Greenlane Renewables Inc. (OTCPK:GRNWF) Q3 2022 Results Conference Call November 8, 2022 5:00 PM ET
Darren Seed – Incite Capital Markets
Brad Douville – President and CEO
Monty Balderston – CFO
Conference Call Participants
Aaron MacNeil – TD Securities
David Quezada – Raymond James
Nick Boychuk – Cormark Securities
Colin Healey – Haywood Securities
Adam Gill – Paradigm Capital
Ahmad Shaath – Beacon Securities
Good afternoon, ladies and gentlemen. Welcome to the Greenlane Renewables, Incorporated Third Quarter 2022 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 from Incite Capital Markets. You may begin your conference.
Thank you, operator, and good afternoon. Welcome to the Greenlane Renewables Third Quarter 2022 Conference Call. I’m joined today by Brad Douville, Greenlane, President and Chief Executive Officer; and Monty Balderston, Greenlane, Chief Financial Officer.
Before beginning our formal remarks, we’d like to remind listeners that today’s discussion may contain forward-looking statements that may 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 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 Brad.
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 third quarter as well as provide some industry commentary before I turn the call over to Monty for more detailed review of the numbers. Greenlane delivered another quarter of record revenue generation with $19.9 million on the top line, and we remain optimistic about the growth of the RNG industry and our role in the success. Adding to this top line success, we had a consistent gross margin of 25% in the third quarter, alongside an adjusted EBITDA of over $400,000. With increasing global focus on impactful solutions to decarbonized our planet, the RNG industry has experienced significant consolidation this year together with new supportive regulations and funding pointing to the scale-up of the number of RNG projects.
The acquisition by bp of US-based Archaea is particularly noteworthy as several of the energy super majors have announced decarbonization efforts and have both the capital and capacity to amalgamate existing RNG development platforms into their business models. It was never a matter of ‘if’, it was always a matter of when. We anticipate further consolidation in the sector, which together with supportive regulations and policies such as the Inflation Reduction Act and REPowerEU plan, are expected to provide additional capital to help expedite the RNG industry’s growth. We expect this will have a positive effect on the pace of development for RNG project developers and owners, increasing market strength, project financing and new sales opportunities for Greenlane. Our success in winning new biogas upgraded equipment supplier work continued in the third quarter as Greenlane announced over $13 million with 2 new contracts in South America. This highlights not only the competitive advantage of our multiple core technology approach, but also that we are benefiting from our singular focus on the global RNG market, which continues to build momentum in size.
We continue to build out our talented Greenlane team and enhance our internal systems and processes that will further position Greenlane for future growth. We maintain a strong financial position with no debt and over $21 million of cash on hand, which provides us with ample flexibility to invest in our core business to fund our deployment of development capital program and to pursue strategic growth initiatives, including evaluating acquisition opportunities that can expand the market presence and technology offerings. As I previously alluded to, the RNG industry has experienced significant consolidation this year as well as new supported regulations on funding, which we believe points to meaningful escalation of RNG projects and then production.
The bp Archaea Energy transaction for USD 4.1 billion marks the largest ever RNG transaction with bp announcing plans to increase Archaea’s current RNG production 5-fold by 2030.Global Energy supermajors Shell is going there to be one of several companies involved in the second round of bidding to acquire one of Europe’s largest biomethane producers, Danish-based Nature Energy, in a transaction that could be worth $2 billion. In another highly supported RNG transaction, U.S. renewable energy [indiscernible] NextEra Energy recently revealed the acquisition of the portfolio of approximately 30 operating landfill gas to electric facilities and USD 1.1 billion deal with plans to stand about USD 400 million to convert the portfolio to RNG.
We are also seeing transactions announced in Europe as global infrastructure player Macquarie announced that its reinvestment group has acquired German biogas platform, BayWare. Bioenergy. As we noted in the news release, it is important to highlight the U.S. Inflation Reduction Act, which was signed in the law during the quarter and which will provide USD 369 billion over the next 10 years on spending in tax policies to reduce greenhouse gas emissions and spur expansion to expand production use of domestic clean energy. This legislation also contains provisions for biogas property, which includes biogas upgrading equipment as qualifying equipment for purposes of the Section 48 energy investment tax credit, which can reach 40%.
Also in the U.S., the whiskey industry is looking to RNG as an important tool to help decarbonize operations and so Jack Daniels and Jim Beam have announced recent RNG-related projects involving over $429 million. In Canada, revised legislation in Quebec centered on minimum RNG volumes in the natural gas grid now requires gas distributors like Énergir to deliver 5% RNG volumes by 2025 and 10% by 2030, with Énergir subsequently openly asking RNG producers across North America for information about long-term commitments to supply the necessary RNG volumes. In Italy, the European Commission announced that it had approved plan put forward by the Italian government to help increase domestic production of biomethane in the country backed by funding of EUR 4.5 billion. I want to draw your attention to the significant industry developments as Greenlane is very well positioned to take advantage of the opportunities they create, and we anticipate ramp-up in demand for RNG and reweighted biogas upgraded solutions. I’d like to thank once again take this opportunity to thank the Greenlane team for their very dedication and commitment to our mission of helping to decarbonize the world energy systems as well as our customers for treating Greenlane as a trusted partner. I’ll now pass the call over to Monty.
Thanks, Brad, and good afternoon, everyone. As a reminder, all figures are in Canadian dollars unless otherwise stated, and all comparisons are for the third quarter of 2022 against the third quarter of 2021. As Brad mentioned previously, Greenlane posted another record quarter. Our revenue in the third quarter was $19.9 million, which represented a 48% increase over the comparative period of 2021 and is the largest — or the highest quarterly revenue achieved in the company’s history. System sales revenue accounted for 94% of total revenue in the quarter, which is recognized in accordance with the stage of completion on the projects, with the remaining 6% of revenue coming from aftercare services.
We delivered a gross margin in Q3 of 25% or $4.9 million compared to $3.4 million or 25% in the third quarter of 2021. Our profitability improved significantly over the comparative period in 2021 as we reported adjusted EBITDA in the third quarter of $400,000 versus $83,000 in the third quarter of 2021. Net income in Q3 2022 was $600,000 compared to $52,000 in the comparative quarter of 2021. During the quarter, the company announced new contracts with a combined value of $13.5 million for the supply of this biogas upgrading technology for 2 landfill gas, RNG projects in South America. The contracts involve the supply of 2 waterwash upgrading systems, the largest in its product line, each capable of processing enough landfill gas to produce up to approximately 850 million Btu annually a pipeline specification RNG for commercial use or the fulfillment commenced immediately on these contracts.
As of September 30, the company sales order backlog was $36.7 million. And as a reminder, sales order backlog is a snapshot at one moment in time, which 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 projects progress towards completion with amounts recognized in revenue. Our sales pipeline of prospective projects is approximately $900 million as of September 30, 2022, which was consistent with Q2 and is an increase over the $850 million we reported at the end of 2021. We continually update our pipeline of active system sale opportunities based on core activity, which represents visibility into a significant number of opportunities that funnel down through our sales process and those opportunities successfully are converted in the contract wins, they then move into our sales order backlog.
In July of 2022, Greenlane increased its credit facility with TD Bank for $12.5 million up to $20 million, and the facility is secured by guarantee from PDC, which 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 $21.3 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 will open the call to questions. Operator?
[Operator Instructions] Your first question comes from Aaron MacNeil with TD Securities.
Brad, you noted the consolidation in the RNG producer space. I guess I’m wondering, do you view the equipment and service providers in the RNG space as fragmented as well? And would you be willing to be part of a consolidation play if the answer is yes, what sort of qualities would you look for in a potential acquisition target?
Thanks for the question, Aaron. Well, the first thing was the point of noting the consolidation that’s happened in the industry, thus far, it’s really our customer set — and that’s positive for a couple of reasons. So one, we see growing scale. We see growing amounts of capital, especially when you have the supermajors coming in with ample amount of capital to deploy. And the fact that they aren’t participating in this industry as an equipment provider, that’s our job.
And so those are the people into which provide capital, sorry, equipment. Specifically, are we looking for consolidation in the solution provider space and the technology provider space. We do see some fragmentation around. We know that, that exists. We aren’t looking specifically to be consolidating with someone else other than we have been very clear that our strategy on the M&A side is 2-fold.
So one is targets like the Archaea acquisition that we completed earlier this year, which is to increase the technology portfolio, in the NASDAQ-listed company. And then secondly, if there are competitors that — part of that fragmentation as we see in certain jurisdictions for us to be the consolidator for us. So I mean, that’s currently our strategy, and we’re continuing to look for any [indiscernible] opportunities to pay a value for [indiscernible].
Fair enough. Obviously, the track record on revenue growth has been consistently good. I guess, throughout that time, though, the backlog had also increased in advance of that revenue growth. So you’re going to tell me that you don’t give guidance, but the backlog has sort of peaked in Q4 ’21 or with the results last year. I guess it sort of called in the question, if that growth can continue at least in the next couple of quarters.
So I guess my question is as we’re thinking about refining our 2023 expectations and particularly where it leads for the first half of next year, how quickly could you convert a hypothetical new order into revenue in light of ongoing supply chain challenges and other practical challenges.
Yes. Well, first in 2 things. On the backlog, of course, it’s a snapshot in time, it’s that one point in the quarter, and the quantum is subject to when exactly we get the order. And also, the backlog has seen some variability. So it had been up and down over time but our revenue has consistently grown.
So putting those 2 things together, obviously, you’re right. I’m not going to give guidance going forward. However, we’re confident and comfortable that going forward, we’re able to convert the contracts at our normal pace, which is anywhere from 9 to 18 months is when that would get deployed. Normally, when we sign a contract, we start executing against it right away, and we start the revenue recognition right away. So — given the supply chain challenges, I think we’re — I think we’ve seen the worst of that.
It’s not completely solved yet in all circumstances, but I think we’ve certainly seen in the rearview mirror a lot of the challenges that we had earlier this year, with that clearing up, then that should — we should see — start to see at some point a charging of our contract execution duration.
Fair enough. Maybe I’ll sneak in one more follow-up, if that’s okay. How does the backlog inform your staffing decisions, if at all? And I guess I’m asking the question in the context of you strategically invested in growing your staff over the last couple of quarters. And I guess, do you kind of take a pause here and try to figure out where activity is going, or are you confident to continue to staff up in advance of what you think is a pretty good outlook?
Yes. I think generally, we have to look at the underlying fundamentals of the industry and some of what we saw this past quarter, again, highlighting the consolidation that happened within our customer set. So a lot of activity with our customers find each other, that’s keeping the market price [indiscernible]. But that all bodes well for the future outlook for Greenlane in particular. So that gives us the confidence that we need to continue to be ready for when those contracts come in because of our past history says we come in, in a lumpy fashion.
You can’t always predict exactly the date upon when you are going to sign a contract. And then the other thing in the last quarters and still is part of our plan is to continue to invest in systems and processes that allow us to scale up. So that’s — we’ve seen significant growth in the business. And now we have some catch-up to do with our systems, processes and procedures. So that’s an area that we continue to invest.
Your next question comes from David Quezada with Raymond James.
My first question, maybe just a follow-up here on the topic of industry consolidation. I mean given that so many of these transactions have happened recently, would you expect that as these larger players are digesting these acquisitions that we might see an inflection point in order activity among that subset of customers. Would that be, I guess, sort of consistent with what you would expect? And then maybe kind of like on a related question, do you think the bidding process for upgrading systems with these larger, more sophisticated players will change compared to what you’ve had in the past?
I think some context these [indiscernible] bp and possibly by Shell with the Nature Energy acquisition. If you look at it from their perspective, we know the kind of discussions they’ve had, it’s all in public domain. But they need to make significant investments to see significant volumes in the marketplace for [indiscernible]. We’ve seen some of the supermajors invest in wind and solar, which is tangential to the core business, but supplying deals for transportation markets. RNG factors to the heart of their transportation business.
And that’s why that’s one key reason why they’re interested in this. But also, it’s a belief that they can scale in this space. So that does suggest the way you have said in terms of inflection point, that’s certainly what they’re holding for them, but they’re looking for it. I think as the [indiscernible], it’s quite obvious what bp was looking for and the Archaea deal when they saw [indiscernible] some consolidation that before bp purchased them, they had merged with Archaea to make them a significant, it’s not one of the largest in North America. So that’s a good starting point for bp, it’s just a starting point.
So I think that’s kind of the your margin themes for the kind of growth that you might expect. And then — sorry, your second question was around the mix of the customers. Is that [indiscernible].
No, it was more just like around how will these larger players? Like how do you expect that will go about procuring equipment? What will bidding on those new projects do like will it change at all?
Yes. Well, they’ve already been involved. So I think what we’re seeing here is doubling down. We are more involved in. So we kind of experienced supplying several of the supermajors already, even directly that through their joint ventures.
And I guess the more we see it we’re not expecting too much change. We know that they’re going to retain much of the infrastructure and the people that are in these acquisitions to be able to keep business as usual because there’s been some good success. And no doubt — how should I say this, they’re going to want to manage this delicately. They’re not going to [indiscernible] force and [indiscernible] processes for deep-water drilling, for example, into the RNG space because that’s not really appropriate. So I think they’re trying to capture the learnings that are listed in these organizations, which does suggest that we’ll see much of the continuance of the same kind of buying practices that we have seen in the last couple of years.
Okay. Great. And then maybe one, just thinking about among the RNG equipment or upgrading system suppliers today. Curious if you could just touch on maybe the competitive dynamics you’re seeing in North America and Europe. I’m just curious if anything has changed there? Has there been any — any change in some of the other competitors that you’re potentially bidding against some projects. Just wondering if you’re positioning competitively feels like it’s same as it has been?
We think, generally, it’s our position has probably increased a little bit. Obviously, within the last quarter, we did see one of our competitors need the picture. So we’ve had some increased interest as an account of that. And other than that, we continue to get success in the marketplace against any of their competitors that we continue to see. There are still some of our competitors [indiscernible] lead times that we’ve been able to compete effectively.
We continue to compete effectively on our multi-core technology strategy, which many of our customers find appealing in terms of money [indiscernible] opinion that we’re getting, and we’re not selling what we have just because that already has. So those are the kind of dynamics that we’ve seen that have created a success thus far over the last couple of years. I think we’re still seeing the same effect of dynamics right now.
Okay. Awesome. Then maybe I’ll just get one more in, if that’s okay. Your commentary around the whiskey industry is interesting. I’m just curious if — is there anything special about that particular industry that makes it amenable to looking to source RNG or would there be other, I guess, call it, like food and beverage end markets that could be similarly interested in procuring RNG or getting involved there?
Yes, [indiscernible] it was not necessarily obvious in the material but, yes, there is some special nature in that industry. The feedstocks, they’re in volumes. So as large [indiscernible] it’s homogeneous. But what may not be obvious on the service is the degree that’s been happening scotch — the scotch whisky industry. And that’s something that Greenlane participated in, in the early days, some years ago and now we are get going and taking those feedstocks. [Indiscernible] coming in, it’s still in process and turning that [indiscernible]. So there’s a good precedence in one of the largest whisky industries in the world. And it’s been — it’s taking a little bit of time, so that’s translating to the North American context. We’re starting to see it now, but we have seen it successful in other markets. So I guess that’s maybe why we highlighted sales of connected to us with some of the other markets where that’s our success [indiscernible].
Your next question comes from Nick Boychuk with Cormark Securities.
[Indiscernible] one. On the M&A angle, we’ve seen public valuations and space obviously come down quite a bit. But are you seeing anything privately that would suggest maybe other tech or consolidation opportunities you’re looking at are even a little bit more attractive on the valuation front?
As we’ve seen any things privately — is coming to, I think, coming to mind. Some of the — not all the companies out there are public or certainly the competitors that we have, they’re either part of a much larger company. We can think of Archaea or [indiscernible] large companies with [indiscernible] by comparison relatively small, the grand scheme of things [indiscernible] divisions. So that’s not something that [indiscernible] that apart [indiscernible] company is an opportunity. Yes, there’s a few, I guess, in the private space, but we have seen a ton of activity.
Okay. I guess, I’ll frame it a little bit differently like what sellers of the world with their smaller divisions that are baked inside the larger conglomerate. Are you seeing more or less interest from the parent co to operate in R&D with those divisions now than previously?
I’d say we haven’t really seen much change. So we’ve — we’re still, of course, like pure gas about 2 or 3 years ago, 2 years ago maybe. And they’ve been happy with that acquisition as far as we know. Every [indiscernible] a while. And you’ve had good success [indiscernible] against them in North America, which is largely a [compete]. But we haven’t seen much change in those key competitors or any new ones there you want new big companies starting a division or buying a smaller player [indiscernible].
Okay. Got it. Just shifting to margins. You mentioned an encouraging comment that the supply chain issues you guys were experiencing seem to be kind of relieving or at least the worst of it has. Is there any read through in the margin profile that we should be thinking about for the product gross margin come back up to kind of go about 25% consistently moving forward?
While it was 25% consistently again this quarter. I think your question is would we see it increasing over time. We hope so. We’ll see how that plays out. We are still — some of the supply chain challenges are electronics components. That’s not a big surprise to anyone. So that’s still a great element. Some of the other ones that were have to come by parts, and that’s certainly working its way through the system. But over time, with cleaner and [indiscernible] supply chains, that is an opportunity to do some margin [enhances]. However, remember that our business model is such that by the time we sign a contract with our customer, we have [indiscernible] speaking, maybe 80% of our cost locking with our supply chain partners on the other side of that.
So I don’t think we would expect to see a dramatic shift as a consequence of supply chain disruption issues clearing up just because we’ve been pretty much successful through navigating through the challenges of the supply chain [indiscernible] our gross margin [indiscernible].
Okay. And then last one, just shifting a little bit the different angles here. You’ve got more deployment that you’ve made into development stage projects. Can you just remind me what the timing is when you might see a system sale come from one of those arrangements? And from the time you guys expect to deploy a couple of hundred thousand dollars to site development, roughly how long do you think it takes from that until you actually recognize the full [indiscernible]?
Yes. That’s a good question. I don’t talk enough about that. So when we would be in a stage to deploy development capital, the development cycle, it can be anywhere from the longer side more than 2 years and on the shorter side is unlikely to be less than 6 months. So we think that entering in the 2-year time horizon is probably too long, too far away.
So probably the way to think about it would be we would expect to deploy development capital for deals that would result in equipment sales, which would equate to project financing coming into the project, maybe a year or 6 months ahead of [indiscernible] or at the point in which the project finance comes in and the order [indiscernible] system.
The next question comes from Colin Healey with Haywood Securities.
I’m just looking at the kind of 9-month numbers here year-over-year. And obviously, revenue up 42%, very good, the investment in selling sales and other initiatives, capturing more of the market, but we’re not seeing a lot of margin improvement. I’m not expecting to see much on the gross profit side. I know that the margins are kind of what they are. But as you do more business, I was kind of hoping to see bigger EBITDA margin improvement and some more operating leverage in the business.
So I’m just wondering what the inflection point is going to be for Greenlane. If you double revenue, where — how should we expect to see margins improve? We’ve seen the double revenue. We’ve seen margins stay relatively static, we’re seeing slight positive EBITDA. But what would be kind of the turning point for the company in terms of revenue when you can generate some kind of material higher single-digit EBITDA margins?
So for us, and we’ve talked about it in prior quarters as well as today. So in order to see that leverage, this is really the EBITDA margin that you’re referring to would be some of the scalability of the business. So we do know where it stays right now. We grew extremely quickly over the last 2 years and our systems and processes haven’t kept pace with that. So we do have to reinvest into some of those, both from a headcount perspective and system implementation perspective.
So once those — the benefits of those investments coming to the business, that gives us a more scalable approach in the business as well as all the normal kind of rationalization and productization of our product line, then that’s the point at which we would expect to see some leverage of the EBIT margin level. Now I’ll [indiscernible] say, well, [indiscernible] guidance and give us some time to work through that. It is going to be a bit of an effort. We have been investing. We have more investment to do in that regard.
And it’s also how quickly we’re growing because the fast pace of growth is, to be honest, we have to put our energies there over the system implementation side of things. So we’ll disclose it as we can on that front. But we’ve also said that our investments will repay us prudently. We’re trying to have an investment profile or reinvestment back into the business where we keep EBITDA margins. We [indiscernible] breakeven and hopefully, on the positive side of that. Just recognizing that we have to pace those investments as the business generates the cash.
Right. And I appreciate then full marks for the growth in revenue. I guess maybe a different way to phrase it would be — because I’m trying to get an idea about what margins could be. If you — what would be the kind of the amount that [indiscernible] invested in staff and so on, how much business could you handle based on the current operating expenses. So based on the current [indiscernible] what’s the maximum kind of revenue that you could do?
Good question. [Indiscernible]
The idea of that question is to say, okay, that will probably what EBITDA margins could look like based on that — I know that your operating margins are going to be approximately what they are for the business that you’re mainly doing. So I’m just trying to say you guys can do this much business and generate these EBITDA margins, and we don’t care that the EBITDA margins are low because they’re growing.
Yes. Well, we had [indiscernible] areas. So one is the direct that it’s the product line. So that’s necessary to grow the business. But I think you’re returning more to the G&A line. So that we have a certain amount of fixed. It doesn’t necessarily need to grow as we add new contracts because the addition of headcount we charge [indiscernible]. So that’s kind of is [indiscernible] we had a certain headcount in the business now. We probably need to add a little bit more to be able to implement the systems and processes and so [indiscernible] that should allow us to grow significantly higher revenues without adding more overhead cost to the business. That’s the concept. That’s what we’re working through now. And that’s the [track one]
[Operator Instructions] Your next question comes from Adam Gill with Paradigm Capital.
Just in terms of competitive environment, you guys have been pretty consistent with your gross margins. But obviously, we saw one of your competitors who maybe wasn’t as astute in pricing or contracts run into some trouble earlier in the year. Just with that, you highlighted a $900 million pipeline. I guess a 2-part question on that. One, how many competitors are you against in that pipeline?
And two, do you think there’s a risk of guys that are just going to go out there and try to grab revenue growth and not really worry about bottom line continue to be a factor in the space and not potentially be a bit of a risk for you guys who obviously are pretty good at pricing of your contracts?
So first, we don’t always know in our pipeline. So we have sometimes an idea, the degree of competition. Sometimes we can get surprises and with new information to say, oh, we’re all in according to. So that’s not always something [indiscernible] in that process. We can say for certain, of course, is that we’re engaged with that particular project opportunity and then we capture it accordingly.
The issue that you lay around competitors buying business, that’s not good. We’ve battled that forever, I’d say. It’s a practice that is common in Europe for quite some time, for years, still is to a certain degree. We do see some of that in North America. We did see that with the competitor that you referenced.
They went in with some aggressive pricing and that didn’t work out so well for them. So it is something. I didn’t say it’s certainly not a new threat to our business. So despite that in an ongoing dynamic in the marketplace, we’ve been able to successfully compete against that sort of pressure.
Your next question comes from Ahmad Shaath with Beacon Securities.
A couple of questions. First, I think you guys pressed on the G&A line. I see there was some nice reduction at least sequentially, and that’s even more impressive despite the growth in revenue. So any color on that front, anything you guys have done and to cut some costs or some synergies from [indiscernible] acquisition maybe [indiscernible] ramping up some of the hirings. So any color on that?
It’s Monty. I wouldn’t read too much into the sequential number going down slightly. Obviously, there’s timing, let’s just say, of when people and systems and costs incur. So there’s a little bit of lumpiness in it that perhaps Q3 was a little bit better than Q2, but I would expect Q4 to kind of have a consistent run rate. We are still in, I don’t want to call it early days, but we’re definitely not through adding the necessary resources via people, be it systems to scale the business, and we’re going through that process right now. So I wouldn’t read too much into it with the dropping quarter over Q2.
That’s very helpful. And then secondly, on the gross margin side of things, remind us again, like what is the split between labor and sort of parts and materials? Just trying to think, looking ahead into the next kind of 12-18 months prices in materials and parts start coming down slightly year-over-year, how much of a potential benefit the gross margin that you see?
Well, I don’t want to say all but the material portion in our COGS is clearly equipment [indiscernible] far as the overall driver, obviously, we have hours of going to the project and stuff like that. But on an absolute scale, the material portion of our costs is materials.
This concludes the question-and-answer session. I would like to turn the conference back over to Darren Seed for any closing remarks.
Thank you for participating on today’s call. We appreciate your questions as well as your 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 pleasant day.