urban-gro, Inc. (UGRO) Q4 2023 Earnings Call: Delays and Disappointing Performance

Urban-gro, Inc. (UGRO) recently held their Q4 2023 earnings call on March 27, 2024, where they addressed several key developments. Despite experiencing delays in multiple projects during the fourth quarter, resulting in disappointing performance, the company revealed that none of the delayed contracts were lost and are currently active in the first quarter of 2024. Moreover, urban-gro’s diversification strategy is proving successful as they broaden their presence across multiple industries, which is evident in their expanding backlog. The company has optimized and aligned their SG&A expenses, positioning themselves well for 2024, with the top near-term priority of delivering positive adjusted EBITDA. While the CEA sector faced persistent headwinds in 2023, urban-gro’s growth in the commercial markets and other areas of business compensated for the decrease in CEA revenues. Looking ahead, the company anticipates increasing demand in the European CEA sector as the market opens up, and they continue to see strong organic growth in the domestic commercial sectors. With a qualified pipeline and backlog, urban-gro expects consolidated revenues in 2024 to exceed $84 million, a 17% increase from the previous year, along with positive adjusted EBITDA. Overall, urban-gro remains confident in their model and does not anticipate the need for new capital at this time, with a working capital line of credit in place.

Delays and Disappointing Performance in Q4 2023

urban-gro, Inc. experienced delays in multiple projects in the fourth quarter of 2023, which ultimately led to disappointing performance. Despite these delays, it is important to note that none of the contracts associated with these projects were lost. In fact, these contracts are still active in the first quarter of 2024. While the delays impacted the company’s financial performance in Q4 2023, urban-gro expects the majority of the delayed revenues to be recognized over the course of 2024. This indicates that the company is actively working to address the challenges faced in the previous quarter and is optimistic about the future.

urban-gro’s Diversification Strategy

As part of its growth strategy, urban-gro is focused on broadening its presence across multiple industries. This diversification is evident from the expanding backlog that the company has been experiencing. By expanding its reach beyond a single industry, urban-gro is minimizing its reliance on any particular sector and mitigating potential risks associated with industry-specific challenges.

In addition to diversifying its presence, urban-gro has also taken steps to optimize and align its Selling, General, and Administrative (SG&A) expenses. This strategic move ensures that the company’s resources are allocated efficiently and enable it to operate in a cost-effective manner. As a result, urban-gro is well-positioned for the year 2024, as it can focus on delivering positive adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).

Revenue Growth and Compensating Loss

Throughout 2023, urban-gro experienced growth in revenues from commercial markets. This growth has been crucial in offsetting the decrease in revenues from Controlled Environment Agriculture (CEA). While the CEA sector faced persistent headwinds, urban-gro made deliberate efforts to optimize its size and reduce SG&A expenses. These strategic measures have allowed the company to compensate for the loss in CEA revenues.

It is worth noting that the decrease in revenues was primarily driven by a significant decrease in equipment revenues. However, urban-gro’s other areas of business have performed well, further mitigating the impact of this decrease. Overall, the company has displayed resilience in the face of challenges, highlighting its ability to adapt and leverage its diversified business portfolio.

Sector Diversification and Expert Team

urban-gro has built an in-house team of experts who specialize in serving clients across multiple sectors. This team brings extensive knowledge and expertise to the table and enables urban-gro to cater to the unique needs and demands of various industries. By focusing on sector diversification, the company minimizes its vulnerability to market fluctuations in any single sector.

While demand in the European Controlled Environment Agriculture (CEA) sector remains suppressed, urban-gro anticipates that the market will open up, leading to increased demand. Additionally, the company’s business in domestic commercial sectors has been experiencing strong organic growth, as evidenced by the growing backlog of projects. Furthermore, urban-gro continues to expand its vertical farming focus within the CEA sector, further strengthening its position in the market.

In the cannabis sector, urban-gro has observed a more positive market sentiment. This sentiment is fueled by anticipated regulatory changes, such as the potential rescheduling of cannabis, the passage of the SAFER Banking Bill, and the possibility of legalization in Florida. These potential catalysts present significant opportunities for urban-gro to further expand its presence and capitalize on the growth potential of the cannabis industry.

2024 Revenue and EBITDA Forecast

Looking ahead to 2024, urban-gro expects consolidated revenues to surpass $84 million, representing a 17% increase from 2023. This projected growth indicates the company’s optimistic outlook and confidence in its ability to deliver strong financial performance. Additionally, urban-gro anticipates achieving positive adjusted EBITDA, reaffirming its commitment to prioritize profitability and sustainable growth.

For the first quarter of 2024, urban-gro forecasts revenues to exceed $15 million, accompanied by an adjusted EBITDA greater than negative $0.5 million. These projections reinforce the company’s momentum and serve as a promising start to the year. urban-gro aims to continue delivering sequential quarterly growth throughout the year, further solidifying its position in the market and providing value to its shareholders.

Strong Model and Increasing Demand

urban-gro’s business model is robust and supported by a qualified pipeline and a growing backlog of projects. This indicates a strong demand for the company’s solutions and services, enabling urban-gro to secure new contracts while ensuring a steady stream of revenue. As the market continues to recognize the value of urban-gro’s offerings, the company anticipates increasing demand across its diversified portfolio.

To support its operational activities and capitalize on growth opportunities, urban-gro has established a working capital line of credit. This provides the company with the necessary financial flexibility and liquidity to meet its ongoing needs. Furthermore, urban-gro’s solid financial position and effective expense management have resulted in no immediate need for new capital.

In conclusion, urban-gro, Inc. faced delays and experienced disappointing performance in Q4 2023 due to project delays. However, the company has actively retained all delayed contracts and expects to recognize the delayed revenues throughout 2024. Through its diversification strategy, optimized SG&A expenses, and in-house team of experts, urban-gro is well-positioned for 2024. The company has witnessed revenue growth from commercial markets, offsetting the decrease in CEA revenues, and is leveraging its expertise to serve multiple sectors. With a positive revenue and adjusted EBITDA forecast for 2024, urban-gro aims to deliver sequential quarterly growth and capitalize on increasing demand for its solutions. Its strong business model, coupled with a qualified pipeline and backlog, contributes to its outlook of not requiring new capital at this time. Overall, urban-gro remains resilient, adaptable, and focused on delivering value to its stakeholders.