Urban-Gro, Inc. Financial Report Analysis: Q1 2024

Key Insights Snapshot

• Recommendation: Hold - While urban-gro, Inc. faces challenges with ongoing losses, the company is taking steps to stabilize its financial position and improve liquidity. Investors should monitor upcoming capital raises and operational adjustments.
• Total Revenue: $15.4 million (restated)
• Net Loss: $(2.56) million (restated)
• Total Assets: $56.1 million
• Total Liabilities: $37.5 million
• Shareholders' Equity: $18.6 million
• Cash at End of Period: $692,680

Financial Overview

Company Background

• Entity Name: urban-gro, Inc. (Ticker: UGRO)
• Location: Lafayette, Colorado
• Business Focus: Integrated professional services in Controlled Environment Agriculture (CEA) and other commercial sectors.

Filing Context

The report filed is an Amendment No. 1 on Form 10-Q/A for the quarter ending March 31, 2024. It outlines restated financial statements due to adjustments identified in a re-audit of the fiscal year ended December 31, 2023. This restatement highlights the importance of relying on the updated figures rather than previous filings.

Financial Performance

1. Revenue Analysis:

• Total revenues for Q1 2024 were reported at $15.4 million, reflecting a decrease compared to $16.8 million in Q1 2023.
• Revenue sources:
• • Equipment Systems: $2.5 million
  • Services: $3.1 million
  • Construction Design-Build: $9.7 million
• The decline in revenues can be attributed to a reduction in construction projects and delayed contracts.

2. Cost of Revenues:

• Total cost of revenues was $12.4 million, resulting in a gross profit of $2.99 million.
• The gross margin reflects an ongoing struggle with operational efficiency, as the cost of revenues has not decreased proportionately with revenue.

3. Operating Expenses:

• Total operating expenses were reported at $5.2 million, leading to a loss from operations of $(2.48) million. A significant portion of these expenses is attributed to general and administrative costs, which need to be managed effectively to improve profitability.

4. Net Loss:

• The net loss for the quarter was restated to $(2.56) million or $(0.21) per share. This is a considerable increase from the previous year, indicating that while revenues have decreased, expenses have remained high.

Balance Sheet Position

1. Liquidity and Cash Flow:

• The company reported $692,680 in cash at the end of the reporting period, down from $1.1 million at the beginning. This decrease raises concerns regarding liquidity, especially given the negative cash flow from operating activities.
• Total Assets: $56.1 million
• Total Liabilities: $37.5 million
• Shareholders' Equity: $18.6 million, reflecting a significant improvement from $(10.4) million in the previous period, primarily due to capital injections and adjustments in accumulated deficit.

2. Working Capital Challenges:

• The current ratio indicates a potential liquidity crunch with current liabilities exceeding current assets ($35.5 million in current liabilities compared to $33.2 million in current assets).

Strategic Outlook

• Liquidity Actions: The company has reduced headcount and operating expenses to manage cash flow. Plans to raise capital through equity issuance or debt financing are in place, but success is uncertain.
• Restatement Impact: The restatement of previous financial statements may temporarily dampen investor confidence, underscoring the need for transparent and accurate reporting practices moving forward.

Market and Competitive Landscape

• Industry Trends: The CEA market is growing, driven by increased demand for sustainable and efficient food production. However, urban-gro faces competition from other players in integrated agricultural services, which may impact market share and pricing power.
• Macroeconomic Factors: Inflationary pressures and rising interest rates could further complicate capital raising efforts and operational costs.

Conclusion

Urban-gro, Inc. is navigating a challenging financial landscape, marked by significant operational losses and liquidity concerns. The recent financial restatement emphasizes the need for improved financial oversight and transparency. While the company's proactive measures to reduce expenses are commendable, the overall outlook remains cautious. Investors should closely monitor urban-gro's ability to stabilize revenues and manage expenses effectively, making this a prudent moment to hold their positions while awaiting clearer signs of recovery.

Final Recommendation

Hold - The company is in a transitional phase, and while there are risks, there are also opportunities for recovery if operational efficiencies and capital management strategies are effectively implemented.