Q1 2022 Urban-Gro Inc Earnings Call

Hello, and welcome to the urban grow 2022 first quarter earnings Conference call.

Hello and welcome to the Urban Grow 2022 first quarter earnings conference call.

As a brief reminder, all participants are currently in a listen-only mode.

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.

If anyone requires operator assistance during the conference, please press star 0 on your telephone.

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 presentation.

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.

At this time I'd like to turn the conference call over to Dan Driller.

Executive Vice President of corporate development and Investor Relations at urban grow Sir. Please go ahead.

Executive Vice President of Corporate Development and Investor Relations at Urban Grow. Sir, please go ahead.

Good afternoon, and thank you for joining us.

Today's call will be led by Brad Nattress, Chairman and Chief Executive Officer, and <expletive> Eckright, Chief Financial Officer.

Today's call will be led by Brad Mattress, Chairman and Chief Executive Officer and <expletive>.

Great Chief Financial Officer.

Following our prepared remarks, we will open up the call to questions for those on the teleconference live.

Following our prepared remarks, we will open up the call to questions for those on the teleconference slot.

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.

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 urban breast financial results prepared in accordance with GAAP.

These items should not be utilized as a substitute for Urban Brush 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 SEC and can be accessed from the Investor Relations section of our website.

Reconciliations of our GAAP net loss to adjusted EBITDA are 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.

On this call May state managements intentions beliefs expectations or future projections.

These are forward-looking statements and involve risks and uncertainty.

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 current expectations and actual results could differ materially.

Forward-looking statements on this call are made pursuant to the safe harbor provisions of the federal securities laws and are based on urban grows current expectations and actual results could differ materials.

As a result, you should not place undue alliance on any forward-looking statement.

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 filed with the Securities and Exchange Commission.

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 or urban graph 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.

These documents are available on 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 <unk> Dot urban dash grow dot com.

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 our IR site.

A webcast replay for today's call will be available on the events section of our IR site.

With that, I would like now to turn the call over to Brad, Chairman, and CEO .

With that I would like now to turn the call over to Brad Chairman and CEO .

Thank you Dan.

Good afternoon, everyone and welcome.

I'll begin today's call by providing an overview of our business, including an update on our results, execution, and vision, as well as share a few updates on key developments thus far in the second quarter.

I'll begin today's call by providing an overview of our business, including an update on our results execution and vision is.

As well as share a few updates on key developments, thus far in the second quarter.

<expletive> will then review our financial results in more detail and then we'll open up the call for your questions.

<expletive> will then review our financial results in more detail, and then we'll open up the call for your questions.

2022 is off to a very strong start in Q1 marks yet another record quarter for our business with record quarterly revenues and our seventh consecutive quarter with positive adjusted EBITDA.

2022 is off to a very strong start and Q1 marks yet another record quarter for our business with record quarterly revenues and our seventh consecutive quarter with positive adjusted

Driven by organic growth of almost 50% and incremental services revenue from the acquisition of the architect firm 2WR, our revenue has nearly doubled versus the first quarter of 2021.

Driven by organic growth of almost 50% in incremental services revenue from the acquisition of the architect firm to W. R. R.

Our revenues nearly doubled versus the first quarter of 2021.

The performance of the 2WR assets continue to exceed expectations, and the integration of our services and equipment offering into the existing pipeline continues to drive significant waterfall revenue opportunities for the company.

The performance of the two W. Our assets continue to exceed expectations.

And the integration of our services and equipment offering into the existing pipeline continues to drive significant waterfall revenue opportunities for the company.

A couple weeks ago, we celebrated a significant milestone with the closing of the Emerald Construction Management Act.

A couple of weeks ago, we celebrated a significant milestone with the closing of the Emerald construction management acquisition.

Not only will this transaction be immediately accreted to earnings, it further expands our full suite of in-house service offerings to include construction management services and also adds complete design build capabilities to our platform.

Not only will this transaction be immediately accretive to earnings. It further expands our full suite of in House service offerings to include construction management services and also adds complete design build capabilities to our platform.

I'm incredibly excited as it not only bolsters our project pipeline, but it also simultaneously further diversifies our revenue streams to include sectors outside of control the environment.

I'm incredibly excited as it not only bolsters our project pipeline, but it also simultaneously further diversifies our revenue streams to include sectors outside of Controlled Environment Act, also known as CEF.

Also known as CEO .

We firmly believe that this transaction represents the future of urban growth, fulfilling our vision of providing value added design, engineering, procurement, and construction management who are all together EPC service.

We firmly believe that this transaction represents the future of Bourbon grow.

Filling our vision of providing value added design engineering procurement and construction management or altogether EPC services.

With vast experience and a deep expertise in CEA, we're offering our clients full service, a la carte and complete turnkey, single point of responsibility design build solutions.

With vast experience and a deep expertise in CA, we're offering our clients full service Ala Carte and complete turnkey.

Single point of responsibility design build solutions.

As our respective teams have already been partnering prior to close, we look forward to the smooth integration process over the next several months and the announcement of some exciting new commercial projects that were in the midst of working hard.

As our respective teams have already been partnering prior to close we look forward to a smooth integration process over the next several months and the announcement of some exciting new commercial projects that were in the midst of working on.

For operating facilities, we continue to focus on building out our managed services offering Brian did grow care.

For operating facilities, we continue to focus on building out our managed services offering branded growth care. The highly advantageous recurring revenue model that utilizes our in-house knowledge base to provide operators with the expertise to assist them with training, on-site and remote troubleshooting, remote monitoring, and also ongoing maintenance program.

The highly advantageous recurring revenue model that utilizes our in house knowledge base.

Good operators with the expertise to assist them with training.

On site and remote troubleshooting remote monitoring and also ongoing maintenance programs.

The strikes behind both the managed services offering and the company as a whole it's our people we're fundamentally a high touch service oriented company comprised of an extremely deep bench of experts.

The strength behind both the managed services offering and the company as a whole, it's our people. We're fundamentally a high-touch service-oriented company comprised of an extremely deep benchback.

With the addition of Emerald, we now sit at approximately 125 employees, of which a little over 80 are those whom we highly regard as specialists or experts in their respective areas. They're the architects, engineers, cultivation designers, remote and on-site project managers and superintendents, and a collection of horticulturists and plant scientists who have a strong history of growing multiple crop types.

With the addition of Emerald, we now sit at approximately 125 employees of which a little over 80 are those whom we highly regarded specialists or experts in their respective areas. There are the architects engineers cultivation designers remote and on site project managers and superintendents.

And the collection of Horticulturists and plant scientists with a strong history of growing multiple crop types.

It is clear these experts are urban growth strongest IT and it's the holistic integration of these skill sets and the expertise acquired from working on more than 500 projects within the indoor CEA industrial and healthcare sectors that provide the meds value to our clients and define a competitive advantage. We have capabilities to tackle projects globally and bring our clients best in class services to maximize their investment and achieve their cultivation goal.

It is clear these expert urban growth strongest IP and it's the holistic integration of these skill sets and the expertise acquired from working on more than 500 projects, but then the indoor C. A industrial and health care sectors, they provide immense value to our clients and define our competitive advantage.

We have capabilities to tackle projects globally and bring our clients best in class services to maximize their investment in achieved their cultivation goals.

From a financial perspective, Q1 was a fantastic quarter for the company. We achieved first quarter revenues of just over $21 million, which represents growth of a little over 75% versus Q1 of 2021.

From a financial perspective, Q1 was a fantastic quarter for the company.

We achieved first quarter revenues of just over $21 million, which represents growth of little over 75% versus Q1 of 2021.

we generated positive adjusted EBITDA of approximately $0.4 million which marks our seventh consecutive quarter of positive adjusted EBITDA.

We generated positive adjusted EBITDA of approximately $4 million, which marks our seventh consecutive quarter of positive adjusted EBITDA.

We continue to maintain a strong balance sheet entry in Q2, and after spending 3.8 million on a Treasury stock buyback in Q1, we have a cash position of just over $27 million, zero debt, and backlog of $22 million.

We continue to maintain a strong balance sheet entering Q2, and after spending $3 8 million on a treasury stock buybacks in Q1, we have a cash position of just over $27 million.

Zero debt and backlog of $22 million.

These results speak to our client centric focus and our ability to deliver a world class level of service to a single point of responsibility across all aspects of their operation.

These results speak to our client-centric focus and our ability to deliver a world-class level of service to a single point of responsibility across all aspects of your operation.

This is not only urban growth value proposition is.

This is not only Urban Grills value proposition, it's the foundation of our success to date, which includes delivering such strong growth amid a smooth operating environment and changing industry dynamics.

The foundation of our success to date, which includes delivering such strong growth amid a fluid operating environment changing industry dynamics.

From a growth perspective, we're focused on three key areas. One, geographic expansion. Two, expansion within the CEA's food-focused vertical farming sector.

I'm a growth perspective, we're focused on three key areas one geographic expansion to expansion within the C. E O S food focused vertical farming sector.

and three, continued expansion of our service capabilities not only within the CEA sector, but further diversification of revenue through our growing client base in the industrial and healthcare sectors as well.

And three continued expansion of our service capabilities not only within the Cdos factor, which further diversification of revenue to our growing client base and the industrial and health care sectors as well.

First, geographic expansion. Our expansion into the EMEA region is on plan. We continue to build out our presence in the core cannabis and food-focused vertical farming markets, and we'll soon announce the hiring of a key European-based employee who will serve as the managing director of our European operation.

First geographic expansion our expansion into the EMEA region.

He was on plan, we continue to build out our presence in our core cannabis and food focused vertical farming markets almost soon announce the hiring of the key European based employee who will serve as the managing director of our European operations.

Based in the Netherlands. This individual has more than two decades of experience in horticulture and automation.

Based in the Netherlands, this individual has more than two decades of experience in horticulture and automation, and I'm confident that he'll be invaluable in shaping our strategy and will help us drive long term growth in the region.

Confident that he'll be invaluable in shaping our strategy and will help us drive long term growth in the region.

In terms of our progress to date, so far in 2022 in EMEA, we signed contracts with Israel, Portugal, the U K and North Macedonia.

In terms of our progress to date so far in 2022 in EMEA, we signed contracts in Israel, Portugal, the UK, and North Macedonia.

We've also expanded our presence by attending, presenting, and exhibiting a key industry trade shows and conferences in Germany, Spain, Dubai, and Israel.

We've also expanded our presence by attending presented in and exhibiting a key industry trade shows and conferences in Germany, Spain, Dubai and Israel.

and further will continue to be visible in the near term with additional events, including exhibiting at one of the leading global horticulture conferences, cream tech in June .

And further we will continue to be visible in the near term like additional events, including exhibiting at one of the leading global horticulture conferences Green Tech.

In June in the Netherlands.

Our second area of focus is expansion within the controlled environment egg sector and more specifically food focused urban vertical farm.

Our second area of focus is expansion within the controlled environment AG sector and more specifically food focused urban vertical farming.

Our services capabilities and the equipment we help to procure our planted.

Our services capabilities and the equipment, we help to procure our plants agnostic working with one of the most valuable crops in the world.

for working with one of the most valuable crops in the world has given us a great entry point into produce.

Giving us a great entry point into produce.

We have immense capabilities to service the indoor food focus sector and see strong momentum in both the North American and European markets.

The immense capabilities to service the indoor food focused sector and see strong momentum in both North American and European markets.

To that end, since the start of 2022, our team has signed seven project contracts with five indoor vertical farming operators in North America.

To that end since the start of 2022, our team has signed seven project contracts with five indoor vertical farming operators in North America.

We expect our project with urban health farms in Europe to launch in the coming months as they complete their site selection processes for their first farms and all it was reported before this exclusive engagement provides for urban grow to deliver up to 20 full design built turnkey facilities across Europe .

We expect our project with Urban Health Farms in Europe to launch in the coming months as they complete their site selection processes for their first farms. In all, as reported before, this exclusive engagement provides for Urban Grow to deliver up to 20 full design built turnkey facilities across Europe .

The third and final area of growth includes continued expansion of our service capabilities within the CEA sector and further diversification of revenue with further expansion in the healthcare and industrial sector.

Third and final area of growth includes continued expansion of our service capabilities within the C. A sector and further diversification of revenue with further expansion in health care and industrial sectors.

Through thoughtful strategic acquisitions, we've created a full suite of value-added capabilities and services.

Through thoughtful strategic acquisitions, we've created a full suite of value added capabilities and services.

The evolution of Urban Grow is now a reflection of the vision that I set out to build a bit over a year ago. Today, I'm proud to affirm that Urban Grow is a global leader in providing in-house turnkey services for the indoor CEA market.

The evolution of urban growth is now a reflection of the vision that I set out to build a bit over a year ago today I'm proud to affirm that urban growth is the global leader in providing in house turnkey services to the indoor market.

This engineering procurement and construction approach also no one is E. P. C provides urban grow the opportunity to diversify our offerings beyond the ancillary cannabis market the.

This engineering procurement and construction approach, also known as EPC, provides urban growth the opportunity to diversify our offerings beyond the ancillary cannabis market to be utilized more broadly in food-focused vertical farming, health care, and industrial sectors as well.

We utilized more broadly in food focused vertical farming health care and industrial sectors as well.

As an EPC specializing in value-added horticulture, we're the only full-service turnkey design build company in the global indoor CEA sector to offer a single point of responsibility to the market.

As an E. P C specializing in value added horticulture, where the only full service turnkey design build company and the global indoor see a sector to offer a single point of responsibility to the market.

The added value of our experience and expertise within indoor C. E day provides enormous value to clients in the global indoor CPA sector, regardless of the crop type.

The added value of our experience and expertise with an indoor CEA provides enormous value to clients in the global indoor CEA sector, regardless of the crop time.

and we're working with CEA clients for the life of their grows. We're there from the pre-construction cultivation planning stage through the crop and asset protection operational support via grow care, but we aim to dominate in the design build of mid-sized indoor CEA facilities.

We're working with E clients for the life of their growths were there from the Preconstruction cultivation planning stage through the crop and asset protection operational support via grow care, but we aim to dominate in the design build of midsized indoor CDA facilities.

As an EPC, we are now able to address a larger market and capitalize on opportunities in adjacent markets, where the companies we've acquired have built relationships, expertise and trust.

As an E. P. C. We are now able to address a larger market and capitalize on opportunities in adjacent markets, where the companies we've acquired adult relationships expertise and trust.

This has translated to a demonstrated execution with large corporate clients that we will continue to foster was arvin grow evolves as an EPC.

This is translated to a demonstrated execution with large corporate clients that we will continue to foster as Urban Global evolves as an EPC. The strategic acquisitions of 2WR and MOC accelerated access to these opportunities and serve as a key attribute in our acquisition rationale.

The strategic acquisitions of two W. R. M O construction management of accelerated access to these opportunities and serve as a key attribute and our acquisition rationale.

From an operational perspective, our expanded diversification allows us to ensure that we keep our teams fully optimized and, more importantly, completely efficient by maximizing our billable hours. By utilizing our architect engineers and peer designers and project managers across multiple sectors, we can allocate resources based on the demand variances in each market segment as these businesses cycle.

From an operational perspective, our expanded diversification allows us to ensure that we keep our teams fully optimized and more importantly completely efficient by maximizing our billable hours.

Utilizing our architects engineers interior designers and project managers across multiple sectors. We can allocate resources based on the demand variances in each market segment as these businesses cycles.

and slow. We are very cognizant of the changing labor environment and through diversification we're able to bring our team to bear in a wide array of client challenges. In the fort run this helps us absorb overhead but in the long run having access to interesting and challenging projects will attract the best talent and support long-term growth for our amazing team. As it relates to guidance for four years

And slow.

We are very cognizant of the changing labor environment and through diversification, we're able to bring our team to bear in a wide array of quiet chelan.

The short run just helps us absorb overhead, but in the long run having access to interesting and challenging projects will attract the best talent and support long term growth for our amazing team.

As it relates to guidance for full year 2022.

Look, we've had a great quarter, but we also want to be mindful of the uncertainty in the current broader macroeconomic environment, including inflationary pressures, tightening labor market, and also specific aspects of the cannabis industry.

We've had a great quarter, but we also want to be mindful of the uncertainty in the current broader macroeconomic environment, including inflationary pressures tightening labor market and also specific aspects of the cannabis industry.

Well, we're not immune to these factors we remain bullish on our strategy in 2022 and interest levels in our solutions remain elevated and our addressable markets, including crop agnostic indoor see a commercial and health care sectors.

Well, we're not immune to these factors. We remain bullish on our strategy in 2022. And interest levels and our solutions remain elevated in our addressable markets, including crop agnostic, indoor, CEA, commercial, and healthcare sectors.

While we continue to closely monitor how these factors are impacting our clients and manufacturing partners as well at this point, we're maintaining the annual guidance that we provided two months ago, but our 2021 earnings call revenues greater than $110 million and adjusted EBITDA of greater than 5 million.

While we continue to closely monitor how these factors are impacting our clients and manufacturing partners as well, at this point, we're maintaining the annual guidance that we provided two months ago on our 2021 earnings call. Revenues greater than $110 million and adjusted EBITDA of greater than $5 million.

Yeah.

In closing I'm ecstatic with the acquisitions that we've made and how we've rapidly inefficiently evolved over the last year.

In closing, I'm ecstatic with the acquisitions that we've made and how we've rapidly and efficiently evolved over the last year. We're focused on advancing our diversification strategy which will in turn reduce our exposure to any one segment market or region and we expect this will help to insulate us and reward our company and our shareholders in the quarters and years to come. With that, I'll

We're focused on advancing our diversification strategy, which will in turn reduce our exposure to any one segment market or region and we expect this will help to insulate us from reward our company and our shareholders in the quarters and years to come.

With that I'll now turn the call over to Jack.

Thanks, Brad. Our financial results continue to demonstrate our strategy to grow in a smart, meaningful, and cash flow-positive way. We built upon our momentum and generated another quarter of record financial results in the first quarter of 2022.

Thanks, Brad.

Financial results continue to demonstrate our strategy to grow in a smart meaningful and cash flow positive way.

We built upon our momentum and generated another quarter of record financial results in the first quarter of 2022.

Revenue was $21.1 million in the first quarter of 2022, compared to $12 million in the prior year period, representing an increase of $9.1 million or 76%.

Revenue was $21 1 million in the first quarter of 2022 compared to $12 million in the prior year period, representing an increase of $9 $1 million or suddenly six per spot.

This $9 1 million dollar increase was driven by a five point something million dollar increase in equipment system dropping through.

This $9.1 million increase was driven by a $5.7 million increase in equipment systems revenue and a $3.4 million increase in services revenue.

$3 4 million dollar increase in services revenues.

The increase in equipment systems revenue is tied to growth of new and existing clients, and is continued evidence of the underlying quality and growth potential of that business.

The increase in equipment systems revenue is tied to growth of new and existing clients and its continued evidence of the underlying quality and growth potential of that business.

The increase in services revenue is primarily attributable to the acquisition of the two WR entities at the end of July of 2021, which will continue to enhance our reported services revenue numbers on a go forward basis.

The increase in services revenue is primarily attributable to the acquisition of the two W are going on that they use at the end of July of 2021, which will continue to enhance our reported services revenue numbers on a go forward basis.

Gross profit was $4 $9 million or 23% of revenue in the first quarter of 2022 compared to $2.6 million or 22% of revenue in the prior year period.

Gross profit was $4.9 million or 23% of revenue in the first quarter of 2022 compared to $2.6 million or 22% of revenue in the prior year period.

This represents an increase of $2.3 million or approximately 100 basis points as a percent of revenue.

This represents an increase of $2.3 million or approximately 100 basis points as a percent of revenue.

The increase in gross profit dollars and margin percentage was driven by an increase in equipment systems revenue dollars in the prior year period and an increase in high margin services revenue, primarily again, due to the acquisition.

The increase in gross profit dollars and margin percentage was driven by an increase in equipment systems revenue dollars from the prior year period, and an increase in high margin services revenue, primarily again due to the two WR acquisition.

Operating expenses were $5.8 million in the first quarter of 2022 compared to $2 $5 million in the prior year period, representing an increase of $3.3 million.

Operating expenses were $5.8 million in the first quarter of 2022 compared to $2.5 million in the prior year period, representing an increase of $3.3 million.

This increase in operating expenses was driven primarily by increased headcount to support current and future growth initiatives, including costs associated with the 2WR acquisition.

This increase in operating expenses was driven primarily by increased head count to support current and future growth initiatives, including costs associated with the two W or acquisition.

Net loss was a negative $0.7 million in the first quarter of 2022, which compared to a net loss of $1.6 million in the prior year period, or an improvement of $0.9 million.

Net loss was a negative zero point $7 million in the first quarter of 2022, which compared to a net loss of $1 $6 million in the prior year period, or an improvement of zero point $9 million.

adjusted EBITDA was $0.4 million in the first quarter of 2022, which compares to $0.5 million in the prior year period.

Adjusted EBITDA was zero point $4 million in the first quarter of 2022, which compares to zero point $5 million in the prior year period.

Adjusted EBITDA was driven by growth and gross profit, including the contribution from the acquisition of 2WR, offset by strategic investments in operating expenses to drive growth.

Adjusted EBITDA was driven by growth in gross profit, including the contribution from the acquisition of two W are offset by strategic investments and operating expenses to drive growth.

Yeah.

Moving to reported backlog, our total backlog as of March 31, 2022 was $22 million, comprised of equipment backlog of $16 million and services backlog of $6 million, which compared to $30 million as of December 31, 2021, which was comprised of approximately $25 million of equipment and $5 million of services backlog.

Moving to reported backlog our total backlog as of March 31, 2022 was $22 million comprised of equipment backlog of $16 million and services backlog of $6 million, which compared to $30 million as of December 31st 2021.

Which was comprised of approximately $25 million of equipment and $5 million of services backlog.

While there are several variables that influence the change in backlog.

While there are several variables that influence the change in backlog, the two primary factors are signed orders and revenue recognized from signed orders during a stipulated period.

Two primary factors are signed orders and revenue recognized from signed orders during a stipulated period.

Because our backlog generally relates to capital expenditure commitments made by our customers. The dollar amount of signed customer orders and individual periods can fluctuate materially.

Because our backlog generally relates to capital expenditure commitments made by our customers, the dollar amount of fine customer orders in individual periods can fluctuate materially.

Revenue recognition is then dependent on delivery of these orders.

Revenue recognition is dependent on delivery of these orders.

Backlog as of March 31st, 2022 is sequentially lower from the $30 million we reported at the end of 2021.

Backlog as of March 31, 2022 is sequentially lower from the $30 million, we reported at the end of 2021, we.

We believe that this is a result of several variables that are impacting the timing of purchases for clients as Brad discussed above, but for now, we believe this to be transitory and are keeping a close eye on it as our service revenue continues to expand.

We believe that this is a result of several variables that are impacting the timing of purchases for clients as Brad discussed above but for now we believe this to be transitory and are keeping a close eye on that as our service revenue continues to expand.

Nonetheless, as indicated by our backlog entering Q2, we are now anticipating that revenue generation has shifted out due to the rapidly changing macroeconomic environment. And although it is early in the quarter, we believe that our second quarter 2022 revenue will be below that of first quarter 2022.

Nonetheless as indicated by our backlog entering Q2, we are now anticipating that revenue generation has shifted out due to the rapidly changing macroeconomic environment and.

Although it is early in the quarter, we believe that our second quarter 2022 revenue will be below that of first quarter 2022.

However, as Brad did note above, our full year annual guidance remains intact.

However, as Brad did notable our full year annual guidance remains intact.

Now turning to our balance sheet, our capital structure is in excellent condition.

Now, turning to our balance sheet, our capital structure is an excellent condition. After repurchasing $3.8 million of our stock in Q1, our cash position entering Q2 is $27.1 million, and we have no debt, which provides us the necessary flexibility to manage the macroeconomic market circumstances while we fuel our growth strategy, including potential additional M&A tarps.

After repurchasing three $8 million of our stock in Q1, our cash position and are in Q2, it was $27 $1 million and we have no debt, which provides us the necessary flexibility to manage the macroeconomic market circumstances, while we fuel our.

Growth strategy, including potential additional M&A targets.

In summary, we are incredibly pleased with our financial results this past quarter and look forward to continuing to execute for the year with our growing team of experts.

In summary, we are incredibly pleased with our financial results. This past quarter and look forward to continuing to execute for the year with our growing team of experts.

That concludes our prepared remarks, operator, please open the call for questions.

That concludes our prepared remarks. Operator, please open the call for questions. Thank you.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

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Yeah.

Your first question comes from Eric meter with SCC Research. Please proceed with your question.

Good afternoon, and congratulations on a solid start to the year.

Thanks, Eric.

Yeah.

When you look at, you know, the increased marketing spend and the other pieces here, you know, what has been driving your customers to add on with you? What has been the key piece here going forward that we should be focusing on driving additional revenue going forward and giving you that confidence to maintain the guidance, even with the backlog work?

When you look at.

The increased marketing spend and the other pieces here you know what has been driving to work customers to add on with you what has been the key piece here going forward, we should be focusing on it.

Driving additional revenue going forward, and giving you that confidence to maintain.

Even with the backlog where it is.

Eric, you know, our service levels, since we have listed and made some strong acquisitions, have greatly increased.

Eric.

Our service levels.

Yes. It is.

I've made some strong <unk>.

Acquisitions have.

Have greatly increased.

We're delivering phenomenal service to our clients, and they're asking us, hey, how else can we work together?

We have we're delivering we're delivering phenomenal service to our clients and they're asking us hey, how else can we work together.

We're initially making contact with clients probably 16, 18 months.

We're initially making contact with clients, probably 16 18 months.

Prior to our facility startups, we have a long road to get.

prior to facility startups. We have a long road.

to help clients avoid making mistakes, share our learnings with them on best case efficiencies for their facility or methods that they should use. We're not a manufacturer. We work with a lot of manufacturers. So we're able to also share with them a variety of solutions in each category as we specify, procure, and integrate equipment systems. So I think it's just that,

Two to help clients avoid make mistakes share our learnings with them on on best case efficiencies for their facility are or methods that they should use a we're not a manufacturer we worked with a lot of manufacturers. So we're able to to also share with them a variety of solutions in each category.

Cory as we specified procure and integrate our equipment system. So I think it's just that that that that.

that patch over 18 months, the chance to have multiple relationships in our organization with theirs.

Actual or 18 months that the chance to have multiple relationships in our organization with theirs.

that allows us to extend. One example is supply chain issues. I think we've done a great job helping our clients on from an equipment standpoint, avoid.

That allows us to extend one example is our supply chain initiatives I think we've done a great job, helping our clients on from an equipment standpoint avoid.

supply chain issues and the prevalent in this industry and many industries, but yes mechanical or cooling systems

Supply chain issues and the prevalent are in this industry and many industries, but yes, mechanical or cooling systems.

are gonna take six or seven months versus three, it's okay because we're touching the client earlier and we're able to just engage in that process a little bit quicker than they are.

We're gonna take six or seven months versus three it's okay. Because we're touching the client earlier and we're able to just engage in that process a little bit quicker than they are.

to answer the second part of your question. You know,

To answer the second part of our of your question you know.

The guidance that we gave, it also includes organic and eight months of emerald construction management. And in the short period that we've owned emerald, what we've learned is there's tremendous upside with that organization. A 37-year-old family company, they've taken as far as they could.

The guidance that we gave it also includes organic and eight months of Emerald with construction management and then in the short period that we've owned Emerald. What we've learned is there is tremendous upside with that organization 37 year old family company, they've taken as far as they could.

But now with opening new job racks, but with the strength of our balance sheet. You know you hear me talk more about commercial now and he designed buildup of CPG companies distribution centers. These are relationships that are emerald had before the acquisition by urban growth.

But now with opening new job wrecks, but with the strength of our balance sheet, you know, you hear me talk more about commercial now and the design build of CPG companies distribution centers. These are relationships

that Emerald had before the acquisition by Urban Grove.

And our our balance sheet the strength of words I don't see it allows us to do more projects in that space as well. So the majority of course, the business is focused on CPA, but but that other sector that diversification that I talked about it.

And our balance sheet, the strength of our balance sheet allows us to do more projects in that space as well. So the majority of course, the business is focused on CEA, but, but that other sector that diversification that I talked about.

It's key because we can ensure that our billable hours are maximized and we're efficiently using our assets, our designers, engineers and architects across many projects as the industry ebbs and flows.

That's key because we can ensure that our billable hours are maximized the more efficiently using our our assets our designers engineers and architects are across many projects.

Industry ebbs and flows.

Okay.

Okay. Did I get all of that, Eric, or do you have a? Thanks, Bill. Okay, good. No, I think that's it. Did you... The backlog does not include anything from Emerald, right? Because you did it at the end of Q1 when you did not own it.

Did I get all of that Eric or do you ever think so.

Yeah.

Okay, good well I think that's.

Did you need.

The backlog does not include anything for members right because he did it at the end of Q1, we did not own Emerald.

That is correct. And you know, when something to point out on the backlog, Eric, it did decrease, of course, right from 30 million to 22. But when you look at the service component in Q4, the backlog is 5 million in services at the end of Q1, it had increased 20% to a little over 6 million. And we continue to sign service contracts, which eventually if we're doing our job right, turned into the equipment contracts, eight months plus down the road.

That is correct.

And you know when there's something to point out on the backlog Eric It. It did decrease of course right from 30 million to 22, but when you look at the service component.

In Q4 backlog was 5 million and services at the end of Q1, and it increased 20% to a little over $6 million and we continue to design service contracts, which eventually if we're doing our job right turned into the equipment contracts eight months plus down the road.

On equipment, as we've talked before, and it's very important that we've said for the last year and a quarter, focused on backlog. It's a great indication of future business.

Equipment, you know as we've talked before it is very important.

We we said for the last a year and a quarter focused on backlog, it's a great indication of future business and here, we are with it with it down this.

And here we are with it with it down this quarter. However, when it comes to equipment and finding equipment contracts, it's just a matter of timing and sometimes those contracts can can push into the following quarter quite easily.

This quarter, however, when it comes to equipment and finding equipment contracts. It's just a matter of timing and sometimes those are contracts can can push into the following quarter quite easy. So I think it's important that you keep focusing on backlog and look at it at a quarter to quarter over an extended period of time for sure to see how the absence.

I think it's important that you keep focusing on backlog and look at it quarter to quarter over an extended period of time for sure to see how the Epson flows.

Flows.

Yeah.

Okay guys. Good luck for the rest of the year.

Thank you I appreciate it.

Yeah.

Your next question comes from Anthony Vendetti with Maxim. Please proceed with your question.

Your next question comes from Anthony Vendetti with Maxim. Please proceed with your question.

Thank you.

Just a little bit of a follow-up on the backlog, and then I add an additional question.

Just a little bit of a follow up on the backlog and then add on additional question. So.

So.

Obviously, you had a little bit of a beat in revenue here, and as you mentioned, backlog did decrease. Do you feel that the revenue beat was a little bit of a pull forward from

Obviously, you had a little bit of a beat in revenue year.

And as you mentioned backlog did decrease.

Do you feel that the the revenue beat was a little bit of a pull forward for from.

Well, from this current quarter that we're in now, the second quarter, or is it more just a timing thing in terms of?

Well from this current quarter that we're in now the second quarter or or is it more just a timing thing in terms of the.

the way you signed up deals and what you were able to pull from backlog based on what you were able to recognize as revenue, maybe just kind of give a little more color around that.

Hey, you signed up deals and what you were able to pull from backlog based on what you were able to recognize revenue maybe just.

Kind of give a little more color around that that'd be helpful. Thanks.

Sure, thanks, Anthony. So first of all, revenue is definitely demonstrating an overall trend, you know, as our services, backlog increases, it's a good indication that our businesses, we're adding new clients and trending in the right direction. At the end of each quarter, at the end of Q4, backlog of 30 million,

Sure. Thanks, Anthony So first of all revenues definitely demonstrating an overall trend as our services backlog increases. It's it's a good indication that our businesses, we're adding new clients is trending.

In the right direction.

At the end of each quarter at the end of Q4 backlog of 30.

$30 million.

We hopefully would this quarter be able to fill that back up with signed contracts and exceed that $30 million because typically equipment will ship in one to two quarters. So the indication is we did ship a good strong equipment in Q1 and will ship the remainder of that in Q2, but there wasn't the contracts.

we hopefully would this quarter be able to fill that back up with signed contracts and exceed that 30 million because typically equipment will ship in one to two quarters so the indication is we did ship

a good strong equipment in Q1, and we'll ship the remainder of that in Q2, but there wasn't the contracts on the equipment side, on the equipment side, sorry, signed in Q1 that we would have expected. But, again, I think that's a good point.

On the equipment side on the equipment side, sorry signed in Q1 that we would have expected, but again equipment is all timing and if and when the client is ready or if and when that <unk>.

Equipment is all timing, and if and when the client's ready, or if and when that supplier or manufacturer is ready to confirm a timeline, sometimes that will push back a few weeks, but that can also push into a financial quarter.

Flower manufacturer is is ready to to confirm a timeline, sometimes that will push back a few weeks, but that can also push a central financial quarter.

Okay, so maybe that debt debt that.

That takes me to another question before I get to my last question. So, maybe talk about pipeline then. So, you know, where you see the customer interest level, and they're close to maybe signing a contract, but haven't yet, so they're not part of backlog. But is your pipeline of customers slash dollars, did that grow in the first quarter?

It takes me to another question before I get to my last question. So so.

Maybe talk about pipeline that show.

Where you see the the the customer interest level.

And there are close to signing a contract but haven't yet so they're not part of backlog, but is your is your pipeline.

Uh huh of customer Slash dollars is did that grow in the first quarter.

It's a great great question, Anthony and the pipeline, although we don't report it the pipeline is what gives us confidence of course in future backlog numbers and therefore future recognized revenue.

It's a great, great question, Anthony, and the pipeline, although we don't report it, the pipeline is what gives us confidence, of course, in future backlog numbers and therefore future recognized revenue.

And I mentioned earlier in the call how we've been working with Emerald for a couple of months now on some design build projects.

And yeah, I mentioned earlier.

Earlier in the call how we've been working with Emerald for a couple of months now on some design build projects and so we're quite confident about our pipeline both inside the <unk> space and food and cannabis, but also very confident in our pipeline outside in the CPG industrial side and in health care.

And so we're quite confident about our pipeline, both inside the CEA space in food and cannabis, but also very confident in our pipeline outside.

in the CPG industrial side and health care as well.

As well.

Okay. So.

OK, so that confidence in that pipeline gave us the confidence to maintain the guide.

And then that confidence that confidence in that pipeline gave us the.

Our confidence to maintain the guidance.

Okay sure.

Do you have confidence in and in the pipeline Directionally that's trending.

The pipeline is trending up which gives you the confidence in that in the backlog.

That is correct.

Okay.

Okay, so you can, and so my staff, yeah, so go ahead.

And so but yes, that's right.

Yeah Okay.

You can see this with the services backlog increase.

You can see this with the services backlog increasing it shows the success from the acquisition of the architect firm in in early Q3 of 'twenty one.

And now with the acquisition of Emerald Construction Management and the pipeline that they have and the projects they have that we've inherited as well, both in CEA and outside of CEA, it's, there's a lot of revenue.

And now with the acquisition of Emerald construction management in the pipeline that they have in the projects. They have that we've inherited as well both in and outside of the C. H.

There's a lot of revenue.

recurring waterfall revenues or waterfall revenue opportunities for us to track on that side as well.

Recurring waterfall revenue, sorry waterfall revenue opportunities for us to for us to track on that side as well.

Okay. Good and then last question was.

Okay, good. And the last question was regarding urban health farms, you know, the agreement for, you know, the European vertical farms. Is that a little bit on hold? Is there any impact on that business due to the war in Ukraine or just an update on that particular business at this point?

Regarding our urban helps farms.

You know the agreement for your European vertical farms is is that is that a little bit on hold is there any impact.

On on that business due.

Due to the war.

Crane or.

And just just an update on on on that particular business at this point.

Yes, it's definitely not on hold but it's definitely taken longer than anticipated and that's why we didn't choose to give a number.

Yes, it's definitely not on hold, but it's definitely taken longer than anticipated. And that's why we didn't choose to give a number.

or an estimate or a forecast when we announced it in Q4 last year, but the fact that we are moving forward, opening our office in the Netherlands, hiring a managing director with that deep two decade plus horticulture experience and experience in automation for horticulture facilities.

Or what are our forecast when we announced it in Q4 last year, but the fact that we are moving toward opening our office in the Netherlands hiring a managing director with that deep a two decade, plus horticulture experience and our experience and in automation for a horticulture facilities and.

And building out the team there and continue to aggressively look for service acquisitions as well. You know, it's a good strong, it's a good strong indication.

Building out the team there and continue to aggressively look for first service acquisitions as well. That's a good strong act is that it's a good strong indication that we believe that a that that opportunity will begin to blossom.

that we believe that that opportunity will begin to blossom.

for urban health farms themselves, they sign the deals with the end users.

For urban health problems themselves they signed the deals with the end users they.

Um, they have looked at multiple fights in multiple countries and then we step in and, uh, and then do the full design build of those facilities. So, as soon as we find our first contract.

They have looked at multiple sites in multiple countries and then we step in and and then do the full design build at those facilities. So as soon as we sign our first contract.

I've committed in the past, and I maintain that we'll definitely announce it as an agency, but I think it's a it's a great initiative and a great step forward for urban growth in Europe . Okay, great. Thanks. I'll hop back.

Ive committed in the past and I maintain that will definitely announce it today because I think it's a it's a great initiative and a great step forward for urban grow in Europe .

Okay, great. Thanks, I'll hop back in the queue I appreciate it.

Alright, thank you.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please while we poll for more questions.

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Your next question comes from Aaron Gray with Alliance Global Partners. Please proceed with your question.

Your next question comes from Aaron Grey with Alliance Global Partners. Please proceed with your question.

Hi, good evening and thank you for the questions. So first one for me.

Good evening and thank you for the questions. So first one for me.

Just talking about you know the.

Just talking about, you know, diversification of MIX beyond CEA, you know, can you talk about, you know, how you're looking at that today? Obviously, you know, you've had some acquisitions, but I want to just, you know, think about on the go forward, maybe the right MIX that you would like to see.

Suffocation of mixed beyond <unk> can you talk about you know how are you looking at that today, obviously, you've had some some acquisitions.

Think about on the go forward, maybe the right mix that you would like just given you do have a reliance on build out with which can be a little bit you know cyclical. So just how you think about diversification and then how M&A kind of plays into that especially tobacco the buyback of $4 million you know recently.

given you do have a reliance on build-out, which can be a little bit cyclical. So just how you think about diversification and then how M&A kind of plays into that, especially off the back of the buy-back of $4 million recently, and just how you will to utilize that capital for stock to purchase versus potentially M&A for diversification. Thank you.

You will see utilize that capital for stock purchases versus you know potentially M&A for diversification. Thank you.

Thank you, Aaron. I'll take the first part, <expletive> , and then I'll pass it on to you to the stock buyback portion. Aaron, when we make these acquisitions of profitable service companies, of the three that we've made so far, two in the last year, are 30 plus year family or partnership businesses. And, well, the majority of the businesses is in CEA. They also have built relationships outside, as I mentioned, the CPG group.

Thank you Aaron I'll take the first part deck and then I'll pass it on to you from the stock buyback portion Aaron when we make these acquisitions of a profitable service companies are the three that we've made so far are two in the last year, our 30, plus year family or partnership businesses.

Well the majority of their businesses is in CPA. They also have built relationships outside as I imagine the CPG group.

A health care group hotel chains like there's there's groups. They thought they had really strong relationships with them, we didn't want to shut that down because the margin profile is the same regardless, if it's on CPA or 98 until the acquisition of Emerald.

a healthcare group.

Like there's groups they've had really strong relationships with and we didn't want to set that down because the margin profile is the same regardless if it's in TEA or non-TEA.

until the acquisition of emerald.

It wasn't material. You know, we didn't feel that it was material until we had completed the, I guess, the trifecta engineering architecture and now construction management so we could launch the brand as an UPC company, more of a mainstream, well-known type business model.

It wasn't material you know, we we didn't feel that that it was material until we had completed the I guess, the trifecta engineering architecture and now construction management. So we could launch the brand as a as an EPC company more of a mainstream well no one type.

Business model and.

And now with the addition of emerald, that number will be material in terms of breakout between CEA and non CEA. It's a little bit early to nail that down for this year, but I would say it's probably.

And now with the addition of Emerald that number will be material in terms of a breakout between C. A and non CPA I echo.

A little bit early to to nail that down for this year, but I would say it's probably.

Definitely, I would say probably 20% or less of non-CEA this year's business. But as we progress into the future,

Definitely I would say, probably 20% or less of non C of this year's business, but as we progress into the future.

and 23M beyond, I don't see that percentage changing significantly because of the design build opportunities that we're bidding on now in both vertical farming and cannabis as well. The percentage won't change much because both sides are rapidly growing. We're not done either.

In 'twenty three and beyond.

Don't see that that percentage changing significantly because of the design build opportunities that we're bidding on now and both vertical farming in Canada as well so the percentage wont change much because both sides are rapidly growing.

And we're not done either and we still have.

have an aggressive appetite for acquisitions of creative synergistic, profitable service companies, and by bringing these skill sets on, we're entering new markets, we're able to globally, we're able to perhaps access client contracts that we don't have today, and then also fill the demand. In your word, I mentioned 125 employees, we also have

Have a an aggressive appetite for acquisitions of accretive synergistic profitable service companies.

Thereby by bringing these skill sets on we're entering new markets, we're able to globally, we're able to perhaps access client contracts that we don't have today and then also feel the demanding at work I mentioned the 125 employees.

Also have.

I said to Doug and then again 18 to 24 open job racks right now as well for architects and engineers. So we're hiring to our to meet the demand right now in front of us.

I said two dozen, but it's getting 18 to 24 open job racks right now as well for architects and engineers, so we're hiring to meet the demand right now in front of us.

A deck do you want to.

Take it from there and maybe add on if you'd like or talk about the buyback.

Take it from there and then may be add on if you'd like or talk about the buyback.

Sure. And Erin, you know, from the standpoint of the buybacks, certainly with the way we looked at things, a good opportunity, unique opportunity from the standpoint of.

Sure.

And from the standpoint of the buybacks certainly.

With the way we looked at things.

Good opportunity unique opportunity from the standpoint of reducing some of the outstanding shares knowing knowing that we were in the process of an acquisition and therefore basically kind of protecting the shareholder base from the standpoint of.

reducing some of the outstanding shares knowing that we were in the process of an acquisition and therefore basically kind of protecting the shareholder base from the standpoint of

Just on a net effect basis, maintaining where the outstanding shares were going to be once the acquisition was complete. So, so given that and where the stock price was just saw it as a unique opportunity.

Just.

On a net effect basis, maintaining where the outstanding shares we're gonna be once the acquisition was complete so so given that and for the stock price was just saw that as a unique opportunity to to make those treasury treasury share repurchases and then like I said, when we were ready to kind of.

to make those treasury share repurchases.

And then, like I said, when we were ready to kind of close the acquisition.

Close the acquisition, we kind of have that availability out of the market place and then when we issued the shares which which we have been doing as part of all of our acquisitions part cash part stock part contingent earn out but then when we issued the shares it really kind of maintain things are where are they.

We kind of had that availability out of the marketplace.

and then when we issued the shares, which we have been doing as part of all of our acquisitions, part cash, part stock, part contingent earn out, but then when we issued the shares, it really kind of maintained things where they were from the standpoint of the total outstanding shares. So, you know, from our standpoint, good from the standpoint of really protecting our shareholder base, basically.

From the standpoint of the total outstanding shares. So you know from our standpoint, good good from the standpoint of really.

<unk>, our shareholder base basically.

issuing those shares and then not having any kind of a dilution to shareholders from kind of pre-acquisition. So that was really kind of our thought basis then.

During those shares and then not having any kind of dilution to shareholders from kind of pre acquisition. So that was really kind of our thought basis on it.

Okay, Great and I. Thank you for that color that was really helpful second.

Okay, great. Thank you for that call. That was really helpful. Second question for me, I know we touched on this.

Second question for me I know, we touched on this last call, but you know a couple of other hydroponics players.

last call but you know a couple of other hydroponics you know players

I announced today, you know, talked about, you know, an even tougher environment, you know, through 2022 than might have previously been expected. I know you guys are a little bit more inflated from that, just because you didn't have as an exposure, I suppose West Coast states.

Announced today, you know talks about you know and even tougher environment you know through 2022 than might have previously been expected I know you guys are a little bit more insulated from that because you didn't have as much exposure to those west coast States.

But some other states, where we're talking about today, including Michigan and otherwise so I just want to go back to just off the cost of the backlog coming out of it you know in this quarter. Just you know how youre looking at the build out environment within the U S. And then also with some of the new states coming online specifically like a new Jersey, where they have given the hundred conditional.

But some other states we're talked about today, including Michigan and otherwise. So I just want to go back to just off the cost of the backlog coming down a bit.

You know in this quarter just you know how you're looking at the build-out, you know environment

within the U.S., and then also with some of the new states coming online specifically like New Jersey, where they have given the hundred conditional licenses, or roughly 100, mostly cultivation and processing, where you're standing with those new applications and potentially bringing them on as clients to make sure you capitalize on those new adult use market opportunities. Thank you.

Licenses are roughly 100, mostly you know cultivation and processing, you know where you stand with those new applications and potentially bringing the martinez clients to make sure you capitalize on those new adult use market opportunities. Thank you.

Yeah.

I'll take that Aaron you know what our messaging it's so critical in in the quarters ahead we're building something much larger than an ancillary candidate.

Well I'll take that Eric.

What our messaging is it's so critical and in the quarters ahead, we're building something much larger than an ancillary cannabis company and Youre right that is a services company. We are somewhat insulated. The fact that we are a service company that also gives us a a global reach.

And you're right, as a services company, we are somewhat insulated. The fact that we are a service company also gives us a global reach. Our IP travels very well.

Our IP travels very well, but we are we're not a manufacturer a wholesaler or or distributor.

But we are, we're not a manufacturer, a wholesaler or distributor, you know, we're focused on providing all of our services levels and and also specifying, procuring and integrating in equipment, variety of different solutions.

We're focused on providing all of our services levels, and and also specifying procuring and integrating and equipment variety of different solutions to our clients' facilities are in the U S. And also dispensaries, you know, both the Emerald and and two W or work on dispensaries and now we offer.

to clients facilities in the U.S. and also dispensaries, you know, both Emerald and N2WR work on dispensaries. And now we offer full design-built dispensaries as well. So we have the opportunity in the U.S. to go after the new market, the growth in the Northeast, Midwest, New England, for doing our jobs right. We've been working in those states

Her full design built dispensaries as well so we had the opportunity and in the U S to go after the new market the growth in the northeast Midwest, New England, we're doing our jobs right. We've been working in those states.

you know, a year prior to the licenses being handed out, but the fact that we're not a distributor.

A year prior to our to the licenses being handed out but the fact that we're not a distributor and we don't just sell durable goods to our clients on a transactional basis.

and we don't just sell durable goods to our clients on a transactional basis.

Our clients are the new single state operators are worthy msos as they expand.

our clients are the new single-state operators or the MSOs as they expand.

They hope that the award licenses in a new state, and regardless of what's happening in the state right beside, those facilities and defensories will be built.

Hey, Oh, They award licenses and a new state and regardless of what's happening in the state right beside those facilities and dispensaries will be built and those are the clients that we're targeting and that's in the U S. You take that same model over to Europe , and then the European market place I mentioned earlier the countries in which we are.

And those are the clients that we're targeting. And that's in the US. You take that same model over to Europe . And then the European marketplace, I mentioned earlier the countries in which we're operating right now, and now we're beefing up the team to have a full service delivery model in the European markets as well.

We're operating right now and now we're beefing up the team to a to have a full service delivery model and in the European markets as well the European Canada space. It pushed pause during the pandemic there wasn't enough momentum there entering the pandemic and so they're now coming out of that but there's a lot of excitement and then theres a lot.

the the European cannabis space it pushed pause during the pandemic there wasn't enough momentum there entering the pandemic and so they're now coming out of that and there's a lot of excitement and there's a lot of demand for the services that we have from those 500 facilities.

Demand for the services that we have from those are 500 facilities.

And finally, the food, vertical farming companies globally, both in the U.S. and Europe .

And finally, the food vertical farming companies globally.

Globally, both in our in the U S and Europe . So.

You know, it's we're building and managing a large business and that diversification that I've mentioned a few times will be part of the the messaging you hear a lot from me as well. It's it's not having an inefficient asset. It's having those billable hours maximized and staying extremely close to our clients for the for the life of the facilities doing a great job. And so they use us the next time with it as well.

You know, it's it's we're building and managing a large business and that diversification that I've mentioned, a few times would be part of the the messaging you hear a lot from me as well, it's a it's not having an inefficient asset that's having those billable hours maximized and and staying extremely close to our clients for the.

For the life of the facility is doing a great job and so they use us the next time around as well.

I feel I fully answered your question, Aaron, but is that helpful? Do I get to add on to the back end there?

I feel I fully answered your question there, but is that helpful. As Joe could add onto the back end there.

You know, that was great, Greta. Much appreciated. I'll go ahead and jump back into the queue.

No that was break that up much appreciate and I'm going to jump back into the queue.

Okay awesome. Thank you.

Your final question today comes from Eric does lawyers with Craig Hallum Capital Group. Please proceed with your question.

Our final question today comes from Eric Dezleriers with Craig Hallam Capital Group. Please proceed with your question. Great. Thank you for taking my question.

Great. Thanks for taking my questions and congrats on a solid quarter here.

So services, both in the quarter and with the backlog, certainly a bright spot.

So services, both you know kind of in the corner and with the backlog certainly.

Bright spot here I'm, just looking at the past two quarters and that kind of backlog conversion I suppose.

Um, just looking at the past two quarters and that kind of backlog conversion, I suppose, you know, a bit of a housekeeping kind of question here. Um, it's looking like we're seeing a higher percentage of that backlog converts, um, in the next quarter. Uh, is that just kind of, um, uh, coincidental thing in the past two quarters? Or is there any structural reason for a, um, uh, you know, greater conversion of the backlog. To revenues compared to the equipment systems backlog. Thanks.

A housekeeping kind of question here its looking like were seeing a higher percentage of that backlog converts in the next quarter is that just kind of a coincidental thing in the past few quarters or is there any structural reason for a.

You know greater conversion of the backlog to revenues compared to the equipment systems backlog. Thanks.

Yeah.

Thanks Erica.

Go ahead Doug.

Well, I was going to say, yeah, Eric, from the standpoint, a great question and very observant, you know, from the standpoint of the way the backlog converts into the revenue that we have, it is highly dependent on the type of equipment that we do have in the backlog and just as a, for instance,

Well I was going to say Oh, yeah, Eric from from our standpoint.

Great question Barry observe it.

From the standpoint of the way the backlog converts into the revenue that we have it it is highly dependent on the type of equipment that we do have them in the backlog in and just as a for instance.

You know, HVAC, which has long lead times, if those are setting in backlog, they won't necessarily convert to equipment system sales in the next quarter. Yeah, you know, those.

No H B, a C, which has long lead times, if those are setting in backlog they they won't necessarily convert to equipment system sales in the next quarter.

Those are taking longer lead times right now, but to the extent that setting in setting in backlog are our lights or benching type things that convert pretty quickly, those then will turn into revenue pretty quickly in the next quarter, at least the next two quarters. And so those can influence

Those are taking longer lead times, right now, but to the extent that setting and setting in backlog are.

Our lights or benching type things that convert pretty quickly. Those then we will turn into revenue pretty quickly in the next quarter or at least the.

Next two quarters and so those can influence the percentage of revenue that we see from what was beginning of period backlog. So that's part of what we saw in the first quarter with some with some lighting at some benching that converted into revenues.

the percentage of revenue that we see from what was beginning a period backlog.

So that's part of what we saw in the first quarter was some with some lighting and some benching that converted into revenues. So anyway, that little bit clarification on that, but.

So anyway, that's a little bit clarification on that but.

So we kind of look at that over a period of time from the standpoint of, well, what percentage of backlog became revenue in the next period? Yet, you know, in a range that's kind of been from, gee, 65% to maybe 78% of that backlog. But from our perspective, nothing unusual happened in the quarter, it was just, it was the type of backlog that was there at the start of the period. So that just kind of ebbs and flows on it.

So we we kind of look at that over a period of time from the standpoint of what percentage of backlog became revenue in the next period.

In a range that's kind of been from Gees, 60, 65%, maybe 78% of that backlog, but from our perspective nothing unusual happened in the quarter. It was just it wasn't the type of backlog, but it was better at the start of the period. So just kind of ebbs and flows on us.

Yeah, and then so for the for the services backlog.

Yeah, and then, so for the services backlog, you know, obviously no HVAC type supply chain issues there, should we expect a general higher percentage of service backlog to convert in the subsequent quarter than there is for equipment systems?

No you know HVAC type.

Our supply chain issues, there should we expect a general higher percentage of services backlog to convert in the subsequent quarter then than there is for government systems.

It historically for us has been with the acquisition of the 2WR entities that it's been a higher percentage of that backlog that then became revenues in the subsequent quarter, you know, partly because with obviously the services, you're not dependent on a third party vendor to really supply you with any kind of materials.

It is historically for us has been with the acquisition of the <unk>.

Two W are entities that it's been a higher percentage of that backlog that then became revenues in the subsequent quarter you know.

Partly because with obviously the services you're not dependent upon a third party vendor to really supply you with any kind of materials. So as long as the customers wanting to move forward on a basis with that type of service that we do provide whether it's you know drawing Scott.

So, as long as the customer's wanting to move forward on a basis with that type of service that we do provide, whether it's drawings architecture with regard to completing a facility and moving forward, then that can all go pretty quickly. A little bit of an interactive process with the customer from the standpoint of them giving our architects and designers feedback on a facility. But you don't have some of the certainly supply chain issues that can hit you from the standpoint of the equipment side of things. So that's tended to be a higher percentage.

Architecture with regard to completing our facility and moving forward. The Mac can all go pretty quickly a little bit of an interactive process with the customer from the standpoint of them, giving our architects and designers feedback on a facility, but you don't have some of the certainly supply chain issue.

Use that can hit you from the standpoint of the equipment side of things. So that's tended to be a higher percentage conversion.

Okay, and then in terms of.

Okay.

I appreciate the comments that you guys have provided.

With respect to diversification and you know with two W are specifically some hospital in industrial type projects.

So, I understand the revenue synergies from, you know, more CEA type projects that 2WR does. In some of these hospital and industrial projects, should we think of those as, you know, pretty much service revenues only or do you guys see some potential for, you know, product sales and equipment systems revenue synergies there as well? Fair exit.

So I understand the the revenue synergies from you know more C E type projects.

Projects that two WR does in some of these are hospital and industrial projects should we think of those as you know pretty much service revenues only or do you guys see some potential for.

Product sales in equipment systems revenue synergies there in there as well.

Parents that there'll be a there'll be service focused.

From an EPC standpoint, you know, we can bring our engineering in there. We can handle the construction management side where we're managing the GC.

From a E. P. C standpoint, we can bring our engineering in there.

We can handle the construction management side, where we're managing the G fees.

But we don't want to take that risk of general contracting, but at this time we don't have any intentions of selling equipment to the building systems are especially the expertise we've built is all on on cultivation of CEA and not not be off the shelf project products like light.

But we don't want to take that risk of of general contracting but at this time, we don't have any intention of selling equipment to the building systems are specially the expertise. We've built is all on on cultivation of.

And not not the off the shelf project products like lights.

But the more custom environmental systems like mechanical or environmental controls and irrigation distribution, systems that require our engineers or our designers to design and cat or rev it and culminate with construction documents. So it saves money and good strong ease of install.

But the more custom environmental systems, like mechanical or or environmental controls and irrigation distribution.

Does that require our engineers or our designers to to.

The design and cat or rabbit, and and culminate with construction documents. So it saves money and a good strong ease of install.

But that's that, you know, EPC is one, the value-added EPC for us is that expertise in the, in specifying, procuring, and integrating in cannabis and food.

But that's the U E P. CS one the value added D. C for us is that expertise in the AR.

And specifying procuring and integrating in cannabis and food yeah.

Okay. Yeah. It makes sense I appreciate the clarification because one more for me if I can so grow care understand it's certainly early days there, but could you provide just any kind of update to the street here on the overall reception that you've.

Okay, yeah, I know it makes sense. I appreciate the clarification. There's one more for me if I can. So who grow care understand it. Certainly early days there, but could you provide? Does any kind of update to the street here on the, you know, the overall reception that you've had so far for grow care. Thank you. Yeah, for sure. And it's a great question. And I want.

And so far figure okay. Thank you yeah for sure and it's a great question and I want a high I can't wait for it to be material. So we can be a reporting on it more often because it's very important it's important to the company. It would add that it adds value not only to our to our clients but.

I can't wait for it to be material so we can be reporting on it more often because it's very important. It's important to the company. It adds value not only to our clients but also to the shareholders and to our business. It's a long-term priority. It is definitely going to take additional investment.

Also to the shareholders and to our business. It's a long term priority. It is definitely gonna take additional investment.

And.

We're constantly trying to find ways to build the business and address client needs, and this fits the

We are where we're constantly trying to find ways to build the business and.

Address client needs and this fits the bill.

This fits the shoe fit perfectly here because we're staying in contact, we're utilizing that expertise to help them avoid mistakes and training. But at this point, with all of the solutions, sorry, without all of our services under one roof, I think we'll be a lot more efficient in making it material quicker. But it is definitely a priority for us here.

It's the shoe fits perfectly here, because we're staying in contact where were utilizing that expertise to help them avoid.

Avoid mistakes and training, but at this point with all of the solutions sorry, without all of our services under one roof.

It will be a lot more efficient and making it material quicker, but it is definitely a priority for us there.

I appreciate that thank you.

Okay.

Thank you.

That is all the questions. We have for today, please reach out to investors at urban grow dot com with any additional questions I will now turn the call back over to Mr. Mattress for closing comments.

That is all the questions we have for today. Please reach out to investors at urbangrow.com with any additional questions. I will now turn the call back over to Mr. Natress for closing.

Great. Thanks, Hector. Appreciate it all. I'm grateful for your interest and ongoing support. We're dedicated to kick and butt delivering sustainable long-term value for shareholders and, of course, our clients. If you have more questions, please reach out to ICR or Band Roller here internally. Again, thanks for your time. Have a wonderful evening.

Alright, Thanks, Victor I appreciate that's all I'm grateful for your interest and and ongoing support.

We're dedicated to the kicking back delivering sustainable long term value for shareholders and of course our clients.

If you have more questions. Please reach out to ICR or band roller here internally.

Again, thanks for your time and have a wonderful evening.

This concludes today's conference. Thank you all for your participation have a great day.

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