urban-gro, Inc.

Hello and welcome to the UrbanGrow first quarter 2024 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 today, April 30th, 2024, 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 Christian Monson, Urban Growth's Executive Vice President and General Counsel. Sir, please go ahead.

Good afternoon, and thank you for joining us. Today's call will be led by Brad Mattress, Chairman and Chief Executive Officer, and Dick Ackray, Chief Financial Officer. I'd like to remind our listeners that remarks made during this call will include a discussion of non-GAAP metrics, including adjusted EBITDA and backlog. These items should not be utilized as a substitute for UrbanGrow's financial results prepared in accordance with GAAP. Reconciliations of our GAAP net loss to adjusted EBITDA are available in our press release and in our Form 10-Q filed with the Securities and Exchange Commission. and can be assessed from the investor relations section of our website at ir.urban-grow.com. 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 Grow's current expectations. 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 such forward-looking statements are discussed in the periodic reports UrbanGrow 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 do encourage you to review these documents carefully. Lastly, a copy of our earnings press release and website replay for today's call may be found on the investor relations section of our website, which again is ir.urban-gro.com. With that, I will now turn the call over to Brad.

Thank you, Christian. Good afternoon, everyone, and thank you for joining us today. What a phenomenal day for the cannabis industry. As I'm sure most of you are now aware, A few hours ago, there were credible reports in the media indicating that the U.S. Drug Enforcement Agency is supporting the Department of Health's recommendation to reclassify cannabis from the most stringent Schedule 1 to the less stringent Schedule 3, in turn providing a long-awaited catalyst for the cannabis industry. While there still is a review period to complete with the expected removal of the 280E-related tax burden, and the DOJ addressing state-run programs through a guidance memo. We believe many cannabis operators will realize significant increases to their working capital that in turn could be reinvested in their business infrastructure to refresh existing facilities and build out new ones. For the last two years, I'm proud to sit on the board of the National Cannabis Roundtable alongside CEOs from some of the leading multi-state operators in the space. It's the tireless dedication of MSO leaders like these and the lobbying efforts from organizations like NCR that have paved the way for our industry and the exciting wins along the way. As it relates to what this news and the subsequent final approval of rescheduling means for urban growth's future, it's significant. With over a thousand projects completed in the cannabis market over the last eight years, And with 120 employees, which include architects, engineers, construction managers, and horticulturists, UrbanGrow is the leading professional services firm in the cannabis industry that refreshes existing operations, designs, and or builds new dispensary and cultivation facilities, and further procures and integrates cultivation equipment solutions as well. The successful rescheduling of cannabis is a long-awaited catalyst that we've anticipated to reinvigorate an industry that has been facing strong headwinds for the last couple of years. With that said and moving on, I'm excited to report that in the first quarter, we had positive cash flow from operations and in turn delivered our strongest quarterly adjusted EBITDA results in two years. This improved performance is attributed to both the diversified revenue streams that we've been seeking and building out as well as our focused efforts throughout 2023 to reduce operating expenses on a go-forward basis. Today, our multi-sector focused professional services and design build firm operates out of offices in three states and Europe, and our targeted markets extend from the cannabis and vertical farming sectors to also include light industrial, commercial, hospitality, recreation, education, and healthcare sectors. Looking at the highlights from our first quarter performance, both revenue of $15.5 million and the slight adjusted EBITDA loss of $0.3 million beat our quarterly guidance. The $3.1 million year-over-year improvement in adjusted EBITDA was driven by accommodation of reduced operating expenses and strengthening margins. as it relates to the reduced expenses and as a result of the optimization efforts made in 23, we began to benefit from the previously communicated $8 million reduction in general and administrative expenses. In fact, we realized a $2.8 million improvement in the first quarter versus Q1 of 2023. The margin growth in the first quarter was tied to both increased productivity from our professional services providers, as well as the strengthening of our returns delivered by our construction business. In further backlog, it remains strong at $99 million. As a result, and relating to full year 2024, we are maintaining our guidance to recognize more than $84 million in revenue and to generate positive adjusted EBITDA. I'll further note that this does not take into consideration today's rescheduling-related developments, as there are still unknowns, including timings that need to be clarified. Looking at market trends, diversification has most definitely assisted in insulating our business from the previously discussed headwinds that we've been facing within the cannabis and vertical farming sectors for the last couple of years. Consistent with the sector breakout in 23, In the first quarter, approximately 72% of our revenues came from the commercial sectors that we serve, and 28% from controlled environment ag. In the commercial sector, our client base continues to be comprised of top-tier companies that include Fortune 50 and 500 firms, and revenues recognized in the quarter were from a combination of ongoing and new projects. In the cannabis sector, while the market sentiment has been stronger than it has been in more than a year, especially after today, we're actively engaged with clients on multiple fronts. However, cautious optimism has been the status quo for operators so far this year. In the interim, and while we wait for the rescheduling narrative to play out in the months ahead, we're expecting to see steady activity and to continue signing both services and construction contracts in legal markets across the U.S. as operators work through persistent state-level regulatory and legal delays. This being said, and in addition to today's announcement, there are a couple of key additional catalysts which could also result in a significant and sustained positive change in momentum for our business. First, on the federal level, there's prospects of successfully passing a banking-related bill by year-end continues to be discussed. Of particular importance, this would potentially include a capital markets clause that allows plant-touching businesses to list on the larger public market exchanges providing a more efficient path for them to access capital and create greater liquidity. This would attract institutional investors that can participate via these exchanges or provide capital directly to the issuers. And second, at the state level, while progress continues to be made on legalization in multiple states, we maintain our position that the most impactful change would be in Florida, the nation's third most populous state and one of the fastest growing in the country. Now that it's confirmed to be on the ballot in November, a successful vote to allow adult use recreational sales would have a profound and sustained impact for Florida operators, and we anticipate for Urban Grow as well. In closing, and supported by our $99 million backlog, our qualified pipeline, the recognition of last year's $8 million general and administrative expense reduction, and today's positive regulatory development We believe that we are well positioned to continue building momentum through the end of the year and beyond. Thank you, and with that, I will now turn the call over to Dick.