urban-gro, Inc. Q3 FY2023 earnings call

• Diversification initiative: Urban-gro has evolved into a multi-sector professional services consulting firm with over 140 team members, expanding beyond core CEA to multiple sectors.
• Q3 performance: Revenue of $20.9 million, sequential improvement; adjusted EBITDA loss was $1.3 million, sequential improvement of $0.7 million. Backlog entered Q4 at $84 million, a 6% sequential increase.
• Sector trends: Diversification insulates from CEA weakness; more than two-thirds of Q3 revenue from non-CEA sectors. European entity's pipeline is strongest since June 2022.
• Leadership actions: Board and leadership team committed; directors made open market equity purchases, and executives took stock in lieu of salary.

In the third quarter, Urban-gro had revenue of $20.9 million, a sequential increase of $2.1 million or 11%. More than two-thirds of the revenue came from sectors outside of the core controlled environment ag (CEA) practice. The CEA sector's equipment revenues were compressed by the weak cannabis market, with a period-over-period decline of over $20 million in 18% margin business. Non-CEA sectors contributed significantly, with revenue growth driven by organic growth in construction design build across multiple sectors like industrial, commercial, etc.

• Anticipates Q4 2023 revenues to be approximately $30 million, a new record by over 40%.
• Expect to realize breakeven to slightly positive adjusted EBITDA, aiming for positive cash flow.

• Regulatory delays in cannabis markets affecting project timelines and revenue.
• Macroeconomic conditions posing risks to cash flow and financial performance.
• Uncertainties in the full turnaround of the cannabis industry impacting CEA equipment revenues.

Q: Please provide more details on the nondilutive asset-backed facility, including its size, assets backed, and if it's revolving.

A: Dick Akright stated the facility is backed by receivables, primarily construction receivables, for up to $8 million, and it's a revolving facility where borrowing is on an as-needed basis.

Q: How to get comfort with the ramp in Q4 revenue to $30 million?

A: Dick Akright mentioned the sales funnel and insight into upcoming projects, with confidence in the revenue based on the sales pipeline and upcoming project signings.

Q: Update on international market, especially Middle East and Europe?

A: Brad Nattrass said Middle East isn't a current focus; European offices in Netherlands are active, with cannabis and vertical farming projects moving forward, and Germany's regulations still in progress.

Q: When will the company break even consistently at adjusted EBITDA level?

A: Brad Nattrass said with current guidance of ~$30 million revenue, expecting breakeven to slightly positive adjusted EBITDA, and with revenue growth, inflection points could be seen as sectors like cannabis ramp up.