urban-gro(US:UGRO)2024-03-28 00:42Financial Data and Key Metrics Changes - Year-over-year CEA revenues decreased by $22 million or 36%, while commercial revenues increased by $27 million or 36%, indicating a reversal from 2022 trends and highlighting the value of diversification [2] - Equipment revenues decreased to a three-year low of $13 million, representing a $21 million or 62% decrease from 2022 and a $43 million or 77% decrease from 2021 [2] - Net loss for Q4 2023 was $4.7 million or a negative $0.40 per diluted share, compared to a net loss of $4.2 million or a negative $0.39 per diluted share in the prior year [11] - Total revenue for the full year 2023 was $71.5 million, a 6.7% increase from $67 million in the prior year [11] Business Line Data and Key Metrics Changes - Construction design build revenue decreased by $1.3 million, professional services revenue decreased by $0.8 million, and equipment systems revenue decreased by $0.2 million in Q4 2023 [55] - The backlog as of December 31, 2023, was approximately $110 million, a $26 million or 40% sequential increase over Q3 2023, with $102 million in construction design build, $7 million in professional services, and $1 million in equipment systems contracts [4] Market Data and Key Metrics Changes - The prolonged multiyear compression of equipment revenues due to continued softness in the CEA sector remains a significant headwind for financial performance [2] - The company has identified significant regulatory changes that could serve as catalysts to reignite the cannabis market, potentially providing a material lift to future financial performance [2] Company Strategy and Development Direction - The company is focused on sector diversification, with significant efforts made to optimize and align SG&A expenses, which are expected to result in positive adjusted EBITDA in 2024 [9][10] - The company plans to continue building out its business development focus in commercial sectors and integrate innovative initiatives [54] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that 2024 will be a step-up year, expecting to deliver positive adjusted EBITDA, with a focus on executing contracts and managing project timelines effectively [9][10] - The management team acknowledged the disappointing performance in Q4 but emphasized that all delayed contracts are still active and expected to generate revenue in 2024 [9][12] Other Important Information - The company has reduced SG&A expenses by more than $8 million on an annualized basis, which is expected to positively impact results in 2024 [4][11] - The company entered 2024 with $1.1 million in cash and $2.5 million drawn on a $10 million working capital line of credit, providing necessary flexibility to manage working capital needs [66] Q&A Session Summary Question: Can you expand on the project delays and cost revisions in the quarter? - Management noted that three projects were delayed, impacting revenue recognition, but all contracts remain active and are expected to generate revenue in Q1 2024 [12][9] Question: How does the recent cannabis legislation in Germany affect your strategy? - Management indicated that while they are pulling back some expenses in Germany, they are maintaining key experts and keeping communication open for future opportunities as the market develops [23][22] Question: What is the outlook for the cannabis sector and potential regulatory catalysts? - Management highlighted the potential impact of the SAFER Banking Act and rescheduling of cannabis, which could significantly improve working capital for operators and lead to increased demand for their services [86][36]