urban-gro(US:UGRO)2023-11-12 18:27Financial Data and Key Metrics Changes - Revenue for Q3 2023 was $20.9 million, representing an 11% sequential increase from $18.8 million in Q2 2023 and a 69% increase from $12.4 million in Q3 2022 [36][28] - Adjusted EBITDA improved by $0.7 million sequentially to negative $1.3 million in Q3 2023, which is an improvement of $1.0 million compared to the prior year period [20][28] - Net loss for Q3 2023 was $3.4 million, or a negative $0.29 per diluted share, compared to a net loss of $8.7 million, or a negative $0.081 per diluted share in the prior year period [38][28] Business Line Data and Key Metrics Changes - The increase in revenue was driven by a $9.4 million increase in organic growth of construction design build revenue, reflecting increases in the number of projects and average project size outside of the Controlled Environment Agriculture (CEA) sector [18][28] - More than two-thirds of revenue this quarter was generated from sectors outside of CEA, indicating a successful diversification strategy [10][28] Market Data and Key Metrics Changes - The backlog as of September 30, 2023, was approximately $84 million, reflecting a 6% sequential increase and a 25% increase compared to the prior year [40][28] - The CEA sector continues to face challenges, with equipment revenues compressed by a weak cannabis market, resulting in a decline of over $20 million in revenue during the first nine months of 2023 [30][28] Company Strategy and Development Direction - The company has evolved into a multi-sector focused professional services consulting firm, leveraging its professional services to build additional revenue streams [27][28] - The diversification strategy has insulated the company from broader weaknesses in the cannabis and vertical farming segments, allowing it to maintain a strong team and prepare for future demand [9][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in returning to positive adjusted EBITDA, supported by an increasing backlog and pipeline [22][28] - The company anticipates revenues of approximately $30 million in Q4 2023, which would represent a new record, and expects to achieve breakeven to slightly positive adjusted EBITDA [33][28] Other Important Information - The company entered into a nondilutive asset-based lending facility for up to $8 million, primarily backed by construction receivables, to better manage working capital [24][59] - The leadership team demonstrated commitment by voluntarily opting to take stock instead of up to 50% of their base salary during Q3 [15][28] Q&A Session Summary Question: Details on the nondilutive asset-backed facility - The facility is backed by receivables, primarily construction receivables, and is for up to $8 million [24] Question: Insights on end markets and backlog allocation - More than two-thirds of the backlog is still in the controlled farming space, but the company anticipates growth on both CEA and non-CEA sides [48] Question: Confidence in achieving $30 million in quarterly revenue - Management indicated that there are many projects in the sales funnel expected to come to fruition, supporting the revenue target [49] Question: Potential inflection points in the cannabis market - Management noted that regulatory delays are a significant barrier, but they remain optimistic about future opportunities as licenses are awarded [51][105] Question: Update on international market focus - The company is focusing on the Netherlands, the U.K., and Germany, with ongoing discussions about design and build projects [81][109] Question: Future M&A activity - Currently, the focus is on generating cash and growing organically, with M&A not being a near-term priority [85] Question: Ability to win contracts outside of CEA - The company is successfully winning contracts by leveraging expertise and providing comprehensive service packages [90]