Colorado-based Urban-Gro Inc. (Nasdaq: UGRO) disclosed a dip in its revenue for the first quarter ended March 31, but the company upheld its projections for the full year.
In the first quarter of 2023, Urban-gro’s revenue came in at $16.8 million, a 20% reduction from $21.1 million during the same period in 2022. A key reason for the decrease was a $14.2 million plunge in equipment systems revenue, primarily due to dwindling demand in the U.S. cannabis market.
The company said that the fall was worsened by persistent regulatory delays at the state level in the licensing process and stagnation on crucial legislation. However, it was partly counterbalanced by a $10.2 million upsurge in construction design-build revenue, attributed to the acquisition of Emerald C.M. in the second quarter of 2022.
Still, revenue figures beat expectations by $1.1 million.
Bradley Nattrass, the chairman and CEO, assured that the company’s performance for the quarter aligned with their expectations.
“Our first quarter performance is consistent with our expectations as we continue to demonstrate that the acquisitions and investments we made have created a more durable and uniquely diversified company,” Nattrass said in a statement.
He underscored the company’s pursuit to swiftly achieve positive adjusted EBITDA and enhance operational efficiencies.
Urban-gro posted a net loss of $5.1 million or 48 cents per share for the quarter, which missed expectations by fifteen cents, in contrast with a net loss of $700,000 or seven cents per share in the first quarter of 2022.
Adjusted EBITDA was negative $3.4 million, a drop from a positive $400,000 in the first quarter of the previous year. The fall was largely due to lower revenues and the related drop in gross profit, a shift in revenue mix, and increased operating expenses primarily related to augmented professional fees, compensation, and headcount from both organic growth and acquisitions.
The company’s gross profit for the quarter stood at $2.8 million, which is 17% of the revenue, a decrease from $4.9 million or 23% of revenue in the first quarter of 2022. The decline in gross profit was predominantly due to a drop in high-margin equipment revenue, which was partially offset by an uptick in lower-margin construction design-build revenue.
Operating expenses for the quarter climbed to $7.9 million, a substantial increase from $5.8 million in the corresponding period of the previous year. The escalation was largely due to a rise in headcount stemming from organic growth and acquisitions, augmented professional fees, higher compensation-related costs, and investments into the company’s European entity and related expansion.
Urban-gro reiterated its guidance for 2023, forecasting consolidated revenue between $100 million and $120 million, and an adjusted EBITDA ranging from a negative $3 million to a slightly positive figure.
Despite the revenue decrease in the first quarter, urban-gro had a robust backlog of around $105 million in contracts as of March 31. This included $96 million in construction design-build, $4 million in professional services, and $5 million in equipment systems. The company also boasted a cash position of $7.3 million at the close of the first quarter, without any bank debt.