Q3 2023 urban-gro Inc Earnings Call
Hello, and welcome to the urban growth 2023 third quarter earnings Conference call.
As a brief reminder, all participants are currently in a listen only mode.
If anyone requires operator assistance during the conference. Please press star zero on your telephone keypad. Following the presentation. There will be a question and answer session for those on the telephone 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 over to Dan to roller Investor Relations at urban growth.
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 <expletive> <unk> 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.
These items should not be utilized as a substitute for urban 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 the 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, we 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 gross current expectations actual results could differ materially.
As a result, you should not place undue reliance on any forward looking statements.
Some of the factors that could cause actual results to differ materially from these contemplated by such forward looking statements are discussed in the periodic reports urban girl 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 commissions Web site. 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 IR dot urban Dash G. R O dot com with that I'll now turn the call over to Brad.
Thank you Dan.
Good afternoon, everyone and thank you for joining us today.
Slightly over a year ago, we launched the diversification initiatives focused upon leveraging our professional services.
To efficiently seat and build out additional revenue streams for the company.
I'm excited to report that we continued to execute and gain momentum on this strategy as urban girl has evolved into a multi sector focused professional services consulting firm.
With more than 140 architects and interior designers engineers and construction managers project managers, Horticulturists and others on our team.
We have successfully extended our operating focus beyond our core controlled environment practice turned to clients across multiple sectors, including industrial commercial hospitality recreation education and healthcare.
In regards to our third quarter performance and consistent with expectations. We marked another sequential improvement in both revenues and adjusted EBITDA.
Revenue of $29 million, a sequential improvement of $2 1 million or 11% came very close to exceeding our all time quarterly high of $21 1 million reached in Q1 'twenty two.
The adjusted EBITDA loss was $1 $3 million, a sequential improvement of <unk> 7 million.
And while our significant revenues this quarter resulted in retiring 27% of our Q3 beginning backlog we.
We signed enough new contracts to drive our backlog entering the fourth quarter to 84, million% to 6% sequential increase.
Despite the ongoing headwinds within the CEO sectors. Our diversification strategy has served as a source of strength for the company.
Our team is now more efficiently adapt to the shifting environment and we continue to focus on optimizing the productivity of our professional services employees as we work towards a period of more mark to revenue acceleration.
Although we made some difficult decisions to right size, our staff earlier in the first half of the year, we feel comfortable at current levels given the demand that we see.
Now turning to print sector trends.
Sector diversification is most definitely assisted and insulate our business from the broader weakness, but the candidates in vertical farming segments are working through.
Although the CEO sector remains an important component of our future growth. Our success is no longer fully dependent on its success.
We've evolved into and are now regarded by our clients as a professional services consulting company that offers turnkey design build equipment integration solutions to multiple markets.
Consistent with the second quarter.
More than two thirds of our revenue this quarter was generating a bit sectors outside of CEO and.
It included a combination of new projects with both existing and new clients and continues to include top tier companies and some fortune 50 clients as well.
And the CEO sector, our equipment revenues continued to be compressed by the weak cannabis market.
During the first nine months of 'twenty three we have experienced a period over period decline of more than $20 million of 18% margin business.
Well it is impossible to ignore the negative impact that this has had on our financial performance. Our diversification has enabled us to keep our experienced team strong and intact and as a.
Salt when it.
Well positioned in the sector will be ready to handle the surge in demand when the cannabis market.
Yeah.
Being said in the interim we're still seeing steady activity and are expecting to continue to sign design build contracts and a variety of states.
For urban road today.
Apart from our candidate clients lack access to much needed capital.
The primary blocked more rapidly increasing our business in this market as.
It's one that we cannot control. However, it's also one that will continue to slowly dissipate.
There are a number of legalized states like New York, Alabama, and Georgia My others. For example that has paused the awarding of licenses due to regulatory and legal delays within their state.
We have a significant number of clients with projects in these states some of which have already completed design and we're confident they'll move forward into construction build stage, where these delays are resolved and licenses are received.
This is evidenced in the third quarter, where we had two such clients moved forward to construction and we'll continue to announce these successes as contracts are signed.
As it relates to our European entity, the size and quality of the company's European pipeline is the strongest it's been since opening the entity of June since June of 'twenty two.
While the cannabis markets continued to show Green shoots in multiple countries, our European business will still take time to sustainably scale its operations.
I was in Europe last week meeting with both clients and the team and I can assure you that they remain diligently focused on driving strong returns.
Now shifting to our guidance for the fourth quarter of 23.
Demonstrating our ongoing commitment to deliver sequential growth on both the top and bottom line.
We anticipate revenues to be approximately $30 million, which I'd add would be a new record for us by more than 40% can.
And we expect to realize breakeven to slightly positive adjusted EBITDA, which.
Which would mark an important ship shift back to positive cash flow and subsequently meeting our goal that we've been working hard to achieve this past year.
In closing the company continues to remain closely aligned with the interests of our shareholders.
In addition to the open market equity purchases made by myself and other directors in the second and third quarters totaling about one 5% of shares outstanding.
My leadership team demonstrating their demonstrated their commitment as well.
Led with a 50% commitment for my son's each executive Vice President an officer of the company voluntarily opted to take a stock grant in lieu of up to 50% of their base salary during the third quarter.
The key takeaways here.
First our board as well as our leadership team and their teams continue to strongly believe in the future of the company.
Second our diversity diversification strategy is working it continues to gain momentum and we have alignment on our goals across the organization.
And third we're doing everything in our power to maintain this positive momentum.
Thank you and with that I will now turn the call over to Dirk.
Thanks, Brad.
In the third quarter of 2023, we generated revenue of $29 million, which represents a sequential improvement of $2 $1 million or 11% over the $18 $8 million of revenue generated in the second quarter of 2023, and an $8 6 million or <unk>.
69% improvement over the $12 $4 million of revenue generated in the prior year period.
The increase in revenue over the prior year period was driven by $9 4 million dollar increase in organic growth of construction design build revenue, reflecting increases in the number of projects and average size of projects that we are working on in sectors outside of C. E O.
This increase was offset by a decrease in equipment systems revenue, which as Brad discussed earlier, we attribute to the ongoing softness in the cannabis sector.
Gross profit was $2 $9 million or 14% of revenue in the third quarter of 2023 compared to $2 $9 million or 15% of revenue in the second quarter of 2023, and $2 $6 million or 21% of revenue and the pre.
Our two year period.
The decrease in gross profit margin for both of these comparative periods was driven by the impact of rapid mix, where we experienced a substantial increase in lower margin construction design built revenue as well as a decrease in higher margin equipment systems Robyn.
Operating expenses were $6 million in the third quarter of 2023, which on a sequential basis as a decrease of zero point $8 million.
Operating expenses in the third quarter of 2023, or three $5 million less than the operating expenses of $9 5 million in the third quarter of 2022.
The prior year quarter included a one time business development expense up $3.3 million, but even excluding this one time expense operating expenses decreased <unk> $2 million on a year over year basis.
Both of these decreases are associated with the company's expense optimization and resource reallocation initiative.
Net operating expenses were zero point $3 million in the third quarter of 2023 compared to non operating expenses of $1.8 million in the prior year quarter.
Net loss was $3.4 million or a negative 0.29 cents per diluted share in the current quarter compared to a net loss of $8 7 million or a negative 0.81 cents per diluted.
<unk> share in the prior year period.
Adjusted EBITDA improved by zero point $7 million sequentially to negative $1 $3 million in the third quarter of 2023, which is an improvement of $1.0 million compared to the prior year period.
The sequential improvement in our adjusted EBITDA was driven by lower operating expenses as previously discussed.
For the first nine months of 2023, we reported total revenue up $56 5 million compared to $49.7 million in the first nine months of 2022.
Representing an increase of $6 $8 million or 14%.
Net loss was $14.0 million compared to a net loss of $11 $1 million.
And adjusted EBITDA was negative $6 8 million compared to negative $2 $2 million in the prior year comparable period.
This decrease in adjusted EBITDA was predominantly due to the combined impact of an increase in general and administrative expenses of $3 $2 million and a reduction in gross profit of $2 $4 million.
Turning to our balance sheet, we ended the third quarter with $4 $8 million of cash and no bank debt.
To support the strong performance of our construction operations.
Subsequent to September 30th we entered into a non dilutive asset based lending facility in order to better manage our working capital today.
To date the facility remains undrawn.
Our total backlog as of September 32023 was approximately $84 million, reflecting an increase of $5 million or 6% on a sequential basis and $17 million or 25% versus the prior year.
This backlog is comprised of $77 million in construction design build.
$5 million of professional services and $2 million of equipment systems contracts and we continue to be encouraged by the increasing number of sectors that make up our backlog.
As communicated on past calls our backlog remains a realistic.
Just the indication of our future business.
Supported by our increasing backlog and pipeline, we remain confident that our cash position combined with our asset base non dilutive lending facility will provide us the necessary flexibility to manage through the macroeconomic market circumstance.
We continue to remain focused on our execution and returning to positive adjusted EBITDA.
That concludes our prepared remarks, operator, please open the call for questions.
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First question is coming from Eric <unk> of Craig Hallum. Please go ahead.
Great. Thank you for taking my questions.
My first one is on the non dilutive asset backed facility certainly great to hear.
You guys get some.
Added balance sheet flexibility here could you just provide.
Some more details on whether that's the overall size of the facility and what assets are backed by just any more detail you can provide on that facility would be great. Thanks.
Thanks, Eric addicted to undertake that.
Sure Eric Yeah. It took the solely really backed by the receivables.
Primarily backed by the construction receivables we've seen a we've seen a large increase in that asset base for such that construction operations sector has really grown for us.
The facility, we entered into is for up to $8 million lending on that.
And then like I say its really its based on receivables base.
And then is that is that a.
Revolving facility, where you're able to sort of pay that down.
Needed or.
Yes.
It's not a term facility. So it is a kind of borrowers needed basis from the standpoint of.
What we do under that facility. So we will only incur interest as we have borrowing against that.
Alright, great.
We're looking at to support the growth expected here in the quarters ahead.
Okay.
Yeah, Matt.
It's great to hear and again.
Good to see that added flexibility.
My next question is just on G&A.
Nice to see.
These costs are coming down here, obviously, you guys are doing a good job kind of keeping a lid on that understood. There is.
Some some deferrals to our stock.
Stock based compensation over over cash.
How should we think of that G&A line, maybe excluding stock based comp.
Going forward.
You know, whether that's just kind of Q4 or sort of into 2024.
As the business.
Does ramp going forward is this something that we should see.
Should we see G&A sort of going up commensurate with with revenues are with gross profit or is this are these sort of more.
Permanent cost cuts that you've done I guess, if you could just provide some more color on.
On some of the cost cuts that you've made so far and how to think about going forward. Thanks.
Thanks, Eric I'll start then I'll turn it to you for the for the detail.
As I've communicated on past calls Eric we are acknowledged we're top end loaded when we made the acquisitions, we moved the leaders of those companies into senior EVP roles within the company.
One of the reasons, we made the acquisitions, we did was to hire that specific skill set or talent.
And so the.
The as we grow as we start to deliver $30 million to $50 million plus quarters. We don't we do not anticipate needing to add any more senior management EVP or higher so it'll be it'll be a nice evolution into the future we didn't want to cut into the muscle we cut earlier this year. So.
It was a.
Sacrifice that we were willing to make in order to maintain that.
The brainpower for future quarters, addictive and are jumping on the detail.
Yeah, Hi.
I'd add to that Erika that's kind of goes to our adjusted EBITDA reconciliation settled in the current year one of the items that we have included in G&A that we've talked about before is.
The growth we were seeing we felt it necessary to put it on a retention incentive program for 2023.
That will that will not be in place going forward, that's going to be a reduction for us going into 2024, but kind of reiterate with what Brad said, we really feel that with the staffing we have right now we can handle much.
Much more revenue than we have in place today on a quarterly basis, we're seeing the number of jobs. The jobs that we have b of a.
A much larger size dollar amount and we're able to handle that without really increasing the number of staffing that we have so even though the G&A will go up some.
Be anywhere near proportionate to the growth in the revenue we're going to see.
Alright, that's great to hear thank you for taking my questions.
Thank you. Thank you.
Thank you. The next question is coming from Brian <unk> of Roth Capital Partners. Please go ahead.
Thanks, Good afternoon.
I was a little bit deeper on that topic.
For the quarter, there were some deferrals where people were buying the regular salary. So I'm assuming that the fourth quarter that reverse unless that's been extended so just wondering if that's like for that line item kind of understand what's the incremental.
Quarter over quarter.
Yeah, Brian.
As you've indicated there was.
There was a reflect a reduction in G&A because of that.
Salary option taken as stocked by people there was a little bit of it in Q2 was primarily in Q3. So that that does mean, we're going to see a little bit of an increase in G&A in the fourth quarter I mean, just kind of clarify where we're not talking.
Millions of dollars here or anything because of what people did that.
Total was right around $200000 in terms of what people took as a.
A reduction of their salary and stock instead.
There is going to be an increase in G&A related to that but we're also going to see some other savings taking place in the fourth quarter. So basically keep our G&A. Although has projected right now slightly over where Q3 is not not significantly overpowered Q3, yes.
Great. Thank you so much for the additional color on that.
I just you know maybe the keys out, but I I just hadn't seen it yet so.
Wanted to.
Thinking about just like and markets as far as you know the backlog and where the end market.
Yeah.
Allocate the backlog from permit.
And market perspective between you know.
However, you wanted to do a health care versus.
Versus.
You know you name it but just some insights on how to think about the industries of the backlog.
Yeah.
Hello, Brian.
Brian, whereas our quarterly revenues more than two thirds.
We're <unk> our backlog still the majority of it more than two thirds is in the control arm in AG space.
We anticipate growth on both sides, but on the non CEO side. These contracts are typically shorter in length and when they sign they immediately.
One is to start executing on whether its design or more on the construction side. The CEO had contracts, especially now as we're focused on the projects that we are signing their larger in there more.
Extensive with design and build those can spread out.
Over six quarters, sometimes even as long as eight quarters.
Great. Okay. Thank you for that prepped for that for that car.
I'm kind of like.
Torn because I choose or your commentary about the 30 million in quarterly revenue and even 50 million optionality.
But into dose level. So I'm, assuming there is you see things that we don't see right as far as kind of that that optimism, but then if I just said so that's great on the positive side, but then if I look at just like that ramp sequentially third quarter, you know from the 21 million up to the.
Around $30 million for the fourth quarter. So you can't is there like how can we get comfort with that kind of you know.
Ramped in the fourth quarter.
Okay.
Understand Brian.
Lately on the question.
What we have insight into.
And haven't said anything on goes to kind of our sales funnel, which we don't talk about but we there is a lot. There are a lot of projects in the sales funnel getting ready to.
<unk> come to fruition that would be announced when those are when those are signed clearly a substantial amount of other revenue that we're talking about for the fourth quarter is going to be from a construction perspective, so as those larger projects get signed.
There's a lot of work that can be done on those projects upfront. So got completely understand from the question that you're asking that you might not necessarily see it in the backlog that we're reporting as of the end of September but with our insight into the funnel, we're highly confident that Rob.
There's going to be there.
And Brian I'll add to the back of it.
In this in the third quarter, we retired 27%.
Of our beginning backlog and so now looking at entering the fourth quarter with $84 million.
If we're able to maintain that proportion of of what we recognized in the quarter. It shows the the other side of what <expletive> was talking about in terms of.
The confidence level of where we're starting and then you add with Dick's discussing on what we're anticipating to top it off in order to hit the $30 million Martin.
Great Great and then are there any other things that are.
You know part of that that are just.
Details like.
Ohio approval.
For adult use things of that nature that are like that that you could point to as well.
Oh fantastic right for the for the industry another state legalized.
By the time, they get the regulations in place.
Looking at third quarter of 24, so for us it would be great. We were talking to clients ahead of time.
Would start hopefully to move forward and more serious discussions with us, but I would.
Touched on it a little bit earlier.
For us, we don't need the entire industry to turn around.
Of course, we're fully supportive and pulling for rescheduling and safe banking etcetera to pass but for us that we have.
A lot of clients in these states.
That just have regulatory delays and they are funded all they need is a license and the funding will be released and then they would move forward to the construction side. So.
[laughter] optimistic the states like New Jersey is rapidly opening up now hopefully our new York won't be too far behind and when they do open up when they award the licenses for us.
We can't guess because it could take a week or it could take three months, but.
As soon as they open up and we signed those contracts will definitely wanted to get them out and announce them for sure, but we don't have to wait for the overall industry turnaround to successfully generate significant revenues and profits.
Great great.
Sounds great.
I think that all I think that that's it for me.
Okay. Thank you very much appreciate it.
Next week.
Thank you. The next question is coming from Anthony Vendetti of Maxim Group. Please go ahead.
Hey, guys. This is Thomas on for Ann.
Anthony.
Thanks for taking my question. So start just kind of piggybacking on what you guys were just discussing you know you just mentioned that New Jersey is starting to open up in the cannabis sector and you're seeing some positive signs in New York I was just wondering you know now that we have a little bit more visibility off of last quarter do you guys see any potential inflection points in the cannabis market as a whole I know you.
You said that you don't need a full industry turnaround to start recognizing some revenue there, but just maybe if you could provide your industry insight in there and just how the market is starting to shape up I appreciate that.
Yeah.
Sure. Thanks, a lot thanks.
Thanks for the further question inflection point of course, the main one will be rescheduling and as I sit on the board of the National Canada's Roundtable.
And as most.
No. This is probably something that would take place in Q2 of next year remains very optimistic the industry needs something significant.
Like rescheduling for sure in terms of at a state level for us.
It could be.
Awarding new licenses in existing states like Florida for example.
It is new York moving forward at a more rapid speed and expanding the award of licenses to additional groups that are tied into specific segments.
New Jersey, when it opened up.
We have had a great.
We've made great progress at certain clients, but theres also another funding hurdle as well that these individual groups has to have to jump over to so hopefully something like a safe banking passing.
It was it was hopeful again like last year that that could happen by the end of the year. It's now most highly unlikely that it will happen that could spill into Q1 or Q2, but there's a lot of hurdles of course facing the industry, but for us. It's just releasing the licenses that are.
We're active in and already legal states and getting through those regulatory delays.
I wish we could forecast it better for sure but.
Its quite amazing how quickly they can they can pop up and how fast the clients want to move we had two in Q3.
And those are both projects that we had anticipated probably that would move forward a couple of quarters faster.
We had them in the schedule for Q4, Q1 and boom they they they move forward once those licenses were released so.
It's a it's a nice pleasant surprise when it happens for sure.
Understood I appreciate the color and then my next question is on the International front. So last quarter. You guys mentioned you had the highest top line and most of that had been driven by design you also discussed.
Germany was establishing some regulations, but it was taking some time that you were even looking at some opportunities in vertical farming in the middle East.
Being that you were just there last week. If you can provide us an update on how you guys are looking at the international market and kind of what to expect moving into 'twenty four that'd be appreciated.
I appreciate it as well thanks.
In the Middle East that's not a focus for US right now it wasn't initially when we opened that office, though we quickly decided just to focus in our backyard.
In and around the Netherlands, our offices right outside of.
Amsterdam.
When I was there last week met with clients in both the Canada side and then also the vertical farming side on vertical farming.
A strong focus on moving strawberries indoors.
Also had clients in the North American market, where we're having those same discussions of design building those facilities around moving a very production indoors.
From a Canada standpoint, the experiment that has been active in the Netherlands for over two years now it is moving for these client. These are these groups are being funded.
They're moving forward with the build out of their facilities.
That's nice to see because there was a long pause of about four or five quarters. So it's nice to see that start to move forward and it would be.
A good strong accomplishment that doesn't grow too to go to the next page past design with one of these entities as far as Germany similar to what I just mentioned on Ohio, It's just getting the regulations in place originally they were going to move forward facilities had to be built in country, but that went in.
Against the overall EU mandate and so nowadays toned it down or looking at more of a social club.
Phase one approach.
Fortunately for us.
Social hub approach, it's still requires.
The buildout of facilities, because hundreds of social club licenses can go together to build out a facility. So right now the Netherlands, the UK and in.
In Germany, our key I'd say the top three of countries, we're focused on right now.
Great I appreciate that and then if I could just ask one last quick question before hopping into Q2.
You guys mentioned last call that you guys were starting to look at potentially resuming some of your M&A activity in 2024, I'm just curious given given the macro market or if that's still something you're looking at and kind of just your general perspective on.
Returning to some of that that acquisition activity you guys have done historically I. Appreciate you guys, taking the time to take my questions.
Perfect. Thanks, right now, we're just focused on getting back to generating cash and growing within our own shell as I mentioned at the start we are top end loaded and so we have a lot of.
Room to grow with in and really be able to register good strong profitable quarters in the quarters ahead, a long run of course.
Other whether it's to access contracts or access a specific service area that we don't offer now that's something we want to look at but right now it's not even on the.
The near term plan for sure. It's a it's just getting back and maintaining positive cash flow.
Great. Thanks again.
Okay.
Thank you. The next question is coming from Eric better of FCC Research. Please go ahead.
Good afternoon.
Hi, Eric.
Hi.
To step back and talk a little bit about.
Your ability to win contracts outside of ebay.
What youre competing against a lot larger people and people who have done it for multiple years and with I guess you could argue certainly sometimes more resources how are you.
Are you winning those contracts and what gives you the confidence going forward that youll continue to win them and to get as you mentioned bigger contracts.
Great question, Eric in terms of winning additional contracts with current clients. We're doing it right. When we acquired the construction management firm. They were working with a large fortune 50 clients and doing a couple of small projects a year.
We're now doing multiple.
Projects.
And looking to expand that portfolio and the project sizes is 3% to six times larger so we're deliberate we're doing what we're doing we're walking the talk we're delivering on what we said we're going to do and we're delivering good strong service levels. We have set up a project management office internal.
We have onsite superintendents internal project managers, and our whole Biz Dev relationship team.
So we've put a lot of work into building out that go to market strategy when J T. Archer joined us as CLO, that's debt expertise and brainpower that he brought in we're all.
Also utilizing systems a lot more than we did in the past we've got a great call.
Client and vendor facing portal that allows clients to see real time, where their project stands where equipment.
But when equipment is arriving and what's needed.
Our outstanding items to complete so we're giving a good service level now of course, there's a lot of large multibillion dollar construction management companies.
We are sub debt to some of those companies. They do not they're not built to go after 10 20 million dollar projects theyre focusing on infrastructure projects.
And other large $1 billion plus projects, we found a really nice sweet spot at around $10 million to $30 million.
Where the turn key aspect doesn't really exist in the industry we signed.
He was a golfer actually.
Hospitality and recreation project in the South East.
And on that project.
They were thrilled to find out that they could they could procure all of the services in one full package.
From urban grow otherwise they were going to bring on their own site superintendent there, we're going to have to hire architecture and engineering on their own so that that was a really nice.
More one of awakening at least need to see that there's definitely a value in what we're offering.
But 15 times a year for the foreseeable three to five year future. So there's it's not always design build.
Our engineers, it's a 20 year company based in Houston, and a lot of relationships. They have a lot of skill sets are one as fire and safety for example that there no one floor and that specific southeast southwest region. So we're building on our strengths.
And doing a good job in delivering on what we commit to.
Great.
So a little more granular when you look at Q4 revenues do you still expect it to be about two thirds non CEO.
So for Q2 and Q3.
It's maintained that I would based upon our pipeline and whats expected to close and the backlog that we have I would expect it to stay at that level.
If we have if we continue to have good strong CEO a announcements this quarter like we started to see in Q3.
Let's say you could see that begin to.
Go more towards the 50 50, Mark in Q1 and Q2 next year.
As the cannabis facilities or the political farm facilities ramp up.
Great and.
Last question in terms of the equipment, obviously, you need more CEO to drive the equipment business.
Are there opportunities here given that.
Your purchase server equipment here and I'm, assuming that a lot of people are on the same issues you are CEO.
That the margins in equipment when they come back can be I guess in theory, a little bit stronger because the equipment.
He is right now are having problems selling their product.
Thank you.
Eric I would look at it is we can't get greedy when you look at the nine months performance, that's close to $4 million right and margins that we werent able to take advantage of this year I feel where we have relationships with dozens of manufacturers and I feel that we're well.
We're in a place to better serve our clients. If we have a cost plus markup. If we're working with them on the services. We're then moving forward to construction and then it goes to equipment, we wanted to be equipment agnostic and to do that we just have a set mark up in our contracts and then we work with.
So manufacturers and those manufacturers just are not in the U S. There were also in Europe as well.
Great. Thank you.
Definitely we definitely want to increase the equipment Eric I.
I think you asked on the last call. We have in Q3, we did successfully integrate our mechanicals or close to mechanical contract, we haven't shipped it yet but into a non CE a very large client. So it is a focus for us too.
Spread our forecast a larger web and then also sell into those other markets equipment systems too.
Yeah.
Great. Thank you.
Thank you.
Thank you. The next question is coming from Alex Ackman, a first Berlin. Please go ahead.
Hey, guys How's it going.
Thanks for taking my questions for.
For starters I'd like to circle back to your earlier comments about <unk>.
Keeping our team and Keith staff members in place. So that you have the capacity to handle much larger revenue going forward.
Was just wondering if you could share some insight as to what the inflection point might be in terms of revenue volume.
So that you guys can consistently generate a positive adjusted EBITDA with the current staffing and G&A cost structure.
I'll take that one.
Good question I think as we've indicated before we think we could still see a relatively substantial increase in the revenue with what the staffing that we have.
Sitting here today catalysts flagging that I would say I'm pretty comfortable that we can get up to it.
At least $40 million of quarterly revenue without having substantial.
Increases from a personnel standpoint, and again part of that is just we're just seeing an increase in the size of the jobs that we're doing especially on the construction side.
And then when the.
Cannabis equipment side does come back.
The ordering of that equipment doesn't take a lot of people.
So I kind of played around with our projections going forward and I, certainly think that $40 million of revenue even $45 million of revenue a quarter. It's just it's not going to require very many more fannie people for us.
And that was kind of the way we built the business. It just unfortunately with the falloff in cannabis, one, especially with the way it hurt equipment.
Just kind of a whack us from the standpoint of the bargain kind of statement.
With that downturn, but but when it comes back we really got put people in place to be able to handle things.
Okay.
I can do.
Oh and on the back there just a little bit I was all that onto the back there.
As our revenues increase we will add architects or engineers or site superintendents those will be the key rules to that that we continue to hire them.
Bringing operational expertise in certain areas will bring those individuals as well, but as far as the senior executive team EVEP and higher.
We don't anticipate.
Much need for that in the very near future for sure.
Okay just to continue along.
With this line of thinking that my question is more.
Assuming that the business mix remains as it is going forward for a while and keeping the staff that you have in place, whereas the point is it in revenues, where you can breakeven consistently at the adjusted EBITDA level is that 25 million 30 million $35 million or like <expletive> was talking about $40 million.
Is there a spot that you guys target.
Okay, we're breaking even here.
With the it all depends on that mix right. So.
That mix stays about what it is right now.
That's where our guidance.
Yes, that's where our guidance is L. S right now at approximately $30 million in revenue 30, Okay. Yeah, that's right and that's the only one.
Less than 10% of equipment in the quarter, so that that equipment changes you see some inflection points hit in the cannabis space.
Can that can decrease but our guidance is approximately $30 million of revenues and <unk>.
Breakeven to positive EBITDA.
There right now.
Okay. Okay. That's great and then if I may just one quick follow up.
Regarding the the.
The project had to take out of the backlog last quarter is there any update on that time.
Is that.
And when that might stop idling or if you might be able to put it back in at some point.
Yeah, we're still in discussions with that client I do not believe that that client will move forward, but they're working to sell their license and their facility. So we have.
Talk to a couple of perspective purchasers of that license. So they remain positive that that project can resume at some point in the future.
But perhaps it wont be with that specific client.
Okay.
Great Alright, guys. Thanks, a lot to have a good day out there.
Thank you very much else I think both.
Thank you Ted is all the questions. We have for today, please reach out to investors at urban gas grow dot com with any additional questions.
Thank you and have a nice evening.
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