Third quarter revenue of $12.4 million, as compared to guidance in the range of $10 to $11 million
Third quarter net loss of $8.7 million, which includes one-time operating expenses of $4.2 million and a $1.7 million impairment for the entirety of a previous investment
Third quarter Adjusted EBITDA1 of $(2.3) million, as compared to guidance in the range of ($2.6) to ($2.4) million
Record project backlog of $67 million as of September 30, 2022, a sequential increase of $45 million
Strong balance sheet with $18.6 million in cash and no debt
Provides fourth quarter consolidated revenue guidance of approximately $17 million and Adjusted EBITDA1 guidance of approximately $(1.5) million.
Company to host conference call and webcast today, November 10 at 4:30 PM ET
LAFAYETTE, Colo., May 10, 2022 – urban-gro, Inc. (Nasdaq: UGRO) (“urban-gro” or the “Company”), a fully integrated architectural design, engineering, procurement, and construction management (“EPC”) design-build firm specializing in indoor Controlled Environment Agriculture (“CEA”), today reported record first quarter financial results.
Bradley Nattrass, Chairman and CEO, commented, “We are pleased that our third quarter performance exceeded our guidance, but I am most excited to see our strategic capability and sector diversification efforts materially benefit the business. While our third quarter results were impacted by the headwinds within the cannabis sector, we are extremely encouraged by the significant backlog we’ve been able to build in this subdued environment, which is a direct result of our strategic efforts to diversify our business, capabilities, and end-markets. We believe this is a clear indication that the services delivery model we’ve established over the last 18 months is working as intended.”
Mr. Nattrass added, "The demand for our professional services remains strong and combined with the increased demand for our construction design-build solutions within the commercial sector, we expect to see material sequential improvements in our fourth quarter top and bottom-line performance and for the momentum to continue in 2023. We have been investing in scaling to meet this demand, and we will be ready to service the new opportunities we are seeing emerge. We remain focused on continuing to drive efficiencies in our model, leveraging our professional staff, integrating and identifying cross-selling opportunities for our acquisitions, building backlog, and creating shareholder value.”
Third Quarter 2022 Financial Results
Revenue was $12.4 million in the third quarter of 2022, as compared to $18.3 million in the prior year period, representing a decrease of $5.9 million, or 32%. This decrease was driven by a decrease in cultivation equipment systems revenue of $12.6 million, primarily reflecting significantly reduced equipment demand in the U.S. cannabis market as a result of ongoing state-level regulatory delays in the license-awarding process, as well as the lack of movement on passing key industry financial support models such as the SAFE Banking Act. This decrease was partially offset by the accretive acquisition of Emerald Construction Management (“Emerald”) at the end of April 2022 with $5.4 million in construction design-build revenue, as well as incremental services revenue of $1.4 million associated with the acquisition of the 2WR entities (“2WR”) at the end of July 2021.
Gross profit was $2.6 million, or 21% of revenue, in the third quarter of 2022, as compared to $4.3 million, or 23% of revenue in the prior year period. The decrease in gross profit margin was primarily driven by the contribution of lower margin construction design-build revenue from the Emerald acquisition.
Operating expenses were $9.5 million in the third quarter of 2022 compared to $4.2 million in the prior year period, representing an increase of $5.3 million. Included in the third quarter operating expenses are one-time expenses including a previously disclosed $3.3 million business development expense attributable to assisting a key enterprise client with a negative situation with an international lighting manufacturer, $0.7 million in severance expenses, and $0.2 million in legal and transaction costs. The remaining increase in operating expenses was driven by increased headcount to support both current and future demand for the Company’s solutions and continued investment in European growth.
Net loss was $8.7 million, or $0.81 per share, in the third quarter of 2022, as compared to net income of $0.1 million, or breakeven on a per diluted share basis in the prior year period. This loss includes the $4.2 million of one-time operating expenses outlined above as well as a $1.7 million impairment for the entirety of our Edyza investment made in prior years.
Adjusted EBITDA1 was $(2.3) million in the third quarter of 2022, compared to $1.0 million in the prior year period. The decrease in Adjusted EBITDA1 was driven by lower revenues and gross profit, as well as strategic investments in operating expenses to drive growth.
1Adjusted EBITDA is a non-GAAP financial measure. Please see the information under “Use of Non-GAAP Financial Information” below for a description of Adjusted EBITDA and the table at the end of this press release for a reconciliation of this non-GAAP financial information to GAAP results.
Cash position entering the fourth quarter was $18.6 million with no debt. Additionally, during the third quarter, the Company repurchased $183,270 of UGRO stock at an average price per share of $2.90.
Summary First Nine Months 2022 Financial Results
Revenue was $49.7 million for the first nine months of 2022 compared to $43.2 million in the prior year period, representing an increase of $6.5 million, or 15%. This increase was driven by the acquisitions of 2WR in 2021 and Emerald in 2022, offset by decreases in equipment revenue for the reasons cited above.
Net loss was $11.1 million, or $1.05 per share, for the first nine months of 2022 compared to a net loss of $0.3 million, or $0.03 per share, in the prior year period. Included in this is $1.9 million of stock-based compensation, the one-time $5.9 million of operating expenses and impairment charges from Q3 mentioned above, as well as additional $0.4 million of one-time expenses from the first half of the year.
Adjusted EBITDA1 was $(2.2) million for the first nine months of 2022 compared to positive $2.1 million in the prior year period. The decrease in Adjusted EBITDA1 was primarily the result of increased general and administrative expenses associated with scaling headcount, investment in our European operations, and macroeconomic headwinds in the cannabis sector.
Backlog as of September 30, 2022
Consolidated backlog is unrealized revenue represented by contractually committed construction design-build, equipment systems, and service orders. As of September 30, 2022, total backlog was approximately $67 million, comprised of $56 million in construction design-build, $5 million of equipment systems, and $6 million of professional services contracts.
Updated Revenue and Adjusted EBITDA1 Guidance
For the fourth quarter of 2022, the Company anticipates consolidated revenue of approximately $17 million and an Adjusted EBITDA1 of approximately $(1.5) million.
Conference Call Details
urban-gro will host a conference call and live audio webcast to discuss the operational and financial results today, November 10, 2022 at 4:30 PM ET. Interested participants and investors may access the conference call by dialing 877-407-3982 (U.S.), 201-493-6780 (International). The live webcast will be accessible on the Events page of the Investors section of the urban-gro website, ir.urban-gro.com, and will be archived for 90 days following the event.
Use of Non-GAAP Financial Information
We define Adjusted EBITDA as net income (loss) attributable to urban-gro, Inc., determined in accordance with GAAP, excluding the effects of certain operating and non-operating expenses including, but not limited to, interest income and expense, income taxes, depreciation of tangible assets, amortization of intangible assets, impairment of investments, unrealized exchange losses, debt forgiveness and extinguishment, stock-based compensation expense, one-time and non-recurring expenses, and acquisition costs that we do not believe reflect our core operating performance. We use Adjusted EBITDA as a measure of our operating performance. Adjusted EBITDA is a supplemental non-GAAP financial measure, and it is not a substitute for net income (loss), income (loss) from operations, cash flows from operating activities or any other measure prescribed by GAAP.
Our board of directors and management team focus on Adjusted EBITDA as a key performance and compensation measure. We believe that Adjusted EBITDA assists us in comparing our performance over various reporting periods because it removes from our operating results the impact of items that our management believes do not reflect our core operating performance.
There are limitations to using non-GAAP measures such as Adjusted EBITDA. Although we believe that Adjusted EBITDA can make an evaluation of our operating performance more consistent because it removes items that do not reflect our core operations, other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use Adjusted EBITDA to compare the performance of those companies to our performance. Adjusted EBITDA should not be considered as a measure of the income generated by our business or discretionary cash available to us to invest in the growth of our business.
About urban-gro, Inc.
urban-gro, Inc.® (Nasdaq: UGRO) is an integrated professional services and design-build firm. We offer value-added architectural, engineering, and construction management solutions to the Controlled Environment Agriculture (“CEA”), industrial, healthcare, and other commercial sectors. Innovation, collaboration, and creativity drive our team to provide exceptional customer experiences. With offices across North American and in Europe, we deliver Your Vision – Built. Learn more by visiting urban-gro.com.
Safe Harbor Statement
This press release contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this release, terms such as “believes,” “estimates,” “should,” “could,” “would,” “plans,” “expects,” “intends,” “anticipates,” “may,” “forecasts,” “projects” and similar expressions and variations as they relate to the Company or its management are intended to identify forward-looking statements. Such forward-looking statements are based on current expectations, forecasts, and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially from those anticipated or expected, including statements related to the demand for our services and products, our ability to manage the adverse effect brought on by the COVID-19 pandemic, our ability to execute on our strategic plans, our ability to achieve positive cash flows or profitability, our ability to achieve and maintain cost savings, the sufficiency of our liquidity and capital resources, and our ability to achieve our key initiatives for 2022. A more detailed description of these and certain other factors that could affect actual results is included in the Company’s filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof, except as may be required by law.
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
NON-GAAP ADJUSTED EBITDA RECONCILIATION TO NET INCOME (LOSS)