Executive Summary

Q1 2024 revenue was $15.5M (up 4% sequentially) with gross margin rising to 20% from 11% in Q4; adjusted EBITDA improved to ($0.3)M, the strongest in two years, driven by services productivity and construction margin mix .
The quarter beat Q1 preliminary guidance (> $15.0M revenue; better than ($0.5)M adjusted EBITDA) and management reaffirmed FY 2024 guidance of > $84M revenue and positive adjusted EBITDA .
Backlog ended at $99M (down 10% QoQ), with 76% CEA and 24% commercial; cash was $0.7M and $2.0M drawn on the $10M LOC, which management views as sufficient to avoid dilutive capital .
A near-term narrative catalyst: DEA support to reschedule cannabis to Schedule III (280E removal), which management believes could reignite CEA capex (equipment/services) and bolster backlog; UGRO did not bake this into FY 2024 guidance .

What Went Well and What Went Wrong

What Went Well

Sequential revenue growth (+4% QoQ to $15.5M) and gross margin expansion (20% vs 11% in Q4) on improved services productivity and higher-margin construction projects .
Operating expenses fell to $5.2M, down $1.2M QoQ and $2.7M YoY, reflecting ~$8M annualized SG&A optimization; adjusted EBITDA improved to ($0.3)M, a $2.7M sequential and $3.1M YoY improvement .
Management reaffirmed FY 2024 guide (> $84M revenue, positive adjusted EBITDA) and indicated no need for dilutive capital given the $10M LOC and working capital management .

Quote: “We delivered our strongest quarterly adjusted EBITDA results in two years… revenue of $15.5 million and a slight adjusted EBITDA loss of $0.3 million beat our quarterly guidance” .

What Went Wrong

Year-over-year revenue declined 7% (to $15.5M from $16.8M), with equipment systems and services revenue compressed by cannabis sector softness .
Backlog decreased 10% sequentially to $99M, with prior quarter project delays and longer award-to-sign timelines in commercial; equipment backlog remained small ($1M) .
Net loss persisted at ($2.1)M (GAAP EPS ($0.18)), and cash declined to $0.7M; Europe remains weak with limited near-term contribution .

Financial Results

Headline metrics vs prior quarters

Metric	Q3 2023	Q4 2023	Q1 2024
Revenue ($USD Millions)	$20.934	$15.006	$15.543
GAAP Diluted EPS ($USD)	($0.29)	($0.40)	($0.18)
Gross Margin (%)	14%	11%	20%
Net Loss ($USD Millions)	($3.368)	($4.725)	($2.142)
Adjusted EBITDA ($USD Millions)	($1.318)	($2.992)	($0.294)

Revenue breakdown by category

Category ($USD Millions)	Q3 2023	Q4 2023	Q1 2024
Equipment Systems	$3.044	$2.100	$2.508
Services	$2.899	$2.520	$3.134
Construction Design-Build	$14.813	$10.187	$9.825
Other	$0.178	$0.199	$0.075
Total	$20.934	$15.006	$15.543

KPIs and balance sheet indicators

KPI	Q3 2023	Q4 2023	Q1 2024
Backlog ($USD Millions)	$84	$110	$99
Backlog mix (CEA / Commercial)	n/a	~70% CEA (narrative)	76% / 24%
Cash ($USD Millions)	$4.770	$1.113	$0.693
LOC Drawn ($USD Millions)	$0.0 (undrawn to date)	$2.5	$2.0
Q1 revenue mix (Commercial / CEA)	—	—	~72% / ~28%

Actuals vs guidance and consensus

Metric	Q1 2024 Actual	Q1 2024 Preliminary Guidance	Consensus (S&P Global)
Revenue ($USD Millions)	$15.543	> $15.0	Unavailable via S&P Global at time of request
Adjusted EBITDA ($USD Millions)	($0.294)	Better than ($0.5)	Unavailable via S&P Global at time of request
GAAP Diluted EPS ($USD)	($0.18)	n/a	Unavailable via S&P Global at time of request

Note: Consensus estimates unavailable via S&P Global at time of request; comparisons omitted.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Consolidated Revenues	FY 2024	> $84.0M	> $84.0M	Maintained
Adjusted EBITDA	FY 2024	Positive	Positive	Maintained
Revenue	Q1 2024	> $15.0M	$15.5M (actual)	Beat
Adjusted EBITDA	Q1 2024	Better than ($0.5)M	($0.3)M (actual)	Beat

Earnings Call Themes & Trends

Topic	Q3 2023 (11/9)	Q4 2023 (3/27)	Q1 2024 (4/30)	Trend
DEA rescheduling / 280E	Discussed as potential catalyst; industry headwinds compress equipment	Outlook excludes catalysts; rescheduling would boost operator working capital	Management highlights DEA support; expects surge in services/equipment; not baked into FY guide	Improving sentiment
SAFER Banking	Not central focus	Banking bill could aid access to capital; not included in guide	Seen as separate but positive; potential “lame duck” path	Potential tailwind
SG&A optimization / ERP	Initiatives underway; cost reductions and productivity focus	$8M annualized cuts; ERP improves visibility/cash flow	$2.8M YoY G&A reduction realized in Q1; breakeven revenue threshold lowered	Structural improvement
Equipment revenue compression	Ongoing weakness; significant margin headwind	Weak; equipment backlog minimal	Early signs of improvement expected post-DEA; watch equipment backlog Q2	Early green shoots
Backlog dynamics	$84M backlog; rising QoQ	$110M backlog; delays pushed into 2024	$99M backlog; down 10% QoQ; 76% CEA	Mixed: lower QoQ, strong sector mix
Europe	Pipeline strengthening but slow scaling	Downsizing; Germany social clubs approach; modest near-term	Demand remains weak; small services wins in Q2	Cautious
Commercial sector demand	>2/3 revenue non-CEA; Fortune 50 clients	Strong momentum; delays from verbal award to sign	Demand strong; more singles than home runs; timing to signatures still elongated	Stable but timing friction

Management Commentary

“Revenue of $15.5 million and a slight adjusted EBITDA loss of $0.3 million beat our quarterly guidance… attributed to diversified revenue streams and focused efforts throughout 2023 to reduce operating expenses” .
“We are maintaining our guidance to recognize more than $84 million in revenue and to generate positive adjusted EBITDA… this does not take into consideration today’s rescheduling-related developments” .
“Gross profit was $3.1 million or 20% of revenue… driven by improved margins in services and construction design-build revenues” .
“Our total backlog as of March 31, 2024 was approximately $99 million… comprised of $93 million in construction design-build, $5 million of professional services and $1 million of equipment systems” .
“With the support of the working capital line of credit… we currently do not see the need to bring new dilutive capital into the company” .

Q&A Highlights

Florida adult-use ballot and DEA rescheduling: Early client engagement is rising; signatures occurring; equipment orders have 4–6 month lead times, but heavy ordering awaits outcome; projects typically 9–24 months from design to revenue .
2024 cadence: Q4-delayed projects recognized in Q1/Q2; aim to under-promise/over-deliver; breakeven lowered via SG&A; backlog strong but would like to see appreciation .
Margin sustainability: Q1 construction margins above typical; not expected to remain quite as high but structural controls (ERP, legacy projects winding down) support improved trajectory .
Backlog composition: As of Q1, ~76% CEA and 24% commercial; contrasts with revenue mix skewed to commercial (~72%) .
Europe: Right-sized; weak near-term demand; selective Q2 services wins; no robust improvement expected in 2024 .

Estimates Context

S&P Global consensus for Q1 2024 revenue and EPS was unavailable at time of request due to data access limitations; comparisons to “Street” estimates are omitted.
Given documented margin and SG&A improvements, analysts may reassess gross margin and adjusted EBITDA run-rate upward, while backlog’s sequential decline could temper near-term revenue ramp expectations .

Key Takeaways for Investors

Sequential improvement with margin expansion: Gross margin rose to 20% (from 11%), and adjusted EBITDA loss narrowed to ($0.3)M; signals operating leverage from services productivity and construction mix .
Guidance credibility strengthened: Q1 beat preliminary guidance and FY 2024 >$84M revenue/positive adjusted EBITDA was reaffirmed, despite not including potential DEA/SAFER upside .
Watch early-cycle indicators: Equipment and services backlogs should show strengthening in Q2 if DEA rescheduling drives capital deployment; management flagged equipment backlog (was $1M at Q1) as an early tell .
Backlog mix vs revenue mix: Backlog is CEA-heavy (76%) while revenue is currently commercial-heavy (~72%); expect mix to evolve as CEA capex resumes and commercial timing frictions ease .
Liquidity and dilution risk: $10M LOC with $2.0M drawn and management’s stance against dilutive capital reduce financing overhang; cash stood at $0.7M, so working capital discipline remains key .
Europe is a call option, not a driver: Near-term contribution remains modest; Germany’s social-club phase and selected EU projects could take time to scale .
Trading lens: Near-term stock narrative likely tethered to regulatory momentum (DEA/Florida ballot) and Q2 backlog/equipment data points; medium-term thesis hinges on sustaining margin gains and converting CEA-heavy backlog to revenue with positive adjusted EBITDA .

urban-gro, Inc. (UGRO)·Q1 2024 Earnings Summary