urban-gro, Inc.

Hello and welcome to the Urban Grow 2021 Third Quarter Earnings Conference Call. As a brief reminder, all participants are currently in a listen-only mode. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. Following the presentation, there will be a question and answer session for those on the teleconference line. Please note that this conference call is being recorded and a replay will be made available on the company's website following the end of the call. At this time, I'd like to turn the conference call over to Dan Droller, Executive Vice President of Corporate Development and Investor Relations at UrbanGrow. Sir, please go ahead.

Good afternoon and thank you for joining us. Today's call will be led by Brad Natras, Chairman and Chief Executive Officer, and Dick Ackwright, Chief Financial Officer. Following our prepared remarks, we will open up the call to questions for those on the teleconference line. I'd like to remind our listeners that remarks made during this call will include discussion of non-GAAP metrics, including adjusted EBITDA and backlog. These items should not be utilized as a substitute for UrbanGrowth's financial results prepared in accordance with GAAP. Reconciliations of our adjusted EBITDA to GAAP net income or loss is available in our press release and in our Form 10-Q filed with the SEC and can be accessed from the investor relations section of our website on this call we may state management's intentions beliefs expectations or future projections these are forward-looking statements and involve risks and uncertainties forward-looking statements on this call are made pursuant to the safe harbor provisions of the federal securities laws and are based on urban growth's current expectations and actual results could differ materially as a result You should not place undue reliance on any forward-looking statements. Some of the factors that could cause actual results to differ materially from these contemplated by such forward-looking statements are discussed in the Periodic Reports Urban Growth Files with the Securities and Exchange Commission. These documents are available in the Investors section of the company's website and on the Securities and Exchange Commission's website. We encourage you to review these documents carefully. Lastly, A copy of our earnings press release may be found on the investor relations section of our website at ir.urban-grow.com. In addition, a webcast replay for today's call will be available on the events section of that same IR site. With that, I would now like to turn the call over to Brad, Chairman and CEO.

Thank you, Dan. Good afternoon, everyone, and welcome to our third quarter 2021 earnings call. As you can see from both of our releases this afternoon, the contract to design and build approximately 20 turnkey food-focused vertical farms in Europe and our strong third quarter earnings, this is a great time to be invested in UrbanGrowth. On today's call, we'll cover several topics. I'll begin by providing a brief overview of our business, an update on our progress through the end of Q3, including sharing more on the European contract and further discussing key areas of focus as we continue to build upon our strong momentum dick will review our third quarter results in more detail and then we'll open up the call for questions urban grow is the only fully integrated architectural engineering and cultivation systems integration company in the indoor controlled environment agriculture or cea market we're fundamentally a high-touch service-oriented company comprised of nearly 80 employees, of which approximately two-thirds are what we refer to as experts, a variety of architects, engineers, cultivation designers, and horticulturists who have a strong history of growing multiple crop types. These experts are Urban Grows IP, and it's the holistic integration of these skill sets and the expertise acquired from working on more than 450 controlled environment ag facilities that provides immense value to our clients and defines our competitive advantage. Further, and as demonstrated by the newly announced European contract, our IP also travels globally and very efficiently. Focusing on the third quarter financial highlights, we once again delivered record results. We achieved quarterly revenue of $18.3 million, which represents growth of 119% versus the prior year period. We generated positive adjusted EBITDA of approximately $1 million and positive net income for the second quarter in a row. And further, we finished the quarter with a backlog of $22.5 million, a cash position of over $40 million, and no debt. The continued expansion of our high-margin services offerings, both pre- and post-operation startups, is the key to developing a sound foundation that will support long-term growth. In the third quarter, with the successful acquisition of 2WR, the 23-person award-winning architect firm, we not only expanded our existing offering to include architecture and project management services, but we began the exciting job of integrating our existing engineering and cultivation design services into as many of the approximately 70 open projects that they had at time of acquisition. These open projects further represent a phenomenal cross-selling opportunity for our cultivation equipment solution. We've previously estimated this opportunity to be approximately $10 million over the first year post-acquisition, and we're well on our way to achieving this target. I've been incredibly pleased with how quickly we've integrated 2WR into our adjacent businesses, and I'm excited by our clients' warm reception to full turnkey design engagements that include all three in-house services on one single contract, architecture, engineering, and cultivation design. This acquisition continues to exceed my expectations, and I'm very encouraged by the team's continued progress. For operating facilities, we continue to focus on building out our managed services offering, branded GrowCare. This is a highly advantageous recurring revenue model that utilizes our experts to provide operators with the expertise to assist them with training, onsite and remote troubleshooting, remote monitoring, and equipment maintenance programs. And further, since the acquisition, we've bolstered the program by including architectural peer reviews and full facility site analysis of reports as well. From both a growth and geographical perspective, for continuing to execute on opportunities in both the cannabis and food-focused vertical farming markets, and are also making solid progress with our expansion into the EMEA region. Our ability to capture a greater share of these markets is based upon establishing a strong foundation on which to support our service platform and leverage it to new geographies. After primarily working in the legalized cannabis space since our inception, Our acquired massive knowledge in controlling environment and working with one of the most valuable crops in the world has given us a great entry point into food. After engaging with clients on a variety of food focused vertical farming service contracts in the North American market this year, we've taken a strong leap forward with the signing of the Urban Health Farms contract that we announced today. Based in the Netherlands, Urban Health Farms aims to revolutionize the way food is produced and distributed through indoor vertical farms at the cutting-edge intersection between agriculture and technology. They have plans under development to commission approximately 20 urban indoor vertical farms to provide local sustainable food products to communities throughout Europe. Our exclusive engagement provides for Urban Grow to deliver all of these complete turnkey facilities. providing architect-led design, procurement, construction management, cultivation equipment integration, commissioning, and the grow care recurring revenue service offering as well. This has been an opportunity that the team's been pursuing and we've been investing in for the better part of 2021. And we're absolutely ecstatic about announcing this long-term alliance today. Supporting this initiative, The recent appointment of Sonia Lowe to our board of directors should be viewed as a strong commitment to further building out a leading food-focused presence in the controlled environment ag market. Sonia, having previously served as the CEO of Sensai Ag and CropOne, brings extensive experience as a CEA industry leader to our company. She'll be invaluable as we expand our presence globally, both to new markets and to new crop types. and I couldn't be more enthused about what's in store for us. Further on the European front, cannabis opportunities are continuing to emerge as the market opens up. In 2021, we've been investing in market entry. We've been bolstering our leadership and sales team in Europe, most recently with the hiring of a vice president of horticulture, who has a very strong background in the EMEA region. We've also began exhibiting at industry trade shows in different countries, and speaking on panels were applicable. I'm pleased with the team's progress, and year to date we've entered into multiple contracts in the Netherlands, Portugal, and Macedonia, and further have a strong pipeline in place to ensure that we continue to expand this reach. Under our fully owned entity, UrbanGrow European Holdings, in the near term we will be formalizing our European presence with the opening of a physical base of operations in the Netherlands. And with the newly announced Urban Health Farms contract in place, we intend to accelerate our capital investment into EMEA so we can meet the robust demand and capitalize on this tremendous opportunity that lies ahead. As we move into the fourth quarter of 2021, we continue to launch and invest in innovative vehicles to drive lead generation. The launch of our Urban Growth Financial Services Division is one such example. and is focused on driving incremental cultivation equipment revenues and margin dollars for the company. Our initial strategic partner, Access Financial, provides the U.S. cannabis industry access to competitively priced and non-dilutive CapEx financing solutions. With this facility in place, we not only strengthen our purchasing power with leading horticulture equipment manufacturers, we provide additional value to our clients as well. I believe XS Financial's competitively priced access to capital eliminates yet another barrier for operators. It broadens our reach within the cannabis market and further assists in minimizing supply chain delays. Before passing the call over to Dick for his financial review, I want to address the revisions to our full year 2021 guidance previously given on our second quarter earnings call. As a result of our year-to-date performance, we are raising our full year 2021 revenue guidance to greater than $60 million. As a result of starting to accelerate our investment in developing our operational infrastructure in Europe during Q3, our increased marketing spend tied to building the Urban Grill brand globally, and our proactive investments in company-wide headcount to successfully meet anticipated demand, We are revising our full year 2021 EBITDA guidance to exceed $2.5 million. In closing, to further drive future revenues and profits across all of our offerings, we continue to execute on our business development initiatives. Our pipeline remains robust, and we continue to actively examine service-focused acquisition opportunities that are profitable, accretive, and synergistic to our core offerings. All of the aforementioned moves that we're making continue to tie into our vision to be the leading provider of turnkey, indoor, high performance cultivation facilities in the global controlled environment ag market. With that, I'll now turn the call over to Dick.