Sign in

You're signed outSign in or to get full access.

UI

urban-gro, Inc. (UGRO)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023 was materially below prior guidance as project delays and a cost revision drove revenue to $15.0M and Adjusted EBITDA to $(3.0)M; management framed the shortfall as timing with the delayed projects active in Q1 2024 .
  • Backlog rose 40% sequentially to $110M (construction $102M; services $7M; equipment $1M), positioning 2024 for organic growth and margin improvement as cost actions (> $8M annualized SG&A reductions) take hold .
  • 2024 guidance: revenue > $84M (+≥17.4% YoY) and positive Adjusted EBITDA; Q1 2024 prelim: revenue ≥ $15M and Adjusted EBITDA ≥ $(0.5)M, with professional services robust and margins expected to improve YoY .
  • Key catalysts: potential cannabis rescheduling (280E relief), SAFER Banking, and state-level developments (e.g., Florida), plus ERP-enabled productivity (>90% billable in Q1 tracking) and ABL liquidity support; management does not expect equity capital needs near term .

What Went Well and What Went Wrong

What Went Well

  • “Backlog of $110 million as of December 31, 2023, a sequential increase of $26 million” signaling demand and pipeline strength across sectors .
  • “We implemented cost reductions of more than $8 million dollars on an annualized basis… foundation to generate sustained positive Adjusted EBITDA in 2024” .
  • “We expect to realize margin improvement… guidance implies a strong year of organic growth… streamlined operating structure” .

What Went Wrong

  • Q4 revenue fell to $15.0M (vs. $30M prior guidance) and Adjusted EBITDA to $(3.0)M (vs. breakeven to slightly positive guidance) due to project delays, a negative cost revision on a construction project, and softness in CEA equipment/services demand; engineering work in CEA paused in Q4 .
  • Gross margin compressed to 11% from 19% YoY on mix shift to lower-margin construction and the cost revision; services margins also declined YoY amid ERP integration inefficiencies in 2023 .
  • Full-year 2023 revenue was $71.5M, well below the Q2 2023 updated guidance of $90–95M, reflecting timing shifts and sector headwinds in CEA equipment demand .

Financial Results

MetricQ2 2023Q3 2023Q4 2023
Revenue ($USD Millions)$18.84 $20.93 $15.01
Gross Profit ($USD Millions)$2.87 $2.86 $1.72
Gross Margin %15% 14% 11%
Operating Expenses ($USD Millions)$6.76 $5.97 $6.35
Net Loss ($USD Millions)$(5.44) $(3.37) $(4.73)
GAAP EPS ($USD)$(0.50) $(0.29) $(0.40)
Adjusted EBITDA ($USD Millions)$(2.04) $(1.32) $(2.99)
Backlog ($USD Millions)$79 $84 $110
Consensus Revenue (Q4 2023)Unavailable
Consensus EPS (Q4 2023)Unavailable

Notes: Consensus estimates via S&P Global for Q4 2023 were unavailable at time of analysis.

Segment revenue breakdown

Segment Revenue ($USD Millions)Q2 2023Q3 2023Q4 2023
Equipment Systems$4.62 $3.04 $2.10
Services$3.03 $2.90 $2.52
Construction Design-Build$11.05 $14.81 $10.19
Other$0.13 $0.18 $0.20

KPIs and balance sheet indicators

KPIQ2 2023Q3 2023Q4 2023
Cash And Equivalents ($USD Millions)$8.56 $4.77 $1.11
Accounts Receivable, net ($USD Millions)$15.48 $18.34 $26.99
Contract Receivables ($USD Millions)$6.95 $8.38 $10.07
Revolver Drawn ($USD Millions)$0 (no bank debt) $0 (ABL undrawn post-Q3) $2.5 drawn on $10M facility

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated RevenueFY 2023$90–$95M (Aug 2023) Full-year guidance withdrawn in Nov; Q4-only guidance provided Withdrawn
Adjusted EBITDAFY 2023$(6)M to $(5)M; implied neutral 2H Q4 guidance: breakeven to slightly positive Narrowed to Q4; later missed
Consolidated RevenueQ4 2023~$30M Actual: $15.0M Lower than guidance (miss)
Adjusted EBITDAQ4 2023Breakeven to slightly positive Actual: $(3.0)M Lower than guidance (miss)
Consolidated RevenueQ1 2024n/a≥ $15M New
Adjusted EBITDAQ1 2024n/a≥ $(0.5)M New
Consolidated RevenueFY 2024n/a> $84M (+≥17.4% YoY) New
Adjusted EBITDAFY 2024n/aPositive Adjusted EBITDA New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2023)Trend
Backlog & demandBacklog $79M (Q2), $84M (Q3); sequential improvements in revenue/Adj. EBITDA; diversification outside CEA Backlog $110M (+$26M seq); delayed Q4 projects now active in Q1; expectation of sequential growth in 2024 Backlog strengthening; near-term execution volatility
ERP integration & productivity“Systems-enhanced insight into project margin” (Q2) All entities on same ERP; services productivity >90% billable in Q1 tracking vs ~55% in 2023 Operational visibility improving
CEA regulatory catalystsSoft equipment demand; lack of legislative progress cited (Q2/Q3) Potential rescheduling (280E relief), SAFER Banking, state catalysts (e.g., Florida) could reaccelerate demand; not in guidance baseline Sentiment improving; catalysts pending
European operationsInvestment and higher expenses (Q2) Downsizing European entity to align costs; cautious on Germany near term Rightsizing; watchful
Liquidity & capitalEntered ABL post-Q3; undrawn; cash $4.8M (Q3) $2.5M drawn on $10M revolver; management does not foresee need for new equity capital Using ABL as working capital tool
Margin initiatives in constructionNot explicit previouslyFocus on raising construction margins; Q4 project cost revision a temporary hit; negotiating change order Targeted improvement; Q4 setback

Management Commentary

  • “2023 was a transitional year… 70% of our revenues were tied to commercial sectors, with the remaining 30% in CEA… our fourth quarter was adversely impacted by project delays… our $110 million project backlog at the end of 2023 bodes well for growth prospects in 2024. We implemented cost reductions of more than $8 million… foundation to generate sustained positive Adjusted EBITDA in 2024.” — Bradley Nattrass, CEO .
  • “For the 2024 full year, [we] anticipate consolidated revenues to grow by at least 17% to more than $84 million and… generate positive Adjusted EBITDA… Q1 2024: revenue > $15 million; Adjusted EBITDA better than negative $0.5 million… professional services robust… gross margins expected to improve YoY.” .
  • “Revenue was $15.0 million… Gross profit $1.7 million (11%)… decrease driven by mix toward lower margin construction and a project cost revision… Operating expenses $6.4 million… Non-operating expenses $0.1 million… Adjusted EBITDA negative $3.0 million.” — Richard Akright, CFO .

Q&A Highlights

  • Project delays and cost revision: three projects pushed from December to January; one major recreation project produced no Q4 revenue; a cost revision increased project costs, with expectation of change-order recovery in 1H 2024 .
  • Guidance cadence and visibility: FY2024 guidance excludes cannabis catalysts; ERP/project portal now provide better real-time visibility; sequential improvement expected with current contracts executing over 2–4 months .
  • Backlog composition and sector color: As of 12/31/23, approx. 70% of backlog tied to CEA; commercial opportunities expanding in healthcare, post-secondary, labs, retail; commercial projects complete faster once signed .
  • Cannabis regulatory landscape: Florida adult-use ballot, Pennsylvania prospects, and rescheduling (280E elimination) seen as major potential CapEx catalysts; pipeline active, funding access remains gating factor .
  • Breakeven threshold: SG&A reductions lower Adjusted EBITDA breakeven revenue to ~$16–$19M depending on mix (vs. ~30M previously); services productivity improved with ERP .

Guidance Changes

(See table above; Q4 2023 guidance was missed; FY2024 and Q1 2024 introduced.)

Estimates Context

  • Consensus EPS and revenue estimates from S&P Global for Q4 2023 were unavailable at time of analysis; therefore, comparisons to Wall Street consensus could not be made. Future updates should re-attempt S&P Global retrieval to assess estimate revisions and potential beats/misses.

Key Takeaways for Investors

  • The Q4 miss versus prior guidance is a timing-driven reset more than a demand problem; backlog grew to $110M, suggesting revenue catch-up through 2024 as delayed projects execute .
  • Cost actions (> $8M SG&A cuts) and ERP productivity improvements materially reduce Adjusted EBITDA breakeven; watch for sequential margin expansion as services utilization and construction margin initiatives flow through .
  • 2024 setup: guidance > $84M revenue and positive Adjusted EBITDA, with Q1 ≥ $15M revenue; near-term trading may hinge on delivery against sequential targets and visible backlog conversion .
  • CEA optionality: catalysts (rescheduling, SAFER Banking, Florida adult-use) are not embedded in guidance but could unlock equipment/Design-Build demand; monitor regulatory headlines as potential upside drivers .
  • Liquidity: $2.5M drawn on $10M revolver with improving collections; management does not anticipate raising equity capital near term—reduces overhang but execution is critical .
  • Risk monitor: construction mix pressure on gross margin; project cost revisions; CEA demand softness; sustained AR growth demands tight working-capital management .
  • Action: Focus on Q1 print versus prelim guidance and backlog-to-revenue conversion rate; any margin uplift evidence and services productivity durability should support confidence in FY2024 positive Adjusted EBITDA trajectory .