Q2 2023 urban-gro Inc Earnings Call
Hello, and welcome to the urban grow 2023 second quarter earnings Conference call. As a brief reminder, all participants are currently in a listen only mode.
Any wonder 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.
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 over to Dan Stroller 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 Mattress, Chairman and Chief Executive Officer, and pick out great Chief Financial Officer.
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.
Items should not be utilized as a substitute for or in gross 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 Securities and Exchange Commission and can be accessed from the Investor Relations section of our website at IR Dot urban dash grow dot com.
On this call May state managements intentions beliefs expectations or future projections.
These are forward looking statements and involve risks and uncertainties.
Forward looking statements on this call are made pursuant to the safe Harbor provisions of the federal Securities laws and are based on urban growth current expectations.
Actual results could differ materially.
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 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 a webcast replay for today's call may be found on the Investor Relations section of our website, which again is that I, our doctor had been dashed G. R O dot com.
I will now turn the call over to Brad.
Thank you Dan.
Good afternoon, everyone and thank you for joining us.
Our evolution into a professional services consulting firm continues to gain momentum and in addition to our focus on controlled environment. Agriculture also no. Let's see yeah. We continue to expand growth outside of this market and the industrial commercial and health care sectors.
The dedication and support of our leaders and their teams and consistent with the expectations that we communicated in may.
We've continued to do what we said we would do.
We recorded another sequential improvement in both revenues and adjusted EBITDA.
We increased our quarter end cash position.
We continue to have zero bank debt.
And we've removed additional costs from the business.
With that said it comes as no surprise that we've been operating in a very challenging environment in the first half of 'twenty three.
Our reductions in SG&A to offset decreased margin dollars, especially in the equipment category have yielded positive results and coupled with our ongoing business development initiative across all segments in which we operate we are confident that our model will continue to prove the deficiencies in the quarters ahead.
Our messaging remains consistent and that our top corporate priority is returning to sustain positive adjusted EBITDA as soon as possible.
Based on our third quarter to date trading along with the cost we've taken out of the business are increasing revenues and our systems enhanced insight into our project margins. We believe that we are close to reaching that inflection point and Moreover are not in a position, where we would need to raise dilutive capital.
In the second quarter, we generated net revenue of $18 $8 million, which represents a 12% sequential improvement over the first quarter and a 16% improvement over last year.
Adjusted EBITDA for the second quarter was negative $2 million, marking a significant $1.4 million improvement over the first quarter.
We remain diligently focused on reallocating resources, and optimizing our spending where appropriate to ensure that our infrastructure is aligned with the size of our business.
Through these initiatives year to date, we've now reduced our annualized SG&A expense by $2 $9 million.
While these were difficult decisions they were necessary ones, but we're now a leaner and more efficient organization than we were at the end of last year.
Additionally, we now have improved invisibility and visibility into our business with all entities operating on the same ERP system and.
We will continue to take action as necessary to position our business for long term profitable growth.
Now turning to current sector trends.
Sector diversification continues to help insulate our business from the broader weakness, but the cannabis and produce focused vertical farming sectors are working through it.
Although these sectors remain an important component of our future growth through our successful diversification strategy initiated a year ago.
It evolved into a professional services consulting company that offers turnkey design build solutions to multiple markets.
In fact, approximately two thirds of our revenue this quarter were from other targeted markets in which we have diversified.
We've established ourselves as a trusted partner for all of our clients projects and the <unk>.
Quality and level of service, we provide lends itself to a high rate of repeat clients and speaks to our ability to attract top tier companies, including some fortune 50, there's quite a bit with the company.
And they see a sector and as we detailed on past calls our equipment revenues have been significantly impacted for over a year now by the weak cannabis market.
On a positive note.
Second quarter represented the first sequential increase in equipment sales.
Second quarter of 'twenty, two the primary driver being projects that resumed after an extended pause.
This being said our professional services revenue was also being affected by this downturn and year to date more than half of our services revenue is from markets outside of just yet.
Overall, we remained well positioned in the sector will most definitely be ready to handle the surge in demand when the candidate market rebounds in the future.
We also remain confident in our strategic investment that we've made in Europe and believe that we're well positioned for long term growth.
In regards to our backlog, which decreased to $79 million at the end of Q2. The drop is predominantly tied to design build cannabis cultivation project that was actively in production.
Our client is unfortunately facing some funding uncertainty and so we had to pause the project well we remain in close contract with the contact with the client the contract does remain open and we felt it prudent to remove it from our reported backlog until their funding sources solidified.
As communicated on past calls Bergen gross backlog is a realistic and trusted indication of our future business.
Although there was a quarterly decrease as of today, we have multiple contracts.
First signature, which are collectively worth well more than this sequential reduction.
Now turning to our guidance for full year 2023.
Due in part to the pause of the project discussed above.
As well as some other timing shifts where projects have extended out two additional quarters.
We're updating our guidance for consolidated revenues to be within a range of $90 million to $95 million and adjusted EBITDA in the range of negative six to negative $5 million.
To put this in perspective.
I'd note that our adjusted EBITDA in the first half of 'twenty three is negative $5 $5 million, which implies that we expect neutral or break even adjusted EBITDA performance in the second half of the year.
In terms of cadence for the balance of the year, we continue to anticipate sequential increases to both revenue and adjusted EBITDA.
In summary, we remain closely aligned with the interests of our shareholders.
The insider ownership now represents approximately 30% of outstanding shares.
This alignment is further supported by first the recent open market equity purchases by myself and other directors totaling about one 5% of shares outstanding.
And second the commitment of my leadership team.
Near the beginning of the third quarter and led with a 50% commitment for myself.
Executive Vice President an officer of the company voluntarily opted to take a stock grant in lieu of 20% to 50% of their base salary for three months period.
The key takeaway here, our board and our leadership team strongly believe in the future of the company.
We look forward to continuing to deliver improvements in both the top and bottom line and further unlocking the value for ourselves and for our shareholders that we know our business can provide.
Thank you and with that I will now turn the call over to <expletive>.
Thanks, Brad.
Second quarter of 'twenty to 'twenty, three we generated net revenue of $18 $8 million, which represents a 12% sequential improvement over the first quarter of 2023, and a 16% improvement over $16 3 million in the prior year period.
This increase was driven by an $8 1 million dollar increase in construction design build revenue associated with the Emerald acquisition in April 2022, while professional services revenue of $3 million remained relatively flat year over year.
Although equipment revenues decreased $5 $5 million versus the prior year. They increased approximately 15, 9% relative to the first quarter and further more than two times, what we reported in the fourth quarter of 2020 to.
Combined we believe this is an early indicator that we are seeing more recovery in equipment spending for Merck cannabis sector clients.
Gross profit was $2 $9 million or 15% of revenue in the second quarter compared to $3 $5 million or 22% of revenue in the prior year period.
The decrease in overall gross profit margin was driven by the impact of revenue mix, where we experienced a decrease in higher margin equipment systems revenue.
Offset by an increase in lower margin construction design build Robert.
Operating expenses were $6 $8 million in the second quarter.
On a sequential basis, our operating expenses decreased by $1.1 million.
In addition to the Gan annualized savings reductions that we had reported in the first quarter and after aligning all of that at least until one ERP system, we've taken additional steps to optimize it and reallocate our resources, which now totaled $2 $9 million of estimated annualized operating expense savings.
Year to date.
Non operating expenses were $1 $6 million in the second quarter, which includes a $1.5 million legal settlement.
As a result, net loss was $5 $4 million or a negative 50 cents per diluted share in the second quarter of which approximately 14 cents per diluted share is due to the $1.5 million settlement I just mentioned.
This compares to a net loss of $1.7 million or negative 17 cents per diluted share in the prior year period.
Adjusted EBITDA was negative $2 million in the second quarter compared to a negative.
Zero point $5 million in the prior year period.
In addition to being driven by lower gross profit due to a change in revenue mix. The decrease in adjusted EBITDA year on year was due to higher operating expenses predominantly associated with increased compensation.
Count from both organic growth and our acquisitions.
Increased professional and insurance related expenses and the investment in our European entity, which began in Q3 2022.
Turning to our balance sheet, we ended the second quarter with $8 $6 million of cash.
$1.3 million or 18% sequential improvement over the first quarter.
This cash combined with no bank debt provides us the necessary flexibility to manage through the macroeconomic market circumstances until we return the business to <unk>.
Positive adjusted EBITDA.
And then regards to backlog our total backlog as of June 30 of 2023 was approximately $79 million.
This is down from the $105 million that we reported at the end of the first quarter of 2023.
Merrily due to the removal of a client's project as Brad previously discussed.
This backlog is comprised of $78 million in construction design build.
$4 million of professional services and $5 million of equipment systems contracts.
That concludes our prepared remarks, operator, please open the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question comes from Eric Theater with SCC Research. Please go ahead.
Good afternoon.
Hi, Eric.
Hi.
Can you talk a little bit about.
The G&A.
Promoted significantly.
Obviously, I think we'll see probably a little more of that benefit roll through the rest of this year.
Do you have the ability.
The leverage that gives us a leverage number or you're going to have to start ramping it up going forward.
Looking at it.
How has it affected your ability you think to do projects or other pieces here.
Thanks, Eric.
We do not anticipate needing to make more cuts in order to get to.
Targeted positive adjusted EBITDA.
That being said, we will experience the benefits of some of those cuts that we made in the in the second quarter, we'll have a full quarter.
To to take on those those cuts we made in Q2 and in addition, those benefits from the leadership team taking stock in lieu of salary.
That will be predominantly <unk>.
Recognized in the second quarter as well.
And as for your second part of your question is it's the most exciting part of our model, but we've got a strong team we do have.
A large number of vice president and higher positions. However, we've invested to build out.
The this roster of individuals' actually even in Q1, we added our controller and our Chief operating officer.
And the good news is as we build as revenues double and Triple we don't need to add.
Any more executive vice president or higher will need to add architects will need to add engineers construction management individuals just to meet the demand and deliver the services.
But we will not need to proportionately increase the G&A with the with the revenue.
So that's the that's the exciting future.
Future ahead of us that urban growth brings for sure.
Right, but you also talk a little bit about.
The ERP.
How many did you have before and going forward. How do you. How you can leverage that in house, how should we be thinking about that in terms of opportunities.
A dec will you take that please.
Sure Hey, Eric Thanks for the question.
Got it and just kind of declare a phi you're asking about with regard to the ERP system in terms of.
How we're able to leverage that into our operations reporting.
For that you collapse into one and what is having one ERP as opposed to multiple ERP you seen in terms of your ability.
Write more business and drive more of it.
Okay fair enough yeah, so with the acquisitions that we did.
Everybody had kind of their own ERP.
The primary one that urban grow had a court had developed and acquired.
To really handle the business going forward is the one that we are using on a consolidated basis going forward.
But with the three acquisitions that we did two of them have the same ERP and the other one had a different ones. So that was that was three different ERP systems.
Binding those into our existing ERP system going forward, which is conducive to handling the construction design built.
Billed business that we're doing.
It's just been a matter of taking their existing projects, making sure we get them into our new ERP system, but that we get the reporting out to all of the project managers and division managers, so that they understand.
How how their business is trending how profitable it is and then the things that they have.
And their pipeline coming into the business so that they can schedule their people and projects. Accordingly, So you.
You know its been a not been an easy effort from that standpoint, because we have to keep the business running but now we finally got them out to where all the businesses are of the urban grow existing ERP and and making it. So that we're just frankly more efficient with regard to doing the work going forward.
But that did result in some of the head count savings.
That we are that we were able to reduce our head count by.
Not not not as much as I'm.
Not as much as in some of the areas, where we did have some reductions, but there were some savings with regard to those aspect of things.
Great.
Are you here.
Thank you Sir.
Thank you.
Our next question comes from Eric Taylor Harris with Craig Hallum Capital Group. Please go ahead.
Great. Thanks for taking my questions and congrats on the.
Cost cuts made on the G&A side of things, it's impressive to see.
My first question is just kind of getting a status quo on the cannabis projects. It sounds like there was one that was paused in the corridor and then in the prepared remarks, I think I need to.
Picked up on some that maybe have have resumed so I was wondering if you can kind of give us a status quo of your current cannabis projects, maybe how many you have active and then just in terms of the guidance what's implied in terms of new cannabis projects.
Starting up in the second half thank you.
Thanks, Eric Yeah as far as that one project that was a design build project that launched late in Q1.
And we had anticipated too.
To recognize about three quarters of it or close to $15 million this year.
Pause right now, but there is a chance it will resume but we've assumed a shout out to the side. That's why we took it off with is that it was the prudent thing to do.
I've mentioned on past calls that we have over 20 projects that are in the cannabis space that are at the design build stage, but for a variety of reasons typically tied to either illegal states expanding and the regulatory delays that are surrounding.
That or new states that have legalized, but they havent awarded their licenses, yet where they did and pull them back like in Alabama for example.
That's what's holding our projects up right now and so as those ish.
Issues regulatory issues get worked through we expect them to release and when they released we feel we have a very good shot at and moving to the build side and moving on to our to the supply and the equipment as well.
In the cannabis space there's.
You know further than that.
The single state Multistate operators are really watching their capex expenditures.
The projects that did open up for us where we're just in two states with mass and also.
Georgia.
But we'd started working on those projects and are in the middle of 'twenty two.
Overall look I think there has to be some.
Sort of banking safe banking movement.
Which which unfortunately I don't see happening this year getting rid of $2 80.
And getting a D or rescheduling, allowing.
The operators to less on a major exchange and two to take and strong capital.
That's what it's going to take that.
We some of the contracts that we had signed in Q4 and Q1 that are picking up we're going to result in a strong sequential lift for us entering Q3.
And so it's you know it.
As we have revised the guidance due to that contract it's not a hey, it's all going to happen in the fourth quarter. It is sequential but it's going to to increase a strong in Q3 as well.
We will be ready Eric right like that's a nice thing about our model will be ready to ship.
To take advantage of the opportunities when they present themselves because of our diversification, we're able to generate profits margins in other segments. So it's it's working out fine for us, but its taken about a year to get here.
Yeah, Yeah. So so it sounds like you know with those two projects that resumed yeah, that's going to be driving some of the sequential increase from Q2 to Q3.
Does the guidance assume that any of these other can't any other candidates projects you know release or that there's some regulatory change that's going to.
Cause more revenue to be recognized from new cannabis projects either in Q3 or Q4 is there anything like that it implied in the guidance.
No there isn't a on our backlog of about 70% of it is the N. CPA. The majority of that is Canada, 30% on CPA and.
And the projects that have released right now there's a couple of small $5 million to $8 million ones that we're expecting to release in the next four weeks or so we proportionately added some of those into the into the guidance. The guidance is really dependent on continuing that.
The non PPA projects and executing them as you see it as you saw in Q2 about two thirds.
How far revenues where were from the <unk> side of the business.
Yeah, that's great. So so if I heard you correctly, you're saying 30% of the backlog if not it does not see a about two thirds of the recognized revenue in Q2 was non C. A could you maybe I guess you know final kind of question or two for me here can you give us a sense of the sort.
Our pipeline of non C. A projects you know understanding that you guys have a difference in your you know very prudent.
Prudent and strict definition of backlog just in terms of the pipeline of new projects can you just kind of give us a sense of how those.
Theyre going with non C. A projects and just how that momentum of kind of combining these various businesses together to be that.
One stop solution, just kind of talk about how that momentum is carried over.
Some of these discussions and then just as a final one for me can.
Can you just give us sort of a sense of the revenue mix of like a typical non C. A project I know that for example for the cannabis or see a Ah projects. You know you have a high mix of of equipment systems Ah I don't think that's the same for non AR Nanci a project, but if you could just kind of give us.
A rough overview of what a typical Nazi I project looks like that'd be great. Thank you.
Perfect. Thanks, Eric well first of all right in and not see a there's a huge potential client list four for us to go after and in that side of the marketplace for our <unk> business now we're doing a lot of repeat business and this repeat business I had mentioned in the.
In the prepared remarks that we have more contracts out for signature right now than then more and more than we need to cover that the decrease in our backlog.
And there's a lot of verbal commitments from the clients, but we don't put it onto our backlog until that time. So we're confident those projects were sitting at the table, we're planning with our clients to her strategic plans, our capex expenditures for the remainder of the year and looking into 2024, so we've a pretty good solid IND.
Vacation of where we're going now with the non CE a accounts, they're typically not signing contracts.
Six months are giving us six months in advance so it's a lot of verbal and then we're able to move forward quickly when we get that.
Get that appeal from the client.
In terms of equipment, yeah. There is equipment in the CPA side of the business and there's mechanical lives airflow environmental control systems et cetera, but we have been able to cross over into selling of equipment in the <unk> side.
With the acquisition of D C E O.
The President Jason Dawson.
Has a long term one.
Working relationship with some of the largest mechanical manufacturers.
In the country in the world.
And so we have successfully.
Successfully closed our first deal it's mixed in with construction costs and not only are we looking at equipment like mechanical but we're also starting down the path and looking at materials. So like.
I M P insulated metal panels. For example, so we're looking at what I do believe that we'll have a very strong absolute uplift and the equipment side and right now that will be that will be baked in with the the construction we won't separate at this point.
A project example, and non CE Aye Aye.
It could be in and this is the other nice thing about having all of the services under one roof. It could just be an architect.
Design opportunity for a few hundred thousand dollars, but then we're able to integrate our engineering and we're able to integrate the construction then.
One of the Fortune 50 clients that we deal with that was the contract was brought through the acquisition of the construction management firm when.
When we made that acquisition. It was just construction and now in those projects with that large CPG company.
We're handling the architecture and we're handling the engineering as well and we hope to handle some equipment are reselling our value added reselling into that client as well.
There's a lot of some of the larger design build firms.
Company's firms that are doing 510 20 billion per year they operate.
Under $250 million as a minimum we have found that.
Under the $50 million.
Project, a ceiling, so $10 million to $30 million on average, there's a great opportunity theres not a lot of turnkey design build firms in the market, there's individual architecture engineering and construction firms or.
Or general contracting firms.
But to have that all with one single point of responsibility like an urban grow it we're bringing a value add to the marketplace otherwise the client has to add the construction and the project management individuals' answer there.
Into their company and employ them and we're able to handle all of that for that but.
To summarize a lot of repeat business on the <unk> side for US right now and there are absolutely opportunities to add equipment into that type of a business and look forward to talking about it more in future quarters.
Great. Thank you for the color I appreciate it.
Our next question comes from Brian Wright with Ross Okay.
Go ahead.
Thanks, Good afternoon, and you know to the team you know I sure wish a lot of companies that I cover they go through a bumpy period towards do what you are logged on as far as the shock stockpiling and salary deferral. So I really want to applaud you loved the team for.
That and for their commitment.
My question is.
When I look at the guidance for the year in terms of revenue and EBIDTA.
Just from a modeling perspective.
He is the right way to think about it on the cadence you know a modest sequential increase in the third quarter and then a more meaningful.
And in the fourth quarter and in on the revenue side.
Thanks, Brian I appreciate it exactly will definitely pass those on its greatly appreciate it.
No we have a strong we're forecasting a strong sequential lift going into Q3, and and then continuing to grow from there into Q4 and as indicated both on the on the top end and.
On the the adjusted EBITDA side as well.
I'm sure. Your next question, maybe about margin and sort of back to one of them is flashing so I'd like to address that because.
It's all about the bottom line right and that's what I tell the team as well we could have all of the revenues in the world, but if we're not positive adjusted EBITDA and then generating cash in subsequent quarters, we're not going to get the respect and attention that.
I feel we deserve and so we're laser focused right now on getting those margins back in line I do feel that Q2 margins in.
A couple of the areas, where outliers as we grow and the construction becomes a much more larger revenue portion of the business that is gonna tugged down.
On the overall company's gross margin percentage, but just asking sorry answering Eric's question. If we can move equipment at strong margins into the construction side, our materials like insulated panels. It will really help us to average out in addition.
Not acquiring right now, but we do have plans in 'twenty 'twenty four to resume the acquisition of profitable.
Services companies.
It doesn't have to be architectural engineering and it can be energy efficiency or just other margin companies, where they have good strong contracts that we can bring our either.
Our other service offerings into so margins in focus laser laser focus for US deck is there anything else you wanted to add to that because he's he's all over the team when it comes to market.
Yeah Yeah.
Echo Brad's comments with regard to margin and then in addition to that Brian I would just say from the standpoint of our operating expenses for.
For Q3, we'll see some additional.
Savings are reflected that were part of the reductions that occurred partway during the second quarter. So we were gonna see improvement there in the third quarter.
About a little bit more of a stabilization going forward, but as Brad commented on the overall call. You know we have a business that leverages very nicely as we as we look to look to grow and have the cannabis customers start purchasing equipment again, we're well staffed.
On the construction design build side from the standpoint of being able to support growth on that side of the business. So anyway, we really feel we've got ourselves well positioned so that so well.
Be able to handle or manage really the growth in the business without having an increase on the operating expenses.
Great.
Super helpful. Can you I'm just when it goes on the on the EBITDA side now I'm kind of given where we are year to date and with the guidance.
How do you think about that is it is it again.
Flattish in the third quarter or is it more you know another slight down and then we get positive in the fourth quarter, just I understand kind of how to how to model that cadence a little bit better and I know the mix is is there's an issue.
Anything you could help us out on that on that front would be great.
Yeah Yeah.
And I would say and to your point it at all yeah, a little bit dependent upon mix Theres no doubt about it but with the way we see things right now.
From the standpoint of where we think the adjusted EBITDA is gonna be I'd say it goes to the ladder, but you said, there which is probably still slight slight negative Q3, and then the improvement seen in the fourth quarter, but it will depend a little bit on the Max but but that's the.
The way, we kind of see the growth going through the rest of this year.
Okay, and then that's super helpful and just one more just more of a like a theoretical question and you know based on what you've told US stay at it may not be relevant for this quarter, but like is it like does backlog age matter like is that something that.
You've ever considered like talking about you know externally as far as just you know.
What the age of the backlog is relative to you know what I mean.
Yeah.
I understand your question you know, Brad usually handles the theoretical questions, but I'm happy to answer them.
So.
To the extent, if we ever felt that there was something in backlog, but all of a sudden it started to look like hey, it's just something that the customer sign and Theres no. One chat to move forward here, we would be looking to pull that out of backlog. So so for the most part everything in our.
Everything in our backlog is really.
Pretty.
Pretty recently signed projects.
And then on some of it on the construction build side. They are the remaining amount swapped under the contracts that haven't been recognized yet so sort of the ongoing projects from the standpoint of construction design build are arguing all good from our perspective, because those are all ongoing projects, but we don't.
Anything that we see in backlog that we have a concern about that customer.
Customer signed and we feel that they don't have any intent on going forward with it.
And Brian . Thank you to all of that I'll I'll go a little bit deeper here I'll I'll add onto the back end there.
We have a backlog review team internally, it's made up of deck our CLO.
J T Archer and then to a R E D P sand and and Dan roller and they meet every two weeks and they go through the.
The backlog on both sides, making sure that's a representative from Biz Dev Finance Ops, and then Corp. Dev on there so they're looking at and making sure. We're in regular communication with all clients, they're progressing there being invoiced and that's how we made the decision through that team to to pull out the one project that we did in Q.
Two.
The backlog is.
I wanted to continue to be a good strong indicator.
For future business for urban girl people should look at that backlog and an investor should say, hey look they have $79 million.
80% plus confidence.
Revenue coming in the future and that's why we intend it to be so we have to maintain the integrity of that as well.
Great. Thank you so much.
Thank you.
Again, if you have a question. Please press Star then one on.
Our next question comes from Thomas Mcgovern with Maxim Group. Please go ahead.
Hey, guys how are you doing.
Thanks for taking my question.
Firstly.
So firstly I just wanted to see if you guys can provide an update on your planned expansion in Europe last time, we spoke you know.
You discussed that you were monitoring, but there was a not quite as much visibility as we were hoping for at that time. Just wondering if you guys have a little bit more visibility going into the third quarter on that front.
Hey, Thomas Europe .
The market on the horticulture side, it's a it is.
It's very tight very tough right now still since one year later after the war broke out eastern Europe .
On the cannabis side, it's a little bit looser, but it's similar to the issues. We had at the state level here in the U S.
Germany for example, they had regulation.
When a against the EU and so they're trying to figure out their path and until those regulations are defined we won't invest aggressively in Germany, but we'll we'll sure make sure we're in regular contact with the D.
Existing growers and the potential operators in the country. So we are all operating right now in the Netherlands.
From a business standpoint.
Are there too that are that are active in increasing in terms of momentum for us, Portugal, and even South Africa.
So there's there's progress there if there is any progress on the vertical farming side.
Well still quarters away.
There is discussions ongoing discussions in the industry and the middle East and Sanya low our board member who has been the CEO of of other vertical farming companies in the past she's involved in playing a nice role for us there.
It's more biz Dev early stage, but definitely an opportunity in the future. So hey look overall Thomas I would've hoped we would have hoped that we would be breakeven in Europe by now we would've been stronger as far as top line Q2.
Of this year was the best quarter that Europe's experienced thus far but it is still in the hundreds of hundreds of thousands of dollars of revenue and hasn't hasn't crossed the million dollar mostly all designed no build at all at this point, but as it becomes material, we will absolutely talk more about it and we review.
Do it.
Every board meeting and every month as a leadership team internally.
Great opportunity cheering them on and hoping they can sign contracts and we can we can get those released.
Awesome I appreciate that that insight and then finally just on the backlog I know you mentioned in your prepared remarks that there were a number of contracts were up resigning just wondering if you could provide any additional color on when we might start to see some of those being signed is that something we can expect to kind of pick up in the third quarter.
Is it something that maybe you will have more impact in the fourth at in maybe early 2024.
So I would definitely expect the ones that are out for sunny would be signed.
This quarter, they're AIA contracts. So a lot of work goes into them into the contract some of them have M.
M O us tied to them, but we don't announce them publicly or count them as backlog.
Well, we a have an AI a contract or a purchase order from a client and on the E side, we have confidence in and a proof of funding.
So we will.
As we.
Progress down the path in Q3 and sign those contracts, we are going to announce them, where we're at in the past we've been very selective on what we announced and then Q3, we're going to be a little more better communicators with our investors on what was the what's going on.
Region, what market CA na and CA and the dollar value of the contract and the period of time.
Over which we expect the revenue to be recognized.
Understood. Thanks, again for taking my questions guys.
Thank you I appreciate it.
That is all the questions we have for today, please reach out to investors.
Hum dashed green Dot com with any additional questions. Thank you and have a nice evening.