over.
Operator
The next question is from Nick Boychuk with Cormark Securities. Please go ahead.
Nick Boychuk
Thank you. So not to beat a dead horse here on the development stuff, but in the MD&A there’s a comment that says there’s like $7 million that could be allocated for those projects. Do you think that that gets fully spent there? Or could you potentially redirect those funds elsewhere to say maybe address the acquisitions you brought up previously?
Brad Douville
Hi, Nick, good question. Yes, so we have the numbers that we’ve allocated and we do report in the statements, does go back to the finances that we did that we set those boundaries, but they are quite — they’re guardrails and arbitrary to be honest. So we will move funds around as opportunities come up. Directionally, we’ve put together $11 million pot of money to direct to the development, deployment and development capital program. But if that’s oversubscribed, we certainly will allot more funds. And we also want to retain some flexibility on M&A as those come up, because those can be unpredictable and undefined amounts. So that’s — we’re not trying to overly constrain ourselves and maximize our optionality and we’ll let that play out. But so far, great interest, and we’ll see how quickly we can spend $11 million.
Nick Boychuk
Okay. That’s good color, thanks. And then just kind of moving to a comment you made earlier about the opportunity in Latin America. Are you able to kind of put a rough number around the size of that, either like projects, just absolute quantity or probably by dollars?
Brad Douville
Sorry, Nick, I missed the very first part.
Nick Boychuk
Just referring to the size of the opportunity in Latin America.
Brad Douville
Our recent announcement of $13.5 million
Nick Boychuk
No, the absolute total size. You have alluded to a couple of different times now that there’s sugarcane opportunity in Brazil in particular, that’s very attractive. And I suspect that I’m going to get the same answer that you gave Aaron, but how large do you think that opportunity could be for you guys? Either by a number of project basis or the absolute dollars that you think you could actually be generating in Brazil say?
Brad Douville
Yes. Well, there is some public information out there, by the way. So Petrobras has — they recently divested themselves of their distribution channel and rebranded or the company went public. It’s called Vibra. Vibra bought 50% of a company called ZEG and they’ve stated since all those transactions happened that their stated target is to get to 0.75 billion cubic meters per year of methane by 2025, so it’s all in the public domain. That number, just to put that in perspective, 0.75 of a billion cubic meters per year is 25% of where Europe was in 2020. So that is both coming from a smaller base. Obviously, they’re not nearly as developed in the methane as Europe is, so that’s a pretty substantial ambition. And that’s a first step, that’s one datapoint to start to characterize the size of the market opportunity. The other one is — there’s other two, I guess, I’ll give you. So one is that Brazil has a lot of landfills. Brazil being a tropical country, those landfills, at least from where we sit, they’re beautiful. They’re wonderful landfills that they produce so much and they’re so large, they’re highly economic. The two orders that we recently sold were our largest system that we sell like very large system. So that’s in part what’s happening in Brazil is just the size, the size of biomass that they have.
And then back to the sugar mills, there’s over 300 sugar mills across Brazil. Greenlane did the first commercial scale biogas upgrading at a sugar mill. That one we announced early last year, it’s been commissioned and is up and running since earlier this year and 299 to go. So that’s — it’s a huge market. And if you think of any market on the planet that has developed a stand on its own 2 feet renewable fuel, that’s Brazil. They sell more sugarcane-based ethanol than they do gasoline in the country. And when they produce sugarcane-based ethanol, it produces [indiscernible] which is a ready-made feedstock for RNG production.
So the other thing is that with those sugar mills, they benefited from time in decades of building that out with certain government support. It’s all — it’s the norm in Brazil. And now we’re benefiting from that opportunity and that installed investment in all those sugar mills across the country to be able to simply solve another problem to deal with the mass, prevent that from getting spread on the cane itself, which attracts insects and causes problems and instead turn that into a valuable product. So we’re really excited to be the first to having participated in that commercial scale project. And that is absolutely a focus for us as Greenlane to go after that market.
Nick Boychuk
Very good color. Thank you. And then last on Airdep, kind of a comment in the MD&A that there’s still $1.3 billion of revenue. Just want to confirm how the integration is going and if you’re pleased with that result so far and what the potential is in the back half of the year?
Brad Douville
I’m not going answer your last question, so I don’t give guidance. But to answer your first question, the first stage of the integration was financial, so to make sure that we could firstly close the transaction. So there was some closing books that all have to be buttoned up and then get the financials in the right shape and be able to consolidate with ours. So that financial integration has all gone very, very well.
And the next phase of integration, and I should be clear that we do want to give this team in Italy lots of love. They’ve done fantastic. Really wanted to be entrepreneurial and keep doing what they’re doing and so we’re going to encourage that. So we’re going to have a relatively light touch from integration, but give them the support and backbone infrastructure that they lack, and that was some of the original rationale for doing the deal in the first place. So we’ll pace that appropriately, but yes, so far so good on the revenue. And if we do this right, and set them up for success, then we should help them accelerate.
Nick Boychuk
Okay. Thanks very much.
Operator
The next question is from Ahmad Shaath with Beacon Securities. Please go ahead.
Ahmad Shaath
Thank you. Congrats on a good quarter. I guess my question may be following up on earlier comments you made, if I got them correctly. You mentioned the recent environment, inflationary environment and the LCFS kind of pricing going down caused some slowdown. Is it fair to say that the Climate Action Bill is going to reaccelerate everything and what’s recent news? I’m not sure if you had any chance to have any discussions over the last week with some of the potential clients, but any color on the potential impact on the pipeline from the bill would be great.
Brad Douville
Yes. I think my — I don’t know if my crystal ball is any better than yours to be honest. I do think it’s still pretty early days. And I think often in this space, there’s skepticism that it will be signed and then we’ll figure things out. But yes, I’m not really sure we could put a finger on the pace of acceleration should this thing get signed and how that’s going to interplay with LCFS in RINs pricing. Other than to say, I think it’s all positive, like they’re all helpful and time will tell. We’ll see what happens. I don’t know how to answer that any differently.
Ahmad Shaath
Fair enough. I appreciate that answer. And then secondly, I guess it’s another crystal ball question, but your expectation or maybe you can give us a little bit of color on the decision criteria when you decide to pull the trigger on these capital deployment projects. Like how do you — what are maybe top three or whatever criteria you guys look at when you decide, okay, this developer, I would like to fund as opposed to the other. And from there, is the expected success ratio, do you have a certain target? Is it 100% or is it high 80% or something like that, like when you will decide to allocate the development capital? If you can provide us any color on that.
Brad Douville
Repeat the last part about the percent.
Ahmad Shaath
In percent, like, your expected success rate from the multiple projects that you’re going to deploy development capital. Should we expect them to all to be developed and built eventually or from your years of experience in the business, maybe if you can provide us any color on how you’re seeing that play out?
Brad Douville
Yes, really insightful questions. You’re right. So far, we’ve done one, and we hope it’s 100% successful, but the nature of development inherently has risk, especially when you are first money in. Well, I should say a second money in because the developer has got going usually mortgaging their house or borrowing from friends and family.
So I think to answer the first part of your question, we look at two main things, two broad categories, so one is the quality of the developer and the team, and we have developed criteria over time to help us understand that. We further fleshed out that criteria just with the mind of deliberately doing this portfolio approach on the deployment of development capital.
And then the other thing we look at in addition to the quality of the development in the team is the quality of the project and the pipeline of projects. Pipelines are always a bit — it’s hard to judge that per se. You need some tangible things to look at from a project-by-project basis. So it’s the usual things like the quality of the feedstock contracts, the proximity to a pipeline or access to an injection point of a virtual pipeline. There would be an impact on whether it’s qualifying for LCFS credits, for example, is it D3 or D5 RIN. Those standard things, right, that we look through, create financial pro forma and then judge the quality of the projects. But I think it’s important to say that a few things have to go together. Because we do inherently with this program rely on the developers to do what they do best and that’s develop and so it’s important for us that we essentially have equal weight on those two buckets of vetting criteria.
And then I don’t know how — you asked hard questions. I don’t know how to judge on the percent we expect. High percent we hope. If we’ve done our vetting job properly and done like we both promised to do, which is to inherently de-risk these projects, then we should expect to have a higher percent of success as we have 10s or 20s of projects in our portfolio. So we’ll obviously have that as a metric over time, but first, we have to build the portfolio.
Ahmad Shaath
Sounds good. I appreciate the color. And last one, I think you touched on the acquisition front, you’re looking at certain geographies. Any geographies you can point us to or at least exclusions or certain markets that you think are extremely competitive that you don’t want to get into? If any color you can provide us on that front, that will be helpful. And then I’ll jump back in the queue. Thanks.
Brad Douville
Yes. Well, I think on the M&A front, obviously if you acquire someone, they have to be in a market where there’s targets. And those markets today are probably — I mean, Europe has the most because it’s been around the longest. Greenlane has been highly active in Europe for decades, for example. So it shouldn’t be a big surprise to think that Europe and hence, why we did our Airdep deal, there’s just — there’s more targets there. The next would be North America. And then some of the places like Latin America, there’s no targets because there isn’t a localized community of technology providers that can do this similar thing. So that’s kind of the broad steps.
Ahmad Shaath
That’s great. Thanks, Brad. That’s all from me.
Operator
[Operator Instructions] The next question is from Sean Keaney from Eight Capital. Please go ahead.
Sean Keaney
Yes, just one quick one for me. I was wondering if you’ve discussed the Inflation Reduction Act with your current manufacturing partners in the U.S. I’m just wondering if based on that, you expect that you qualify for the 30%, the full 30% investment tax credit? Or if you think given wage and apprenticeship requirements, you’d be somewhere in between the 6% and the 30%. Thanks.
Brad Douville
Yes, good question, Sean. From our read of the early text, which has I think 700 pages, so to be honest, I haven’t read every page. But what we understand is you’ve got the prevailing wage and apprenticeship program, which we believe can be satisfied during the construction phase. Again, we have to verify and qualify that. But there is another provision that we believe is linked to a 10% portion, which might be the piece that takes you to 40% that has certain sourcing content. That is obviously fraught with challenges. How do you determine where a piece of steel came from or whatnot, but it’s less than 50% from what we understand, to be the content rules. And as we know, mobile supply chains are complex with parts coming from all over the place, and so it will be interesting to see how this gets implemented and if that gets implemented because it’s very difficult to do all this tracing, so we’ll see how that works.
But to answer your original question, we have those conversations. For us, on each of the installation dates, typically, a local construction contractor, and to be honest, we’re not really seeing a big issue with that. We’d have to double check on the apprenticeship provision of that, but we’ll have to see how that plays out once there’s certainty on the bill pass.
Sean Keaney
Understood. Thanks.
Operator
This concludes the question-and-answer session. I’ll hand the call back over to Darren Seed for any closing remarks.
Darren Seed
Thank you participating on today’s call, everyone. We appreciate your questions as well as your ongoing interest and support and look forward to seeing you on the next conference call.
Operator
This concludes today’s conference call. You may disconnect your line. Thank you for participating and have a pleasant day.
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