urban-gro, Inc. Reports Second Quarter 2022 Financial Results

Lafayette, Colorado, UNITED STATES

  • Second quarter revenue of $16.3 million, representing growth of 27% compared to the prior year period
  • Second quarter net loss of $(1.7) million
  • Second quarter Adjusted EBITDA1 of $(0.5) million
  • Strong balance sheet with $22.8 million in cash and no debt
  • Project backlog of contractually committed equipment system, construction design-build and professional services contracts of $22.0 million as of June 30, 2022
  • Company to host conference call and webcast today, August 15 at 4:30 PM ET

LAFAYETTE, Colo., Aug. 15, 2022 (GLOBE NEWSWIRE) -- urban-gro, Inc. (Nasdaq: UGRO) (“urban-gro” or the “Company”), an integrated professional services and design-build firm offering solutions to the Controlled Environment Agriculture (“CEA”) and Commercial sectors, today reported second quarter financial results.

Bradley Nattrass, Chairman and CEO, commented, “I am proud of our team’s performance this quarter amid the well-documented headwinds that persist in the cannabis industry. Although our quarterly results were below our expectations, we drove a 27% increase in revenues versus the prior year period and have a robust project pipeline heading into our second half. Further, our efforts to strategically diversify our business into other sectors are helping insulate us from the broader turbulence that other ancillary industry participants are experiencing. We are actively working with some of the largest names in their respective sectors, including global consumer packaged goods food and beverage, food-focused CEA, and healthcare. Further, we continue to leverage our unique set of capabilities within broader segments of the market and have identified an ever-larger pipeline of new opportunities.”

Mr. Nattrass added, “We remain laser-focused on navigating through this period with a sound strategic vision that is geared toward diversification and smart financial stewardship. Our go-to-market strategy, built around our professional services and end-to-end design-build solutions, is providing the commercial synergies we envisioned and visibility to new project opportunities – the combination of which is especially exciting. Our team of experts is incredibly talented and, coupled with our cash position, we have the resources to execute against our long-term plan while remaining well positioned for any near-term volatility that may arise as clients work towards achieving their own growth objectives while optimizing their near-term capital spending.”

Second Quarter 2022 Financial Results

Revenue was $16.3 million in the second quarter of 2022, as compared to $12.8 million in the prior year period, representing an increase of $3.5 million, or 27%. This increase was driven by the accretive acquisition of Emerald Construction Management with a $2.9 million increase in construction design-build revenue for the two months in the quarter post acquisition, as well as the accretive acquisition of 2WR which was the primary driver of incremental services revenue of $2.7 million. These increases were partially offset by a decrease in equipment systems revenue of $2.1 million, primarily reflecting softer equipment demand in the U.S. Cannabis market.

Gross profit was $3.5 million, or 22% of revenue, in the second quarter of 2022, as compared to $2.9 million, or 23% of revenue, in the prior year period, representing an increase of $0.6 million. The decrease in gross profit margin was driven by mix, with an increase in the relatively lower margin construction design-build revenue.

Operating expenses were $5.4 million in the second quarter of 2022 compared to $2.7 million in the prior year period, representing an increase of $2.7 million. This increase in operating expenses was driven primarily by increased headcount to support both current and future demand for the Company’s solutions, continued investment in European growth, as well as incremental costs associated with acquisitions.

Net loss was $(1.7) million, or $(0.17) per share, in the second quarter of 2022, as compared to net income of $1.3 million, or $0.11 per share, in the prior year period included PPP loan forgiveness of $1.0 million.

Adjusted EBITDA1 was negative $(0.5) million in the second quarter of 2022, compared to $0.6 million in the prior year period. The decrease in Adjusted EBITDA was driven by strategic investments in operating expenses to drive growth, which was partially offset by growth in revenue and gross profit.   The largest impact comes from our previously announced investment in the European market. In this quarter, we hired a Managing Director, who is based out of our newly opened office in the Netherlands, relocated US assets into place in the Netherlands, and continued to build our brand and footprint.

1Adjusted EBITDA is a non-GAAP financial measure. Please see the information under “Non-GAAP Financial Measures” 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 measure to GAAP results.

Summary First Six Months 2022 Financial Results

Revenue was $37.3 million for the first six months of 2022 compared to $24.9 million in the prior year period, representing an increase of $12.4 million, or 50%.

Net loss was $(2.4) million, or $(0.23) per share, for the first six months of 2022 compared to a net loss of $(0.3) million, or $(0.03) per share, in the prior year period.

Adjusted EBITDA was negative $(0.1) million for the first six months of 2022 compared to positive $1.1 million in the prior year period, representing a decrease of $1.2 million.

Backlog as of June 30, 2022

Consolidated backlog is unrealized revenue represented by contractually committed construction design-build, equipment systems, and service orders. As of June 30, 2022, total backlog was approximately $22 million, comprised of $10 million in design-build, $7 million of equipment systems, and $5 million of professional services contracts.   

Updated Revenue and Adjusted EBITDA Guidance

As a result of the dynamic macroeconomic environment, whereby inflation, supply chain issues and oversupply issues in the U.S. cannabis market are actively pressuring customers’ capital spending plans, the Company believes it is prudent to withdraw its previously announced full year 2022 revenue and Adjusted EBITDA guidance, and diligently keep investors informed of significant backlog additions in the months and quarters ahead.

In place of a full year outlook, the Company is shifting to a near-term outlook for the current forward quarter until visibility improves. For the third quarter of 2022, the Company anticipates revenue in the range of approximately $10 - $11 million and an Adjusted EBITDA loss of approximately $(2.6) - $(2.4) million.

Dick Akright, CFO, commented, “While we’ve shifted our guidance strategy to one that’s more focused on the near-term given the recent market volatility, it should not be inferred as a slowing of our opportunity pipeline. In that regard, we continue to have visibility to many large projects, several of which are with existing customers and other projects in new diversified industries. However, we believe it is prudent to position our outlook cautiously until improved visibility to customers’ capital spending plans emerges.”

Conference Call Details

urban-gro will host a conference call and live audio webcast to discuss the operational and financial results today, August 15, 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 expense, depreciation of tangible assets, amortization of intangible assets, impairment of investments, unrealized exchange losses, debt forgiveness and extinguishment, stock-based compensation expense, 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 www.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.

urban-gro, Inc.
  June 30,
  December 31, 2021 
Current assets:        
Cash $22,767,595  $34,592,190 
Accounts receivable, net  14,903,543   13,125,685 
Contract receivables  543,687    
Inventories  398,098   514,756 
Prepaid expenses and other current assets  6,142,613   11,248,266 
Total current assets  44,755,536   59,480,897 
Non-current assets:        
Property and equipment, net  864,022   207,496 
Operating lease right of use assets, net  708,876   689,704 
Investments  4,210,358   4,210,358 
Goodwill  10,636,284   7,992,121 
Intangible assets, net  4,886,740   1,575,466 
Total non-current assets  21,306,280   14,675,145 
Total assets $66,061,816  $74,156,042 
Current liabilities:        
Accounts payable $7,946,023  $6,066,896 
Contract liabilities  671,685    
Accrued expenses  3,381,263   3,878,278 
Customer deposits  3,286,073   13,345,451 
Contingent consideration  2,612,678   1,563,000 
Operating lease liabilities  283,727   152,459 
Total current liabilities  18,181,449   25,006,084 
Non-current liabilities:        
Operating lease liabilities  427,826   542,003 
Deferred tax liability  1,201,112   440,625 
Total non-current liabilities  1,628,938   982,628 
Total liabilities  19,810,387   25,988,712 
Preferred stock, $0.10 par value; 10,000,000 shares authorized; 0 shares
issued and outstanding
Common stock, $0.001 par value; 100,000,000 shares authorized;
11,911,043 issued and 10,637,040 outstanding as of June 30, 2022, and
11,588,110 issued and 10,733,195 outstanding as of December 31, 2021
  11,911   11,588 
Additional paid in capital  82,971,694   78,679,220 
Treasury shares, cost basis: 1,274,003 shares as of June 30, 2022 and
854,915 shares as of December 31, 2021
  (11,456,667)  (7,683,490)
Accumulated deficit  (25,275,509)  (22,839,988)
Total shareholders’ equity  46,251,429   48,167,330 
Total liabilities and shareholders’ equity $66,061,816  $74,156,042 

urban-gro, Inc.
  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2022  2021  2022  2021 
Equipment systems $10,077,572  $12,179,316  $27,144,916  $23,524,066 
Consumable products  259,054   363,574   606,072   792,667 
Construction Design-Build  2,917,321   -   2,917,321   - 
Services  3,027,556   288,407   6,666,062   548,920 
Total Revenue  16,281,503   12,831,297   37,334,371   24,865,653 
Cost of Revenue  12,779,557   9,908,913   28,930,405   19,302,626 
Gross profit  3,501,946   2,922,384   8,403,966   5,563,027 
Operating expenses:                
General and administrative  4,240,658   2,400,417   8,965,957   4,597,257 
Intangible asset amortization  306,225   411   468,725   578 
Stock-based compensation  882,000   299,602   1,764,000   590,407 
Total operating expenses  5,428,883   2,700,430   11,198,682   5,188,242 
Income (loss) from operations  (1,926,937)  221,954   (2,794,716)  374,784 
Non-operating income (expenses):                
Interest expense  (7,658)  (4,624)  (15,317)  (322,067)
Interest income  47,275   11,531   127,126   14,390 
Interest expense – beneficial conversion of notes payable  -      -   (636,075)
Loss on extinguishment of debt  -      -   (790,723)
PPP Loan Forgiveness  -   1,032,316   -   1,032,316 
Other income (expense)  71,563   (3,733)  62,874   (3,764)
Total non-operating income (expenses)  111,180   1,035,490   174,683   (705,923)
Income (loss) before income taxes  (1,815,757)  1,257,444   (2,620,033)  (331,138)
Income tax expense (benefit)  76,453      184,512    
Net income (loss) $(1,739,304) $1,257,444  $(2,435,521) $(331,138)
Comprehensive income (loss) $(1,739,304) $1,257,444  $(2,435,521) $(331,138)
Earnings (loss) per share:                
Earnings (loss) per share – basic & dilutive $(0.17) $0.11  $(0.23) $(0.03)
Weighted average share – basic & dilutive  10,508,972   11,220,580   10,527,975   9,535,630 

urban-gro, Inc.
  Three months Ended
June 30,
  Six months Ended
June 30,
  2022  2021  2022  2021 
Net Income (Loss) $(1,739,304) $1,257,444  $(2,435,521) $(331,138)
Interest expense  7,658   4,624   15,317   322,067 
Interest expense – BCF           636,075 
Interest income  (47,275)     (127,126)   
Income tax benefit  (76,453)     (184,512)   
Loss on extinguishment of debt           790,723 
Stock-based compensation  882,000   299,602   1,764,000   590,407 
Depreciation and amortization  371,557   53,941   589,835   109,626 
Transaction & new entity costs  15,535   -   70,760    
Non-recurring legal fees  57,382   -   218,929    
PPP Loan forgiveness     (1,032,316)     (1,032,316)
Adjusted EBITDA $(528,900) $583,295  $(88,318) $1,085,444 

Investor Contacts:
Dan Droller - urban-gro, Inc.
EVP Corporate Development & Investor Relations
Jeff Sonnek – ICR, Inc.
(720) 730-8160

Media Contact:
Mark Sinclair – MATTIO Communications
(650) 269-9530